Capitalization Rate Study for Centrally Assessed Properties Cap Rate Study.pdf · Capitalization Rate Study for Centrally Assessed Properties as of January 1st, 2018 Louisiana Tax

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

https://maps.google.com/?q=1051+North+3&entry=gmail&source=g


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


Executive Summary Capitalization Rate Study



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:


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




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




Capital Structure

http://www.finance.yahoo.com/

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


Company Name S & P Moody's



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




Cost of Equity - Beta Summary


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)




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




Cost of Equity - DCF

ELECTRIC INDUSTRY


Summary of Estimates

CAPM Ex Post 8.23%

CAPM Ex Ante 9.86%

DCF 9.20%

Estimated Ke = 9.10%

Page A-7




Cost of Equity - Summary

Exhibit B


Equity 69.00% 9.60% 6.62%

Debt 31.00% 4.10% 1.27%

100.00% 7.90%

SAY 7.90%



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%


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





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:



Page B-2

Exhibit BGAS DISTRIBUTION

Company Name




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



SAY 11.6 SAY 12.1

BBB- Baa3




SAY 4.60%

(S & P avg. = 4.07%)

Page C-3

PIPELINES - FLUID






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


Page B-4

Company

GAS DISTRIBUTION





Exhibit B


INPUTS









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%


Page B-5

GAS DISTRIBUTION



$3,626,739,000

Ke = Rf + (Km - Rf) * β + sp






Exhibit B


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%


Page B-6





GAS DISTRIBUTION

Exhibit B


CAPM Ex Post 9.05%

CAPM Ex Ante 10.68%

DCF 8.96%


Page B-7

GAS DISTRIBUTION





Exhibit C


Equity 61.00% 14.80% 9.03%

Debt 39.00% 4.60% 1.79%

100.00% 10.82%

SAY 10.80%



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%


Page C-1

PIPELINES - FLUID

SUMMARY

SUMMARY





Outstanding Shares12/29/2017


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:



Page C-2

Exhibit CPIPELINES - FLUID

Company Name




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


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


Page C-4

Company

PIPELINES - FLUID

Capitalization rate Study




Exhibit C


INPUTS









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%


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






Exhibit C


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%


Page C-6





PIPELINES - FLUID

Exhibit C


CAPM Ex Post 12.29%

CAPM Ex Ante 15.12%

DCF 17.10%


Page C-7

PIPELINES - FLUID





Exhibit D


Equity 60.00% 15.80% 9.48%

Debt 40.00% 4.70% 1.88%

100.00% 11.36%

SAY 11.40%



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%


Page D-1

PIPELINES - GAS

SUMMARY

SUMMARY







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:



Page D-2

Exhibit DPIPELINES - GAS

Company Name




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



SAY 11.7 SAY 11.9

BBB- Baa3




SAY 4.70%

(S & P avg. = 4.07%)

Page D-3

PIPELINES - GAS






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


Page D-4

Company

PIPELINES - GAS





Exhibit D


INPUTS









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%


Page D-5

PIPELINES - GAS



$20,706,560,088

Ke = Rf + (Km - Rf) * β + sp






Exhibit D


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%


Page D-6





PIPELINES - GAS

Exhibit D


CAPM Ex Post 13.11%

CAPM Ex Ante 16.30%

DCF 18.00%


Page D-7

PIPELINES - GAS





RAILROADS Exhibit E


Equity 82.00% 11.40% 9.35%

Debt 18.00% 4.10% 0.74%

100.00% 10.09%

SAY 10.10%



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%


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





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:



Page E-2

Capital Structure

Exhibit ERAILROADS





RAILROADS Exhibit E

CSX Corporation CSX BBB+ 10 Baa1 10

Norfolk Southern NSC BBB+ 10 Baa1 10

Union Pacific UNP A 8 A3 9



SAY 9.7 SAY 9.8

BBB+ Baa1




SAY 4.10%

(S & P avg. = 4.07%)

Page E-3






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


Page E-4





RAILROADS Exhibit E


INPUTS









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%


Page E-5



$49,163,537,200

Ke = Rf + (Km - Rf) * β + sp






RAILROADS Exhibit E


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%


Page E-6





RAILROADS Exhibit E


CAPM Ex Post 10.64%

CAPM Ex Ante 13.22%

DCF 10.40%


Page E-7





Exhibit F


Equity 32.00% 14.30% 4.58%

Debt 68.00% 4.30% 2.92%

100.00% 7.50%

SAY 7.50%



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%


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







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:



Page F-2

Exhibit FTELECOMMUNICATIONS

Company Name




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



SAY 10.75 SAY 14.50

BBB Ba3




SAY 4.30%

(S & P avg. = 4.07%)

Page F-3

TELECOMMUNICATIONS






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


Page F-4

Company

TELECOMMUNICATIONS





Exhibit F


INPUTS









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%


Page F-5

TELECOMMUNICATIONS



$5,015,850,800

Ke = Rf + (Km - Rf) * β + sp






Exhibit F


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


CAPM Ex Post 10.48%

CAPM Ex Ante 12.72%

DCF 19.60%


Page F-7

TELECOMMUNICATIONS





Exhibit G


Equity 83.00% 10.40% 8.63%

Debt 17.00% 4.00% 0.68%

100.00% 9.31%

SAY 9.30%



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%


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







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:



Page G-2

Exhibit GWATER COMPANIES

Company Name




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



SAY 7.63 SAY 8.00

A A2




SAY 4.00%

(S & P avg. = 4.07%)

Page G-3

WATER COMPANIES






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


Page G-4

Company

WATER COMPANIES





Exhibit G


INPUTS









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%


Page G-5

WATER COMPANIES



$1,388,134,097

Ke = Rf + (Km - Rf) * β + sp






Exhibit G


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%


Page G-6





WATER COMPANIES

Exhibit G


CAPM Ex Post 9.82%

CAPM Ex Ante 11.63%

DCF 9.70%


Page G-7

WATER COMPANIES





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



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



Average NA NA NA 3.739 3.739 NA 4.191 4.191 NA 6.356 6.356 NA 8.070 8.070


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



Average NA NA NA 3.683 3.683 3.911 4.066 4.504 NA 6.078 6.078 NA 6.851 6.851


20 Year Maturity NA NA NA 3.747 3.747 3.949 4.111 4.399 NA 6.278 6.278 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



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%



Average 4.08% 4.25% NA 4.37% NA NA 4.66% NA NA 6.50% NA NA 9.76% NA NA 13.93%





















Appendix CCapitalization Rate Study

Utilities

Industrials

Telecommunications



Cost of Debt - Capital IQ Bond Yields

All Corporates

Energy

Documents

Capitalization Rate Study for Centrally Assessed Properties Cap Rate Study.pdf · Capitalization Rate Study for Centrally Assessed Properties as of January 1st, 2018 Louisiana Tax