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CAROLINA POWER Ez LIGHT COMPANY
TESTIMONY REGARDING FAIR RATE OF RETURN
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DR. JOHN K. LANGUMECONOMIC CONSULTANT
CHICAGO, ILLINOIS
DECEMBER 1, 1976
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CAROLINA POWER L LIGHT COMPANY
TESTIMONY REGARDING FAIR RATE OF RETURN
1 Q. Will you state your name please?
A. Zohn K. Langum
Q. Where do you live?
A. I live at 477 Oakhill Road, Elgin, Illinois.
Q. What is your occupation?
A. I am an economic consultant with my offices located at 209
South LaSalle Street, Chicago, Illinois.
Q. Dr. Langum, I show you what has been marked Langum Exhibit
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No. 1 for identification, consisting of a cover page:andGB-:
pages and ask if the exhibit was prepared by you.
A. Yes, it was. Exhibit No. 1 is a statement of my qualifications.
Q. I show you what has been marked Langum Exhibit No. 2 for .
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. identification, consisting of a cover page, a table of contents,
and 93 pages and ask if the exhibit was prepared by you or under
your super vision and direction?
A. Yes, it was, except the pages which were taken from articles in
17 Mood 's Bond Surve, and Standard 4 Poor's The Fixed Income
18 Investor. I selected these articles for inclusion in the exhibit.
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Langum Exhibit No. 2 contains my studies leading to a judgment
as to a fair rate of return.
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Q. Are the figures and facts contained in these exhibits true and
correct to the best of your knowledge and belief?
A. Yes, they are.
Q. Dr. Langum, what is the scope of your studies and testimony
in these proceedings?
A..Carolina Power 4 Light Company requested me to make studies
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for the purpose of forming an opinion as to a fair and reasonable
rate of return applicable to its fair value rate base which it
should be afforded the opportunity to earn in its retail electric
utility business in North Carolina. In this connection I have
also formed an opinion as to a fair and reasonable rate of return
applicable to the corresponding depreciated original cost rate base.
13 By a fair and reasonable rate of return I mean a rate of
return which will enable Carolina Power 4 Light Company to attract
new capital on fair and reasonable terms, to assure confidence
in its financial integrity, to maintain its credit, and to.meet the
17 standard of commensurate return in'erms of fair value con-
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siderations. Determination of such a fair rate of return
involves first, determination of the cost of debt and the cost
of preferred stock; second, recognition of the interest-free
portion of capital; third, forming of a judgment as to a fair
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and reasonable earnings rate on the common equity; and finally,
the combination of such costs for these components of capital
in an appropriate capital structure.
Q. Now, Dr. Langum, turning to Page 1 of Exhibit 2, willyou
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A.
comment on the construction expenditures of Carolina Power h
. Light Company and how they have been financed?
Over the years Carolina Power 4 Light Company has made
substantial construction expenditures to expand and to improve
'ts electric facilities. As shown on Page 1 of Exhibit No. 2,
gross property additions reached record highs of $359. 0
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million in 1973 and $ 382, 6 million in 1974. Gross property
additions declined to $ 305. 5 million in 1975 and $252. 2 million
in the twelve months ended June 30, 1976. By far the pre-
dominant source of funds used for construction expenditures
has been external financing--sale of common stock, sale of
first mortgage bonds and other long-term debt, sale of preferred
stock, and at times net increase in short-term borrowings. As
18 indicated on Page 1, in the upper portion of the page, during the
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last five years, in total, external financing has comprised 83. 5
percent or more to'otal funds used for construction. The per-
centage of external financing rose as high as 91. 9 percent in
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1973. This is an extremely high ratio of external financing to
total funds used for construction.
Q. Are construction expenditures by Carolina Power Ez Light
Company expected to remain high during the years ahead?
5 A. Yes, indeed they are. Meeting growing customer needs under
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conditions of major inflation, and with adequate concern for
environmental considerations, necessitates high construction
expenditures. Even after major reductions in the Company's
construction program, gross property additions and nuclear
fuel additions less allowance for funds used during construction
are presently estimated at $287. 2 million for 1976 and $290. 9
million in 1977, with a marked rise in 1978, 1979, and 1980.
Subject to continuing review and adjustment, the total of such
construction expenditures are estimated at just under $2 billion
for the five-year period 1976-1980.
16 Q. Will these construction expenditures likely necessitate high and
17 rising amounts of external financing?
18 A. External financing willhave to be carried out in substantial amounts
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because of these record construction expenditures. External
financing is estimated to comprise a much smaller portion of
total funds used for construction expenditures during 1976-1978
than during 1971-1975. During these years, however, the
foundation must be laid in terms of earnings experience and
coverage ratios for the even greater financing demands later
in this decade.
CAPITALIZATIONAND CAPITALSTRUCTURE RATIO
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9 Q. What has happened to total capitalization of Carolina Power L
10 .Light Company as a result of the continued sale of securities
in the credit markets?
A. The capitalization of Carolina Power 4 Light Company over the
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years is shown on Page 3 of the exhibit. In the ten-year period
total capitalization increased from $405.5 million on December 31,
1965, to $ 2, 213..6 million on December 31, 1975 This represents
more than a five-fold increase in total capitalization over the decade.
]7 Q. Referring to Page 3 of the exhibit, what comprises the capitalization
18 of Carolina Power 8z Light Company?
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1 A. In terms of the balance sheet,.mome of the.,capital of Carolina
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Power 0 Light Company is debt, some is preferred and.preference
stock capital and some is common;equity. Totatde@tdjzcludes
long-term debt, first mortgage bonds and other long-term
debt, and short-term debt, notes payable to banks, commercial
paper, and other short-term debt. Short-term debt has been
included in the capitalization data on pages 3 through 5, so as
to assure adequacy of coverage and accuracy of comparison,
not only with respect to the bearing of the degree of leverage
on rate of return on common equity, but also in terms of the
degree of coverage of interest and preferred stock dividends.
Common equity includes common stock and retained earnings.
13 Q.. What has happened to Carolina Power L Light Company's capital
14 structure ratios as the common equity ratio hasdeclined'.
The capital structure ratios of Carolina Power 8z Light Company
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over the years are shown on Page 4 of the exhibit. Over the
years there has been a major decline, after years of stability„
in the common equity ratio, from 38. 80 percent on December 31,
1964, to a low ratio of 27. 39 percent on December 31, 1974. - The
debt ratio, and the preferred stock ratio in particular, mesc
coarse sponcUngiy.. Going the last three years, however,- the
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common equity ratio has risen from the'very low point it had
reached.
3 Q Please explain Page 5 of the Exhibit?
4 A. Capitalization and capital structure ratios for Carolina Power 8z
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Light Company are shown on Page 5 for June 30, 1976, and for
June 30, 1976 pro forma the sale of common stock in October 1976.
On June 30, 1976 the capital structure ratios of the Company
were: total debt, 51, 82 percent; preferred stock and preference
stock, 15. 06 percent; and common equity 33.12 percent. On
t'une 30, 1976 pro forma the sale of common stock in October 1976
the capital structure ratios are: total debt, 49. 23 percent;
preferred stock and preference stock, 14. 96 percent; and
. common equity ratio, 35. 81 percent.
14 Q Please explain Page 6 of the Exhibit?
15 A Capitalization and capital structure ratios for Carolina Power K..
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Light Company are shown on Page 6 as of June 30, 1976 pro
forma sale of common stock in October 1976, with the components
stated in terms of appropriate regulatory concepts. Long-term
debt is shown, with short-term debt retired. In accordance. with
the usual practices of this Commission, as I understand them,
interest-free capital has been included in total capitalization.
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This includes accumulated deferred income taxes and the deferred
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investment tax credit. The deferred job development investment
tax credit has been included in common equity. This was the
procedure followed by this Commission in the last two Orders
regarding Carolina Power Ez Light Company, It is my opinion
that it was the clear intent of the Congressional Conference
Committee in enactment of the job development credit that
it be included in common equity.
In terms of capitalization per books for total Company,
on June 30, 1976 pro forma the sale of common stock in
October 1976, the ratio of long-term debt to total capitalization
was 46. 39 percent; the preferred stock ratio and preference
stock was 14.10 percent, and the ratio of interest-free capital
ot total capitalization was 4. 55 percent. The common equity
ratio was 34. 96 pe rce nt.
Capitalization per fair value rate base for North Carolina
retail operations is shown later on Page 91. The common equity
increment in fair value rate base is included in common equity:
The common equity ratio rises to 43. 38 percent on this basis.
20 Q What capital structure ratios have you used in your determination 6f
21 a fair rate of return for Carolina Power Ez Light Company?
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A. The capital structure ratios which I have used in my study are
shown on Page 6 of Langum Exhibit No. 2.
For adjustment of earnings experience of comparison com-
panies as guide to test of commensurate return for Carolina
Power Er. Light Company, I have used a common equity ratio of
35. 81 percent, as developed on Page 5 of the Exhibit.
In my determination '6f fair rate of return on original
cost rate base, I have used the capital structure ratios in
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terms of regulatory concepts - long-term debt, 46. 39 percent,
preferred stock, 14.10 percent; interest-free capital, 4. 55.
percent; and common equity, 34. 96 percent.
I have used these capital structure ratios for several
reasons. First they are realistic, being based on the actual
situation of the company on June 30, 1976 pro forma sale of
common stock in October 1976, and under current plans for
financing and operation of the company, Second, they are
appropriate in my judgment within a range for Carolina Power Ez
Light Company in terms of the basic risks and uncertainties of
its business.
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Capital structure ratios are extremely important in a fair
rate of return study for two basic reasons. First they provide the
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weights to be applied to the cost rates for debt, preferred stock,
intere st-free capital, and common equity in obtaining components
of the overall cost of capital fair rate of return. Second, the
cost rates on the various types of capital willvary to some
extent with the capital structure ratios. Cost rates on debt will
rise to some extent with higher debt ratios, Beyond this, the
indicated rate of return on common equity which is fair and
reasonable will likewise vary to a considerable extent
with the common equity ratio. The lower the common
10 equity ratio, the higher will be the required rate of
return on common equity. Rate of return on common equity
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and the common equity ratio must be stated together and ex-
pressed side by side for meaningful measurement and inter-
pretation of earnings experience on common equity. For
these reasons, components of capitalization and the correspond-
ing capital structure ratios must be defined accurately and use d
with care.
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COST OF DEBT
Q. Referring to Page 8 of the exhibit, what was the imbedded cost
of debt to CarolinaPower h Light Company on June 30, 1976 pro
forma sale of common stock in October 1976?
A. On June 30, 1976 pro forma the sale of common stock in October
1976, the imbedded cost of total debt to Carolina Power Ez Light
Company was 7. 72 percent. This is the ratio of total interest
requirements and net amortizati~ $ 85, 339, 812, to total
10 debt outstanding, net, $1, 105, 361, 570.
Q Please explain Page 9 of Langum Exhibit No. 2?
A. Page 9 shows the yield levels in the credit and bond markets
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.in which Carolina Power Ez Light Company has financed during
recent years.
First mortgage bonds of CP4L are rated Baa by Moody's
and A by Standard 4 Poor's.
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A study of offering yields on all newly issued public utility
bonds rated by Moody's during the last several years is shown
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on Page 9 of the exhibit. On Page 10 I have shown the averages by
years from 1960 through 1975 and for January through October
1976, of Moody's Averages, computed and published monthly,
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of yields on newly issued long-term public utilitybonds rated Aaa,
Aa, A, and Baa and offered publicly. The changing conditions4
in the bond market are reflected in the annual averages of
offering yields on new debt issues. Average offering yields
on newly issued public utilitybonds were at the unprecedented
average level of 9. 19 percent on A-rated issues in 1970. The
average declined to 7. 93 percent in 1971 and to 7. 60 percent in
1972. During 1973, however, the average rose to 8. 05 percent,
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in 1974 went up further to 9. 75 percent, and in 1975 went up to
a new record average of 10. 22 percent, During Zanuary-
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October 1976 the average was lower, 9, 05 percent.
The averages for yields on Baa-rated newly issued long-
term public utilitybonds shown for 1974 on Page 9
correct but may be somewhat misleading. The 1974 average
for Baa-rated bonds, 9. 16 percent, is only for January-May
16 1974 and the average for A-rated bonds, 9. 75 percent, is for
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.january-December 1974. During the months of t'une 1974 through
Zune 1975 no long-term Baa-rated bonds could be marketed by any
electric utilitybecause of troubled conditions in the capital
markets, and if they could have been sold, the interest rate would
have been at least 2 percentage points higher than on the A-rated bonds.
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The tests of the market in current circumstances demand
that successful financing through first mortgage bonds by
utilities demand that they receive at least an A rating by
Moody's and Standard 4 Poor's. The institutional investors
who are the major purchasers of utilitybonds are simply not
interested in Baa- and BBB-rated bonds of utilities. In turn,
Aa- and AA-rated utilitybonds have strong advantages over
A-rated bonds. Quality counts heavily in these troubled capital
markets.
10 Q What is the cost of long-term debt. for Carolina Power h Light
Company?
12 A. The cost of long-term debt for Carolina Power Ez Light Company
13 is 7. 72 percent as shown on Page 11.
15 COST OF PREFERRED AND PREFERENCE STOCK
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17 Q, Going on to preferred and preference stock, what was the
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imbedded cost of preferred and preference stock to Carolina
Power 8: Light Company on June 30, 1976 pro forma sale
of common stock in October 1976?
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1 A. As shown on Page 12 of Langum Exhibit No, 2, the imbedded
cost of preferred and preference to CPhL on June 30, 1976
pro forma sale of common stock in October 1976, was 8. Ol
percent. This is the ratio of dividend requirements, $26, 925, 874,
to the amount outstanding of preferred and preference stock,
$336, 018, 400 on that date.
Q. What is the cost of preferred stock and preference stock for
Carolina Power 8z Light Company?
9 A. As shown on Page 13 of the exhibit, the cost of preferred stock
10 for Carolina Power 8c Light Company is 8. 01 percent.
12 FAIR RATE OF RETURN ON BOOK VALUE OF COMMON EQUITY
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15 Q. Now, Dr. Langum, taking up the matter of fair and reasonable
16 earnings .rate-. on the common equity of Carolina Power L Light17
Company, will you explain your approach to this determination?18 A. My approach in the determination of a fair and reasonable
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earnings rate on the common equity for Carolina Power 4 Light
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Company is presented in summary outline form on Page 14
of the Exhibit.
The criteria for fair rate of return are return commensurate
with the earnings experience of comparison companies; main-
tenance of credit and support of financial integrity; and attrac»
tion of capital - and on fair and reasonable terms.
These criteria have been stated in the leading decisions
of the United States Supreme Court.
The United States Supreme Court stated in the Bluefield
10 Case (1923):
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"A utility is entitled to such rates as willpermit it to
earn a return on the value of the property which it employs
for the convenience of the public equal to that generally
being made at the same time and in the same general
part of the country on investments in other business under-
takings which are attended by corresponding risks and
17 uncertainties... "
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(1943):
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"... By that standard the return to the equity owner should
be commensurate with the returns on investments on other
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enterprises having corresponding risk's. That return,
moreover, should be sufficient to assure confidence in
the financial integrity of the enterprise, so as to maintain
its credit and to attract capital."
Counsel for the Company has brought to my attention the
following statement in the North Carolina statute, that in fixing
rates for a public utility, the Commission shall, among other
requirements:
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"Fix such rate of return on the fair value of the property
as will enable the public utilityby sound management to
produce a fair profit for its stockholders, considering
changing economic conditions and other factors, as they
then exist, to maintain its facilities and services in
accordance with the reasonable requirements of its
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customers in the territory covered by its franchise,
and to compete in the market for capital funds on terms
which are reasonable and which are fair to its customers
18 and to its existing investors. "
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My approach to determination of fair rate of return on
common equity is a combination of commensurate return and
attraction of capital on fair and reasonable terms and maintenance
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of credit and support of financial integrity. It thus is based
upon all the established tests of fair rate of return.
In terms of commensurate return or comparable earnings, to
start with, a study has been made of the fair rate of return on
common equity allowed electric utilities by State Regulatory
Commissions and by the Federal Power Commission in rate
proceedings during 1975 and 1976 to date.
In terms of study of actual earnings experience on common equity,
selection of comparison companies has been in terms of basic concept,
with consideration given to business characteristics, investment
stature, similar approaches by regulatory commissions, and com-
parable accounting and ratemaking treatment. Emphasis has been
placed on the earnings experience on common equity of electric utilities
in fair value jurisdictions, used as comparison companies. The reason
for, this is that the fair and reasonable rate of return on book value of
common equity is to be used in the determination of a fair rate of return
for application to the rate base of Carolina Power h Light, which is on a
fair value basis. Consideration has been given to recent rate orders
by regulatory commissions. Consideration has been give'-to.thpnzxajbr:
upswing in rate of return on common equity which has been experiencedN
by unregulated enterprises in the American economy. Background
information has'been provided for all nonfinancial corporations with
qua'lity ranking of High Grade by Moody's
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By fair value jurisdictions, l mean those states which give
significant recognition to current prices in determination of
rate base. Opexating electric utilities in fair value jurisdictions
are the most comparable business undertakings and the closest
alternative investment opportunities to Carolina Power'-Ez'ight.
Measurement of earnings experience on common equity
has been in termsof rate of return on common equity and theI
corresponding common equity ratio. Common equity ratios,
of course, have critical importance. The quality of reported
earnings is significant too, with particular regard to the role
of allowance for funds used during construction.
The determination of a fair and reasonable earnings rate
on the common equity - the cost of common stock capital - is
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much more complex than that of the cost of debt capital or preferred
stock. There are fundamental differences between these types of
16 capital and the determination of their costs. Common stock
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investors are equity investors. They are not buying a bond or
preferred stock with fixed interest or dividend and limited risk.
Common stock investors are buying ownership in the business
enterprise, with the risks and opportunities which that necessarily
involves. This means that they expect earnings on their
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investment, and dividends from those earnings, and growth in
dividends and earnings.
In short, common stock investors require adequate earnings
potential for the future as an inducement to make the investment.
It follows that all the ultimate determinants of earnings power
on common equity are the basic considerations involved in the
cost of common stock capital.
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Then, too, crucial in importance, we must remember that
all 'of these matters for one company are ~ace'~$ 'ly ~shred'hx
terms of the'corresponding considerations in alternative investment
opportunities. Appraisal of equitims in the capital markets can
only be made on the basis of comparison.
In terms of attraction of capital on fair and reasonable
terms and maintenance of credit and support of financial integrity,
emphasis has been placed upon studies of market appraisal of
common stocks and common stock offering@=of:eleethicunMiMap,
and upon studies of first mortgage bond offersagg. to support ratings
of A by Moody's and A. by Standard 8z Poor's, and upon studies of
preferred stock offerings of electric utilities to support ratings oi "a"
by Moody's and A by Standard 4 Poor's, a minimum and
reasonable goal for ratings on the first mortgage bonds and
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preferred stock for Carolina Power 8: Light Company.
In summary, a fair and reasonable allowance on the
common equity of Carolina Power h Light should be deter-
mined in terms of the ratio of net income for common equity
to the value of common equity. I have measured the value
of common equity in terms of both book value and fair value.
It must meet the standard that the return on the common equity
investment should be commensurate with the return on
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common equity investments in other enterprises having
corresponding risks. It must thus measure up to, and meet,
the earnings experience on common equity in the closest
alternative investment opportunities, taking into account any
differences in risk and the common equity ratio. It must
provide for maintenance of credit and assure confidence in
financial integrity. It must provide for the attraction of
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capital - and on fair and reasonable terms.
The fair and reasonable earnings rate of~
'ommonequity for Carolina Power 4 Light must be stated and
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determined ultimately as a fair and reasonable rate of return on
the fair value of common equity to be used in the determination of
a fair rate of return for application to the fair value rate base of
Carolina Power 4 Light Company.
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Q. Dr. Langum, willyou now describe your study of earnings
experience 'on common equity of Carolina Power 4 Light Company?
3 A The earnings experience on common equity of Carolina Power Ez
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Light during the last decade is shown on Page 15 of the exhibit.
Rate of return on common equity, that is, net income for
common divided by average common equity, is shown first.
In 1974 the rate of return on common equity reached a low of
9. 56 percent. By the twelve months ended June 30, 1976, the
earnings rate on common had risen to 12. 44 percent.
The common equity ratio for Carolina Power 8z Light
was 29. 43 percent in 1974. The common equity ratio is average
common equity divided by average total capital. In the twelve
months ended June 30, 1976, the common equity ratio was 31, 18
14 per cent.
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Allowance for funds used during construction, now a part
of .other income and which enters into the determination of net
income for common, was 105. 84 percent of net income for
common in 1974. This ratio bears on the quality of reported
earnings for common equity. The ratio had declined to 62. 89
percent in the twelve months ended June 30, 1976,
These data on past earnings experience on common equity
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of Carolina Power Ec Light Company, of course, cannot be
used in any direct manner as a guide to a fair rate of return
on common equity for the Company. That would involve clearcut
circular reasoning.
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During the last three years, due in considerable part to the
understanding by this Commission of the hard realities of the
electric utilitybusiness and to the granting of rate increases,
the financial position of Carolina Power L Light Company has
improved greatly over the low point in 1974. But much remains
to be done to restore fully the financial strength of Carolina
Power Ez Light Company.
12 Q.. In this connection, Dr. Langum, willyou comment on the invest-
13 ment stature of Carolina Pow'er 0 Light Company?
A. Investment stature is an important criterion of comparability.
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Seven specific tests of inmstment stature in terms of ratings
and characteristics of securities were used in my studies of
this criterion.18 Page 16 of the Exhibit shows the results of th'e application
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of these seven tests to Carolina&ower 4 Light Company.
The first test is Moody's bond rating of senior debt or
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equivalent standing in terms of debt ratio iS a company is
privately-held. The first mortgage bonds of Carolina Power
8z Light have been downgraded to Baa by Moody's Investors
Service.
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The second test is Standard k Poor's bond quality
rating on senior debt. The first mortgage bonds of Carolina
Power 4 Light has been maintained at A by Standard 4 Poor's.
The third test is Moody's rating of preferred stock.
The preferred stock of Carolina Power L Light is rated "baa"
by Moody's.
The fourth test is Standard L Poor's quality rating of
preferred stock, The preferred stock of.Carolina Power 4
. Light is rated A by Standard 4 Poor's.
Q. Please discuss your fifths sixth, and seventh tests which have
t'o do, I believe, with common stock?
A. The fifth test of investment stature is Moody's basic investment
17 quality ratings as stated in Mood 's Handbook of Common Stocks.
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These quality ratings run from High Grade or High Quality, go on
down to Investment Grade, and then to Medium Grade, and to
Speculative. The common stock of Carolina Power k Light is
characterized by Moody's as "Medium Grade."
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The sixth test is earnings and dividend rankings for
common stocks by Standard 8: Poor's Corporation. Standard
h Poor's rankings of common stocks are designed to indicate,
by the use of symbols running from A+ to C, the relatives
stability and growth of earnings and relative stability and
growth of dividends. These rankings are published in the
Securit Owner's Stock Guide, The common stock of Carolina
Power Er Light is ranked A by Standard 4 Poor's Corporation.
The seventh test of prime investment stature is that of
dividend record. Carolina Power Ez Light has paid a dividend
on its common stock each year since 1937. The ability of a
company to maintain, through good and bad times, an unm-
terrupted flow of dividend payments to stockholders is a clear
14 indication of underlying strength and stability. Investment
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comparisons frequently list common stocks with a sustained
dividend record of 25 years or longer. Studies of the dividend
record have been made on the basis of data from Standard 4
Poor's Corporation published in the Securit Owner's Stock
Guide, end from Moody's Investors Service, Inc., published in
20'ood 's Public Utilit Manual.
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Q. Please explain your study of the fair rate of return on book
value of common equity allowed by regulatory commissions?
3 A. On page 17 of Langum Exhibit No. 2, is a chart showing the
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fair rate of return on book value of common equity allowed
in 39 major electric utility rate orders in original cost juris-
dictions by state public utility commissions and by the Federal
Power Commission during 1975 and 1976 thus far. As indicated
in the footnote, all 39 Orders define return as operating income
and exclude allowance for funds used during construction from
return. A listing of the 34 Orders by state utility commissions
included is on pages 18 and 19. A listing of the 5 Orders by the
Federal Power Commission used is on page 20.
The average rate of return on common equity derived from
operating income excluding allowance for funds used during con-
struction, allowed utilities by state regulatory commissions in
original cost jurisdictions and the Federal Power Commission has
averaged 13. 50 percent during 1975 and 1976. In making this study,
I have given due care to the exclusion of allowance for funds used
during construction from net income for common. The commissions
relied upon relate fair return, determined by combination of fair
rate of return and rate base, only to operating income.
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For example, as shown on page 19. the Public Service
Commission of Utah, Case No. 7167, decided March 4, 1976,
awarded Utah Power and Light Company a fair rate of return
on common equity of 16 percent, at a 37 percent common
equity ratio, with a rate of return on total capital of 10. 71
percent, with allowance for funds used during construction not
included in return. The State Corporation Commission of
Kansas in Docket No. 102, 560-U, d ecid ed February 26, 1975,
found for the Kansas Power and Light Company a fair and
reasonable rate of return on common equity of 13. 60 percent,
at a common equity ratio of 44.13 percent. The Kansas Com-
mission, in Docket No. 102,640-U decided July 14, 1975, found
for Kansas Gas and Electric Company a fair rate of return of
14. 85 percent on common equity with a common equity ratio of
30. 4 percent, making a component for common equity of 4. 51
percent. The State of New York Public Service Commission in
Opinion No. 76-8, regarding Rochester Gas and Electric Corpor-
ation, issued April 8, 1976, adopted a rate of return on common
equity of 13. 5 percent, with a common equity ratio of 38. 0 percent,
forming a weighted component of common equity of 5. 13 percent,
and, in addition, the Commission approved an additional return
«2 7
10
13
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17
18
allowance of 0. 32 percent for.attrition, making the fair rate
of return on common equity of 14. 34 percent. The Public
Service Commission of Wisconsin in Docket No. 6630-ER-1,
decided August 5, 1976, allowed Wisconsin Electric Power
Company a fair rate of return on common equity of 13. 00
percent at a common equity ratio of 38. 7 percent, making a
weighted component for common equity of 5. 03 percent, and,
in addition, awarded an attrition allowance which brought the
allowance on common equity to 14 percent. The Florida Public
Service Commission in Order No. 6681, decided May 21, 1975,
awarded Tampa Electric Company a fair and reasonable rate
of return on common equity of 14. 75 percent at a common equity
. ratio of 29.45 percent, including deferred income taxes and
customers deposits at 8. 27 percent of total capital. The Public
UtilityCommissioner of Oregon in Case UF3150, Order No.
75-704, dated August 13, 1975, awarded Pacific Power and Light
Company.a reasonable rate of return on common equity of 13. 50
percent at a common equity ratio of 34. 9 percent, making a
component for common equity of 4. 71 percent.
20 Even where the rate of return has been lower than 13.. 50 percent,
21 frequently this has been at a much higher common equity ratio
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than that which I have utilized for Carolina Power L-. Light
Company making for a component for common equity close
10
12
13
14
15
16
17
18
20
,21
to what I have used for Carolina Power 4 Light Company.
For example, the Public Utilities Commission of the State
of California in Decision 8492, issued September 16, 1975,
found for Pacific Gas and Electric Company a minimum
reasonable rate on equity of 12 percent at a common equity
ratio of 37. 74 percent, making a component for common
equity in rate of return in total capital of 4. 53 percent. By
comparison, the fair rate of return on common equity from
operations for Carolina Power 8z Light Company which I have
found of 14.25 percent at a 34. 96 percent common equity ratio
. makes for a component for common equity of 4. 98 percent.
Recent orders by the Federal Power Commission are listed
on page 20. It is well established, of course, that the Federal
Power Commission measures return only in terms of operating
income without inclusion of allowance for funds used during
construction. For example, in Docket Nos. E-8586 and E-8587
issued November 10, 1976, the Federal Power Commission found
for Public Service Company of Indiana a fair and reasonable
allowance on common equity of 13. 00 percent, at a common equity
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ratio of 36. 56 percent, which results when multiplied times
each other, in a weighted component for common equity of
4. 75 percent. In Opinion No. 761, dated April28, 1976, the
Federal Power Commission found an allowance on common
equity for Connecticut Light and Power Company of 12,25
10
percent on a common equity ratio of 35.40 percent. In
Opinion No. 768, dated July 7, 1976, the Federal Power Com-
mission found an allowance for common equity for Nevada Power
Company of 14. 00 percent at a common equity ratio of 29. 98
percent.
The administrative law judges in recent initial decisions
12
13
have similarly followed the course of the Commission's recentI
. decisions on rate of return. For example, the initial decision
14
15
16
17
18
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in Docket No. E-8911, dated October 18, 1976, regarding Gulf
Power Company, found a fair rate of return on common equity
of 13. 00 percent at a common equity ratio of 34.11 percent,
making a component of 4.43 percent. The initial decision of the
administrative law judge in Docket No. E-8851, dated October 22,
1976, regarding Alabama Power Company finds an allowance for
common equity of 12. 935 percent at a common equity ratio of
21 31.0 percent, forming a component of 4.01 percent.
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12
13
14
15
16
As shown at the bottom of page 17, for the 39 Orders in
original cost jurisdictions, the median is 13. 50 percent and
the average is 13.47 percent. With an excess of fair rate of
return on book value earned by electric utilities in fair value
jurisdictions even at only 0. 75 percent over than earned by
electric utilities in original cost jurisdictions, the record of
recent Orders in original cost jurisdictions support my judg-
ment of 14. 25 percent as the fair rate of return on book value
of common equity for Carolina Power Ez Light Company. As
a matter of fact, the average rate of return on book value of
common equity earned by the 39 electric utilities in fair value
jurisdictions, shown on the top line of page 28 of Langum Ex-
hibit No. 2, averaged l. 65 percent excess over that earned by
81 major electric utilities in original cost jurisdictions, through
the period 1963 through 1975. The averages of common equity
ratios for the groups of companies involved support these con-
17 clus ions.
18
20
21
Information on fair rate of return allowed by regulatory
commissions in fair value jurisdictions is shown on pages 2'I and
2la of Langum Exhibit No. 2. These data, from major Orders
during 1975 and 1976 by regulatory commissions in Arizona,
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Indiana, New Mexico, Ohio, and Pennsylvania, strongly support
the judgment which I make that 14.25 percent is the fair rate
of return on book value of common equity which Carolina Power 0
Light Company should be afforded the opportunity to earn.
«32»
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d etermination has been that the return on the common equity
of Carolina Power 4 Light should be commensurate with the
earnings experience of comparison companies drawn from
the major electric utilities in fair value jurisdictions. Are
these the electric utilities listed at the left on Pages 22 and 23?
A. Yes, they are. The electric utilities which I have studied are
10
13
16
17
18
listed at the left on Pages 22 and 23 of the exhibit. The 35
operating electric utilities listed at the left on pages 22 and 23
of the exhibit, by jurisdictions, comprise all major electric
utility companies in the United States, both those with publicly-
held common stock and the operating subsidiaries of holding
.companies, in fair value jurisdictions during 1974 and 1975.
Of these 35 operating electric utilities in fair value jurisdictions,
20 are without flow-through, as indicated by the asterisk. Of the
38 companies, 29 are in states other than Texas, and 10 are in Texas.
The four holding companies which own operating companies in fair
value jurisdictions are also listed on Page 23.
Q. Dr. Langum, you have stated that you have studied the earnings
20
21
experience of electric utilities in fair value jurisdictions as
a guide to commensurate return on the common equity of
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1 Q. Dr. Langum, you have stated that an additional basis of your
1
Carolina Power 4 Light. What is the basis for your character-
ization of various state jurisdictions as fair value or original
cost jurisdictrons?
4 A. In my characterization of various state jurisdictions as fair
10
value or original cost jurisdictions, I am expressing an
economic opinion, of course, and not a legal opinion, for I
am not a lawyer. The type of rate base used in a given utility
jurisdiction is, however, an essential and commonplace part
of financial analysis and investment decision. My judgment as
to the regulatory approaches used in these states has three
bases: first, the statutes, court decisions, and commission
12 orders in several of these states to which counsel for various
13
14
15
16
companies and public bodies have directed my attention and
special studies which I have made on the basis of these decisionsI
and orders; second, the analysis of methods of rate base deter-
mination generally applied given in the pamphlet, Federal and
17 State Commission Jurisdiction and Re ulation of Electric Gas,
18
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and Tele hone Utilities, 1973, prepared by the Federal Power
Commission, in cooperation with the National Association of
Regulatory UtilityCommissioners; and third, analyses of
regulation by state public utility commissions and representative
-34-
utility rate case decisions such as those prepared by Moody's
Investors Service, Inc., and published in Mood 's Public Utilit
Manual, 1967, pages a140-al41, al45-al51.
The electric utilities, including combination utilities, in
fair balue jurisdictions and with investment stature are the
most comparable business undertakings and present the closest
alternative investment opportunities to Carolina Power Ez Light.
10
12
13
15
16
17
18
I shall use their earnings experience on common equity in
application of the standard of commensurate return in deter-
mination of fair rate of return on common equity for Carolina
Power 4 Light Company.
The fair earnings rate of common equity for Caielina
Power 4 Light must be stated and determined in terms of the
earnings experience on common equity of other electric utilities
in fair value jurisdictions, for the reason that Carolina Power Sz
Light in its retail business in North Carolina, is regulated on
the basis of a fair value rate base. Then, too, use is made only
of companies with adequate investment stature.
20
Willyou now discuss the investment stature of the electric
21
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utilities listed at the left on Pages 22-23 of'the Exhibit?
2 A. These are the electric utilities in fair value jurisdictions,
10
12
both those with publicly-held common stock and the operating
subsidiaries of holding companies, including the Illinois
companies. The holding companies of the operating sub-
sidiaries are shown at the bottom on page 23. These
electric utilities in fair value jurisdictions generally
have investment stature, as shown on pages 22 and 23;. Their
senior debt is typically rated Aa and A by Moody's and AA and
A by Standard 4 Poor's. Their preferred stock is typically
rated "aa" and "a" by Moody's and AA and A by Standard L Poor's.
Their common stocks have typical investment quality references
13 from Moody's as High Grade or Investment Grade. Their
14
16
17
18
20
21
common stocks have typical earnings and dividend rankings by
Standard 4 Poor's of A, with some A+ and some A-. They typically
have a long, sustained dividend record, usually of at least 25
years. Some companies have been downgraded, however, to
less than investment stature, with Baa and BBB ratings on first
mortgage bonds and '!baa" and BBB ratings on preferred"-stock.
The companies with investment stature, however, are closely
comparable, even if on balance now definitely somewhat super'ior
-36-
R
in investment stature to that of .Carolina Power 4 Light
Company. They are very close alternative investment
opportunities to Carolina Power 8z Light.
The earnings experience on common equity of these
closely comparable business undertakings and close alter-
native investment opportunities is important for fair rate of
return on common equity. Investment stature is of direct
relevance to comparability because gradations of investment
quality designate degree of investment risk.
10
12
13'5
16
17
18
20
21
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Q. Dr. Langum, let us now go into the matter of earnings experience
on common equity of the comparison companies. Will you explain
your studies in this respect?
4 A. The earnings experierice on common equity during the years
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15
16
17
18
20
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of electric utilities in fair value jurisdictions is shown on Pages
24-28. These are the 34 electric utilities previous described,
with the addition of five companies from Alabama and Illinois,
which are no longer fair value jurisdictions. I have crossed
out the figures for those companies, although the figures are used
in the averages.
I shall make use of the earnings experience of certain of
these companies in determination of the fair rate of return on
.common equity of Carolina Power Ec Light. For each of the 39
companies for each year 1963 through 1975, the rate of return on
book value of common equity is shown, with the corresponding
common equity ratio shown just below,. For example, the data
in the lower right hand corner of Page 26 indicated that in 1975
West Penn Power Company earned a rate of return of 13. 34 percent
on common equity, with a 33. 39 percent common equity ratio.
Averages for these companies: are shown on Page 28.
Thus, in 1975 the 39 electric utilities in fair value jurisdictions,
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12
13
14
15
16
17
18
20
21
including the companies in Alabama and in Illinois, earned an
average of 12. 50 percent on common equity, with a 33. 19
percent common equity ratio. In )966 these 39 electric utilities
had earned 14. 82 percent on common equity, with a 38. 80 percent
common equity ratio.
The companies in fair value jurisdictions without flow-through
are designed by the asterisk. By without flow-through I
mean those companies and states in which the reductions in
current income taxes from liberalized depreciation and invest-
ment tax credit are offset by a charge for normalization or
amortization in the income statement and hence do not increase
reported operating income and net income for common by such
reductions in current income taxes.
Carolina Power 0 Light Company normalizes tax
deferrals from accelerated depreciation and amortizes
the investment tax credit to income over the service life
of the property. Accordingly, CP8zL is in the "without
flow-through" category.
In effect, the capitalization of those companies without
low-through is on an entirely different basis than those
companies with flow-through. Deferred credits for accumulated
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12
13
14
15
income taxes for companies without flow-through are signi=
ficantly higher in relation to common equity, of course, in
contrast to the situation for those companies with flow-through.
. In fact, utility companies without flow-through earn somewhat
more on common equity as ordinarily measured than do utility
companies with flow-through.
Electric utilities which normalize both liberalized
depreciation and investment tax credit, and are without flow-
through, are particularly relevant as comparison companies
in tests of commensurate rate of return. I shall give more
weight to their earnings experience on common equity than to
that of electric utilities on a flow-through basis. By the same
token, in my judgment, the accumulated credits for deferred
income taxes and unamortized investment tax credit, except
for the job development tax credit, should be considered as
interest-free capital in determining the rate base for Carolina
17 Power 4 Light Comp'any.
18 Q, Will you comment on the significance of the increased role of
allowance for funds used during construction?
20 A. 'llowance for funds used during construction in relation to
net income for common for the electric utilities in fair value
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10
jurisdictions is shown on Pages 29-30 of the Exhibit. For
example, the data in the lower right corner on page 29
indicate that for Toledo Edison Company in 1975 allowance
for funds used during construction was 72. 43 percent of
net income for common, As shown at the lower part of Page 35,
at the right, in 1975, on average, allowance for funds used
during construction was 35. 90 percent of net income for common
for the 39 companies in fair value jurisdictions, Allowance for
funds used during construction was formerly called interest
during construction
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13
15
16
17
18
The increased role of allowance for funds used during
construction has great significance, in my opinion, at least in
two respects. First, the increased role of allowance for
funds used during construction has substantially lessened the
quality of reported earnings for common equity. The allowance
for funds used during construction is entirely proper but is
essentially a bookkeeping adjustment. Earnings from allowance
for funds used during construction have an important defect,
namely, that there are no current cash revenues corresponding
20 to these earnings. The portion of net income for common21 derimd from return, that is, operating income, is far more
41
1
meaningful and stable than that portion derived from allowance
for funds used during construction.
Second, the increased role of allowance for funds used
during construction has vital significance for use of data fromcomparison companies, particularly for electric utilities in
determination of fair rate of return. We must consider net
income for common and rate of return on common equity in the
9 Q.
light of treatment of allowance for funds used during construction.
How willyou use the data on earnings experience on common
10 equity for the comparison companies in determination of fair
.rate of return on common equity for Carolina Power & Light?
12 A. The data on earnings experience on common equity for the
13 comparison companies are important. They represent but
14 a starting point, however, as the basis of determination of
15
16
17
18
fair rate of return on common equity for Carolina Pcnxcer.".8zcLight,
They must be given further analysis and proper interpretation
in the light of additional considerations. For one thing, the
earnings experience of the comparison companies must be
related to the breader matter of earnings experience of
20
21
companies generally in the American economy, with varying
conditions of real growth and inflation. In addition, the
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2
common equity ratio has vital significance in appraisal of
data concerning rate of return on common equity and adjust-
ments for differences in common equity ratio between Carolina
Power 0 Light and the comparison companies. Another con-
sideration which is very important is that only companies that
are healthy and successful should be used as comparison com-
7 panic s.
Q. Please discuss the broader matter'of earnings experience of
9
10
companies generally in the American economy, with varying
conditions of real growth and inflation?
A.. The difficulties which many electric utilities are experiencing'2
are related, of course, to developments in the American
economy.
14
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17
18
With major inflation, in particular, have come the high interest
rates shown on Pages 9 and 10 of the Exhibit. The effects of inflation
on operating expenses and on plant costs and on high interest rates
and preferred stock dividend yields. have been prime causes of
the sharp deterioration in the earnings experience of electric
utilities. Concurrently, the lower earnings experience on
20 common equity has meant lower coverage ratios on bonds and
21 preferred stock for electric utilties generally. Some electric
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utilities have been very hard hit and so much so that the
electric utility industry is, in effect, in deep depression.
This poses a serious problem of analysis, which I shall deal
with in my interpretation of the data on earnings experience
on common equity. This is the reason for exclusion of
certain companies from.use as comparison companies in test
of commensurate return, in which I use earnings data for
1971, 1972, 1973, 1974, and 1975.
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12
13
14
16
17
18
20
21
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1 Q. Willyou explain the significance of the common equity ratio
in appraisal of data concerning rate of return on common
equity?
4 A. The common equity ratio has vital significance in appraisal of
10
data concerning, rate of return on common equity. Data concerning
rate of return on common equity can be appraised meaningfully
only in terms of the corresponding common equity ratio.
For any business enterprise, the earnings rate on common
equity has three basic determinants. The first of these is the
overall rate of return on total capital. The second is the cost
13
of senior capital. The third is the common equity ratio, that
is, the ratio of the common equity to t>tal capital.Of these three factors, by far the most important is the
14
15
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17
rate of return on total capital. This is determined, of course,
by the relationship between sales and expenses and capital in
the business undertaking. Necessarily, the overall earnings
experience of the business enterprise is the most important
18
20
21
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determinant of earnings experience on common equity. In turn,
the influence of the overall rate of return on the rate of return
on common equity is influenced and modified by the cost of
senior capital and the common equity ratio.
The higher the rate of return on total capital, the higher will
be the rate of return on common equity, given the same common
equity ratio and the same cost of senior capital. The lower the
cost of senior capital, the higher will be the rate of return on
common equity, given the same rate of return on total capital
10 and the same common equity ratio. The lower the common
equity ratio', the higher will be th'e rate of return on common
12 equity, given the same rate of return on total capital and the
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15
16
17
18'0
21
same cost of senior capital, assuming as is usually the case
that the cost of senior'apital is below the rate of return on
total capital.
In these circumstances, the common equity ratio has great
significance in appraisal of earnings experience. Both the
common equity ratio and corresponding degree of financial
risk must be considered side by side with the percent earned
on common equity, that is, the ratio of earnings for common
to common equity. The reason for this is that with a given
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rate of return on total capital, the lower the ratio of common
equity to total capital, the higher necessarily should and will
be the ratio of earnings to book value of common equity. In
turn, the reason for this is that more senior capital, that is
more preferred stock and more debt, introduces more leverage
for the common stock equity.
Page 3l of the Exhibit presents an example of this relation-
10
12
13
ship. Comparison is=made of five companies, each with the same
rate of return on total capital, but with different common equity
ratios. Suppose that the relationship between sales and expenses
and capital in each of these business undertaking,s is such that on
the total capital invested of $ 1000, the total inconic earned is\
4*
$ 100. 00, and,the rate of return on total capital is 10. 00
percent.
16
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18
In Company A, there is no debt and no preferred stock.
In these circumstances, all of total apital invested is
common equity. The common equity ratio is 100 percent.
Allof income for capital goes to net income for common.
20
21
The rate of return on common equity, net income for common
divided by common equity, is 10.00 percent, the same as the
rate of return on total capital..
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4
In Company B, with $400 borrowed funds, the owner
has invested only:."-$600 of his own common equity money. In
this case, with total capital of $ 1,000 invested in the business,
the common equity ratio is 60 percent. The senior capital is
entirely debt. At a debt cost of 7. 5 percent, the interest
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18
charges would be 7. 5 percent of $ 400 or $ 30. 00. When this
interest on debt is deducted from the $100. 00 income for capital,
$ 70. 00 would be left for the owner's equity of $ 600. That would
be a rate of return on common equity, $ 70. 00 divided by $ 600,
or 11.67 percent<
In Company C, more is borrowed, say, a total of $ 600.
The owner would then have to put up $ 400 of his own equity
. capital. In this case, the common equity ratio, $ 400 divided
by $ 1,000 is 40 percent. With the interest at 7. 5 percent,
the interest on debt would be 7. 5 percent of $ 600 or $ 45.00.
When this is deducted from the $ 100. 00 total income, $ 55. 00
woul'd be left for the owner's common equity of $400. The
rate of return on common equity, $ 55. 00 divided'by $400,
would be 13. 75 percent.
20
21
In Company D, still more is borrowed, say, a total of
$ 700. The owner would then have to invest only $ 300 of his
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own<.common equity capital. In this case, the common equity
ratio, $ 300 divided by $ 1,000, is 30.0 percent. If the interest
rate is still 7. 5 percent, the interest on debt would be 7. 50
percent of,$ 700 or $ 52. 50. When this is deducted from the
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$ 100. 00 total income, $47. 50 would be left for the owner's
common equity of $ 300. The rate of return on common equity,
$ 47. 50 divided by $ 300, would be 15.83 percent.
In Company E, the interest rate has gone up to 8. 0
percent as a result of the higher debt ratio. Interest on debt
is now $ 56. 00, and net income for common is $ 44. 00. At the
common equity ratio of 30. 0 percent, the resultant rate of
return on common equity would be 14. 67 percent.
Thus, with the same overall rate of return on total
capital, 10. 00 percent, the rate of return on common equity
would go up from 10. 00 percent to 15. 83 percent, as the common
equity ratio went down from 100 percent to 30.0 percent. An
increase in the rate of return on common equity to 14. 67 percent
would come about even with the increase in debt costs which
might be exPected at a higher debt ratio.
20 But this, of course, also means more risk for the common
21 shareholder. The existence of more senior capital in the
49
capital structure, and hence more leverage, creates an
opportunity for higher earnings on the common equity if there
are favourable earnings for the Company overall. But jt also
4 accentuates the hazard of lower earnings for common equity
with an unfavourable rate of return on total capital, for the
interest on debt and dividends on preferred stock must be met
before there are any earnings for common equity.
In our example, suppose that the total income in Company
E were to drop 20 percent, from $ 100. 00 to $ 80. 00. The rate of
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14
return on total capital declines from 10. 00 percent to 8. 00 percent.
But the income for the owner of the business, with a common
equity ratio of 30. 0 percent and debt cost of 8. 0 percent would
be cut from $ 44 00 to $24'00 or be 45 percent. The rate of
return on common equity would drop from 14.67 percent to
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16
8. 00 percent. And if the situation deteriorated further, when
total income gets down to $44. 00 or a rate of return on total
17
18
capital of 4.40 percent, the earnings for the owner would be
nil. Beyond that, total income would fall short of meeting the
interest due and the owner would lose the business.
20 Thus, the common equity ratio is of vital significance in
21 appraising the earnings record on common equity of a given
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business undertaking and likewise in comparing rates of earnings
on book value among various enterprises. The rates of return
on common equity in two businesses of the same risk and un-
certainty can be directly compared only if their common equity
ratios are close or are the same. If their capital structures
are different, the fact must be considered and proper adjustments
mad'e in comparing the two rates of return on common equity.
8 Q. How can differences in common equity ratios be considered
10
in comparing rates of return on common equity among various
business enterprises with different common equity ratioS?
A Such differences in common equity ratios may be considered
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15
16
18
20
21
in various ways, depending on the degree of precision desired.
First, a judgment adjustment in general terms may be
made. In this connection, sometimes rate of return on total
capital is simply compared with rate of return on common equity.
Second, comparison may be made in terms of components for
common equity--the product of rate of return on common equity
and common equity ratio. This procedure does not give effect
to varying cost components for senior capital with varying capital
structures and is therefore incomplete. Comparison of components
for common equity does, however, reflect the combination of rate
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of return on common equity and common equity ratio.
Third, proper adjustments for differences in common equity
ratio n>ay be made in precise terms under specified assumptions.
Rate of return on common equity at * given common-equity
ratio may be restated in terms of another corn'mon equity ratio.
7'his is precisely analagous to restating a distance measured as
7 yards into the equivalent of 21 feet.
Q. Dr. Langum, you have made the statement that if the capital
10
structure ratios are different among various business under-
takings, that fact must be considered and proper adjustments
made in comparing the rates of return on common equity. Will
you explain how such an adjustment can be made?
A.. The method of such an adjustment of rate of return on common
14
15
equity for a different common equity ratio is shown on page 3Z
of the Exhibit.
Q. Please explain page 32?
A. The method of such an adjustment o'f rate of return on common
18 equity for a different common equity ratio, in precise terms
Z0
under specified assumptions, is shown on page 32 of the Exhibit.I
On page 32 the method of adjustment for different common
equity ratio is shown as applied to the earnings experience in
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1974 of Public Service Indiana, one of the electric utilities
in fair value jurisdictions. Reference to page 25 of the
Exhibit indicates that in 1974 Public Service Indiana earned
14. 42 percent on common equity, with a 37. 82 percent com-
mon equity ratio. On this basis, the component for common
equity in"the average overall rate of return for this company
in 1974 would be 14. 42 percent times . 3782 or 5.454 percent.
At a 35. 81percent common equity, the, figure which I am
using for Carolina Power E: Light, there would be less com-
10 mon equity, and more debt, a change of .0>01 percentage
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13
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15
16
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18
points. At an interest rate of 5. 90 percent--the actual imbedded
interest rate on average total debt for 'Public Service Indiana
.in 1974-- this would mean, in terms of the components for
overall rate of return, 0.119 percent more interest and less
earnings for common equity.
The. resultant component for common equity at a 35. 81
percent common equity ratio would 'be 5. 335 percent. The
resultant rate of return on common equity at a common equity
20
21
ratio of 35. 81 percent would be 14. 90 percent.
Public Service Indiana in 1974 earned 14. 42 percent
on common equity at a common equity ratib of 37. 82 percent.
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Assuming for Public Service Indiana the same rate of return
on total capital and the same rate of interest on total debt, as
it actually experienced, this was the equivalent of 14. 90
percent at a common equity ratio of 35. 81percent. Again,
this is precisely analagous to restating a distance measured
as 7 yards into the equivalent of 21. feet.
A common equity ratio of 35. 8lpercent is what I am
using in my study of fair rate of return for Caaolina Power
4 Light, analysis of earnings experience of comparison
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13
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15
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17
companies, as was shown on page 7 of the Exhibit. In
the example on page 32, I have adjusted the actual earnings
experience of Public Service Indiana to the equivalent at a
. 35. 81percent common equity ratio. The indication from the
earnings experience on common equity in 1974, Public Service
Indiana, is that Carolina Power 4 Light Company should be
afforded the opportunity to earn about 14. 90 percent on common
equity at its common equity ratio of 35.81 percent. Earnings
18 rates of the comparison companies must be stated in terms
20
21
of that common equity ratio for accurate comparison and
meaningful application to Carolina Power 4 Light Company.
On pages 33-34 of the Exhibit, the rate of return on
-54-
c'ommon equity is shown, as adjusted to the 35.81 percent
common equity ratio for Carolina Power 4 Light for the
operating electric utilities in fair value jurisdictions. For
example, the rate of return on common equity, adjusted to
35B1 percent common equity ratio, for Public Service Indiana-r
14. 90 percent in 1974 - is shown at the right on page 33 of the
Exhibit. Allof the data on rate of return on common equity
Q. Dr. Langum, to what factors other than differences in common
10
equity ratios have you given consideration in application of the
earnings data for electric utilities in fair value jurisdictions in
forming a judgment as to fair rate of return for Carolina Power L Light?
12 In application of earnings data for electric utilities in fair value
13 jurisdictions in forming a judgment as to fair rate of return
14
16
17
18
20
21,
for Carolina Power .Ez Light, c'ousiderati'on.has been> given as~~Rl
to the general economic health, so to speak, of the companies.
It is extremely important in using the earnings experience on
common equity of other comparable utilities as a guide to fair
rate of return for Car&jza:Power Ez Light that only:e~pames
that are healthy and successful be used as comparison. companies.
Carolina Power 8z. Light is entitled to have'its -fair.rate of return
determined so as to be commensurate with the returns of other
l
electric utilities, otherwise comparable, that are healthy and
successful. Its f"ir rate of return should not be determined so
as to be commensurate with the returns of other electric utilities
that are sick and unsuccessful, or at the other extreme, that are
earning excessive and unduly high returns.
6 Q. In this connection, please explain Pages 35-38 of the Exhibit?
7 A. Carolina Power 4 Light should be afforded the opportunity of
8 earning a rate of return commensurate with that earned by healthy,
10
12
13
14
15
16
successful companies rather than financially sick and unsuccessful
companies. Accordingly, I have excluded certain companies from
use as co'mparison companies in the test of commensurate rate of
return. The companies so excluded from use as comparison
companies and the reasons for my judgment are shown on
Pages 35-38 of the Exhibit.
Exclusion has been for 1971 alone, 1972 alone, 1973 alone,
'1974 alone, 1975 alone or the five years 1971 through 1975. Companies have
17 been so excluded from use as comparison companies on the basis
18
20
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of definite criteria; if allowance for funds used during construction
was 50 percent or more of net income for common; if the company
has inadequate investment stature, that is, less than A ratings
on first mortgage bonds and preferred stock; if the company
-56-
encountered serious difficulties in financing because of inadequate
coverage ratios; and if rate of return on common equity is
significantly below that permitted by the company's regulatory
authority. Carolina Power 4 Light is excluded, of course, hs
the subject company in this proceeding.
These data on individual companies, such as shown on
10
12
Pages 35-38 are very important, for they enabled me to make
sure that I was not relying upon what might be called problem
companies, or companies which are clearly not earning a fair
return, or companies which are not being able to finance
adequately or properly, as a guide to fair rate of return for
Carolina Power 4 Light Company,
13 Q . Please explain Pages 39-40 of the Exhibit?
14 A. The earnings experience on common equity of certain of the
16
17
18
20
21
electric utilities in fair value jurisdictions during recent years,
that is, 1971, 1972, 1973, 1974, and 1975, is shown on Pages 39-40,
as on Pages 33 and 34. Rate of return on common equity has been
adjusted to the 35. 8) percent common equity ratio which I am
using in forming my judgment as to fair rate of return for
Carolina Power Ez Light.
On pages 39 and 40, however, the data on rate of return on
-57-
common equity have been crossed out for the companies in
fair value jurisdictions excluded from use as comparison
companies in test of commensurate rate of return. Earnings
experience on common equity is shown at the right on Pages
39-40 for the companies in fair value jurisdictions used as
comparison companies, not crossed out, in test of commensurate
return.
10
12
13
14
16
17
18
20
21
Averages for the companies used as comparison companies
in test of commensurate return are shown on the bottom line
on Page 40 of the Exhibit. Separate averages are shown for
comparison companies in Texas and for comparison companies
in jurisdictions other than Texas because there is no state
commission regulation of electric utilities in Texas. In Texas,
there is a strong fair value Supreme Court decision--the Alvin
case--and varying degrees of regulation by the major cities.
Rate of return on common equity, adjusted to the 35. 81 percent
common equity ratio, for the electric utilities in all fair value
jurisdictions as comparison companies in test of commensuratet
return averaged 14. 87 percent in 1971, 15. 30 percent in 1972,
15. 23 percent in 1973, 15. 24.percent in 1974; and 14. 78 percent
in 1975.
I
These figures have been computed from net income for
common which includes allowance for funds used during con-
struction. Consideration must be given to the exclusion of
allowance for funds used during construction in determinationP
and computation of rate of return on common equity from
6 operations.
7 Q What is the indicated fair rate of return on common equity on
the basis of the test of commensurate return?
A. Rate of return on common equity adjusted to 35. 81 percent
10 common equity ratio, and allowance for funds used during
12
13
14
15
16
17
construction as percent of net income for common is shown
on Page 41 of the Exhibit for the operating electric utilities in
fair value jurisdictions used as comparison companies in test
of commensurate return. As shown on Page 50, this study
indicates a fair rate of return on common equity of 14. 25
percent at 35. 81 percent common equity ratio, or at 34. 96
percent common equity ratio, using the regulatory definitions
18 of capitalization, giving consideration to the exclusion of allowance
for funds used during construction.
20 Q Will you now comment on your study of developments in the21 American economy and the recent upswing in the earnings
-59-
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rate on common equity for unregulated companies 7
A. The record of changing economic conditions in the American
economy, for 1946 through 1975 and the first half of 1976, is
shown on Page 42 of the Exhibit in terms of real growth and
inflation in the American economy.
10
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13
14
15
17
18
20.
Zl
The record of real growth and inflation in the American
economy is shown for the post World War II period, from 1946
through 1975 and the first half of 1976 in terms of percentage changes
ye ar - to- year.
Real growth is shown in terms of gross national product stated
in constant dollars. Real growth over the years has been substantial.
Recessions occurred in 1949, 1954, 1958, 1961, 1970, and moreN
recently in 1974 and 1975. Real output in calendar year 1974
was down l. 7 percent from calendar year 1973 and in 1975 was
down l. 8 percent from 1974. In recovery and expansion,
however, real output rose at an annual rate of 4. 5 percent the
second quarter of 1976.
Similarly, referring to the last column at the right, on
Page 42 of the Exhibit, total real disposable personal income
declined in 1974, the first year-to-year decline in a quarter
of a century. It rose in 1975 and in 1976.
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I
The record of inflation is shown in the middle columns.
Inflation has continued and accelerated. The price indexes
for calendar year 1974 ended up at 10 percent and more over
1973 - a two-digit degree of inflation. Since then, inflation has
continued but at a lower rate.
Unregulated companies have experienced a major upswing
in rate of return on common equity, since the current recovery
began in the first quarter of 1975, as shown on,Page 43. For
all manufacturing companies, the rate of return on equity in
10 the second quarter of 1976 of 15. 70 percent, at an equity ratio
of 70, 50 percent, exceeded the rate of return on equity in any
13
previous post World War II year. The rate of return on common
equity earned by industrial companies with quality rating of
14 .
15
16
17
High Grade by Moody's was 16. 90 percent at a common equity ratio
of 77. 66 percent in 1975. Their earnings rate rose to about
20 percent on common equity in the second quarter of 1976
at a common equity ration of 78 per'cent.
18
20
21
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l
Q. Please explain the study of industrial companies you have
shown on pages 44«48 of the Exhibit?
3 A. Another study of earnings experience on common equity is shown
on pages 44~48 of the Exhibit. Rate of return on common equity
and common equity ratio is shown on pages 44-48 of the Exhibit
for the 54 industrial companies with quality ranking of High
Grade by Moody's. In terms of the averages, shown on page
48 the 13 oil companies on the list have been shown separately
because of current attention to their marked step-up in earnings,
10 in connection with the energy crisis. The other 41 companies
12
13
14
also experienced a marked improvement in earning power in
1973 and 1974 as compared with 1972. These companies earned
18. 29 percent on common equity in 1973, with a common equity
ratio of 79.43 percent. Their rate of return on common equity
15 averaged )6. 65 percent in 1974, with a common equity ratio
16
17
18
of 78.14 percent. The general tendency for a corporate profit
squeeze from 1965 to 1972 had affected these companies. These
companies, also, have seen a change to a lower common
equity ratio over recent years.
ZO
21
Rate of return on common. equity was down somewhat in 1975,
but with much better quality of earnings. The average rate of return
on common equity is estimated at 20 percent in the second quarter of 1976.
Il
ig
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4
1 Q. What are the reasons in particular, for studying unregulated
companies, such as the industrial companies rated "High
Grade" by Moody's?
4 A. In my opinion, there are three basic reasons for giving con-
sideration as background information to the rate of return earned
6 by comparable unregulated companies, such as the industrial
companies rated "High Grade!'y Moody's.. Throughout, in this
10
consideration, we must give adequate weight to the major
differences in degree of risk, all factors considered, between
even the most comparable unregulated companies and regulated
utilities.
First, public utilities must compete in thc capital markets
13
14
not only against other regulated enterprises but against unregulated
busincsscs as well. Hence, thc return to capital in such nonregulatcd
15
16
17
enterprises is particularly significant and rclcvant.
The realities of competition by business firms in the capital
18
markets and scope and variety of investor choice necessitate con-
sideration of an equally wide range of alternative investment oppor-
tunities. Accordingly, a fair rate of return for a given company under
consideration must enable that company to compete for debt capital
and common stock. capital alike on fair and reasonable terms with
the full scope. of alterna:ivc investment opportunities.
A second consideration has to do with the very reason and
inherent occasion for regulation. Regulation is the substitute
for competition -- the combination of market forces and market
10 power which would determine services and set rates in other
circumstances -- for business undertakings in areas where they
12
13
14
15
16
17
18
20
21
cannot be allowed to compete. Operating characteristics
necessitate generally that utilities operate under franchises and
that they do not engage in specific competition in regard to their
services and are therefore regulated to assure fair and reasonable
rates for services of good quality. It likewise follows that fair
regulation will set rates for public utilities which willprovide a
return related to that being earned by other enterprises of
comparable nature in respects other than that they are regulated
in the price they charge.
The third reason is the necessity of getting outside the circle
-64
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of regulatory experience. An adequate test of comparable earnings
must necessarily involve consideration of nonregulated enterprises
in addition to that of other utilities'. As an approximation and
initial step in a test of comparable earnings in determination of
f'air rate of return for a given utility enterprise, we must look
at the earnings experience of other public utilities. These are
10
12
13
14
among the closest of other comparable business undertakings.
But ifwe look only at other regulated utilities in a test of com-
parable earnings, to some extent, we go around in a circle.
Under such procedure, the return to the subject utilitywould be
guided by other regulatory experience rather than by the funda-
mental concept of regulation as the substitute for competition.
Only by consideration of unregulated companies do we take the
ultimate and final sWps in a test of comparable earnings,
Q. Please explain your study shown on page 49 of the Exhibits
A. On page 4P of the ~ibit, I have shown a study of earnings
17
18
experience on common equity of the 39 Operating electric utilities
in fair value jurisdictions used as comparison companies in
20
21
relation to that of the 41 industrial companies, excluding oil
companies, with quality ranking of XRgh Grade by Moody's.
Rate of return on common equity, common equity ratio, and
the corresponding component for common equity for the 41
industrial companies has been shown in the middle on page 49.
Rate of return on common equity and common equity ratio
for the 39 operating electric utilities in fair value jurisdictions
on average is shown at the upper left on page 49'hese data
were shown previously on page 28, The component for common
equity in rate of return on total capital has been computed by
multiplying rate of return on common equity by common equity
ratio.
10
12 .
13
14
15
16
17
18
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21
The record of earnings experience on common
equity of the 39 electric utilities in fair value jur'isdictions
during recent years in terms of averages for this broad
group is quite clear. From 1963 through 1966, earnings
improved, with higher rate of return on common equity
at a somewhat higher common equity ratio, .and with
little role of allowance for funds used during construction.
The component for common equity-rose from 5, ZN-percent
in 1963 to 5. 750 percent in 1966. From 1967 through 1970,
earnings declined, with lower rate of return on common equity,
at lower common equity ratio, and with increased role of
allowance for funds used during construction. The component
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for common equity declined from '5. 750 percent in 1966 to
4. 8', percent in 1970. In 1971, 1972, 1973, and 1974 earnings
deteriorated sharply, with much lower rate of return on common
equity, at even lower common equity ratio, and with poor quality
of earnings because of the major role of allowance for funds
used during construction. The component for common equity
10
13
14
15
16
17
18
20
21
declined from 4. 856 percent in 1970 to 3, 936 percent in 1974.
Rate of return improved in 1975. The component for
common equity rose from 3. 936 percent in 1974 to 4. 149 percent
in 1975.
Earnings experience on common equity of the 39 operating
electrics in fair value jurisdictions used as comparison com-
~ panies is next related, on page 49, to earnings expexience on
common equity of industrial companies with quality ranking of
High Grade by Moody's. There are the same 41 industrial com-
panies previously considered on pages 44-48 of the Exhibit, with
averages shown on the bottom lines'f page 48.
For each group for each year, I have computed the
component for common equity. The component for common
equity is, of course, the product of rate of return on common
equity and the corresponding common equity ratio. Thus the
-67-
common equity component provides an overall measure of
earnings experience on common equity. Then I have shown the
component for common equity of the above 39 operating electric
utilities in fair value jurisdictions used as comparison companies
as percent of the component for common equity of the above 41
High Grade industrial companies.
The data in the lower part of page 49 relate the earnings
experience of the 39 operating electric utilities in fair value
10
12
jurisdictions to that of the 41 High Grade industrial companies.
The component for common equity of the 39; comparison companies
is shown as percent of component for common equity of the 41t
High Grade industrials. The components have been in a fairly
13 consistent relationship to each other.
14 During the years 1967 through 1970, the component for
15
16
common equity for the electric utilities as percent of the component
for common equity for the industrials ranged from 37 90 percent
17 to 35. 69 percent. During the years 1971, and 1972; the relationship
18s ~
was 36. 24 percent and 33. 49 percent. During the years 1973
20
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and 1974, when industrial earnings rose to high. levels, largely
as a result of inventory profits, and earnings of many electric
utilities collapsed, the relationship was 31. 98 percent and 28. 74
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5
1
10
12
13
14
15
16
17
18
20
percent. The ratio was 31. 61 percent in 1975.
The study next relates the indicated fair rate of return
on common equity, 14. 25 percent, at the 35. 81 percent common
equity ratio, which I am using for Carolina Power 8: Light, and
the resulting component for common equity of 5.103 percent to
the components for common equity for the High Grade industrials.
This is shown at the right on page 49 of the Exhibit. The relation-
ship of the components was '31. 09 percent in 1966, 35.24 percent
in 1973, 32. 71 percent in the second quarter of 1976, of the
corresponding components for common equity in overall rate
of return for the High Grade industrials.
It is clear that the electric utility industry has been able
to operate succ'essfully at a much lower rate of return on common
equity and at a much lower common equity ratio and hence at a
much lower component for common equity than the corresponding
measurements for the High Grade industrial companies. The
component for common equity has averaged about one-third to
two-fifths of that for the High Grade industrial companies. This
evidences a major excess of earning power on common equity,
and, probable deg,ree of risk for the High Grade industrial
21 companies over that for the operatinp electric utilities.
1
1 Q. What other conclusions do you reach from the. study on page 497
A. Other conclusions follow from the study shown on page 49 of
the Exhibit. In forming a judgment as to fair rate of return
for a subject company, we should give primary consideration
to earnings experience of comparison companies during very
recent years - 1971, 1972, 1973, 1974, and'1975. The decline in
corporate profitability has been general and substantial, and
the higher rates of return and coverage ratios of, say, 1965,
1966, and 1967 should not be utilized in 1976 as a guide to fair
10 rate of retur'n.
At the same time, we must not forget that many individual
12 companies in, the electric utility business are in nothing less
13
14
16
17
18
20
21
than deep depression in terms of earnings experience on com-
mon equity. We should amid use of earnings experience of
sick, problem, unsuccessful companies as a guide to fair rate
of return for a subject company.
Finally, we can confidently utilize appropriate rate of return
data for electric utilities during recent years as'a guide to fair
rate of return, with no fear whatsoever, of circular reasoning.
Their earnings experience is, in general, very much "in line"
with historical relationships with corparate profitability in the
-70-
unregulated part of the American economy. The sharp drop in
the ratio of the component for common equity for electric utilities
to that of the High Grade industrial companies which occurred
from 1972 to 1973 and 1974, however, must remind us of the low
position of the electric utility industry in curr'ent circumstances
in the American economy.
10
13
14
16
It is significant and meaningful, therefore, that the
indicated fair rate of return on common equity for Carolina
Power 4 Light - 14. 25 percent at a 35. 81 percent common equity
ratio - is very much "in line" with historical relationships
with corporate profitability of these closely comparable firms
in the unregulated part of the American economy. This is
particularly true when it is remembered that the data on page 49
for the 39 electric utilities include allowance for funds used
during construction, the data for the 41 industrial companies
include inventory profits, and that the indicated fair rate of
17 return for Carolina Power 4 Light includes neither.
18 Q. What conclusions do you draw, Dr. Langum, from your studies
comprising the test of commensurate rate of return'?
20 A. The conclusions which I draw from my studies comprising the
21 test of commensurate return are shown on page 50 of the Exhibit.
-71-
On the basis of the test of commensurate return, the indicated
fair rate of return on common equity for Carolina Power 4 Light
Company is 14.25 percent at a common equity ratio of 35. 81 percent.
The corresponding common equity ratio per regulatory definitions
is 34. 96 percent. The rate of return on common equity excludes
allowance for funds used during construction.
7 Q. Dr. Langum, referring back to page 14 where you show an
10
12
13
outline of the basis of your determination of fair rate of
return on book value of common equity, you refer to standards
of maintenanceof credit and support of financial integrity and
attraction of capital on fair and reasonable terms as well as
the standard of commensurate return. Willyou comment on
this basis of determination of fair rate of return on common
14 equity?
The standards of attraction of capital ozr fair and reasonable
17
terms, maintenance of credit, and support of financial integrity
have vital bearing on the required earnings rate on common
equity. For example, earnings for common should be
20
21
sufficient, given the general stock market level, to support
market price at or above book balue and enable sale of common
stock on terms w3xich are fair and reasonable to existing
~ % 72t<
common shareholder's. Furthermore, it is the earnings on
common equity which provide the support for meeting adequate
coverage ratios on bonds and on preferred stock. Adequate
earnings experience on the common equity of Carolina Power Ec
6
Light Company is required to support the attraction of capital,
both debt and preferred stock, by Carolina Power Sc Light
as well as common stock, which lies ahead,I
~~
MARKET APPRAISAL OF COMMON STOCKS OF ELECTRIC UTILITIESCOMMON STOCK OFFERINGS TO PUBLIC
10
Q. Dr. Langum, with respect to these standards of fair return as
13
applicable to common stock, please explain your studies
shown on pages 51-54 of the Exhibit?
14A. The common stocks of electric utilities generally have declined
15
16
17
sharply and over several years in the esteem placed on them in
the market for common stocks. This is evidenced by their
lower price-earnings ratios, higher dividend yields, and lower
18 market price to book value ratios.
20
21
The relationship of market price as of December 31, 1975
to book value on December 31, 1975 for electric utilities is shown
on pages 52-53. Of the 108 electric utilities listed, comprising
«73 «
I
3.
all major companies with publicly-held common stock, only 30
had market price at or above book value. The median ratio for
the 108 electric utilities was 89. 56 percent. Carolina Power L
Light Company is shown on page 51, at 90. 54 percent, slightly
above the median.
In large part, the low relationship of market price to book
value for the electric utilities has been due to the dire situation
of the industry. In part, of course, it has been due to the low
level of the stock market generally.
Q. Please go on now and explain page 53 of your Exhibit?
A. Price to public as percent of book value in common stock offerings
12
13
14
15
16
of electric utilities during 1972, 1973, 1974, 1975, and 1976 to date
. is shown on page 53. In 1972, the average ratio was 128.40
percent in 45 offerings, with 41 at or above book value. In 1973,
the average ratio was 120. 64 percent in 47 offerings, with 34 at
or above book value. In 1974, the average ratio was 76.49 percent
17
18
in 54 offerings, with only eight at or above book value. In 1975,
the average ratio was 83. 30 percent in 94 offerings, with only 12
20
at or above book value. In 1976, thus far, the average ratio was
94. 94 percent in 65 offerings, with 20 at or above book value.
21
»74-
l
Q. %'hat is the significance of the fact that market price is below
book value per share for so many electric utilities?
The significance of the fact that market price and therefore price
to public, is'elow book value per share is that an electric utility
in such a situation is not able to attract common stock capital
on fair and reasonable terms. In a common stock offer in these
circumstances, the new buyer of common stock willacquire a
share of common stock at the offering price, necessarily
10
12
13
14
closely related to the market price, for less than the book
value per share of the common equity owned by the existing
shareholders. Thus, there is dilution of the book value of
common stock and failure to support the financial integrity
of the company. This is a most serious situation for the
Company, and for its shareholders and customers alike.
iS Q. Why is this a most serious situation?
16 A, The reason for this being a most serious situation is that an
17
18
20
21
electric utility must attract common stock capital not only to
derive capital funds, but also to-support and make possible
the attraction of capital funds from sale of first mortgage
bonds and preferred stock and short-term borrowing. In other
words, an electric utility must attract common stock equity
capital not only as a source of funds in itself, but also as
essential support for the sale of <irst mortgage bonds and
preferred stock and short-term borrowing as a source of funds
, 4 for financing construction.
5 Q, What has been the record during recent years of common
stock offerings by Carolina Power Ez Light Company'
7 A. The record of Carolina Power 4 Light in terms of common
10
13
14
15
stock offerings and relationship of price to public to book value
for 1972 through 1976 is shown on page 54 of the Exhibit.
During these years, Carolina Power 8: Light has made
five offers of common stock.
In the most recent issue, on October 13, 1976, Carolina
'ower 4 Light sold 3, 000, 000 shares of common stock to theI
public at total price of $ 66, 750, 000. The price to public, $ 22. 25,
was 98. 71 percent of book value, $22. 54.
16Q. What do you conclude from the studies of market appraisal
C
of common stocks of electric utilities and Carolina Power 417
18Light in particular?
)9A. In these circumstances of market appraisal of common stocks
.20of electric utilities in relation to book value, a rate of return
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on common equity of 14. 25 percent at a common equity ratio of
34. 96 percent, in terms of regulatory definitions, excluding
allowance for funds used during construction, for Carolina
Power h Light offers support for common stock offerings by
Carolina Power 4 Light on fair and reasonable terms to existing
investors. Such an earnings is necessary for the support of
financial integrity of Carolina Power 8: Light Company.
8 Q. What bearing does earnings for common equity have on
10
ratings of first mortgage bonds and preferred stock and the
maintenance of the credit of the company?
A. Earnings for common equity have direct bearing on ratings of
12
13
14
15
first mortgage bonds and preferred stock and the maintenance
of the credit of the Company. It is the earnings for common
equity that provide the coverage for the protection of payment
of the interest charges and preferred stock dividends of the
16
17
Company. Without timely and adequate rate increases as needed,
the first mortgage bond and preferred stock of Carolina Power 4
18 Light could not even be sold because of the sharp drop in
20
earnings experience on common equity in those;circumstancesl
. in the face of the sharp rise in imbedded costs of debt and
21 preferred stock.
W 77&
1 Q. Willyou go on now to examine the indicated fair rate of return
on common equity of 14. 25 percent at the common equity ratio
of 34. 96 percent from the standpoint of the first mortgage bonds
of the company?
A. My studies of required earnings on common equity for attraction
8
10
12
13
14
16
of capital on fair and reasonable terms, maintenance of credit,
and support of financial integrity with respect to first m'ortgage
bonds of Carolina Power 4 Light are shown on pages 55 through
75 of Langum Exhibit No. 2. In particular, I determine what fixed
charge coverage ratio is necessary to assure the upgrading of the
rating from Baa to A by Moody's and the continued maintenance
of the A rating by Standard 4 Poor's on the first mortgage bonds of
.Carolina Power Ez Light. I thus examine the indicated fair rate
of return on common equity of 14. 25 percent at the common
equity ratio of 34. 96 percent from the standpoint of the standing
of the first mortgage bonds of the Company.
17 Q.. Please explain the general system of ratings of debt and preferred
18 stock issues of public utility companies?
)9 tA. Moody s Investors Service, Inc., and Standard h Poor's Corpor-
20 ation rate public utility bonds and preferred stock. In terms of their
21 standards and criteria, particularly coverage ratios, Moody's
-78-
and Standard Ez Poor's rate first mortgage bonds and preferred
stock of Carolina Power 8: Light, always when they are issued, but
also on a basis of continuing surveillance of credit standing.
Explanation and key to Moody's Corporate Bond Ratings is
shown on page 55 of the Exhibit. Explanation and key to
Standard 4 Poor's ratings on Corporate Bonds is shown on
page 56 of the Exhibit. In Moody's ratings, "gradations of
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14
15
16
17
18
investment quality are indicated by rating symbols, each symbol
representing a group in which the quality characteristics are
broadly the same, ~ .. from that used to designate least invest-
ment risk (i. e., highest investment quality) to that denoting
greatest investment risk (i. e., lowest investment quality).
The first mortgage bo6ds of Carolina Power 4 Light
are rated Baa by Moody's and as A by Standard 4 Poor's. Moody's
states, as shown on page 55: "Bonds which are rated Baa
are considered as medium grade obligations... Such bonds
lack outstanding investment characteristics and in fact have
speculative characteristics as well.
19 Q. Please explain pages 57-65 of the exhibit?
ZO A.. Moody s and Standard k Poor's rate public utilitybonds andl
preferred stock in terms of their standards and criteria.
Coverage ratios are particularly important in this respect.
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On pages 57 and 65 are articles by Moody's on their rating
standards. On pages 58-61 and pages 62-64 are articles by
Standard L.. Poor's on their rating standards.
Q. Please explain pages 65-71?
5 A. On page 65 of the Exhibit is reproduced from Moody's Investors
Service, Inc., Mood 's Bond Surve, March 3, 1975, page 1557,
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12
13
the rating article in which Moody's reduced the rating on the first
mortgage bonds of Carolina Power 4 Light from A to Baa. On
pages 66-68 of the Exhibit is reproduced from Mood 's Bond Surve,
April 7, 1975, pages 66-67 and April 28, 1975, page 68, the rating
article in which Moody's continued the rating of Baa in connection
with the offering on April 24, 1975, $ 100, 000, 000 First Mortgage
~ Bonds, 11% Series due April 15, 1984. On pages 69-71 of the Exhibit
14
15
16
17
18
20
21
are reproduced the pages from Standard Ez Poor's Corporation, The
Fixed Income Investor, April lZ, 1975, pages 69-70 and The
Fixed Income Investor, April 26, 1975, page 71, the rating
articles in which Standard 4 Poor's maintained the rating of the
first mortgage bonds of Carolina Power 4 Light at A. These
.articles contain description and analysis of the Company's financial
situation and 'the ratings on the new and existing issues of first
mortgage bonds.
-80-
It should be noted that both Moody's and Standard 4 Poor's
place particular importance on the effect of timing and adequacy
of rate relief in maintaining adequate fixed charge coverage ratios.
Moody's stated, as the reason for downgrading to Baa, as shown on
page 65: "Despite $ 61. 5 million of rate relief that was in effect for
part of 1974, coverage of fixed charges and preferred dividends
has declined to unsatisfactory levels. Meanwhile, the company's
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12
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14
15
16
17
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20
construction program, even after substantial cutbacks, is calling
for spending of $ 1.1 billion over the 1975-1977 period. This is a
heavy program relative to internal cash generation and outside
financings are expected to continue to pressure the overall
financial posture of the company. In view of the above, Moody's
has reduced the ratings on the company's first mortgage bonds to
Baa. " Moody's further stated in connection with the April 1975
first mortgage bond issue, as shown on page 66; "Although pro-
jected construction outlays have been trimmed, future financing
requirements remain heavy. In view of. this, continued pressure on
debt protection measurements would appear likely in the absence
.of further and substantial rate relief." Standard k Poor's stated,
in connection with the April 1975 first mortgage bond issue, as
shown at the upper left, in italics, on page 79: "Based on the
-81-
stabilization of fixed charge and pending rate relief, we have
maintained our "A" rating on the First Mortgage bonds of
Carolina Power 4 Light."
4 Q. What has happened to coverage of fixed charges for Carolina
Power L Light Company during recent years?
'A. The study on page 7Z relates to coverage of fixed charges for
10
12
13
14
17
18
20
Carolina Power h Light from 1968 through 1975. Definitions
for the',three coverage ratios of fixed charges are given, as well
as the underlying figures. These coverage ratios have dropped
over these years, and especially in 1973 and 1974. These coverage
ratios for the years 1971 through 1974, were shown in the Standard 4
Poor's articles on page 69.
Times 'interest earned before taxes was 2. 92 times in1972'.
36 times in 1973, 1. 96 times in 1974, and 2. 41 times in 1975.
Times interest earned after taxes was 2.45 times in 1972, 2,16
times in 1973, l. 94 times in 1974, and 2.13 times in 1975.
Times interest earned after taxes before construction credits
(with allowance for funds used during construction not included
in earnings) was l. 86 times in 1972; 1.49 times in 1973, 1. 23
times in 1974, and 1.46 times in 1975. This ratio is directly related
21 to rate of return on total capital and components.
-82-
1 Q. What coverage ratios for Carolina Power 8z Light Company
would result from the proposed rates?
A. As shown on page 73 of the Exhibit, in terms of components
10
of the overall rate of return, and the coverage of fixed charges
after income taxes before construction is 2. 71 times. As
shown on page 74, in terms of relationship of net operating
income for return and interest on long-term debt in North
Carolina retail operations, in the test year under proposed
rates, the coverage of fixed charges after taxes before con-
struction credits, that is, excluding allowance for funds used
during construction, would be 2. 71 times.
Q.'ow do these ratios compare with the corresponding ratios for12
13~ first mortgage bonds of electric utilities by rating categories?
14 A. On page 75 are shown summary. results of a detailed study in
16
17
18
terms of coverage ratios which I have made of the 20 issues
of first mortgage bonds offered by electric utilities during 1975
and 1976 thus far.C'
conclude that the coverage of fixed charges after income
20
21
taxes, excluding allowance. for funds used during construction,
for Carolina Power 8z Light Company under proposed rates would
provide a basis for the upgrading to the A rating on first mortgage bonds
by Moody's and continued rating of A by Standard 4 Poor's.
-83-
li
1 Q. Taking up preferred stock, please explain Moody's and
Standard 4 Poor's rating services on preferred stockV
3 A. The preferred stock rating symbols used by Moody's,
their definitions, and the factors considered in arriving at
such ratings, are shown on pages 76 77. Corresponding
facts about quality ratings on preferred stock by Standard
4 Poor's are shown on page 78,
8 Q. Please explain pages 79-41 of the Exhibit?
9 A. These pages show rating comments by Moody's and Standard
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13
14
15
16
17
Ez Poor's in connection with the offering on March 13, 1975
of 2, 000, 000 shares of $ 2. 675 cumulative preference stock,
Series A by Carolina Power 4 Light.
Moody's Investors Service, Inc. did not rate the
new issue of preference stock. Moody's did, however, reduce the
rating on Carolina Power 4 Light Company's publicly-held preferred
stock issues to "baa" from."a", as shown on page .Z9
As shown on. pages 80 and 81, Standard 4 Poor's-Cor-
18 poration rated the new issue of preference stock of Carolina
Power Ez Light as "BBB". The preferred stock of Carolina
20 Power L. Light continues to have an A rating from Standard 4
Poor's.
-84-
1 Q. What has happened to coverage of fixed charges and preferred
dividends for Carolina Power 4 Light during recent years?
3 A. The study on Page 82 of the Exhibit shows coverage of fixed
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15
16
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18
charges and preferred dividends for Carolina Power 4 Light
from 1968 through 1975. Definitions of the four coverage
ratios for fixed charges and preferred dividends are given, as
well as. the underlying figures, These coverage ratios have
dropped during recent years and especially in 1973 and )974,
with some increase in 1975. These coverage ratios for the
years 1970 through 1974 were shown in the Standard Ez Poor's
article on Page 80.
Coverage of fixed charges and preferred stock dividends
. before income taxes was 2. 24 times in 1972, 1. 86 times in 1973,
l. 54 times in 1974, and l. 78 times in 1975. Coverage of fixed
charges and preferred stock dividends after income taxes was
l. 99 times in 1972, l. 76 times in1973, l. 53 times in1974, and
1. 66 times in 1975.
Coverage of fixed charges and preferred sto'ck dividends
20
after income taxes before construction credits (with allowance
for funds used during construction not included in earnings) was
l. 51 time s in 1972, 1. 21 time s in 1973, 0. 97 time s in 1974, and
-85-
and 1. 14 times in 1975. This coverage ratio is directly related
to rate of return on total capital and components. The coverage
fo fixed charges and preferred stock dividends after income taxes
before construction credits of 0. 97 times in 1974 indicates a
situation in which total fixed charges and preferred stock
dividends were not covered by earnings from operations
after income taxes.
Q Please explain Pages 83 and 84 of the Exhibit?
A. inixed charges and preferred stock dividends earned after
10 income taxes, excluding allowance for funds used during con-
struction, would be about 2. 06 times under the proposed increase.
Q. How does this compare with rating requirements by Moody's and
13 Standard 8: Poor'?
14 '. The summary results of a detailed study which I have made of
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18
20
coverage ratios and ratings on the 91 issues of preferred stock
offered by electric utilities during 1975 and 1976 thus far is shown.
on Page 85. The coverage ratio attained for Carolina Power 8z
Light Company under the proposed rate increase would be
required, in my opinion, to assure an upgrading to "a" rating
by Moody's and continued rating of A by Standard h Poor's.
Zl
-86-
Q. What conclusions to you draw from your studies of attraction
of capital on fair and reasonable terms and maintenance of
credit and support of financial integrity?
4 A. I;.conclude that the indicated rate of return of 14. 25 percent on
5 common equity, given the capital structur'e riPxos and cost
6
10
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13
14
15
of debt and preferred stock, willprovide for attraction of
capital on fair and reasonable terms and for maintenance og
credit and support of financial integrity. In my judgment,
at the current stock market level, it will support a market
appraisal of the common stock of Carolina Power h Light
at a market price somewhat above book value. In my judgment,
it will support the A rating by Moody's and the A rating by
Standard 4 Poor's on the first mortgage bonds of Carolina Power
h Light. In my judgment, it will support the "a" rating by
Moody's and the A rating by Standard 8: Poor's on the preferred
stock of Carolina Power 4 Light.
17 Q. Dr. Langum, have you formed a judgment as to fair rate of
18 return on book value of common equity for Carolina Power h Light?
19 A. Yes, I have.
20 Q. Please state that judgment.
A. As shown on page 86 of the Exhibit, my judgment as to fair
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I
I
I
rate of return on common equity for Carolina Power 5 Light
has been made on the basis of the standard of commensurate
return and the standards of maintenance of credit and support
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13
14
15
16
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18
of. financial integrity and attraction of capital on fair and
reasonable terms. The standard of commensurate return was
based upon studies of earnings experience on common equity
during 1971, 1972, 1973, 1974, and 1o75 of tho'se e'lect&c~iilit es in
fair value jurisdictions. I also game consideration to recent
rate orders by regulatory commissions concerning electric
utilities and to earnings being "in line" with earnings experience
on common equity of High Gr'ade industrial companies. and to
earnings being "in line" with earnings experience on common
equity of electric utilities without flow-through in original cost
jurisdictions used as comparison companies. The standards of
maintenance of credit and:.support of financial integrity and
attraction of capital on fair and reasonable terms, were based
upon studies of common stock offerings of Carolina Power 4
Light during 1972, 1973, 1974, 1975, and 1976'to date, and
of price to public in common stock offerings of electric
20
21
utilities in relation to book value during 1972, 1973, 1974,
1975 and 1976 to d'ass, upon'tudtds of first mortgage bond
-88-
offerings of electric utilities during 1975 an'd'1976 t'o date ~drequired fixed chazge coverage ratios to support the A ratings
on the first mortgage bonds of Carolina Power 4 Light and
upon studies of preferred stock offerings of electric utilities
g 1975 and 1976 t6 date and require'd-fixed"charge:and
preferred stock dividend coverage ratios to support the "a"
10
12
and A rating on the preferred stock of Carolina Power 4 Light.
In my judgment, taking all of the above considerations
and studies into account, the fair rate of return on common
equity for Carolina Power 4 Light is 14 25 percentw&%Li96
.percent common equity ratio, in terms of regulatory concepts.
This excludes allowance for funds used during construction.
13
14
15
FAIR RATE OF RETURN ON NORTH CAROLINA RETAILOPERATIONSORIGINAL COST RATE BASE
16 Q. Dr. Langum, have you formed a judgment as to the fair rate of
17
18
return on total capital invested in North Carolina retail operations.
original cost rate base?
l9 A. Yes, I have. My determination is shown on page 87" of the Exhibit.
20 Q. Please state your judgment as to the fair and reasonable rate
Zl of return on total capital?
-89-
1 A. My judgment as to the fair rate of return on total capital
invested in North Carolina retail operations original cost
rate base which Carolina Power E: Light Company should
be afforded the opportunity to earn is shown on page 87 '. of
the Exhibit.
. The capital structure ratios are those developed on
page Tof the Exhibit. Cost of long-term debt is shown at
7, 72 'ercent, from pagell, and cost of preferred ank pr'eference stock is
shown at '8.'01 percent, from page 13. For common equity,
10 I have utilized the fair rate of return on the book value of
common equity, just developed on page 86 of the Exhibit,
12
13
of 14 25 percent at a common equity ratio of 34. 96 percent.
Interest free capital has a capital structure ratio of 4..65
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20
percent. I have combined the cost rates for each segment of
the capitalization with the capital structure ratios to obtain
weighted component of the overall fair rate of return. For
debt, the cost of Y.. 7'2 percent combined with the capital
structure ratio of 46.'39percent gives a weighted component
of 3. 58 'percent. For preferred stock, the cost of 8. 01
percent and the capital structure ratio of 14. 10 percent gives
21 a weighted component of 1.13 'percent. For the common equity,
- 90-
the combination of the fair and reasonable earnings rate of
14. 25 percent and the 34'. 96'ercent ratio of common equity
in the capital structure gives a weighted component of '4. 98
percent. The cost rate and the weighted component for interest
free capital are, of course, rero. Addition of the weighted com-
ponent results in a total of 9 69 percent.
It is my judgment that the fair rate of return on original
cost rate base which Carolina Power k Light should be afforded
the opportunity of earning in its North Carolina retail electric
10 operations is 9. 69 percent. It is my judgment that this is the
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14
15
17
18
fair rate of return on original cost rate base for Carolina Power
L Light, in which total capital has been invested for'its North
.Carolina retail electric utility operations, which is necessary
to enable the Company to support its capital structure, to attract
needed new capital on fair and reasonable terms, to provide a
return on its common equity commensurate with that earned by
the most comparable business unde'rtakings and the closest
alternative investment opportunities, to maintain its credit,
and to assure confidence in its financial integrity.
20
Zl
- 91-
Q Going on now, Dr. Langum, to the matter of fair rate of return
on fair value, will you explain page 88 of Langum Exhibit No. 2?
3 A. The degree of fair value of common equity as of June 30, 1976
10
in the fair value rate base testified to by a Carolina Power Kz
Light witness is shown on page 88. In the North Carolina retail
original cost rate base, total common equity at book value is
$472, 897,137. In the corresponding North Carolina retail fairr
value rate base, total common equity at fair, value is $673, 996, 996,
The common equity at fair value is 142. 52 percent of the common
equity at book value.
ll Q. What then is your judgment as to fair rate of return on the fair
12
13
value of common equity for Carolina Power 4 Light Company
in North Carolina retail operations?
14 A.. As shown on page 89, in my judgment the fair rate of return on
15 common equity at fair value 142. 52 percent of book value with
16 common equity ratio, in regulatory concepts per fair value of
17 43. 38 percent i.s 10. 00 percent. This is based on the data on
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commensurate return in terms of fair value, shown on page 90
and on capital structure ratios, at fair value, shown on page 91.
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-92-
Q. Please discuss page,2?
4 A. On page 92 of the Exhibit I have developed the fair rate of
10
return on North Carolina retail operations fair value rate base
using imbedded cost of debt and preferred stock on t'une 30, 1976
pro forma sale of common stock in October 1976. The analysis on
page 92 parallels that on page 87 of the Exhibit which I used in
developing the fair rate of return on North Carolina retail
operations original cost rate base.
Q . Finally then, Dr. Langum, in your judgment, what is the
12 fair rate of return on fair value rate base?
A.. Given the fair value rate base advanced by the Company, in my
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judgment the fair rate of return for application to that rate base is
8. 44 percent, as shown on page 93 of Langum Exhibit No. 2,
This is the fair rate of return, so applied, which in my judgment
will meet the standards of fair and reasonable return set forth
by the statute of North Carolina regarding the fling of public
utilityrate s.
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21 -93-
LANGUM EXHIBIT NO. 1
0 UALIFICATIONS
DR. JOHN K. LANGUMECONOMIC CONS ULTANT
CHICAGO, ILLINOIS
DECEMBER 1, 1976
1
QUALIFICATIONS
DR. JOHN K. LANGUM
Will you state your name, please?
John K. Langum.
Where do you live?
I live at 477 Oakhill Road, Elgin, Illinois.
What is your present occupation?
I am an economic consultant, with my offices located at 209
South LaSalle Street in Chicago, Illinois. My work consists
of advising and counseling with a wide range of business firms
and financial institutions on economic matters of concern to
them. Much of my work lies in the field of appraising changes
. in business conditions and their impact on particular firms and
industries and in the field of interest rates, the money market,
and the capital markets. My clients include some of the largest
firms and most prominent trade associations in the fields of
investments, banking, industry, transportation, and public utilities.
In addition, I am President of Business Economics, Inc., an
enterprise engaged in research and publications in the field of
business and economics. Business Economics, Inc., provides a
continuing service for financial institutions and businss enterprises
covering indepth the forces at work in the American economy and
their significance for the credit and capital markets.
4
Q.
A.
What is your educational backgr'ound?
In 1933, I received a B.A. degree from Colorado College. In
1936, the University of Minnesota awarded me an M.A. In
1943, the University of Minnesota conferred on me the Ph. D. degree.
What academic positions have you held?
-A. From 1935 to 1940, I was on the faculty of the School of Business
Administration at the University of Minnesota. In 1940 and 1941,
I was lecturer in Economics at the University of California. In
1945 and'1946, I was part-time lecturer in'the Department of
Economics at the University of Chicago. In the summer of 1947, and
Q.
A.
again in the summer of 1951, I was visiting Professor of Economics
at Northwestern University. From 1951 through 196?, I served as
Professor of Business Administration, on a part-time basis, in
the School of Business of Indiana University.
What connections have you had with graduate schools sponsored by
banking and financial associations?
For the last twenty-five years, starting in 1951, I have been a
member of the faculty of the Stonier Graduate School of Banking
at Rutgers University in New Brunswick, New Jersey, sponsored1
by the American Bankers Association. Here in June of each year,
I give lectures on the business outlook and the credit and capital
markets fo'r the bank officers enrolled in the Graduate School.
Each year about 1,500 bank officers, from most of the fifty
states and from several foreign countries, attend the Graduate
School of Banking.
In 1945, I was one of the founders of the Graduate School of
Banking at the University of Wisconsin, located at Madison,
Wisconsin. That school, with over 1, 500 bank officers
from about thirty-five states, is sponsored by the Central States
Conference of sixteen midwestern state banking associations.
For thirty-one consecutive years, since the beginning of the
Graduate School, I have given basic lectures on the money markets
and the American economy.
Since 1955, I have lectured on appraisal of the economic
outlook, analysis of the individual company and industry in
relation to changing business conditions, and the structure and workings
of the capital markets at the School of Banking of the South in Batont
Bouge at Louisiana State University, This graduate school for bank
officers is sponsored by fifteen southern. state banking associations.
In several years, I have also lectured. at the Graduate South-'' I,
western School of Banking held in Dallas, Texas, at Southern
Methodist University; at the National Trust School held in Evanston,
4
Dlinois, at Northwestern University; at the Pacific Coast School
of Banking held in Seattle, Washington, at the University of
Washington;.and at the Graduate School of Savings and Loan held
in Bloomington, Indiana, at Indiana University.
In many years, starting in 1946, I have lectured at the Life
Officers Investment Seminar, sponsored by the American Life
Convention, and starting in 1957, at the Financial Analysts Seminar,
conducted by the National Federation of Financial Analysts Societies
in association with the University of Chicago.
What business experience have you had?
From 1941 until 1951, I was employed by the Federal Reserve Bank
of Chicago, and from 1944 to 1951, I was Vice President of the Bank.
As officer in charge of the Research Department'during that period,
it was my responsibility to direct an extensive research program in
monetary and fiscal problems, in the banking mechanism, in business
conditions, in agricultural and business economics, and in business
finance. Also, at the bank I was in charg'e of its bank and public
relations activities. In addition, for seven years I was associate
economist of the Federal Open Market Committee of the FederalI
Reserve System. This is the body in the Federal Reserve System,
made up of the members of the Board of Governors and Presidents of
the Federal Reserve Banks, which determines the monetary and credit
policies of the nation's central banking system.
-5-
Since 1951, I have been engaged in private business as an
economic consultant. I am a director of Selected American
Shares, Inc., Selected Special Shares, Inc., and Selected
Opportunity Fund, Inc., common stock investment funds with
offices in Chicago, Illinois. I am a director of Founders Growth
Fund, Inc. and Founders Special Fund, Inc., common stock in-
vestment funds with offices in Denver, Colorado. Since February 1,
1969, I have been President of Founders Growth Fund, Inc., and
since December 2, 1971, I have also been President of Founders
Special Fund, Inc. I am a director of First Federal Savings and
Loan Association of .Elgin; Illinois.
For several years, until late in 1964 when the company was sold
to Transamerica, I was a director of Bankers Mortgage Company of
California, a mortgage banking firm with offices in San Francisco',
California and in New York City.
For the last twenty-five years, I have mct rcgu)arly for
consu)tation'with thc kcy policy-making official.: of many»major
.institutional investors in this country and. in Ca»ac)a. T)icsc
p
pension funds, trust fund" of commci cial banl.s, mutua) fu»d",
and life insurance companies with whom I have worl'cd )iavc
total fund under invc"tmcn( administration w)iic)> co»a)>ri.«;c
a major portion of total institutiona) invc slmc»t ho)di»g. in
the economy.
I
-6-
Have you previously testified i'n rate cases?
Yes. I have testified in a number of cases before public utility
commissions and courts in twenty- eight states and the District of
Columbia, including Illinois, Indiana, Iowa, Michigan, Ohio,
Wisconsin, Massachusetts, Pennsylvania, Kansas, Missouri,
Kentucky, Tennessee, West Virginia, Maryland, Louisiana,
Alabama, Arkansas, Mississippi, Florida, Montana, Utah,
Texas, Arizona, Oregon, Washington, California, North
Carolina, an" South Carolina. I have testified
before the Interstate Commerce Commission,
the Federal Maritime Commission, and the Federal Power
Commission. In Canada, I have testified before the Board
of Transport Commissioners, the Canadian Transport Com-
mission, and the Telecommunications Committee, Canadian
Transport Commission, and my studies have been presented
to the National Energy Board.
Most of my work as consultant and as an expert witness
on fair rate of return > as been on belialf of utility companies,
My work as consultant a»d as expert, wit»css o» fair rate of
return, has, however, by no means bec» on behalf of utility
companies cxc]usivcly.
In 1970, I testified on behalf of the A'ttorney General of
the State of Illinois in the Commonwealth Edison Case before
the Illinois Commerce Commission. In 1971 in 1973~ and again in 1975
was an intervenor in the Commonwealth Edison Company
cases before the Illinois Commerce Commission. In 1972
and 1973, I testified regarding fair rate of return for Illinois
Bell before the Qlinois Commerce Commission on behalf
of the Department of General Services of the State of
Illinois. In 1973, I testified before the Illinois Commerce
Commission on behalf of the City of Chicago regarding fair
return for the Peoples Gas Light and Coke Company.
In 1974 I tcs(ificd bcforc ihc Illinois Con>merce Commission nn
behalf of thc States ht tor»«y, Cook County, J)linois, r«garding
fai> ra(c of return, raIc.base, a»d fair return foe ll)inois Bc)l.
ln 1975 1 testified bc(orc the. illinois Cninnocrcc Commission on
bcha)f of (hc Depart])lc)'lt of (general Scrvie e s of thc i~ta'l c of )llinois
and thc States Atto) ncy, Cook County, l)lin< is.
In 1971, I testified on behalf of the Arizona Consumers
Council in the Tucson Gas and Electric Company case before
the Arizona Corporation Commission. In 1972, and again in 1974,
I tcstificd regarding fair rate of rctu) n for Tucson Gas p,, Electric Co,
on behalf of the Arizona Corporation Commission. In 1971,'973, and in
)97 5, I testified on behalf of the Arizona Corporation Commission
-8-
in the Arizona Public Service Company cases. In 197$ 1973, and again in
1975, I testified regarding fair rate of return for Mountain
Bell on behalf of the Arizona Corporation Commission.
In 1973 I testified regarding fair rate of return for Sun City
3'Fater Company, Mohave Electric Division, Mohave Vlater
Division, Santa Cruz" Electric Division, and Santa Cruz Gas
Division of Citizens Utilities'Compa»y on behalf of 0)c Arizona
Corporation Commission.'n 1974 I testifieR regarding fair rat:e
of return for Sun City AVater Company bcfo).c thc Superior Court
in Phoenix and for Mohave Electric Division bcfo).c tl)e Superior
Court in Tucson on behalf of thc Arizona Co) J)o).at)ion Co)r)mi sion.
In 1973, I testified before and on behalf of the City of
Corpus Christi, Texas, regarding fair return for Central
Power and Light Company. In 1973, I testified on behalf of
'the City of Corpus Christi before the Texas Railroad Commission
regarding the financial situation of Lo-Vaca Gathering Company
and Coastal States Gas Corporation.
In 1973, I testified regarding fair rate of return for
Potomac Electric Power Company on behalf of the Peoples
Counsel before the Public Service Commission of Maryland.
In 1971, I testified on behalf of the Lake Michigan Federa-
.tion before the Lake Michigan Enforcement Conference. In
February )97?, I testified on behalf of the Lake Michigan
Federation before the Price Commission on guidelines for
public utility rate increases.
I~
-9-
Are you the author'of any articles and books?
During the last thirty-one years, .I have had many articles published
in leading economic and business journals. For ten years, fromI
1941 until 1951, I edited "Business Conditions," a monthly review
published by the Federal Reserve Bank of Chicago. For
fifteen years, from 1946 through 1960, I wrote the articles
on banking, including investment banking and commercial
banking, on the Federal Reserve System and other financial
subjects for the Enc clopedia Britannica Book of the Year.
l write the articles on savings banking and on savings and loan
assocations for the Enc clooedia Britannica.
Over the years, several interviews with me on the business
outlook and on investment policy have been published in Time,
in U.S. News and World Re ort, in Business VTeek, and in other
publications.
Are you a member of and have you participated in professional
societies and civic activities?
Yes. I am a member of several professional societies and have
been active in many of them over several'years.
On many occasions I have been on the programs of the Con-
ference of Business Economists, the National Association of
Business Economists, the National industrial Conference Board,
the National Tax Association, the American Economic Association,
and the Financial Analysts Societies.
-10-
In June 1957, I testified before the Joint Economic
Committee of Congress at their invitation on the bearing of
the budget outlook and economic situation on growth and in-
flation in the American economy. In August 1962, I again
testified before the Joint Economic Committee on Corporate
Profits, Cash Flow, .and Rate of Return.
In 1963, 1964 and 1969, I participated in the symposiumsI
on economic growth and public policy in Washington, D. C.,
sponsored by the American Bankers Assocation. In 1962, I
participated in the conference on fiscal and'mon'etary policy
sponsored by the President's Advisory Committee on Labor-
Management Policy. In 1962, I participated in the White House
Conference on national economic issues.
Early in the postwar period, I served on the. research
staff of the Committee for Economic Development.
For three years, from 1959 through 1961, I served as Vice
President of the Chicago Association of Commerce and Industry
in charge of the work of the Association in business research
and statistics. For six years, I served as a director of the
As s oc iation.
.From l95l through 1953, I served on the Committee on
Economic Policy of the Chamber of Commerce of the United
States.
In 1964, in my professional capacity, I prepared a study for
the City of Chicago on "Implications of Technological Development
for the Economy of Chicago."
For twen'ty. years, I served as Chairman of the Elgin Pla'n
Commission in the city in which I live . I am a member of
the American Society of Planning Officials, an affiliate member of
the American Institute of Planners, and a supportizg member of the
Urban Land Institute..I'.have served as First Vice-President and Director of
the Lake lvlichigan Federation, President of thq Fox Path
Association, and Director of thc Illinois Planning and Con-
servation League. I am a life member of thc Sicr1.a Club,
The Wildcrncss Society, and Thc Nature Conservancy.
Jn 1958, I was made a fellow of t2)c American Association
for the AQiancement of Science.
l
LANGUMEXHIBITNO. 2
CAROLINA POWER h LIGHT COMPANY
STUDIES REGARDING FAIR RATE OF RETURN
BEFORE'ORTH CAROLINA UTILITL=S COMMISSION
DR. JOHN K. LANGUMECONOMIC CONSULTANT
CHICAGO, ILLINOIS
DECEMBER 1, 1976
CAROLINA POPOVER &. LIGHT COMPANY
STUDIES REGARDING FAIR RATE OF RETURN
~ Contents
CAPITALIZATIONAND CAPITALSTRUCTURE RATIOS
Carolina Power & Light CompanyStatement of Source and Use of Financial Resources1971-1975 and Twelve Months Ended June 30, 1976
Carolina Power & Light CompanyExternal Financing in Relation to Construction ExpendituresActual 1970-1975 and Estimated 1976-1980
Carolina Power & Light CompanyCapitaliration1962 1975
Carolina Power & Light CompanyCapital Structure Ratios1962-1975
Carolina Power & Light CompanyCapitali"ation and Capital Structure RatiosJune 30, 1976 and June 30, 1976 Pro Forma
Sale of Common Stock in October 1976
Carolina Po~er & Light CompanyCapitalisation and Capital Structure RatiosIn Terms of Regulatory ConceptsJune 30, 1976 Pro Forma Sale of Common Stock
in October 1976
Carolina Power & Light CompanyCapital Structure Ratios Used in Study of Fair Rate of Return
COST OF DEBT
Carolina Power & Light Companyimbedded Cost of DebtJune 30, 1976 Pro Forma Sale of Common Stock
in October 1976
Moody's Averages of YieldsOn Newly-Issued Long-Term Public UtilityBonds
Rated Aaa, Aa, A, and Baa1960-1976, by Years
Moody's Averages of YieldsOn Newly-Issued Long-Term Public UtilityBonds.
Rated Aaa, Aa, A, and Baa1970-1976, by Months
Carolina Power & Light CompanyCost of Debt
COST OF PREFERRED STOCK AND PREFERENCE STOCK
12 Carolina Power & Light CompanyImbedded Cost of Preferred Stock an'd Preference StockJune 30, 1976 Pro Forma Sale of Common Stock
in October 1976
Carolina Power & Light CompanyCost of Preferred Stock and Preference Stock
FAIR RATE OF RETURN ON BOOK VALUEOF COMMON EQUITY
14 Carolina Power & Light CompanyDetermination of Fair Rate of Return on Book Value of Common Equity
15 Carolina Power & Light CompanyRate of Return on Common Equity and Common Equity RatioAllowance for Funds Used During Construction
" As Percent of Net Income for Common1968-1975 and Twelve Months Ended June 30, 1976
16 Investment StatureCarolina Power &-LightCompanyDecember 1976
STANDARD OF COMMENSURATE RETURN
Recent Rate Orders bv Regulator Commissions
17-20 Fair Rate of'Return on Book Value of Common EquityAllowed In Major Electric UtilityRate Orders In Original
Cost JurisdictionsState Public UtilityCommissions And Federal Power Commission1975-1976
21 2la Fair Rate of Return AllowedBy Regulatory Commissions In Fair Value Jurisdictions1975 1976
Earnines Experience on Common. E uitv0 eratins Electric Utilitics in Fair Value Jurisdictions
22~23 Investment Statur eElectric Utilities in Fair Value JurisdictionsNovember 1976
24-28 Rate of Return on Common Equity and Common Equity RatioOperating Electric Utilities in Fair Value Jurisdictions1963«1975
29 30 Allowance for Funds Used During ConstructionIn R'elation to Net income for Common
Operating Electric Utilities in Fair Value Jurisdictions1963-1975
31 Relationship Between Rate of Return on Common Equityand Common Equity Ratio
32 Method of AdjustmentFor Different Common Equity Ratio
33-34 Rate of Return on Common EquityAdjusted to 35.81 Percent Common Equity RatioOperating Electric Utilities in Fair Value Jurisdictions
35-38 Companies Excluded from Use as Comparison CompaniesIn Test of Commensurate Return
Operating Electric Utilities in Fair Value Jurisdictions
39 40 Rate oE Return on Common EquityAdjusted to 35. 81 Percent Common Equity RatioOperating Electric Utilitics in Fair. Value JurisdictionsUsed as Comparison Companies1971-1975
41 Rate of Return on Common. EquityAdjusted to 35. 81 Percent Common Equity Ratio andAllowance Eor Eunds Used During Construction
As Percent of Net Income for CommonOperating Electric Utilities in Fair Value JurisdictionsUsed as Comparison Companies In Test of Commensurate Return1971-1975
Recent U twin in Rate oi Retnrn on CommoonnEtneuiEarned b Unre ulated Enterorises in the American Econom
Real Growth and Inflation in the American EconomyPercentage Changes Year to-Year1946 1976
Rate of Return on Equity and Equity RatioAllManufacturing Corporations1947 1976
44-48 Rate oE Return on Common Equity and Common Equity RatioIndustrial Companies with Quahty Ranking of High Grade by Moody's)963-1975
Earnings Experience on Common Equity ofOperating Electrics in Fair Value Jurisdictions
Used in Selection of Comparison CompaniesIn Relation to Earnings Experience on Common Equity ofIndustrial Companies with Quality Ranking of High Grade of Moody's1963-1976
50 Carolina Power h Light CompanyTest of Commensurate Return
STANDARDS OF ATTRACTIONOF CAPITALON FAIR AND REASONABLETERMS MAINTENANCEOF CREDIT AND SUPPORT OF FINANCIALINTEGRITY
Market Appraisal and Common Stock Offerincs to Public
51-52 Leading Electric Utilities AVith Publicly-Held Common StockMarket Price as Percent oE Book ValueDecember 31, 1975
53 Price to Public as Percent of Book ValueIn Common'Stock OEferingsElectric Utilities1972-1976
Common Stock OfferingsAnd Market Price In Relation to Book ValueCarolina Power h Light Company1972-1976
Covera e Of Fixed Char's
55
56
57
Explanation and Key to Moody's Corporate Bond Ratings
Wglanation and Key to Standard & Poor's Corporate Bond Ratings
"When Is Interest Coverage a Special Concern7"Mood 's Bond SurveJanuary 5, 1976Pages )781- 1782
58-61
62-64
"Fundamental Approach to Public UtilityBond Ratings"The Fixed Income InvestorJanuary 3, 1976Pages 987-990
"Changes in tin UtilityBond Rating Process"The Fixed Income InvestorJuly 24, 1976Pages 521-523
65 "Comment, Electric UtilityBond Ratings"
Ratings ReducedCarolina Power & Light CompanyMood 's Bond SurveMarch 3, 1975Page 1557
66-68
69-71
Rating Articles by Moody'sFirst Mortgage Bonds1l'fo Series due April )5, 1984Mood 's Bond SurveyApril 7 and 28, 1975Pages 1411-1412, 1340
Rating Articles by Standard & Poor'sFirst Mortgage BondsII9o Series due April 15, 1984The Fixed Income InvestorApril 12 and 26, 1975Pages 743-744, 715
Carolina Power and Light CompanyCoverage of Fixed Charges1965-1975
73
74
Carolina Power & Light CompanyComputation of Times Interest Earned After Income TaxesFrom Cost Rates For Capital and Capital Structure Ratios
Carolian Power & Light CompanyCoverage of F~ed Charges After income Taxes Before Construction CreditsNorth Carolina 'Retail OperationsUnder Present Rates and Under Proposed RatesTest Year Ended June 30, 1976 r
75 Coverage of Fixed ChargesFirst Mortgage Bonds of Electric UtilitiesBy Rating Category1975-1976 to Date
Covera e of Fixed Char es and Preferred Dividends
76-77
78
Moody's To Assign Ratings to Preferred Stocks
Standard 6c Poor's Preferred Stock Ratings
79 Ratings ReducedCarolina Power h Light CompanyRating Article by Moody'sCumulative Preference Stock, Series AMood 's Bond SurveMarch 3, 1975Page 1566
80-81 Carolina Power 4 Light CompanyRating Articles by Standard h Poor'sCumulative Preference Stock, Series AThe Fixed income Investor,March 8 and 15, 1975Pages 846, 827
Carolina Power Cc Light CompanyCoverage of Fixed Charges and Preferred Dividends1965»1975
Carolina Power 4 Light CompanyComputation of Times Fixed Charges and Preferred Stock
Dividends Earned After Income TaxesFrom Cost Rates for Capital and Capital Structure Ratios
84 Carolina Power h I ight CompanyCoverage of Fixed Charges and Preferred Dividends After
Income Taxes Before Construction CreditsNorth Carolina Retail OperationsTest Year Ended June 30, 1976
85 Coverage of Fixed Charges and Preferred DividendsPreferred Stock Offerings by Electric UtilitiesBy Rating Category1975-1976 to Date
FAIR RATE OF RETURN ON COMMON EQUITYFAIR RATE OF RETURN ON TOTAL CAPITAL
86 Carolina Power k Light CompanyFair Rate of Return on Common Equity
87 Carolina Power 5 Light CompanyFair Rate of Return on North Carolina Retail Operations
Original Cost Rate BaseUsing Imbedded Cost of Long-Term Debt and Preferred StockOn June 30, 1976 Pro Forma Sale of Common Stock in
October 1976
FAIR RATE OF RETURN ON FAIR VALUE COMMON EQUITYFAIR RATE OF R ETURN ON FAIR VALUE RATE BASE
88 Carolina Power 0 Light CampanyDegree of Fair Value of Common EquityJune 30, 1976
89 Carolina Power 4 Light CompanyFair Rate of Return on Common Equity at Fair Value
142,52 Percent of Book Value
90 Rate of Return on Common Equity at Fair Value 142, 52Percent of Book Value From Operations
Adjusted to 43.38 Percent Fair Value Common EquityRatio
Operating Electric Utilities in Fair Value JurisdictionsUsed as Comparison Companies in Test of Commensurate
Return1971-1975
91 Carolina Power h Light CompanyNorth Caro)ina Fair Value Net Investment and Fair Value
Capital Structure RatiosJune 30, 1976 Pra Forma Sale of Common Stock in
October )976
Carolina Power 4c Light CompanyFair Rate of Return on North Carolina Retail Operations
Fair Value Rate BaseUsing Imbedded Cast of Long-Term Debt And Preferred
StackOn June 30, 1976 Pro Forma Sale of Common Stock in
October )976
Carolina Power h Light CompanyFair Rate of Return an North Carolina Retail Operations
Fair Value Rate BaseJune 30, 1976 Pro Forma Sale af Common Stock in
October 1976
I
I
I
I
Page l
CAROLINAPOWER & LIGHT COMPANYSThTEMENT OF SOURCE AND USE OF FINANCIALRESOURCES
1971
Trrctre Months Ended
December 31.
1972 1973 1974
Thousands of Dollars
Juae 30,1975 1976
(Unaud! ted )
Source ofFinancial Resources:Current resources provided from operationL
Net incomeltcms not re(tuiriag (providing) current resourceL
Gepreciadon and amotdmdon.AD nuance for funda used du dna corn numineNoncerrent deicned income taxes-netlevcstm eat tax mcd(t ed justmenn-net
Total cunent resources from operationsOther resources provided:
. Additions to plam accounts representiag capital-Iration ofnet cost of funds used during const tucuon
Proceeds from assignment to lessor of internal com-bustion turbine generators
Proceeds from sale and leaseback ofnuclear fuel"Miscellaneous-net
Total resources provided from operationsand
other'8327
(14,708)3,480IG77
55,850
37403(24,759)
S,9721.756
80.701
40,430(38,093)
7,4302.94$
78,714
45391(54,609)
11,188(6G4()68,MD
57442(59,957)24/7314G74
137,754
69,861(53,031)25,75622044
(76.082
14,708 24,759 38,093 S4,609 59,957 53,031
883 663 '0944,4SS47,593
3.995 7.096 12.151
71,441 106,123 1(6,916 '18,652 204,807 24IG64
$ 37,474 $ 60,S29 $ 6S,999 $ ~71 $ 101,622 $ 111452
jm
;l
Fiat mongage bonds. 13405(Six-year notePreferred stock . 34,506Preference stockCommon stock. 33,910
9931750,00049,364
199,755
49,949
63,449125,039
12.483
215050S286.691
16G56
329.509
5446 425.(70.164)253.556
$359.679
$318.38216,91836.785
$359,05637,61045,708
$239.2912043230,492
(3324)S286.691
(12,4061
$359,679
4.051
S446,425
$ (9,107) $ 5476 $ 105
5,898(2419)
2,9003457
1.163(8467)
6,932(5,656)
828
3,036(5,153)
(394)
(3.222)(5,876)( 1.480)
5 (3.324) $ (12.4D6) 3 4.051
Financings:Sale oQ
Increase (decrease) In shon-tenn notes payable lesstemporary cash investments.
To:al resources provid«d from fiaancings
TOTAL
Use ofFinancial ResourceaGrum pre pcny ad did em cede ding audear
(uel'uclearfueladdiuons'ividendsfor the year
Prepayment ofsix-year noteNet increase (decrease) in working capital, excluding
shon-term notes payable and temporary cash ia-vmtmeu
TOTAL
Increase (Decrease) in Working Capital. Excluding Shon-termNotes Payable and Temporary Cash Investments, by Com-ponentL'aterials and supplies (principally I'uel)
Defened foci costs.Accounts receivableAccounts payableCunent ponion ofdeferred income taxesTaxes accrued.Intmest end dividrn de payableOther-net
Net increase (decrease l in working capital, ex-cluding shon.term notes payable
150,979 120,743
3P8I47.744
14S,618 90,057
103.301
321.892
$540.544
( 145.075 )169.030
$373.837
58.418
148.475
$389.739
$382,60239,93958,048
$305,553 $25225917,515 21.38971,925 78259
50,000
59.955
$540.544
$ 6933535,02819,869
(40,310)( 13478)(7,693)(6,077)3281
$ (19576)(20.650)(14,135)30,70110392
1,896(7,980)(1.7D4)
$ 11,092(14,832)
1,8S7(3336)
7,718(14,576)
(2.028)1.937
5 59.955 8{2 1.156) S( 12.168)
(21.156) (12.168)
$373,837 $389.739
r
Includes amounts charged to utility plant representing thc "allowance for (the cost of) funds used duringconstruction".
Scc Notes to Financial Statements.
35
Source: Carolina, Power Ec Light Company, Prosvoectus, 3,000,000 Shares Comaton Stock,October 13, 1976, page 35.
C
l
1
I'
CAROMS HSER dJ LIG1IZ CRfPJQEX
HEERlQLL FII1AHCB/0 IN BCIATIOH TO CONSXRUCTION EXPENDITURESACXUAL 1970-1975 AND ESTIlATED 1976-1980
(Dollar amunta in nillions)
Gross property additionsand nuclear fuel additions lessallowance for funda used during construction
Total external financing
Total external financing as percent of'rossproperty additions
and nuclear fuel additions leesallowance for funds used during construction
1971
+44.8
07.+
1972
$310. 5
@53.6
81.7$
1973
$358.6
91 6
Actual
1974
$367.9
$321,9
07.5$
1975
fa63.1
+69.0
64.2$ 83. 5$
Gross property additionsand nuclear fuel additions lessallowance for funds used during construction
Total external financing
Total external financing as percent ofgross property additionsand nuclear fuel additions lessallowance for funds used during construction
1976
@87.2
26.6$
1977
090.9
$ 82.5
28.4$
1978
$347.7
$119,9
34.5$
Esthnated
1979
@52.0
1900
@21,0
Source: Carolina Power 86 Light C'ostpanys Prospectus, 3,000,000 Shares Cannon Stock, October 13, 1976, pages 4~ 35Jfnfornetton for Security inoiyeteeaovan er 3, 1976.
R
Il
cojoLlLL 106>Loo 0 LltttT ccoOeÃC4rl4LSCLTlojo
S'/? Ie
9
7>Ce 3
Ac>rior Sl, Accceor Sl, Occc>OI>r 31, O,caber 31, ceca@or 31, Coco>ter 31 ~ Ace~r 31 ~ loco='er Slo ~ Aeececr 31,1970
Acre>L>r Sl; Ac~or 31,~22 ~III Ace&et 31,~1 Ace=let 31,I Mc oet 3 ~
I
ag- o- 'o tI:69.0."..Ico eao.eooca aIaolo,ao 919,0!o,cal atao>Ia» >6>ea,ca Iaaetaae.tk 22 I I cce ~leo I aa ao
QO70 CSO> COO 6399>030>000 6 f3100300CCO 8 &SLOOP OCOC
112 I ~122t 6I~ceo 83L>0329000~ia I8 5'c,cÃ.0:0
~ ~812109,CS >COO
ol WA et0 Col\ ill2>0>CCO 171> $50 CCO 200 '950 000 2CO>310 000 229 030 OCO 269>030>000 309 030 000 309,030 000 399> 1&L>322 531>1$ 2 633 65ll>1LO>2L2 SSL>282>$ 25 1 >03>OC5 f>273 1 olfSe
le0" re'el eo t 1 ~ ) It>St
"al oo'a
8,500,CCO LL,CCO,OCO LL06620>COO 11,6L1,847 lf>L26>LSL ST,LSO,COS'I'l Cc&
82500>000 ll>CCO COO . SL>&LO>000 1 1>611 847 1 f L24>LSL 66> lol>OSS
375 >797>OSS
I172,2 O,CCO 180,0/,COO 200 9+ 000 215,310,000 213,670,COO 280 671,867 STL L56 LSL
69,680,691
L&S,SLS,OSS
82,163,288 21>5590702 250355>'>>9
616>315>P1 456>139>9LL 912063$ >TTL
231, Efl,0'di
2,15$ S'8
L20097,CCO 3\olljoCOO $06320020 1108720000 $0>gf>COO T» 022
,30M',33
5>332,041
>ecol StcfetteC cocci SL,375,$ C4 SL,37$ ,9CO SL,37$ ,002 34375,9CO SL,STS,SCO $9,375,5CO 59,37$ ,5CO $9,375,000 . 89,375,500 32L>37$ >902 1730800>900 223,800,9CO 2%, S>LOO 3310018>LO)
lo ~ $ ~ >C el .. '2)8'o,l LOC2L So,>3>SLT
~M: 1. ~ISILI",92>60$ >750SL>&Sf>$L7
12)>L39037332,05$ >153
131,889,38922,8)3,568
133 >109> OjlL8,6$\>929
13L>3 $>330$52517>495
1&L,351,55842>$ 220253
1932 SLS>917&1,M.'l>802
227>$ 38>55948,1$ 3> 320
3520~0. 5I5'4192,&>3,379
L16, ~ 21,C96 Llcoe 1095'O12'7>BOTi&
Cla C4%02 e(>117 127,3$ S,L3$ 133>181>129 11922212727 1 See>52L> 524 17L>TCO>957 181>7&L>011 189>9330016 226>803>QX 25f>993>719 29$ ,652>289 LLS,LL9,2LO 527> 137> 548 ~,265, '9
co' o tooloe 233L>OOL>339 53LTI<>029 636>>SL&>727 SCOS>210>L26 SC52>TLS>8$ 7 4521>811>778 4573>76$ >350 46&1>97$>939 65LL>21L>632 SL>036>SSL>110 42>313 350>CSC 61>443>577>192 6 >~>35 >SLS 62>2130424>552
2 I all C Ja ~lt 19tl, a i>OI 0>09, a aala ta a I I I a
I
Clh" ZN ~i 4 110)Z CCVANTCAIIIA1SIRcClcIcK NAIl04
1 1
8eccobcr 31, Cecaber )te Deccnber )le 8eceskcr )la Deecnber )le Decenber 31e Deccaber 31, Ceceber )le Deca)or 31, lvceobcr 31. Cecenber )I»15@ ~13 ~l ~ lSS> ~1 ~l1 ~l l5'9 ~lo 19Tl a 12
I
Deco ber )ta1973
Dace=bar )le Decenber 3liRÃ ~RS
Cebt 51.57$ fl 80$ fl"6$ 54 89$ f3 84$ '3 79$ 56.55$ 56.77$ floffS 59.L7 6I
5).C0$ lb.86$ 51 19$
trefarre4 Sade 10.29 9.89 8.b8 7.59 ~ 11.38 )0o)5 8.97 10 98 )2 00 )3.23 13.tf lb.39 15.18
Gamw +atty 3 eR 3 .63 38.59 . )b.83 3).10 )i.z6 )$ .77 )1,69 P 6)
to~ Capttaltsa\lon 100 00$ 100 00$ 100 00$ 100.00$ . 300.OO$ . 100,C0$ 100,00$ . 100,00$ 100.00$ 100.00$ 100.00$ 100.00$ 100.00$ 100.00$
emote. brett lncln.'ee lor4-tera 4ebt payable vllbtn one tear anl notee parab)otncluce4 ln cnrrent llabtlttlee ln balaace elect of eoapang~
Soercee Ooapate4 Iron Cata on )age 3 ~
4
CAHOLNA PGllEH & LIClE CohlNNYCAPITALIZATIONAND CAPITAL STRUCTURE RATIOS
JUNE 30 1976 AND JUllE 303 1976 PHO FOHhA SALE OF Col4%H STOCK IN OCTOBER 1976
Page 5
June 30 1976
June 30, 1976 Pro FormaSale of Common Stock
in October 1976
Debt
Long-term debt
Short-term debt
Total debt
Ca italixation
g.310533613294
51,010,961
flg15633723255
p S ruc ureRatios
+3 10533613294
+,105,361,294
p a ruc ureRatios
49.23$
Preferred Stock & Preference Stock
Preferred stock
Preference stock
Total preferred stock & preference stock
280,u0,4oo
47 900 000
33630183400 15,06
200,u0,4oo
47 900 000
336,O18,4OO 14,96
Coraaon Equity
Conan stock
Retained earnings
Total common equity
567,505,701
1713630,129
73931353910 33.12
6323 4553781
171 630 129
80430053910 35.01
Total Capitalisation @,231,526,565 fa,245,465,6o4 100,00
Sourcai Carolina sorer 0 Ltggt Cnganr, ~Pro cetus 3,M0,000 Stares Coccus Stoat, natator 13, 1316r Sages 7r 33.
~
~
~
(g
~
CAROLIltA PNER 5 LIGlE COEINlffCAPITALI?ATIONAND CAPITAL STRUCIUHE RATIOS
IN TENS OF REGVIATOM CONCEPNJtne 30 1976 mo Fata sALE or co%mr< sTOCK IN ocxoDER 1976
June 30, 1976 Pro cabanaSale of Coamon Stock
in October 1976
Page 6
Debt
lang-tenn debt
Ca italization
$1~105,361~294
p a ruc ureRatios
Prefcrrcd Stock and Preference Stock 336~018~400 14,10
Con>non Equity
Comnon stock
Retained earnings
Deferred gob development investnent tax credit
Total cosmon equity
632>455q781
171>630,129
28 890,031
832,975,941 34.96
Interest Free Ca italDeferred taxes lo8,282,642 4,55
Total Ca italization @,382~638,277
Source! Carolina Barer ts Light Compeny, Prospectus, 3,000,000 Shares oomaon Stock,. October 13, 1976, pages 7y 33$
Page 7
CAROLINA HNER & LIGHT COMPANYCAPITAL STRUCTURE RATIOS USED IN STUDY OF FAIR RATE OF RETURN
In Test of Commensurate Return
Common equity ratio
In Determination of Fair Rate of ReturnIn Terms of Regulatory Concep s
Debt
,PreferreC Stock an4 preference stock
Common equity
Interest free capital
Total Capitaliration
46.39$
. 14,10
34.96
CAROLIIA PSIER Ec LIG1EColm'MBEDDEDCOST OF DEBT
JmtE 34 1 6 pRO Faua 8AIz or ceceH GTocx IR ocloaER lyr6
Long-term debtFirst mortgage bonds
3 I/0$ Series, due 19793 I/4$ Series, due 19792 7/0$ Series, due 19013 I/2$ Scrics, due 19024 I/0$ Series, due 19064 7/0$ Scrfes, due 19904 I/24 Series, due 19914 I/2$ Series, due 1994
ll, I/6$ Gcrfcs, due 19945 I/0$ Series, due 19966 3/0$ Series, due 19976 7/0$ Series, due 19908 3/4'~~ Series, due 20008 3/4$ Series, due 20007 3/0$ Series, due 20017 3/4$ Series, due 20017 3/4$ Series, due 20027 3/4$ Series, due 20038 I/0$ Series, due 20039 3/4$ Gcrfcs,'duo 2004
11 I/0$ Gcrfcs, due 199411$ Series, due 1964
Total first sartgage bonds
offscellancous promfssory notes
Principal amounts
Less> Unaanrtixcd discount and premium - net
Net amortization of debt discount, expense and premium
Amouhtoutstanding
f ZO, IOO,OOO43,930~000l5~000,00020,000,00020,000,00025,000,00025,000,00030,000,00027,650,00030,000~0004o,ooo,ooo4o,ooo,ooo4o,ooo,ooo50,000,00065,ooo,ooo70,000,000
100,000,000100,000,000loon Ooos 000125, 000, 00022~350~000
100,000>000
1~ 109,030~ 000
192,064
1>109i222~664
( 3,061,570)
InterestRequirements
620,1251,427,725
43l~250700 000025,ooo
1,218,7501~125,0001,350,0003,076,0621 537 5002,550,0002~750,0003~500,0004,375,0004,793,7505,425,0007~750,0007~750,0008 125,000
12,187,5002~406,430
11,000,000
05 012 100
7,835
05~019 935
3>9 87T
CostRate
7.67$
Total long-tcna debt g.~105~361,294 $ 05,339,012 7076
page 9
HOODY'S AVHIAGES OF YLELIS0Ã ltEMLY-ISStJED LONG-TERH RJOLIC UTILITYBONDS BATED Aaa, Aap A, AIJD Baa
1960-1976, BY YPJSS
AVEIVLGES OF YIELDS 0:I NEMLY-ISSUFD LONG-TERM BJBLIC VAIL:.TY30HJS
,1960
1961
1963
1964
1965
1966
1967
1968
1575
5oVRe
6.54$
7,Rrj'.61$
7.547-3CPJl
7.81$
9,02$
9 11%
8.47$
4.76$ -
4.4Q
4.64»»
6.~6.6Q
7e9'.63$
7.6&f,
7.45%
8.71$
4.43/
5-77%
6.$p
6 95~<
8.2P»
9.19>
7.93»»
7.6'+
05»»
9.75~»
10.22+»
9 05%
5.3@
4.95%
6.05$
6.33/
? 10$
8.6~
9.6@
-.85/,
39~»
9 7BC
+J~-Hag, 1974
eelanuary-Octobe." 1@76
Source: Hoody's Investors Service, Inc., Moody's Public IJtili.y Manual, 1976,pages a4-a5; cbody's Bond Survey, tiavexber a, 1975, page 76 andcorresponding pages pr aus issues~
DDT'S AVENGES OF YMIRCf NEVLj ISSUED QrIQ TERR RSLEC QZILXTY BEDS RATED Aaaq Aag A, AK) Baa
19?0 1 6 BY MO!CHS 'Page 10
Aa
1970 Bqrtune
AugustSeptanberOctober
Average
8 91%8.968.53S.vo8.568.86
8.61$
9.06%9.328.948.728.838.9o
8.63~p
9.3K9.679+119i359+329,40
9.1%
10,47~9.53
10,089.819.82
7m 5+ 7.68$ 7.93 j 8.34$
1972 January~ruby
.March'prilve~7026
7.397 397.45
7+34
7.11%7.497.397.6o7.427.45
7.4S
7.36$7.507.487.so7.667.54
7 76$7.897.95
7.95
7.85$
Average 7.814 S.og 8.25$
1974
1975
JanuaryEabruaryMarchAprilNayJuneJulyAugustSeptenberOctoberRnreaiberDec enber
JanuaryFebruaryMarchAprilBqrJuneJulyAugustSeptemberOctoberNoveiberDecember
Average
S.c6$8.078.338.868.859 309.659.Pl
10 0510 06
9.52
9+0Pf
8.62@,8;739 239.209eoo9oOVB.&o
9.689.4o9.3759.35
9 11%
8.37$8.138.619 089i209.46
10,7510.4511.339.159.64
9.oo„S.9o9.529 949.v49 239.639.6o9 8759.329.759.68
9.46$
8.5+8.498.819.409 819 95
11.0510.7511 0210-759.90
10 25
9.7S
9.71$9.42,
10 1610,9410.809.8v
10.3810,7610.B310.4610,31.loo31
8,95$8,7o9.079.539.45
9.16++
Xl.~10.79
11 57
11,3011,78
lli3%
JanuaryFebruaryHarchAyri1
tuneJulyAugustScpCeaberOctober
8.6+8,348.61B.'29
B.VS
8.25e.'oo&.26
8.9S8.658.'838.739.059 ooB.Vo
&.438.41
9~1+9 ll9.15'8,919.309.349.568.94&.688.59
9.K~9+609.509,61
10.009.92
10 10
9.459,00
Average~
+January-Nay 1974
8.4+ S.Vlg 9 05%
++January-October 1976
9.72%
O
Page 11
CNOLIHA HNEH Ee LIOlE COI95lCCOST OF IEHT
Based onZnbbedded Cost of Debt
June 30, 1+6Pro Forna Sale of Connun Stock
in October 1976
Carolina Ebvcr 5 Light Co any
Cost or Dbt 7.ng
I
CAHOLIRL PSKR & LIGIR COHORTIISEDDED COST OF NEFERRED STOCK AND PREFEREIICE STOCK
JUICE 30 1976 PRO FORVA SALE OF CONSII STOCK ZR OCXODEH 1976
AmountOutstanding
DividendRslsU1tetltlltl
CostRate
Preferred Stock, without par value> cumulativel
$5 (authorised, 300,000 shares'utstanding,237,259 shares) $ 24,375,-900 151865295
4.20 Scricn5.44 Series9.10 Series
.95 Series
.72 Series
.48 Serica
outstanding,outstanding,outstanding,outstanding,olltntNlding5outstanding,
Serial (authorised5 105000,000 shares):100,000 shares250,000 shares300,000'shares350,000 shares500,000 shares650,000 shares
10,000,00025,000,00030,000,000355000500049,425,00064,317,500
420,0001,360,00025730,0002,782,5003,860,000555125000
Preferred Stock A (authorised, 5,000,000 shares)f7,45 Series (outstanding, 500,000 shares)
Total preferred stock
50 000 MO
+08,118,400.
~3555 000
4 2155755795 7,49$
Preference Stock!
P.675 Preference Stock, Scrien A, 2,000,000 shares,sold in Ihrch 1975 553505079 11.17
Total Preferred Stock and Preference Stock,June 30, 1976 $336,0185"00 $ 26,925 874 8.01$
Sourcel Carolina Power & Light Company, Annual Rc ort, 1975) Financial Statements, pages 19-20; Pron cetus, 650,000 Shares,Serial Preferred Stock, go48 Scr cs, u ive, February 4, lpf4, page 7I Prospectus . eference Stock,Series A, 2,000,000 Shares, Harch 1975I Interim Financial Statements June 3~5//,
Page 13
CAROLINA AMER & LIGNT COHNNICOST OF PREFERRED STOCK AND PREFERENCE STOCK
Roscd onImbedded Cost of Preferred Stock
and Preference StockJune 30, 1976
Pro Ibrma Sale of Common Stockin October 1976
Carolina Power & Light Co any
Cost of Preferred Stock and Preference Stock 8,01'fi
Fuge 14
CAROLIllA HNER 5 LIGllT COMPAHY
DETERMlllATION OF FAIR RATE OF RETURN OH BOOK VALUE OF COHHOH ERUITT
On Basis of
Standard of Commensurate Return
Study of the Fair Rate of Return on Comaon EquityAllowed Electric Utiliticeby State Regulatory Commissions andby the Federal Power Comaission .
in Rate Proceedings 1975-1976
Study of Actual Earnings Experience on Conmon Equityof Operating Electric Utilities in F»ir Value JurisdictionsUsed as Comparison Companies1971-1975
Consideration of the Ha)or Upswing in Rate of Return on Conmon EquityMhich lies Been Experienced by Unregulated Enterprises in the American Economy1974-1976 I
Standards of Haintenancc of Credit and Support of Financial Integritya rac on o Cap a on Fa an easona e erms
}hrket price of common stock in relation to book value and comnon stock offerings,Iyg 1975, 1976 to date
First mortgage bond offerings of electric utilities with fixed charge ratios to support h rating,1975-1976 to date
h
Preferred stock offerings of electric utilities with fixed charge and preferred stock dividend coverageratios to support e and A rating,1975-1976 to date
CAROLIJOL HSER f> LICllf COHNHTRATE OF REIURH OH COIQDH XXNITX Allo Col%SR EQUXff RATIO
ALQRAHCE IQR IVES USED EURIllo COtlSTRVC1'IOH AS FERCEHE OF HET IlloolS FAR CON%51960 1975 AllD IllELVE HOnllCl ERDED JVHE 30 1976
Iage 15
1969 1970 1971 1973 1975Waive Ihnths Ended
tune 30 1976
let incone for cormon
,verage c~n equity
.'ate of return oa coen|on equity 11.60$ 0.20$ 10+39$
23>046>540 $ 24>417>813 4 20>126>327 0 29tl03>019
105>048>514 210>440>500 245>559>000 200>003>000
50>917>573 4 52>901>914 4 51>598>075
373>730>500 409 453>270 529 Nl>093
13.62$ 10,02$ 9.56$
75,0ZO,OOO
635>375>315
Il 94$
04,326,ooo
677> 613,000
I2.44$
,verage coc=on equity
,verage total capital
otron equity ratio
+05> 048> 51 4 +10> 448> 500 +4 5 > 559> 000 +00>003> 000 f 373 >730> 500 $ 409> 453 >278 $ 539> N1 >093
547>7N>564 619>950>724 742>255>506 929>459>367 1>178>200>554 1>491>136>202 l>034>295>312
33 93$ 33.95$ 93oo0$ 30>13$ 31 72$ 32.02$ 29 43$
635,375> 315
2>107>905>674
3o.14$
g 677,613,000
2>172>9 >3,000
31.10$
Ilats.ee for fundsused during construction
et incone for coax>on
2>927>162 f 4>397>110 f 10>504>936 $ 14>707>309 f 24>750>704 $ 30>092>921 f 54>600>879 f 59>957>000
23>046>540 24» 1'7>023 20>126>327 29>103>019 50>917>573 52>901>914 . 51>590>075 '5>870>000
53,031,000
84,326,000
llmwnce for fundsused during constructionas percent of net incone for eomon 12>70$ 18,01$ 52ol9$ 50.54$ 48.63$ 105.04$ 79,02$ 62.09$
uree: Carolina It>ver g Light Orqv>ny> 1975 Annual R rt laterite Financial Statcuentst tune 30> 1976,
I
Page 16
INVEST)KrlT STATURE
ChHOM(A Pal 5 LXCIR COMPAllT
~rs Ratinon
Senior Debt
Standard Ec Poor's Hoody's Standard 8 Poor's lbody's Rating of Standard 5 Poor's Dividend Paid
Bond Quality Rating Quality Rating on Quality Rating on Basic Investmcnt Earnings erd Each Year
on Senior Debt Preferred Stock Preferred Stock polity Dividend Ranking Sb:ce
nbaan Medium Grade 1937
Source: khody's Investors Service, Inc., Body's Public UtilityHanuai, 1976; Moody's Handbook of Common Stocks, Surrmer 1976 Edition;Moody's Bard Survey, 1974 to date; lh y s Bon Heep an Preferred S oc Ra gs, rovem er; andard 5 Poor's Corporation,F Incone Investor, 1974 to date, Bo G e, <oven cr ( ; S oc e, (oven er 1976.
FAZE RATE OF RETURN ON DOCK VALUE OF COCA)N S5GTf Page 17ALMOND ZN YAJOR ELECTRIC UZILITYRAT OPJ)ERS EI OHZGli~AL CKi JURISDICTIONS
STATE PUBLIC UZZLIXY COLNZSSZONS iQiD PM~L PO~m CGi~~IQf'o75-1976
Bdr Hate of Returnon Book Value of
Com~n Equity AllowedState Public Utili y Cois 'ssions
and. Federal Power Connission Co&ined
16.00 - 16.24$
15 75 - 15.99
15.50 - 15 74
15.25 - 15.49
15.00 - 15.24
14 75 14.99
14.50 - 14.74
14.25 - 14.49
14 00 - 14+24
13.75 - 13.99
13,50 13+74
13 25 - 13+49
13,00 - 13,24
12 75 - 12.99
12.50 - 12.74
12e25 - 12.49
12 00 - l2~24
//////////////////
~ //////////////
Total of Orders 39
13,50+p
'verage 13.47~~
Note.- All 39 Orders define return as oPerating ~mense ard excludeallowance for funds u cd du"ing construction f~n return,
FAIR RATE OF IETUiiN OH BOOK VALUE OF CChZMIi EQUERRY
ALTAXKDIN VAJOR EL;CTRIC UTVuTI RATE ORD K Zl ORIGZIQLJi COST JiEKDICTZONSSTATE HJBLIC UTILITYCONGSSZOiQ AItD "EDHSL P$1Gt COHCSSION
1975-1976 Page 18
Ar)ansas Public Service Co~ssionArkansas Power k I Sn- C~ny
Docket No. U-2649, April 21, 1976
Public Utilities Conoission of the State of Californiaci. xc Lias anQ ec» ~c ripanyDecision Ho+ 84902'eptember 16'975
State of Connecticut Pu'olic Utilities Control AgencynxtecL ~tilt1ng 'LpanyDocket No. 760305, July 9, 1976
Public Service Comission of the District of ColunbiaPotomac ectr c Power
Comps'rder
No. 5831> Fornal Case No. 651, October 20, 1976
Florida Public Scree ComissionG Power Co~
Order No. 6650> Nay 7, 1975
Tanpa Electric Cos=anyOrder No. 6681, 4y 21, 1975
Florida Power CorporationOrder No. 6794, July 22, 1975
Iowa State Comerce Connissionwa ols Gas anQ, ec ric COB@anyDocket No. U-483, April 30, 1976 and June 21, 1976
Idaho Public Utilities Co~ssion
Case No. U-1006 100'-1006-101, Order No. 12307>January 14~ 1976
Utah Power Ec light Corn~anyCase No. U-1009-73, Order No. 12467, April 28, 1976
Illinois Conferee ComissionConoonwe - ~son C"mpany
No. 59359 and 54485 Cons, August 27, 1975
State Corporation ~ission of the State of KansasTne m~ mwer anu i ger, G"=~any
Docket No, 102,+O-U, February 26, 1975
Kansas Gas J Q.ectric CazpanyDocket No. 102,64O-U, July 14, 1975
Public Service Coraission of KentuckyInux~m e Gas anc -'carte Co~any
Case No. 6220, Noveober 26, 1975
Kentucky Power CompanyCase No. 6542, Oc.ober 19, 1976
State of Itaine Public Uti1ities Commissionen7r i~e rower C"".panyF.C. 42072, April 2, 1975
Public Service Company of New IIMspshireF C. /2214, Parch 1, 1976
Weland Rhlic Se. rice Comissionatxrwrc Gas c'c:.~cccrxc t.o~enyCase No. 6851, 0"de" Uo. 61572, Dcce=ker 16, 1975
Co=onwcalth of !'.essachusetts Deoar.nent of Public U-ili icsrocscon rwi "on ~o~any
DPU 18340, February 27, 1976
Fair Bate of Returnon Book Value of~n &pityAllowed
12,0
12.45
14.25
14.75
14.60
32. 5
13.75
14.50
13.6
14.85
13r 0
12,0
12,50
14.0
12 50
12. 50
FAIR RATE OF RTURH OH BOOK VAZUE QF CO!ASH EQGTfALIJSiED IH lQJGR EL CTRIC UTILITYRATE ORDERS ZN ORIGL'AL COST JURISDICTIONS p~g~ yg
STATE HJBLIC UTILITY CQ~SZSSZOIIS AIG) FEDERAL PCS CORIZSSZOH1975-1976 ~ Rate of Return
on Baak Value ofCarson Equity Allowed
Nississippi flic Service ~issionsst.ssz.ppz weDocket Na. U-2783, A~ust 12, 1974The Chancery Court of the First Judicial.District,Hinds, IU,ssissippi, October 14, 1975
I4ississippi paver 5 IdSht ~anyState of Idssauri Public Se~ce Ca~ission
ms Cary Paver x CompanyCase Iio. 18,433, 18,463, 18,494, 18,495AprQ. 23, 1976, lipid 4, 1976
Public Service Cazzzissian of Nevadae ver ~~Docket Ho. 549, April 12, 1976
Public Utilities CaMssian of Hev Emshirexc ervz.ce ~any az Nev s re
D-R6081, Decezzber 31, 1974
Nev Jersey Board af Public UtilityCa~ssionerso erv ce Mec-rxc anu as Camany
Docket Ho. 761, Octobez 14, 1976
Jersey Cent".sl Paver 8 Light CompanyDocket Ha. 759-859, Nay 24, 1976
State of Hev York Public Se~ce Cemissiono ester Gas ~ill ecsr1c Carrarasxan
Case 26848, 26849> Opinion Na. 76-8, April 8, 1976
Nev York State D.ectric Ec Gas CorporationCase,26763, 26764, Opinion Ho. 75-24, October 3, 1975
Corporation Ca .ission af the State af Oklahanac crace many ox Omzzzana
Cause No, 25346~ Oz'der Ha. U2286, April 15, 1975
Ok1shctca ~ and Electric Can@anyCause No. 25567, Ordez Na. 321513, Ray 20'976
Public UtilityCamissianer af Oregoncs 'c wer bc onT pc+UF 3150, Order No. 75-704, Augu& 13, 1975
Public Se. rice Cession of UtahU Paver dc Lx z. Company
Caie Ho. 7167, hhxch 4, 1976
Public Service Camissian af Wisconsin'e Super@or D s-racy raver Camany
3020 W 1, June 8, 1976
Wisconsin Electric Paver Co~6630-zZI 1, August 5, 1976
14.50
14.00
14.00
13.50
. 14.34
13 0
12 0
13,50
FAIR RAM OF RETURN ON BOOK VAXUE OF CR9SÃ BgZTYALIGNED XH MJDH EL-CTRIC UTILITYRATE ORDRAW ZN ORIGO'OST JURISDICTIONS ~+8~
STATE HJBLZC UTILITY CQiMSSZONS le) FEDERAL P5~ COMGSSZCN1975-1976
~ Rate of Returnon Book Value of
Common Equity A11oved
Federal Pover CommissionPuo c em,ce C-"mpany of Indiana
Docket No. ~586> E-8587, ~~ion Ho. 783iNovember 10, 1976
Connecticut Light and paver CompanyOpinion No. 761, AprQ. 28, 1976
Nevada Pover ComoanyOpinion No, 768, July 7, 1976
Gulf Pover CompanyInitia1 Decision of Administrative Law JudgeDocket No ~ &8911, October 18, 1976
Alabama Povex CospanyInitial Decision of Adminismative Lav Judge
,Docket No. E-8851, October 22, 1976
~ 12.25
14.OO
12.935
nfOO
Page 21FAIR RATE OF RETURN ArsnWm
BY REGIATORY CONQSSIOlIS IN FAIR VALUE JURISDICTIONS1975-1976
Arizona Corporation Commission
Fair Hate of Returnon Book Value
of Conznon EquityOverall Fair Rate of'eturn Overall Fair Rate of Return
on Net Original Cost on Fair Value Rate Base
Arizona Public Service CompanyDecision No. 465l2,October 30, 1975
Tucson Gas 6 Electric CompanyDecision No. 46930-A, Opinionand Order on Rehearing,June 28, i+f6
"Pro forming the above finding in thc testyear...results in a rate of return onyear-end connnon equity of approximately17.3$ , including allovance for funds usedduring construction."
"Such a rate of'eturn contemplates areturn on common equity of'5.25$ uhichrepresents a fair and reasonable returnthereon."
lo.80$
10 60
7.802$
8.66
Puiblic Service Conxnission of Indiana
Public Service Company of IndianaCause Lo, 33932,October 6, 1975
Indianapolis Power 5 Light CompanyCause 1to. 33735~April 1> 1975 .
"The Petitioner'e cost ofcapital ie not lees than
9.36
"Not l.ess than 7 14
"Not lees than" 6.9g
Ncf t~exico Public Service Conrnission
Public Scrvicc Company of New mexicoCase No. 1131,October 10, 1974Case Ro, 1196~April 22; 1975
14.00(,
14,00
9 32 7.824
FAlR BATE OF RETURN ALLCMEDBY REGUIATORY CONQSSI011S IN FAIR VALUE JURISDICTION
1975-1976
page 2la
Public Vtilitics Commission of Ohio
Cleveland Electric Illuminating CompanyCase No. 74-571-Y,August 25, 1976
Ohio Paver CompanyCase Bo. 74-404-Y,September 15, 1976
Ohio Edison CompanyCase Bo. 751 131-EL-AIR,September 29, 1976
Fair Rate of Returnon Book Value
of Common Equity
"...The Commission notes that the evidence inthis case shows that thc recommended increaseuould result in an actual return on co+nonequity in thc range oi'4-15~~."
Overall Fair Bate of Returnon Bet Original Cost
Overall Fair Bate of Returnon Fair Val.uc Rate Base
9,02$
9.42
8.96
Pennsylvania Public UtilityCommission
pennsylvania Electric CompanyF.I.D. 172 and 173,Junc 2, 1976
14.8+ 9.534 8.2O
liarESTIEIIT STATUREELECTRIC UTILITIES Ill FAIR VAIlJE JURISDICTIONS
)0
Page 22
Bonds Preferred Stock Common Stock (Publicly-Iield)an ar
Moody B Cc Poor sRating Rating
lady'Rating
tan ar5 PoortsRating
lao s a ngo Sanar coors Dv en spaBasic Investment. Earnings and Each Year
Quality Dividend Rankings Since
ArizonaXrrcona public Rcrvice CompanyTucson Gas 8: Electric Company
DclarlareDaaiarva Povcr h Light Company
Iebaatt Medium GradeMedium Grade
Investment Grade
B+A-
19201918
1921
Indianabanana I liicbigen Electric CompanyeIndianapolis Porrer 8: Light Company»Northern Indiana Public Service CompanyrrPublic Service Coarpany of Indiana, Inc.»Southern Indiana Gas and Electric Companyrr
BaahaAaAaAa
ItbsafftlaaffNaaffNaaff
BBBA+AAAAA
Investmcnt GradeHigh Gradelligh Grade
Nf
AAAA
1934194419411944
lbnwnalllor. ana tower Conpanye
Iles Hexico~pu c nervice company of llew iiexico
Aa
ttaff
lligh Grade
Invcstmcnt Grade
, 1935
1946
Ilorth Carolina
Dup.c Iurrcr CompanyAA
llbaatlItbaaff
Medium GradeInvestmcnt Credo
19371926
OhioCTncinnati Gas 8 Electric CompanyCleveland Electric Illuminating CompanyColuribus and Southern Ohio Electric CompanyDayton Power and Light Corrrpany.Ohio Edison CompanyOhio Poorer CompanyToledo Edison Company
AaAaAAABaaBaa
AA tlaaffplait
BBB+ "a"A Italt
A "baaffBBBA Nbaaff
AABBBBBBA-BBBA-
Investmcnt GradeInvestmcnt Grade
Medium GradeMedium Grade
Investment Grade
Investment Grade
AAA-A-A-
18H1901192719191930
1922
IIIVESTIKIITSTATUREEIZCXRIC UTILITIES III FAIR VALUE JURISDICTI(SS
t(OVEMBER
Fuge 23
Bonds~ 8 an ar
Moody's & Poor'sRating Rnting
Preferred Stockr
Ibodyts . & Poor'sRating llnting
Common Stock (Publicly-Held)s a ngo Sana Poor s
Basic Investment Earnings andOuality . Dividend Rankings
v ensEach Year
Since
PennrylvaniaDuqucsre I ight CompanyMetropolitan Edison ConrpanyPennsylvania Electric CompanyPennsylvania Power & Light CompanyIhiladclphia Electric CompanyHest Penn Power Company
AaAAAaAAa
AAABBBA+A-AA
Ita
I beatiIt IIII II
AABBBDBBABBBAA
Investmcnt Grade
Investment GradeMedium Grade
AB+
1913
19461902
TexasCentral Power and Light CompanyrrCommunity Public Service CompanyDallas Power & Light Company"El Paso Electric Company»Ibuston Lighting & Power CompanyrrSouthwestern Electric Power CompanySouthwestern Public Scrvicc CorrpanyTexas Electric Scrvicc CompanyTexas Power & ItigIrt Company"Hest Texas Utilitics Company>
AaAAaaAAaAaAaAaaAaaAa
AAAAAAAA-AAAAAAAAAAAAAA
II II
privateItaall
~taallllaallll allItaattttaall
Mprivate
MAAAAAAAAAAAAA
NL
High GradeHigh Grade
High Grade
1936
19281922
1942
Holding Companiescgrcny I'orrcr Systcmf Irlc.
American Electric Power Companyt'nc,Central and South Hest Corporation+Texas Utili ics Company>
Medium GradeMedium Grade
High GradeHigh Grade
A-
AA+
193519091o471917
«Electric utilities in fair value Jurisdictions without flow-through.
Rote.-Dash in preferred stock, Ibody's and Standard & Poor's ratings, indicates preferred not yet rated by Moody's or holding companiesor operating companies without preferred stock. Dash in cannen stock, I&cd@'s and Standard & Poor's ratings, and in dividends paid>indicates operating subsidiaries without publicly-held common stock.
Source: Ibody's Investors Service, Inc., Moody's Public UtilityIenualt 1976; Ibody's Handbook of Corrcron Stocks, Summer 1976 EditioniIbodyts Bond Survey, 1974 to date; bor s n Secor on Preferred S oc la ngs, ovem er ; ndard & Poor's Corporation,F xc cane ves or, 1974 to date, n u e, vcm er i ; ~ oc r u c, ovcm er 1976.
RATE OF RETURN ON COM%II EQUITY AND COIIIION EQUITY RATIOOIITINO FLECXHIC UTILITIES IN FAIR VALUE JURISDICTIONSCOMPANIES WITII PUDLICLY-NELD COIMON STOCK AND SUBSIDIARIES OF IIOLDINO COHNNIES
1963-1975
Page 24
1963 1964 1965 1966 1967 1968 1969 1970 19?l 19?2 19?3 19?4 1975
labara~sama Power Company+ 12.56$ 12.93'5
35.3012.49$35.56
11.32$35,06
12,02$34.16
11 93$33.99
13.62$34,27
12 13$34.32
ll,jf~p 10.1 ~ 13. p 0.6 ll./PE3.03 ~ 7 . 4 ~03
rixona~Ar zona Public Service Company 10.32
32,1010.2331.57
8.9331.50
9.4532,15
-9.6732.39
9.0031.13
10.0029-95
10.1229-59
9 9?29,05
11.4230.63
11.8231.72
10.943l,lg
13.523l.o4
Tucson Gas dc Electric Company 10.2141.83
10.9041.20
11.1630.24
11,09 11.8236.70 36.05
10.9936.52
12 6035.05
14.3634.68
12.56 13.5233.09 29.9?
14.QS26.04
12.4825.02
14.4529.52
clawarel)e&arva Power g Light Compel~ 13.09
34.9514.30 15.13 15.20 13.03 13.71 14.40 11.79 13.19 12.1933.63 33.05 35.97 36.77 34.43 34.15 32.91 30 07 32.05
11.99 11.32 9,7432.26 32.05 33.99
llinois~Cen;raal Illinois Light Company 11.19 12.27 12.07
36.11 40 34 40.90
Commonwealth Blison Company» 13,57 13.09 14.3439,78 41,44 42.QQ
Illinois Power Compan~ 16.1035.28
16,0S 17,1335,01 '6,09
Central Illinois Public Service Company» 15.69 16.24 16.3235.06 34.72 33.60
12.8739.42
16.3133.73
14.8042.09
17,2536.80
12. 5037.72
16.3233.96
14,9141 70
17 6136-55
11.7036.76
14.0734.33
14.3640 12
16.8635-23-
14.0534.57
13.023?.63
17.4534.47
14.4135.00
13.1634.36
17.2434.99
11.97 13-7536.05 . 34.65
13.0033.67
14.7635.35
12.3631,61
13-3135.09
13.0933.67
12.7733.10
13.1432.5S
12.2035.80
P -43 .47 .72
1.90 W -76
.65 .37 .95
I
II
I
I
II
RATE oF RETURN olr corrrrolr WUITI AND CoreoN zqUITr RATIoOPERATIlro ELECIRIC UTILlTIES IN FAIR VALUE JURISDIGTIolrS
COHNlrlES MITrr PUBLICLY-rELD CQr:!311 STOCK AND SUBSIDIARIES OF lrOLDINO COHFANIES1963 1975
1963 1964 1965 1966 1967 1960 1969 1970 1971 1972 1973 1974 1975
Indiana~an ana h Hlchtaan Elcccclc ccaaanyc
Indianapolis Power and Light Compan~
14.67$31.63
14.624o.5o
17. 13$30.96
14.3940.62 .
17,lip30.03
15o4140 79
10.96$30.99
16.9139.79
17o6+31 59
16.3536.04
16.76$31.39
15.2233.14
17-95$30,43
15 5531o59
17.00$30.25
13.0731.22
13.57$29.09
14,1332,70
15 05$29,03
17.0733.25
15.26$29.38
14.3033o30
7o19~29. 17
9 9631.63
lo.68'„20.39
12. 4929.02
Northern Indiena Public Service Companyjr 14.1534.7o
14. 5635. 51
15.6636.55
16.0637o90
16.2030.47
15.4530.o6
15.2037o90
16.3438.24
15.1537.83
15.2235o50
lb.643rrolo
11.33~ 32,51
11.'9531.32
Public Service Company of Indiana, Inc.+ 11.2139.25
Southern Indiana Ces and Electric Company+ 12.2240.10
12, 53. 40.07
13.2141.4o
13.6941.07
14. 5042.19
14,96, - 15.6541 49 39.95
14.o443.24
14.9139.00
13.6242.75
14.7230.84
13.964o,30
14.0738.o9
14.3638.26
15 3736.31
12.0736.49
14,9235.99
13.6536.07
15.6036.oG
lrro5239.14
15. 0037.64
14.4237.02
13'2336.71
13.1936.66
13.1040,43
YnntanatbnG<na Power Compa~ 13oll 13o30 13o60 14olo 12o93 llo70 13o24 13o61
50,14 51,44 51 90 51 42 50,07 47,30 46,16 47.33I3.18 13.4648.65 '0.o9 13.00 12 70 13.32
45,57 42 71 41.11
lrew Kexico~Hc bervice Company of llew lrexico
llorth Carolina
12.4638.21
12.37 12 95 13.61 14,09 12.99 12.44 12 7339.76 40.40 39.00 30.04 35.33 33,97 34.57
12 47 lrr,l436.26 37.97
14.09 9.73 . 11.4030c13 35.46 33.05
Duke Power Company
11.8038.23
10.9143. 47
12.76 13.31 13.07 12.45 I2.4030.57 30o71 30.61 36o50 33.93
11.69 . 12.49 12a10 12,40 12,2343,15 42.79 42,07 39,23 35.49
llo60 0.20 10.39 13.62 10.6233.95 33.00 30.13 31.72 32.02
12 56 9o 48 10.70 9,09 9. 5931 17 27,01 27o92 29.09 29,07
9.56 11.9429,43 30.14
8.03 9.5929.07 29,60
I
I
I
I
HATE OF RETURN Oll CQDDII EQUITY AllD CRCSN EQUITY HATIO-OPERATIIKI ElkCIRIC UTILITIES IN FAIH VALUE JURISDICTIONS
COHPAllIFS MITII PUBLICLY-IIELDCNIIION STOCK AND SUIKIIDIAHIES OF HOLDINO COMPANIES1963-1975
hioKncinnati Cai Aq Electric Company
Cleveland Electric Illuminating Company
1963
13.74$ ,
37.02
'1.04
50,71
1964
15.01$37 95
12.4153.44
1965
16.07$30.06
13.3654 '2
1966
16.~40,32
14.3054.70
1967
17.03$40.50
14.6655.07
1968
15.61$40,20
14.6553,06
1%9
16e03$30.40
14.70~ 47,54
1970
15. Igf35.40
14.5343.42
1971
13.43$34.12
lb.2141.20
1972
14.76$33.48
14.3237.33
1973
13.07$
13.0234.OO
1974
10.73$33.31
15.0431,29
1975
zo.v6$32.16
13.0630.92
Columbus and Southern Ohio Electric Company 12.0135 99
12,9637.73
13»7939.67
13 1340.52
13.2640 41
12.3637.91
12.3535.19
11.1532.21
9.4530 32
11.6230, 51
12.4331.63
0.1729 05
15,6529,29
Dayton Power and Light Company 12.6640.16
13.3441.66
13.8942,38
14.6341,92
15 5040.40
15.0937.67
14.7333.99
12.4033 39
1240033.56
11,6934.42
10.0834.V9
10.1433.02
12,4534.40
Ohio Edison Company 13.5730.97
14.3239.04
15.2241.12
15 3242.30
15.7943.50
14. 543.~4
14,9042.03
13.10 13.8336.45 33.26
14.7132 '3 lle25
31.0013 0329.vo
Ohio 1bver Company 1V.4733.91
lv.4v34.60
19.2634,01
20.1030,66
19.0031.63
17 9433.15
16.2530.95
15.6v29.92
15,9629.44
15.6029427
15,45 11.7620 76 . 20.23
14.2620.00
Toledo Edison Company
Pennsylvania~queeee e qht Ceuqeue
l<ctropolltan Edison Con@any
14.2233.02
15.3535.21
12,5139.62
14.6v34,40
15.7636.13
12.0739.26
15e 1735-97
16.2036,47
12.9938.05
15.0637.49
16.5035.01
12.0336.02
15.6535 78
16 7133.37
12.2034.60
15 2033497
15,9032,29
10,6934.55
15 5734,48
14,9830.68
9.0434.22
15.1933.74
13.5631,00
7.4839,46
14.6231431
13.2732.66
9 9345.04
15.4630,56
12. IQ33.09
10 0043.73
14.9230.44
11 4534.15
10.0339.40,
12.1929.84
11 3933.96
11.4539.46
14.3530.67
12 9732.46
10.2739-92
Pennsylvania Electric Company
Pennsylvania Pouer Ec Light Company
13.2934 24
13,0233.15
12.v635.14
12.4036.56
13.17 13,4433.22 33.09
12.6235,01
13.6732.12
12.0233.39
13.1330.76
12,0934.14
13.0429,70
12.2420.96
9-9820.57
12.20 10.5434 09 . 34.91
12.1034.69
11.3720.79
10.2634,49
11.3729.64
12.3635.62
11.2830.31
11.4834.73
13.5329,80
12.4532,20
12.7229,24
Philadelphia Electric Company
Vest Penn Bwer Company
11.5130.02
14.v533e05
11.6930.07
15.1033.75
12. 1830.07
15.7334.44
12,7037.76
16.1434.97
12.2337.68
16.0033.75
ll 9236.07
14.44
10 3035.77
15.4230.43
9.4334.51
15.2532.00
10,0034.02
15.2931.55
10.2934.10
14.4531.66
9.7534.63
13.5132.72
0.9333.20
11.1033.22
9.3832.47
13.3433.39
RATE OF REDJllN ON COl%0H EQUITX AND COl'RON EC5JITX RATIOOPERATIN0 ELECIRIC uriLITIES IN FAIR VAUJE amiSDICTIONS
COHHWIES MITS HJBLICLX-NELD CQQRN STOCK AND SUBSIDIARIES OF llOLDINO COHNHIE31963-19?5
1963 1964 1965 1966 1967 1960 1969 19?0 1971 19?2 1973 19?4 19?5
Texas~cn ral Power and Light Company 14.9? f 15.20$ 15.47$ 15.9?$
41,20 42,43 43,73 45,1017.63$ '6'.45$45.42 44.11
17.9?$42.01
l6,03$ 16,25$42.52 '1.35 15.90$
39.9815.22$ ,
40 2113.71$30.67 39 17
CoarLunity Public Service Company
DaUss Power 5 Light Company»
El Paso Electric Company»
Houston Lighting g Power Company»
13.63 15,43 14,13 12,6237 04 35+79 34o?? 32 30
12,54 12.31 12,20 12,2339,24 39,90 40,21 40,01
16,80 16,77 17,71 17 343?ob? '9o07 40.32 bi+22
15.08 16.09 17.24 15.9644,98 47 15 49 40 49,02
11.3230.07
12.5030.66
16.6341,06
14,6745.21
11.3029.44
13.0037.09
17,0539,06
14.1142.15
13.0929+97
13.6436.95
17+10'7.88
14.4941.20
14.1131.70
13il737.26
17 0330.24
15.1440.72
14.4032.39
12,76. 36.26
17 0737.54
15.4639.67
16 0632.75
I2.6935.00
17.1037.15
15,493S.21
15.6732.01
12. 5036.41
15-7537.42
13.9339,44
11.8132+10
11.3136.59
15,0232.61
11.7436.96
10.7930.63
ll;5635 50
15.1130,27
10;0036.39
Southwestern Public Service Company
Texas Electric Service Company»
16,24 16e6933.04 32.75
17.65 16.0037.40 38.0?
16.25 15+3131.03 31.30
16.09 16,3530.60 30.33
14,7130,91
16.3630.52
15.4330.62
16.2330.39
15.7630 90
16,0030.24
16.0231ilb
17.3337+ 37
17.96320 55
1 703 .22
16.08 16.4336,94 36.42
16,1533o95
15.5736.31
10.1232.09
15.0936.40
16.2831.93
13.0734.60
Texas Power Ec Light Company»
Nest Texas Utilities C'ompany»
17,0S 17,93 10.60 17,6440.25 39.56 30.17 30.82
15,61 15,9? 15.56 15 6740.23 41.46 42.27 42.52
17.6230.92
15.3343.30
15.0430.06
14,9143.62
16,6237'45
l5o5743.30
16 7936.87
16.4843.90
16.3137.34
15.0645.36
16.7137.04
15.4746.87
15.3430.17
16.9046.yr
ib.bo39 17
16.2747.49
11 3936.00
1.6.454S.86
III
I
II
RATE OF RE1UIUt OH CG~IIDH EQVI1Y AHD COUGH EQUITY RATIOOPZRATIHO ELECTRIC IILITIES IH FAIR VAME JURIODICZIOIIS
COMNllIES MITII HJBLICLY-IELDCOIOQIf STOCK AND SUBSIDIARIES OF HOLDIIIO CHNHIES1963-1975
1963 1964 1965 1966 1967 1960 1969 1970 1971
Page 28
1972 1973 1974 1975
Average —above 39 companiesin fair value Jurisdictions
13o76fi 14o24$ 14o66$ 14 62$ 14 65$ 14 06$ 14 26$ 13e73$ 13e48$30.03 30 63 30 95 30,60 30 15 36,92 35,66 35 37 3lf,9lf
13e60$ . 13e3+ lle74$, 12e50$34.72 34 50 33.53'3.19
Average - above 20 companiesin fair value Jurisdictionswith flow-through
Average - above 19 companiesin fair value Jurisdictionswithout
flow-through'3e
22/ 13 o70/lt 14 00$ 14 e 26/ 14 14$ 13 o 55$ 13 e 52$ 12e7+ 12e 05(i 12e 91/ 12 89$ 1 1 o 52$ 12e 53(i37,27 37,67 37,79 37,46 36 00 35,52 3lf,22 33,57 33,3ff 33el6 32,0ff 31,95 31,01
14o 34/ 14 o 6+ 15o 27/ 15o 42$ 15o 19)ii 14 6Q 15 00(i 14 o 02/ 14 o 15$ 14o 40$ 13 90$ 1 le 97) 12 e 46/38.04 39.63 -40 17 40,20 39,57 30,39 37 60 37 25 36.62 36e38 36 41 35.20 34,63
Average - above 30 companiesexcluding Texas
Average —above 9 companiesin Texas
13o10$ 13,73$ 14.20$ 14.63$ 14 49$ 13,80(i 13 03'$13 09$ 12 7Q 13.06$ 12,03$37o72 38e3ff 30o66 38e48 37e83 36o55 35o33 34o6'5 34ell 33 83 33e56
15e7+ 15o92fi 15o93$ 15.45$ 15 ~ 14,92$ 15.77'g 15e08$ 15.79$ 15e74$ 15 23$39o07 39,58 39,92 39 86 39,21 38.14 37,66 37 76 37 71 37 70 37 97
11,02$ 12.27$32.43 32.27
14e 16/ 13.26$37.21 36.26
Hotee-Common equity ratio is average total conmon equity as percent of average total capitalixation,including debt due within one year.
Source: Computed from date in 1975 annual reports to stochhoMersl unifona statistical reports) and Hoody's Investors Servicef Inc fHoody's PuMic UtilityManual 1975 and ifoody's Public UtilityHews Report 1976 and corresponding sources in earlier years,
l~
I
ALMRANCE FOR FUNDS lJSED DURING CON"TRUCTION IN RElATION TO NET INCOME FOR CGlCRNOPERATINQ ELECXRIC UTILlTIES IN FAIR VALUE JURISDICTIONS
COHNNIES 'MITil HSLICLY-liELDCON%N STOCK AND SUDSIDIARIES OF )iOLDINQ CQ95liIES1963-1975
Alabana)~a>as+ Power Companyii
1963
7.65$
1964
7.03$
1965
7+54
1966 1967
9.8gf 9.23$
1960
7.06$
1969 1@70
10,97$ ll.~1971 1972 1973 1975
Arizonarttttta itttlic sttvice cotttttttTucson Gas & Electric Company
20;541, la
6.413.02.
1,0715 00
0.04 4,1014.46
10.7a0.34
12.6012.65
3.067.99
9 5010.95
17.4337.57
22.4755.91
30.727o.02
35.1422,06
Delaware~Dc anrva Ibwcr & Light Company o.46 1,6ii 5.00 4.07 2.42 0.57 15.ao 25.34 43.o4 45.H li2.10 33,19 32.71
Dllnoi sCentral Illinois Ltttitt Campanist»Central Illinois Public Service Company+Commonwealth Edison CompenyiiIllinois Power Company>
l.o4a.6o
'2.605.93
1.709 913.976.ao
3,0116,09
4.o3o,06
7,lA 13.022,15 1,994.55 6.301.49 2.51
10,201.93
10.296.64
4.612.67
17,6015,51
11.6710. 1027.1615.a6
27.59aalu 55
39-0711.77
22.5825.0534.4420,69
++0 ~2~5 3Dr9Zyg.oo g645~l ~27 +l~
Indiana~n~Hana & Michigan Electric Companyii
Indianapolis Power & LightCompanyi'orthernIndiana Public Service Company+
Public Service Company of Indiana, Inc.+Southern Indiana Gas and Electric Companyii
15,201.243.250.35o.Bo
9 572,193.500.900.70
o.635.363.362,093.95
1,07 ',5312,61 11,62
3 t75 7t324.20 5.059e66 0,74
12.4116.660.320.102.59
25ill22.465.45
12 0611.72
li6,590.216.99
15.4414.31
7o.6814.437.78
13.751.4.74
82,1621 3316,1511.0129.07
00.6o20.3230 9714,1920,05
217.6623 3937 9727.60
3.43
lolta641,3939.9824.70
3 10
lantana~n;ana Power Companys
Ncw llexico~Pu Hc fcrvice Company of New Mexico
liorth CarolinaM
Duke Power Company
0,52
1.03
5e209.76
o.44
1.40
6,297.32
o.00
1.43
B.oo5,0o
o 95 3.74
2,07 9,30
[.ti) 12. 6 it~ 1 9o95
7.34 a.3a 0.50
15.76 15.34 6.76
12,70 10,01 52.1921,09 33,11 60.05
1,13
B.o3
5o.5467.07
2.52
ao,63 .
40.6307.55
5.52
22,96
02.~i6
16.02
12.24
lo5.8401,19
23.02
21,60
79.0250.36
OhioiVncinnati Gas & Electric CompanyClcvcland Electric Illuminating CompanyColumbus and Southern Ohio Electric CompanyDayton Power and Light CompanyOhio FW.son CompanyOhio Power CompanyToledo Blison Company
1,091 97o.48o.702,132. 3)
3 15o.600.771.031,961.74o.a6
2 79o 990.991.101.016.780,61
2,62 4.7li1,50 3.6li1.65 5,59a.66 5.662.60 0.11
16+55 11,131.70 6.93
9.2510.0211,1012,31
18650,91
15.2717 4117.4510.306.35
25.945.34
ao.ob3o.5623.1110+5133 227077
22.3714.2133 1716.5119,9232r 519.04
19.3)
10.2321+7037.2327,12
22.2023. ti025.0023.5331+145o.2452+31
30,6031 7050.7231 3261.6o75.7900,70
~i9 994o.4aa7.1873.93 u27.49 co72,43 ia
ALMtlAlfCF,FOH HttfDS USED MNIttQ COttSTHUCTIOlf Ilf HFIATION TO lET IltCOlfg RN COftttOtfOPEttATIHQ ELECIHIO UTILIT~ Ilf FAIH VALUE JIILIDICTIOtfS
COHAUfIES MITll M)LICLY-tELDCOf RKttf STOCK AltD SUttSIDIAHIES OF IfOLDPtQ COttN11IES1963-1975
Page 30
Penneyliania~<queanc lehO Caeyeey
ffetropolitan Edison CompanyPennsylvania Electric CompanyPennsylvania Power & Light CompanyPhiladelphia Electric CompanyMost Penn Power Company
lel7$l,tfffI.tt61.703.300.66
1.002.073.9o2.641.16
2.90$3.263,217.412,901.97
1963 1964 1965 1966
6.01$4.707,047.406.014.51
0. 43$7.560.24
15. 170.167.20
1960
9.3649.76
13.6919.566.59
17.99
1%9
24.0g30,9422.9520,6913,6420 71
1970
39.03$67.747.40
34 1030.9017.63
1971
27el0$44.6614.5743.6040.4720.26
1972
3lf55.5627el533.7549.1225.99
30 9917tf e3030.2830.1061.6616.91
43.60$61 1635.743o 5774.2514.64
43.Oaf47.3530.1750e1261.90
7-76
1973 1974 1975
Texas~Cen ral Power and I.ight Companys
Cormunity Public Service CompanyDallas Dower & l,ight Company»El Paso Electric Company>llouston Lighting & 1bwer CompanysSouthwestern Public Service CompanyTexas Electric Service Company»Texas Power & Light Company>Hest Texas Utilities Company»
2,96 .1.560,005.152.02
471.97le09
. Oo00
3 03 1 93 Oo00 4 e271.76 3.24 5.06 3.000.00 0.00 0.00 0,000,34 4,05 4,75 2.982.35 1.68 3.75 6.lB9.91 7,31 2 17 4,430,91 2 69 4,66 2 192.78 5.01 2.87 6.202.26 4.35 4.05 1.47
6.721.294,57
11.006.660.235.565.463.65
6.67 0.711.30 0.909.77 12 590.53 4.965.10 9,621,69 5.404.30 6,579.66 10.853.25 2e72
9.z01.44
14 53
7,2~f9,02
l2,1914.284.06
7e731,45
14.500.74
10.44- 23310.9910,411.26
12.422.01
17.761.67
12.000.29
14.46lle17
5.67
14.552 73
13.4114.6512.9411.75 .
13.1920e99
5.19
15.832.42
19.3225.0913.3017.3523.5426.051.31
Avcragc - above 39 companiesin fair value )urisdictions
Average - above 20 companieein fair value Jurisdictionswith flow-through
Average - above 19 companiesin fair value Jurisdictionswithout flow-through»
Average —above 9 companiee in Texas
Average - above 30 companiesexcluding Texas
3 e 4+ 3e 05/ 3 e 91/ 4e 05/ 6e 33) 9o 05mte 13 e 53/ 18e76$ 22e 50$ Z6 o 52 fr 29e Ills 40e 06/ 35e 9fyfe
3o 63/ 2 e71$ 3 e7+ 5e 02/ 7e3+ lle77$ 16e 6+ 22e76$ 25e 36/ 30e 06$ 35e 07/ 43 e 66/ 37e 60/
3el5$ 3e41$ 4e02$ 4e67$ 5.31$ 7,02$ 10 3Q 14e55$ 19e49$ Zle95$ 22,62$ 37 92$ 34,02$ ,
Ze25$ Ze5+ 3e47$ 3el3$ 3e52$ 5e~ 5e59$ 6o96$ Ge~ 7o55$ 9e50fi I2el6$ 16ellg
3e74$ 3el9$ 4o04$ 5e36$ 7e18$ 11 00$ 15e91$ 22e3+ 26 50$ '2ezlg 35e36$ 49 47$ 41
Source: Computed from data in 1975 annual reports to stockholders; uniform statistical reports) and-lhody~s Investors Service, Inc„tfoody's Public Utilitykhnuai- 1975 and Yuody's Public UtilityHews Re rt 1976 and corresponding sources in earlier years.
~
'5
~
t
5
SELILTIOBSNIP SETMEOf ShTE OF NEIN ON CCMlN EQVITIAND CXRIII EQJITI SATIO
a)ge 31
100S coezon equity rationo debt
Co any B
60S ccceen equity ratioan4 7,5S debt cost
eny C
40S cocoon cqulty ratioand 7.5S debt cost
30S coccon equity ratioan4 7,5S debt cost
30S coaron equity ratioan4 8.0$ debt cost
Incore for capital
Total capital
Sate of returnon total capital
$100 Oo
+00.00/$ 1000-«10.00S
$1000
$100+00/$ 1000 « IO,OOS
$100,00
$1000
flooe00/$ 1000 « loooojL
$100,00
tlooo
Oooioo/$ 1000 «10,00S
)too.ao
$ 1000
000.00/$ 1000 - IO.OOS
Debt
Cceznn equity
Total capital
Cosncn equity ratio
o
~1000
$1000
$1000/Q.ooo « lco,oS
4 too
~600
+000
fAN/$1000 «60,GS
$ 60o
~too
$1000
fAoo/)looo
$ voo
~300
41000
$300/+000 30.oS
~300
$1000
$300/+000 «30,0g
Irbedded cost of debt
Intercat on debt
Nct incone for coceon
7.5S
7.5S x goo go.oo
$00,00 $30ooo « (/oooo
v.5S 7+5S
7.5S x goo $45.00 7.55 x fT00 45z.50
AOOIOO t"5~00 «85~00 $10400 - $5450 " 67~50
8.0S
8.oS x froo $56.oo
floo.oo - g6.00 $44.00
Rate of returnon comon equity $00,00/$ 1000 «10,00S /0100/~ «11.67S $55.00/~ «13o75S gt7.50/$ 300 «15,83S hatt.oo/$ 300 lt.67S
I
METlfOD OP ADJUSTHEtC19R DIDXRBIT C08%N ERUITT RATIO
Earnings e erien6e
public Service Indiana ".
1974
Rate of return on common equityCaamon equity ratio (37,82$ )
Coeyonent for common equityin overall rate of return
14.42$x .3782
5.454
At 35.81$ conmon equity ratio Lass comnon equity, aore debt
i@re interest (5.90)rate in 1974)less earnings for cosmon equity
Resultant cecrponent for co+non equity
.3782~2'0201 X 5,~
0.119
5.454 - 0.1195.335
Resultant rate of return oncommn e at 35.81$ common equity ratio
5.335/.358114+90$
BATE OF RETURN ON COMMON ACUITYAMUSTED TO 35.81 PEHCENT COMMON EQUITX RATIO
OPERATINO ELECTRIC UTILITIES IN FAIR VALUE JURISDICTIONS1971-1975
Page 33
1971 1972 1974
Arizona~nr rona Public Service Company
Tucson Gas 5 Electric Company
DelawareDeemnrva Power and Light Company
IllinoisCentral Illinois Light Company+Central Illinois Public Service Company+Conmonwealth Edison Company+Illinois Power Company~
Indiana~ln ana anl tlichigan Electric Company»
Indianapolis Power and Light Company+Northern Indiana Public Service Company+Public Service Company of Indiana, Inc.+Southern Indiana Gaa and ElectH,o Con@any+
Montana~Non ana power Companya
New MexicoEn
North Carolina!
Duke Power Company
9,1112.04
12.13
13.3314.64ll.5513,14
12.6613.3715.7032a20Z4.97
16.02
12.56
9.769.60
10. 5712 '1
11.54
12.6612.2612.4512.20
13.3716,2615.1413,89
16.3O
14.61
12.888.48
11.2112.56
11.44
9.7510.3711.7512.63
13.8513m7114.2215,3616.29
15.95
15.44
loa518.96
lo.4711,04
10,89
9.1610.4910.3311,06
7.479.54
10,9214,9013.84
13.98
9 70
9. 178.55
12.8013.11
9.61
8.2712 261O.6712.75
10. 0411.5311.3713.3514o13
14.37
11.14
11,289.26
t0OQQ
lAtmp
4
~
~
~
~
a-
~
~
~
~
~
~
f
RATE OF RETURN ON COhÃON EQUITYAMUSTED TO 35e81 PERCENT COITION ACUITY RATIO
OPERATING ELECTRIC UTILITIES IN FAIR VAIIJE JURISDICTIONS1971-1975
Page 34
OhioCTncinnati Gas and Electric CompanyCleveland. Electric Illuminating CompanyColumbus and Southern Ohio Electric CompanyDayton Power and Light CompanyOhio Edison CompanyOhio Power CompanyToledo Edison Company
PennsylvaniaDuquesne Light Companylfetropolitan Edison CompanyPennsylvania Electric CompanyPennsylvania Power and. Light CompanyPhiladelphia Electric CompanyWest Penn Power Company
? ex 6 e
Central poner ang Light Coegan?»Community Public Service CompanyDallas Power 8c Light Company+El Paso Electric Company+Houston Lightihg 8c Power Compan~Southwestern Public Service CompanyTexas Electric Service Compa~Texas Power 5 Light Company+West Texas Utilities Company+
1971
13.06$15.338.95
11.5913.3214.2013.44
12.5811,25ll 9810.2410.5414.18
17.8913.6412.8617.6316.5716.7316.4216.7718.91
1972
14.16$14.6610.7911.4613.2513.8713.95
12.0611. 0210.1010.4210,0913.50
17.2215.2412,7017.5316,1715.2116.6217.3218,91
1973
13.45$12.7111.75
9 9613.8513.7613.58
11.2010,4312.3310.529.63
I2.88
16.4614.9112.6116,2014.8015. 5815.7115 9520,70
1974
10.41$14.087,989 96
10.5811.0911.30
11.1411.9011.3312.408.80
10.84
14.2811.4011.4214.2412.2217.0715.2515.1219.63
1975
10.35%12.2714.1612.2412.0212.9613.26
12,3610.6211.8711.689.21
12.80
13.5910. 3211.5313.8510.9315.1613.6211.7220.34
~
I
COhtPANDZ EXCLUDED W(R4 USE AS COiPARISOH COhP~ Ztt TEST OF C(NEI!SURATE BET%0|
OMRTZFi ~rCTRIC COhPANIiS ZN FAIR VALUE JURZSDZCT101$ Page 35
ill'ORIL
Arizona Public Service Coz!Pany
Excluded in 1971, jp?2, 1973, 1974, and 19?5,
Rate of return earned van substantiajjy less than that allowed byArizona Corporation Co!nsission.
Inadequate Znvestnent statureo
Tucson Gas 5 ELectric Conpany
Excluded in 1971 f 1972 j 1973, 1974, and 1975,
Rate of return earned. was substantiajjy less thea that allowed byArizona Cozporation Commission.
Excluded in jp?j, 1972, 1973, 1974, and, 1975.
Rate of return earned vas substantiaLly less than that ajj!need byDeja!rare Public Service ~sion.
Zjjino~s~ntraj ZZjinois TLgh Cocoanut+Centraj Zjjinois Public Service Company+Conmomteajth Edison ~any+XLjinois Poser Co~
Excluded in 1973, 1974, and 1975.
XLjinois becane original cost Jurisdiction, ef ective in 1973.
Corno!nreajth Edison Co!soa!qr+
Excluded in 1971 and 1972,
Bate of return @as sub~~hQZg less ~ that aDcwed byXLLinois Comerce Cocked.ssicn.
~aj XLlinois Public Service Coup!!ny
Bc@luded in 1972.
Rate of return was substantia~~ less Mum tha avowed byIllinois Connerce Comf.ssion.
Excluded in 1972~
Bate of retu~ was substantiajjy less Jam tha. ajjoved byIllinois Coanerce Co!osission.
Excluded in 1971, 1972, 19?3, 1974, and 1975.
19?jf 1972 j 1973 f 1974$ and 1975 f ajjowance for funds used duringconst~ion vas, respec vejy, 70 68 percent, 82 16 percen, 80.60 percent,217.66 percent, and 101.26 percent, of net,incme for ccamn.
Inadequate investnent stature.
Difficulties in financing because of inadequate coverage ratios.
~
1
~
~
fl~
~
j
I
Page 36COHSLHZES EXCLUDED FRCM USE AS CONEARISOH COMPANIES IÃ TEST OF COY~'ZESURATE RETURN
Op"-RATlliG ELZ5tIC CSPAIGES ZH FAIR VALUE JURISDICTIONS
Zndianapolis Pover gi Light Cocpcaqr+
. Excluded in 19?4 and. 19?5.
Rate of return earned vas substantially less than that aiXcnred byPublic Se~ce ~ssion of Indiana.
Northern Izziiana Public Service ~anyzExcluded in 1974 snd 1975,
Rate of return earned vas subs~tially less Jan tha allcnred byPublic Service Cocnission of Indiszm, ~
NeM'exico
Public Service Czzspany of Ner Mexico
Excluded in 1974 and19?5.'ate
of return eazned vaa substantially less than ~t aXXcnred byNer Mexico Public Service Cozzzission.
ExcInded in 1971 1972, 1973, 1974, and 1975
During 19?li 1972> 19?3> 1974, and 1975, allowance for funds usedduring constnzction @as, respectively, 50,54 percent, 48.63 pezcent,71.90 percent, 105.84 pe"cent, and 79.02 percent, of net incone for cozszun.
Xuadequate investnent stature.
Zdfficulties ~m facing because of inadequate coverage ratios.
Subject conpsny,
Duke Pent cr CozsxLzzy
luded QL 1971~ 1972~ 1973, 1974~ snd 1975,
19?1~ 1972'973~ 1974, end 1975, alloMance for ands usedduring construction was, respectively, 67.87 percent, 87 55 percent,82.46 pe"cent, 81.19 percent, and 58.36 percent of net incoue for cairn.
Inadequate izzvestnent stature.
Difficulties in financing because of inadequate coverage ratios.
Cincinnati Gas .O'Electric Conpazzy
Excluded in 1974 and 19?5.
Rate of return earned vas substas?till'J'ess than that allotted byState of Ohio Public Utilities Cozzzission.
Cleveland Electric ZLhuzinating Conpany
Secluded in 1973 and 1975.
Rate of return eawed wa substanti~ )ess than that allowed byState of Ohio Public Utilities ~ssion.
a
COHEA?KzS ZXCIIlDH) PRM USE AS CO<~iPARZSOH COEPAIfDS ZH ~ OF COM&tSURATE RETURNPage 37
OPERATING ELECTRIC COlEOfDZ ZH FAIR VALU. JlEZSDICTZOHS
Cohubus and, Southern Chio Kectric Company
luded in 1971, 1972, 1973, ma 1974.
During 1974, aI3s'nance for funds used during construction @ac 50.72 percentof net inccne for c~iInadequate inve~t stature
~iculties in financing because of inadequate coverage ratios.
Dayton Pover h, Light Ccnpany
Excluded in 1971, 1972, 1973, 1974, snd 1975.
ZnadecynLte inveshmnt stature.
Ohio Edison Con,pany
Excluded in 1974 and 1975.
During 1974 and 1975, aXlocrance for funds used during construe.ion ma,, respectiveZy, 62 60 percaut and 73.93 percent of net incoae for coxoon.
Rate of return earned was substantially less than that avowed byState of Ohio Public Ut~ties Co~ssion.
Excluded in 1972, 1973, 1974, aud 1975.
During 1973, a2Jm~ce for unds used during concoction @as 50.24 percentof net income for aaam.
Znadaiuate investnent stature.
Excluded in 1973, 1974, and 1975.
~ 1973, 1974, and 1975, aI1cvance for ~s used du ~~ constructionvsa~ respectively, 52 31 pement, 80,70 percent~ and 72,43 percentof net inco e for ~n.
Dllguesne Light Conpany
Excluded in 1971, 1972, 1973, 1974, and 19?5.
Rate of ret~ earned ms subs antiaZZy Less han that aDaved byPennsylvania Public UtilityCocnission.
Excluded in 197L, 1972, 1973, 1974, and 1975.
During 1972, 1973, and 1974, aZiawuice for ~s used durir~ const~ion>as, respectively, 55.56 ye~en, 74,30 percent, and 61.16 percentof net incone for c~nInadequate invest ent statu.e
Pennsylvania Electric Co~any
uded in 19?L, 1972, 1973, 1974, and 1975.
Inadequate investment stature.
l
ll
l
CRKQGES EXCZODH) ER(M USE AS COhPARZSOIt CONBlHKS ZH TEST OF COHHBKURAMO~TZIQ ELECTRZC COlPA?~S ZH FAZR VALUE JURZSDZCQZONS <+g+
Excluded ia 19?l, 1972, 1973, 1974, and 1975
Rate of retura earned vas substaatiaXZy less thea dmt sIloved byPennsylvania Public Utilities Coesissioa.
Hd1adelphia Mectric Co~Lay
Exclzzded ia 1971, 1972, 1973, 1974, sad 1975,
Dtzring 1972r 1573r 1974r and 1975r azlovance for ftznds used duringconstruction vas, respectively, 49.12 pe cen, 61.66 p~ent,74.25 percent> aad 61.98 percent of net incoxe for cccaton.
Zaadeqcate iavestaent suture.
Vest Pean Paver Coapaay
Excluded in 1974.
Rate of return earaed vas mbstantis31y less thaa that alloved byPennsylvania PLzblic Utilities Cozzaission.
Ceatral Pcnrer and Light Cccpaap+
Excluded in 1974 and 19?5.
Rate of return earned vas substantially less than that aUznred bynaze.cipalities vhich regulate the company.
Commazity Public Servi,ce Company
Excludei in 1974 sad 1975.
Rate of return earned vas substantially less than dmt alloved byaanicipalities vhich regulate the cozzpaay.
Dallas Reer Ee Light Company+
Excluded in 1974 and 1975.
Rate of return earned vas substantially less than that allowed byCity Council of Dallas.
H'ouston Lighting Ec Pover Comuu~
Excluded in 1974 end 1975.
Rate of return earaed vas substantially less thea that aUznred byCity Council of Houston.
Texas V.ectric Service Coapany
Excluded in 1975.
Rate of retur.". earned vas substaatialZy less Jma that aZlcnred byaunicipalities vhich regulate the company.
Texas Pcnre h, Light Coapany
Excluded ia 1975.
Rate of return caned vas substaz. iaLy less than that alloved byxnzaicipalities vhich regulate the coapany
~
'l
~
~ r'!8%.- l≺%~ho;'%HI'E~r~'lrll'4' refArVU"".T':D TO 35.81 I-'r T!CF"!T COi:2~Jrt "i~ JITY HATIO
O~!ATL'IG L'Lr"CTHIC DTXLXT3ZO III I'AXB VADE JUHXSDICT 0~'3
1".71-1975
I~r.e 39,eeI
>971 1972 1973 9
,".! i"-'"a ~~blic Service Cor>]anyTucson Gas & Electric Corrpany
gc3W za-.Ba
s!=l;:> sa Power and Light Company 1~+. g:8X
Tll I «i ~ ~~ ~
CcsC"c..'lli!lois Li:hb Coo.~any+Centra I"linois Nolic Scr~~ice Corpany+Co;:.'.or!we:-'1th I:dison Ccripany+Il"I.!rois Power Co...oany''i.
13-3314.64
13.14
< r-63,2. c5~l.~12rRO
-9 P> ,~Ko +4a7-1Mo.1~or'
rvN
Tn llellan:.:-Llla;:nd I'.ichigan )'lcc ric Cozp*ry'.<
l'll ar .: Joli.s F"ver erdi I.ir+t CcrrrT)eny'~
io:" l" rn India;-.a E'liblic service Co+)any'':'r "3.ic Se. rice Co@on-. y of ndiana, Inc.+
S-irthcr.. Indiana Ga" and Electric Company+
13~ 3715.7012.2014.<7
~318. 2615.1413.0915.96
I-'Di r-14.22l.gJo )O16.29
..WAN
14.oo13.64
m-.e~r
W~!13 35
. 14.13
Igni.ai~ orl'na Fo-'rer Corrrgany~ 16.G2 16.30 15.95 13.98 lQ+ 37
»e r r'-" coPublic '-'":.vice Co..-beany ox I''c:lr I~rexico 12 ~ 56 14.61 15.44
b rv'n Ca "0 .in:i~„arolina,-p'n.er ~o. Licht Co~Mzy+Dn'::e Po;;-er Cou,~any
.~M.4;48
l~& 8>S-
~ .":.I-.. ¹i 8%L:;.'~,":-4=;-,ties- Qiih 0..D)U.")T"'9 TO 35.Ul H'<.C~'ii"'C:ill-".i< l"'~v'Zl''<''('TIO
OPE~T1:iQ LS;(."IT(C Lr<'ILITI!8 BI I".f'IB VALVE WBISMCTIOHS1971-1975
lnf < IV
1971 1972 "< f!73 1974
0 i c < ni«. i ('i r ~ ii li$ccty j c C ~L!pi<ny0". -":; '."..d:.".le .. f;ri. Ill".'."i".;;~tingComp. ~y
;) .„'. < C.. !~"r Qr a!iu f L"f'1CO<(DGnp',":fio
?.dis n Co".<panyh ~
To<ado T'"i"or; Core<any.
3 ~ f); I)1) ~ 3J.W)
3~ ~2lif.2013.44
14. 163 4.6;,l~~iii~6
)rCQg P711-'. 95
3.3-"553~>rX
o~o13.o51~6"l~g8
~1~i~l lf.OQri (1u'f,9-W~8lhr8gles~(f
1() mr.'.
~ ~
f) «; i<( ~)1e 3 4 . [el; Co<;<<sapor
r<1 <~':<r'V.=".1ia E! CCtriC CO; <.!<nV
.< l d -.< <.. h- r. <',loci,! 1 c golf'pc nor
vov +4ii i oi < A vD!< 'J
f~; <i
lg1 <],18
3.N5
10 ba3,'3&913.50
1325'o
Q3
3'0~=
9 a$/ ~
12.GB
U a.'-r
l~n13 ~~31~0
Q,.GO
3.o QW
~ ':-'~j f'1 +ni'-" c.'8 il "t (roL! '- n D'".«.:.'"ll~j PJ l)3 ic S<er vie G ('GLT')Qn)
7:. \'P. -o ' eci:<. " Com ".n$'~'f-.!„-.to<.-, <,~!.t '-,.) L '" fr-! ('omra<!! '
u< v. 'tc', ff '~lie Seri'e CofllpanyTe::a.", "1lc;:". ic "e'vice Co-...~.in>-~
<'<~ 4 +< as t<1'4 3 it1 Qs ( Q<(l<)ri lv 'i
1'f . C9
12 8(17.6:.)lo-5716.7316.4216.7718,91
17.22r<)4
3."-. (01716.1715.2116.6217.3218.91
llew
91
3.2.6'.6.'0
l.'...8015.
5v"'5.73.
15-9520.70
l4.28
14.2'~&c
17.0715.2515.1219.63
Average —All companies used as comparisoncompanies (includes 24 in 1971, 21 in 1972,18 in 1973, 10 in 1974, and. 8 in 1975)
Average — Companies other than in Texas(includes 15 in 1971, 12 in 1972, 9 in 1973,4 in 1974, and 5 in 1975)
14.87$
13.96$
15.30$
14.53$
i5.23$
14.57$
15.24$
14.20$
14.78$ ,
13.78$
Average — Companies in Texas (includes 9 in19fl, 9 in 1972, 9 in 19f3, 6 in 1974, and3 in 1975)
16.38$ 16.32$ 15.88$ - 15.93$ 16.4g,
~
~
~
4
~
~
I
BATE OF RETURN ON CQQRN EOUITYAMUSTED TO 35.8l PERCENT COtNOH EQUITY RATIO AND
AIL%llNCE FOR FUlSS USED DURING CONSTRUCTION AS PERCENT OF NET INCOPSOPEBATItiG EIZCTRIC UZILITIES IH FAIR VADJE JURISDICTIONS
USED AS COHMlISOH COHPANIES IN TEST OF OSSEHSUBATE RETURN1971-1975
Page 41
1971 1973 1974 . 1975
crating Electric Utilitiei in Fair Value Jurisdictions Other Than Texas
Rate of return on common equityad)usted to 35.81 percent conan equity ratio
Allowance for funds used Curing constructionas percent of net income for common
13 964.
15.60
14.53$
20 16
14.57$
20 78
14.2+
19,89
13 78$
19 98
crating Elrctric Utilities in Texas
Rate of return on conraon equityad)usted to 35.81 percent common equity ratio
Allowance for funds used during constructionas percent of'et income for common
16.38
8.82
16.32
7.15
15.88
9,40
15+93 16.45
14.58
crating Electric Utilities .in All Fair Value Jurisdictions
Rate of'eturn on comaon equityad)usted to 35.81 percent conan equity ratio
Allowance for funds used during constructionas percent of net lncocte for coxcen
14.87 15 30
14.50
15,23
15+09
15,24
15.20
14.78
17.99
Page 42
RELZ9 GROWTH AND IHFIATZON XN THE AMERZCLN ECONOHY
PERCENTAGE CHANGES YEAR~-YEAR1946-1976
Real GrowthGNP GNP
1979 Dollars - Deflator
InflationConsumer Price
IndexUni,t
Labor Cost
Total RealDisposable
Personal Income
1946)Ilaa7
1948
II1949
1950
1952L953
/1954
1955fg'956
(jg 1957
, 1958
19591960
1961
19621963196419651966L96719681969
1970
-164 1
0 6
8 78 13 83 9
1 3
6,72 L1,8
-026o023
2 5
5.84.05,35 95.92 742o6
0 3
12 86 9
1 0
2 06 81 31 5
1,4
223 13,4
1 6
2 21,7
0 9
L 81 51 62 23 32 94.55 ~ 0
5 4
8 5%
14 47,8
-101,07 9220,7
0 5
0,41 53 5
2 8
0 81 6
1 0
1 11 21 31,72 92,94 25 3
5 9
4,4S
-16»11
6 44 12,0
0r6
- 1,76 13 4
~ 1.02 2
0 3
0 30,31.10,72.93.64 37 0
4,6
.1.2%- 4.05 4
0 4
8 1.24
3 04 6
6 64 2
'2 1
0.9
4 52 2
3 L
4,73,87.06 65 54 14.52 9
4 1
]I 19711972
3.05 75,5
5 14 15 8
4,33 36,6
3,41 94 9
3 94.56,7
e
.1974L975
-17« 1.8
10,09,3
11. 09 1
12.37;7
-1 71 6
1976-ZI (annualrate, seas.Adj. ) 4.5 5 2 6 1 4,5
SOURCE: Computed from data in United States Depa~ent of Commerce, Bureau of.EconomicAnalysis, Survey of Current Business, January l976, Part ZI, National IncomeIssue, pages 24-25, July 1976, page 30< News Release, Second Quarter 1976Corporate Profits, September 20, 1976; and Releases on Consumer Price Zndexand Labor Productivity from Bureau of Labor Statistics, United States Dept.of Labor.
RATE OF RETURN ON EQUITY AND EQUZTY RATIOALL MMJFACZURING CORPORATIONS
1947-1976
Page 43
AXE HanufacturfngCo~oratf ons
1947'1948
Rate of Returnon Equfty
15.6+16.00
tuftyRnt 10
1950195l19521953
195519561957
15.4012 loion 3010.48
12.5512.28loi95
81.3+
82.06
82.28Bo.7679.96
19591960
1961
19621963196419651966196719681969
lgTX19721973
1976-I
10 429 20
8.82
9.7810+2511.6012.9813.4311.7112 05u..47
9.32
9.6710,6112.84
14.9o11.57
13. 3015.70
80.43Boi09
79.8o
79.6779i5379.5778.5476.4274.3572.9771.40
69.62
69.2469.7469.58
69. 9670,00
7o.'3470.50
I
Source: Federal Trade Comnfssion, Quarter)y Vlnnnclnl Rrpnrt forKLaaufnrnnntnn, Illninn nnn iVnn . i'nnn. ".ntl i."..."nnnnn@u<i~cr .n7(ti, jii~'.c" ~Lo, ~g-~(~Rc.uiv~iic h< ~v>r t of thcPrcstdent, Joy<wry 1976, page 2
1
RATE OF REIURH OH Co@em EQUITI ARD COWeH EQUITI RATIOlllDUSTRIALCOHPANIES WITH QUAlITI RAllKIRO OF HIGH GRADE BI HKDI'S
1963«1975
American Hone products Corporation
1%3
27.63$93.84
1964
27.4+95 52
1965
26.82$SS.84
1966
25 5S89,94
1967
25.35$90 49
196S
z5.06$9o.6a
1969
26.3+9lo 31
1970
26.75'2,30
1971
26,68$93.22
1972
27 W93.69
lPB 1974
26.63$ 29.0Q94.51 . 95.19
1975
a9.44495.93
Atlantic Richfield Company 7.4170.92
7.65V2.61
10.6078,91
7.'4680.78
8.34 9.7877,12 66,01
9,6967.73
6.oS71.84
5.65Vo.26
5.4o71.2$
7.7072,05
13.4571 21
8.8865.9a
Beatrice Foods Ccepany
Borden, Inc
Bristol ayers Company
11.3190 V9
lo+9277.41
22.959o.Go
13.1668.31
11.50VB-47
23'9493.32
11,0061.88
24.85PF.29
10,'7978.73
26.2595.16
15 65 ~ 16,7687,91 80,09
lv.5483.57
9,4574.53
21,1675.93
16.3883.4o
8.2172,09
19.8872.38
15.3876.45
4.8573 30
zo.So74.12
15.7371,20
8.3374.74
zool569.81
8.89Tzi92
18.2365.99
9,1871,98
17.7869.9o
15,92 16,0771.99 74.45
16,0976.05
9.6773.07
19.5SV5.17
16.2574.81
10.5971,21
20,5778.98
14.7974.59
11,06Vo.14
21 4081.63
Burroughs Corporation
Campbell Soup Company
'arnation Company.
Caterpillar Tractor Coorpany
Coca-Cola Company
6.4651 95
13,04100,00
10,9881.88
18.8973.81
17.8o96 29
7 ol54.52
13.26looe00
12.0481,23
26.0576.93
20,0392.73
12,4653.oS
13.3799.aS
13.0279 29
zve15So.23
21.4094,14
lv,lo54,51
13'l98.41
14.1369.77
21,6981.54
23,0695,01
15,6355.33
11 4896.38
14.48Vo.6a
14.1273.99
23.6695.56
g:g12+8995.72
14.6oVz.69
15+2066.62
23.3695.03
15.6746.12
11.1796 77
14.6675.4o
16.4865.42
23,1694+06
13eza47.35
13.0f94.83
15 1474.76
15+3065.45
23.7494.45
llo635o.76
13.2391.59
15.1674.5o
12+7866.28
a4.1495.33
12.2957,20
11.2089.7o
7~.95
18.8471,76
24.2295.76
13 2T67.65
14.cq94 15
15.2775.46
a4.1796.8o
13.4872 06
14.1897.29
16.7472.43
16.436T.17
19.9295.85
68.61
13.4T96,25
16.5571.38
24.7364.24
zo.3496, 18
Continental oil Company 10,7771.47
llolv 10elo69.96 69.19
10,9370,10
11,8'471.33
lo.66vlel3
10.6967.o5
10.5364.oa
7,1263.98
lo.6464.68
14.0264.85
16,93 . 16,3863 39 61 29
Dow Chemical Company
Du Pont (E.I.) De Wemaurs Canjany
11.34V9.23
1S.48ST.a5
12.6074.o9
ao.4a88.04
13.6965.58
21,0268.oB
14.546o.o9
18.8187,63
14,5957+%
14,30ST.o9
13,9853+15
16.1886.84
14.2349+02
14.5966.77
12+1246.68
12,7586.52
13.4345.55
12.4286.46
14.9646.66
13 7586.05
18.9749,10
18.o386.98
33.545z.v6
11,4675-84
27,8455.37
g7.36 o
68.99 g
I
55 iIIII Qi8'0' ~ '% 8 '
BANTY AND CONeFf EQUITY ETIO~~ OF RETURtI OR CM+ER]Q OF RICH QRADE BY ™~~QGXISTRIAL COHPAHIEQ WITH QNLITY RANK
1963-197
Oun and Bradstreet
1963
X9,18$ xvi37$ 20.56fyXooaoo XooooO 100+ 00
1966
22 1+100 00
xg67
aai53$99.56
xg68
20.6~tg99.26
1%9
21+2+99.29
1970
21.63$99, 16
1971 1972. 1973
21 59$ 21.934g4.66 95.26
1974
20.66$97.64
1975
20, X9$98.44
Exxon Corporation
Firestone Tire 5 Rubber Company
Ford Hotor Coipany
17,4099.75
13,1182.13
9.5983.x6
13.6989.8a
21 25100.00
12.8082.15
xxoa379.66
13,0689.69
25.65100,00
xxibs62.3o
11.4779+20
x6.5487,72
26.88100,00
12,02Bx,51
xa.4777.62
13.3985.7o
22.8099.47.
12.61-78.53
xx+6074.ga
1.V9771 52
al.6797,28
13.2875.10
.13 1969.5S
13,1472+21
20 6195.67
xoo5173.44
11,2565.51
10 7579.2I.
19.0295.89
12.4572.49
8.5'465.x6
9.6584.25
18.0$96,18
xa-gf72+33
10.5164.79
xxogaBx,o5
ax.1496,41
x2.8473.34
xx+1764.4o
15,12vy.6S
aa.a6g6.83
18,8DVb;gl
12.6464.75
xb.6678,29
lg,2497 18
ax 3574.92
los 9663.96
5.7172 35
xv.a497+32
15.3374.44
9 0162.14
5 1370,03
Qeneral Electric Ccerpany 15.4188.36
12,81Gg.5x
x7.8479.68
16,0775.97
16.35 15.1870,65 69.15
ll 4469.57
13,1968.13
17.6266.71
18.0167.54
18.1267.83
17 1966.63
x4.9467.85
General. Foode Corporation
Ceneral stol b Corporation
17,70yxe5D
24.1191 79
16,9990 50
24,5592,98
1701389.48
aB.xV93.57
16.7386.15
22,1193.68
16.5982,15
16.66
19.90VV.61
18.9493.8a
13.6574.o3
15.5269.67
17,7 6ixy94,2 94,29
8.3867.73
93.1)
x3.6668,22
19,85slo65
14.0467.84
20,3791,72
11.2D66.86
7.6S91,72
15 95Vxogo
9.90go.36
Qetty oil Company
Culf Oil Canada, Ltd~
OuLf Oil Corporation
Hanna Mining Corporation
P
9.164v.as
6.vsGx.83
11,21Bv.o$
-xooay100,00
9 4551.95
V.o481.67
lls2987,86
10.82100,00
9 9$55.96
6,9182.82
11,5386.ga
11,6684.95
a3.6o6a.ao
.Vi25- 85.08
12.7783.67
11,9$76.21
Ix.3468.42
6.93BV.o3
13.61Bx.xB
12.4878.85
8.6871+18
v.4985,GS
13.6777 0 33
12.4881 10
10,0872.85
7+0082.37
12.4873.64
xa.bo83.9$
8.8174.95
5.8776.30
10 66vx+99
xaeg666.89
9.6677+ 52
7.1377.04
10,3969+92
x3.6388.4x
5.6379 29
B.yx78,39
3.6o69,22
g.bo76.65
y9.6%
x4.57VxQ 56
V.43 V.4V89.8x '8.5o
x6.6379.8o
19.2682.3o
17.9075.01
7135. 66.35
xb.ba76.27
18.3066.48
11,16'6.59
f
16.56BV.bo.*
BATE OF BEGJRN OH COloSN EQUITI ARD CONNN EQUITT RATIOIllOVSTBIALCOMPANIES Mrnf qvhr ITI BAIKIllOOF lllat CRADE sr MODE'8
1963-1975
Dayerial oil Lt4.
International Bueineee Hachinee Corp.
International Bickel Co, ot Canada~ Ltd,
Johneon & Johnson
Rraftco Corporation
Lilly (Eli) S Congas
Herck 5 CaapenF, Ino.
Hinneeota Hining de Manufacturing Coi
1963
9.77$-90 91
19.5477-76
16.7g100,00
10 50looooo
23.7992 53
10~9281,16
1305197eV7
17.8095 33
21,0497 o3
lg64
10.47$91.72
20.5681.34
19,85100,00
11,95100 00
24.692,1
12.2083.41
15.979l.03
ao.8695-94
ao.6097 22
1965
11,00$ga.67
19,7485.62
19.37100,00
13 7196,69
23.9492.37
12.6585.41
19.52g6.89
25 5396.48
alo1395.39
lg66
H'35K93.41
17.8386.61
14,96looaoo
14.5797.6'4
23 36glg13
12.6885.95
19.86g6,8o
29.17g6.o6
22.2194&01
1967
11.24$gli46
18,2185.ol
16.94100,00
14+ 9196+05
22.4492, 12
12.5385.84
zo.5695.42
28.9795 15
20+795.
lg68
11.27$86.o7
20+7585.90
16 1290,91
15.7196.44
21.3492.97
12 0685.64
23~0095.a6
ao.o495,44
1969
10.22$82.13
18+9786.83
12~5083.46
16,1098.65
ao,86ga.86
11,7485.19
22,8296.29
25.3894,90
lglo
ll,03$81.40
18.1388.4o
ao.87Bo.7o
16.8596,27
20.9191,06
Ia,ag85 39
22. 17go.a4
aS.4693.62
18.21gle 40
1971
13 54482.23
17.1487.71
8.96Vows
17 6197.34
21+5291,96
12,8983,4o
.20,3984.ol
a5.85Bg.o5
18.5587.73
lgla
14 00$82.64
18.ol86.56
10,2866.42
17.6197 22
21,7992 33
11'77Bo.66
21,9986.51.
26 0586.49
19,2186.13
1973
i8.45483.8o
19,4290,20
19.63Voa30
18.53g4.42
21.4391+53
13.1276.21
23,07go.54
27.5888.19
ao.6686.47
1974
21.39$83 01
19.4292 93
23.22Vo.74
17 3193.34
21 5590 03
ll 4269.54
22.65Bl.ag
27.89Bge71
18.8179.99
AU16.61$Bl.al
18.49'95,20
1208967.78
17+1093+66
ajar 3984.36
15.6170.33
20I0782.66
26el5Bo.o3
14.8775.20
lhbil Oil CompanF
llabieco, Inc.
8.8689,51
17+1484.41
9,0887.72
17.3485.21
9,4o88.o4
17,1685.9S
9.9788.ag
17eaggoo70
16 9984.00
15.8678.64
10,26 ~ 10.8487.94 85.59
1003484.1o
11.4274.ao
loogl
14.96Vae55
11.5480.21
16.156g.aa
11,5180,73
15.64V7.7S
16.49 ll '7965.51 '0.79
12+9174.8S
11+9552,07
12+2072.95
14.9153.05
EhDlipe Petroleul Coap~
Prentice-Hall Inc.
8.8583.77
aoyVBVgo72
9 2782.92
23 i3787.81
loo07So.5o
31,06100+00
Dool67.95
lla4762,63
33.35 31oog100,00 ,100,00
8.0467.12
30.00looooo
J,7$
29+11looeoo
6.6o65.92
25.36 23.75100+00 looeoo
8.3267.33
18i69100,00
12.1868.51
18 98 14.58Vao73 73o9
23I27 Zl+72 aors 34100,00 100,00 100,00
4
RATE OF RETURN OH COQ%S EQUITI NQ COPEN EQlJITI RATIOImUSTRIAL COHFAHIES MITE QNI ITI RAHKIlQ OF HIGH GRADE BI NOODISS
1963"1975
Procter 5 Gamble Compaay
Reynolds {R,J.) Induatriea, Inc,
1963
15 31$86.06
21.0754.1o
1964
15.63$06.95
Ig.z469.74
1965
14.74$87.47
zo.1470.60
1966
16.03$87.83
20,0766.73
1967
17,81$88.5o
Zo.6266.48
1960
19+lip80,41
lga 06Vo.47
1969
16,51$80.32
12.7960.51
1970
IV.~80.69
10.4364.49
1971
17.78/S9.46
10.8566.06
1972
18.63$87.91
17.8267.5o
1973
IS.I0$86.06
18.1367.58
if(417.16$86.20
19.2660.56
1%5
16.40$81 31
19 Ol72.34
Richardson, Herrell, Inc, 14.75100 00
14.15100,00
14.84100,00
15,8994+23
15.0988.1o
13.0784.25
14.69Sz.oy
15,3078.79
13.3075.v4
14,9976.5o
ly 16S0.08
14 95 13.1683.05 77.13
Schering-Plough Corporation
Scare, Roebuck and Comp1mg
Shell Oil Compitgr
Smith, KLine Corporation
Squibb Corporation
Standard Oil Co. of California
Iyelg85.64
13 3269.99
Ize3783.79
33+06100,00
9.2093.87
16.76glo32
14.5166.36
12+7285.07
33+12loo woo
9.0793.71
18.5296,72
14.1462.63
13+9283.oo
32.66100,00
9,10g2.54
20,32960 72
13,516o.45
13 9978.85
29,80IOO,OO
10,4791,31
21,3296.25
13.1859.92
14.3V75 59
20.oy100.00
12.7581,39
10.5780.46
22.5494.56
13,9659.93
13.5576.22
25 94g0.o0
10,74Vg.V4
ll 0486.06
23.6093.40
13.4460,30
11,1970.42
23.6295.64
IZ.BZ75..20
lo+5185.0o
22.4595,81
13+106o,4o
0,7777+23
23,7193,76
13.7960,77
10+0205.02
22 7394,30
14.246o.64
8.7076.35
22 7289+21
15.4668.19
10.6981,59
25.2693.35
14.326o.38
9,0675.31
21,9084.55
15 ogV67.70
10,7979.00
20.3194.00
14.2359.50
11.0574.41
21.7070.82
16.2567.7o
1'5.3081.96
27 1395+08
9 9957 22
18.6576.35
21+7570.71
16.2667.7I
15.8307.53
25.3395.39
10.4055.16
13,7076.73
21 3065.84
16,2367.68
12.3282.82
Standard Oil Co.. {Indiana) 7.3606,6o
7.6186.g4
B.zlSvolo
9.3685.26
9.8o83,62
10,27So.6o
10.1275.86
9.8075.54
10.20 12,9076.75 76.31
20 90 14 7176.16 75.02
Texaco p Inc ~ 16.1489,11
15.6980,00
16,1007.53
16.58By.38
16.0381.33
16.1279.16
13.4579.73
13.5080.75
13.88So.zo-
IzevV77.97
17 0477'+75
18.6770.oo
9.73V5.64
Union Carbid ~ Corporation
Qp5ohn Company
14,60voo27
15~7499.33
18.7370. 5
16.8299,20
17 4569.26
19,3499,00
17+4090.8o
lo.4364.79
9.3361.3o
13.64 13.8998.46 95.16
10,7461.30
14.4394+77
8.816oiog
13.8590,70
13oSV80.54
10.0661i72
IyozzVv.ly
14.4162,72
20+2
2(.00
IS.0676.37
14.5464,15
67'.5II'
RATE OF REIURH OH CQQK81 EQUITY AHD C010DH EQVITT RATIOL COHPAHIES HITE C5lALITIRANKING OF 11ICH GRADE DI MOODT'HBSUSTRIAL C
1963-1975
1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 19?5
Halker (Hiram) Goodorbam h Morta Ltde
ffarner-laabar t Company
Wrigley (Rle) Jre Company
12. (Ofy98.82
23.4176.66
I2.89100,00
12.47$97.89
25,0278.63
13e49100e00
I2.81$ 13.24$96.53 95.50
26,19 26e3479.76 78 54
14,69 15,76100,00 100,00
13 72$90.94
22e5373o57
19.3078.27
19e 185. 0
15,50100o00
15.24 14.68100,00 100e00
13.64$95o58 94,54
I2.84$ Il. g$86,07 79 3
15ol4 15e1479,91 86,23
13o64 14e6398e02 92e17
12.58(,78.42
15.6686.65
14.6490 31
13.48$80.99
16.0885.56
1497
13,07$77.63
16.3082.22
13,0295o06
9-45%72.94
15.6078.65
18.6595.02
hverige above 13 oil conyaniea 9e 9(i e92$ 9o51$ 13e86f 17e92$ 13 72$10.08$ 10.o5$ 10.65)12.06$ 11.4og 11.13'f .38$ o.p o.Blo41 Blo72 82e12 Blo06 79e59 77e50 76el6 75e 3 7 e92 ~
hveragi - above 41 ccmpanieiexcluding oil caepaniee
1 o43p 16 4'6e26$ 16 27$ 16e7+ 17o$ 9$ 17eZPg 16e90fi16.51$ 17e07g lBe~ 18e8+ 17e37$ 17o 387.86 88.66 88.22 86.90 84.90 83.44 82.80
Average ibove 54 companiee 1 o01 14 65(i 14e74$ 15o04'g 16o98$ 17e44$ 16 14$86 27 86e96 86o73 85e46 83o62 Bze01 Ble20 79o 7 ~
14.93$ 15e~ 16o94$ 17ezlf 15e94$ 15 91$ 15o01$
iee ~a Inveatora Servicep Inoe ~Sources Computed on basia,of a a ann, f d t in ual reports and itatiatica1 euamariea of compan e 1 MoodyMo 'a Induatrial Manual 1976 and previoue editionao
CAROLINA IORKR R LIGHT CQ4ÃNIEARNINGS EIFBtIKNCE CH CQ+ON EqOITT OF
OIKRATINO ELECIRIC UTILITIES Ill FAIR VAUJE JURISDICTIONS IN RKIATION TO
EARNINGS EXEKRIKNCE Ql CQOON EQVITT OF INDOSIRIAL CQURNIEBWITH QItLITT RANKING OF HIGH GRADE DI HKDI~B
1 3-1 6
3 ratin Electric Utilities ln Fair Talus Jurisdictions
1974 1975
tude 49
Estival el19.6
1966 19l3 Second ";aster
Indicated Fair Rate of Feturaon tbcnoa Equity of 14.251
Couson I uit Ratio of 35.81;
ate of return on cocuuoa equity.'+mac eqsity ratio
13.76$ 14 24$ lb.66$38.03 38.63 38,95
I'4.82$ lb.65$ lb.O6$38,80 38,15 36+92
14 28$ 13i73$ 13M)$35+86 35.37 3494
13.68$ 13.39$ llo74$34.72 34.58 33.53
12,50$33.19
14.25e$35.81
;oaFoaent for coaen equity(rate of return on comone 7 ity x coma equity ratio) 5.232 5+501 5+710 5.750 5+589 5el91 5e 121 4.856 4+710 4+750 4,630 3,936 4.149 5.103
41 Industrial Oo anics uith +nitty RanU of High Grade b 's Excludi Oil les
:.ate of re.urn on coarsen equityczo equity ratio
16.51$ 17 Ol$87,86 88.66
18.99$ 18 89$68.22 66.90
17.37$ 17.43$84.90 83.44
16.49$ 16.26$82.80 61.40
16o27$ 16o79$79.87 79.72
17,9l $ 17e29$ 16+90$80.58 79.20 77.66
18.69$86.90
17.9l$60.58
20.00$78 00
:~rent for cue@en equity(rate of return on cocooneTafty x cocnoa equity ratio) 14o506 15+134 16,753 16,415 14,747 14,5'44 13,654 13e236 l2o995 13o 385 14+480 13.694 13.125 16.415 14.460 15,AO
Oosqonent for Oxason Equity of OperatlnE Eieetrio Utilities in Fair Value Jurisdictions as Fercent ofneat for Cosnon I of Abave 41 Industrial Custcsv:rs vith lt RanMn of Nish Grade
36.07$ 36.35$ 34.08$ 35.03$ 37.90$ 35.69$ 37.51$ 36 69$ 36.24$ 35 49$ 3498$ 28+74$ 31.61$ 31.09$ 35. 24$ 32 71$
~ Excludes allovance for funds used dur lad coastruotion,
I
Fuge 50
CAROLINA POHHl & LICE COHNNYTEST OF COMKHSKULTE RETURN
On Basis of
Study of the Fair Rate of Return on Coxmon EquityAllotted Electric Vtilitiesby State Regulatory Coamissions andby the Federal Ebver Conmissionin Rate Proceedings During 1975 and 1976
Study of Actual Earnings Experience on Common Equityof Operating Electric Utilities in Fair Value JurisdictionsVsed as Comparison CompaniesDuring 1971-1975
Consideration of the Ma)or Upspring in Rate of Return on Ooamon EquityEarned by Unregulated Enterprises in the American EcononqrDuring 1974-1976
Carolina Bwer & Light Co any
Indicated Fair Bate of Return on Conmon Equityon Basis of Test of Coxmensurate Return
14.25$ at 34 96'4 Conmon Equity Ratio"
Excludes alliance for funds used during construction
eCoamon equity ratio of 35.81 percent, excluding deferred Job development investment tax creditand interest free capital,
Page 51
LZADIHQ ELECTRIC UTZLITZES VITE PUBLICLY-HELD CHRON STOCKMARKET HLICE AS PERCElC OF BOOK VALUE
DECmxa 31, 19?5
120,00 129,+
110,00 I19 +100,00 109i9Pfp
90.00 - 99 A
So 00 89 9+Js
Southvestern Public ServiceCitisens UtilitiesokIshana Gas and ElectricPublic Service of IndianaCentral Hudson Gas and ElectricEl Paso ELectricIllinois PoverUtah Paver 5 Light
Central and. South MeetCentral Louisiana ElectricTsnpa ELectricTexas UtilitiesHarthern States Paver'Miscansin Electric PaverTucson Gas 8a Electric
Caamanvealth EliasMontana PoverToledo EdisonOhio EdisonPacific Paver 5 LightCineLnnati Gas 5 ElectricRxQtanaPolis Paver 5 LightRochester Gas and ELectricLouisville Gas and ELectricMiscaasin Public ServiceCleveland Electric IllusdnatingDuke PaverAmerican Electric PaverHorthern Indiana Public ServiceInterstate Paver
Florida Pave 8 LightCentral ZIlinais Public SeMceEmpire District ElectricPlarlda Pover CorporationDayton Paver and LightVasldngtan Mater PaverZova Paver and LightWisconsin Pave.- azure LightGulf States UtilitiesSouthern Indiana Gas and ElectricDuqaesne LightCaluabus and Southern Chio Electr5.cZova Public ServiceIdaho PaverA11egheny Paver SysteaBangor Hydro ElectricHavaiian ELectricLang Island LightingPublic Service of ColoradoC~uL Pover Ic Lightlava Illinois Light and PaverBlack ~~s Paver Ea LightPartIand General Electric
Public Service of Hev MexicoIowa Southern UtilitiesUnion ELectricHouston LightingOrange h, RaclQand UtilitiesGreen Mauntain PaverAthmtic Ci y ElectricCement Zllin is Light
Market Priceas Percent af Book Value
165.64%159.36148.42140+17136.47
132.69131 96
128.73126.86124.12122+15
115+22113 06XI2 87
lo9.64lo9.28lo8.8?108.84lo8.26106.341C6 12104.90x03~06103 04102.44101,67101 30
98+7798+2397 9?9?.9197.8o97 769?e2796.8796+77.96.4396>Co946194.4793.8893.8692i56
92 3592i2290.549o.459o.1490~06
.89.5989.5489 5389.4289.3488.8488.5987.59
Page 52
ZEADXEG ZrZCmrc UTXLXTZES WZra XQBLXCLZ-mS COme STOCKNRXEL'RXCE AS PERCUSS OF BOOK VALUE
SPENSER 31, 1975
80.oo - 89.99/,(continued)
70.00 -
79.9%'o.oo
- 69.99$
50.00 - 59 Sf
40,00 - 49 +
Delnarva Rarer h LfghtSouthern CaapuqrXansas Paver h Light)addle South Qtili fesBarthvestern Public ServiceCentral Maine PaverSev England Electricpennsylvania Pover 5 LightPublic Service of Nev HampshireEknsas Gas aod ElectricXentuchy Qtilf.tiesBLLtfsore Ges anf Electricotter Tail PaverGeneral Pub XLc QtilitiesÃev Tork State Electric and, GasQpper peninsula PaverXsnsas Cfty Paver and LightQufted ~mfnatfngPotomac Electric PaverCosxsunity Publfc Servf ceEastern Qtflftfes AssociatesSev EnghLnd Can and
Electric'innesota
Paver 5 LightArfsana Public ServiceBadLson Gas and ElectricPhiladelphia ElectricSfagara Nohavk PaverEortheast UtilitiesXava ELectric Light and PaverVfrgfnfa Electrfc and PaverSt~ Joseph Light 5 PaverPacific Gas and E1ectricPuget Sound Paver h LightLake Superior District PaverSierra Pacific PaverBoston EdisonPublic Service Electric and Gas
Detroit EdfsonSan Diego Gas and, E1ectricSouth Carolina Electric and GasConsumers PaverCalifornia Pacific UtilitiesAdage Public ServiceN.ssouri Public ServiceSouthern California Edison
Central V~ Public S~ceSavannah Electric h Powernevada Ante
Market Priceas Percent of Book Value
87.4287.3387.0186.62
'6
2386.1o86.0485.1384+91847384.5683.6282.668) 6981 6481,0781.018o.9280.8180.8o80.4780,20
79 9678.8378.8o7S 7478.5578 19 "
76.6676,4375.8674.8874.6874.5273.6972.3072iol
69.2368.0367 86.67.6667.0O66.3463.8162,58
59 9954.2752.40
~ 43.13
NeKsn abave 108 companf es 89-56%
Source: Book value on December 31, 1975 ccaputed fraa data fn annual reportsof caegenfest market price an December 31, 1975 from The Wall StreetJaltCIII1 J4!l~ 2 ~ 19 t6,
I
I
I
PRICE TO HSLIC AS PKRCBfl OF BOOK VALUEIH COHHON STOCK OFEEBDIOS
ELECZRIC UTILITIES1972 1976
Page 53
Average Price to Publicas Percent of Book Value per Share
gul c n en csee are er o er ngs
1972 1973 1974 1976+
AllOfferings 12B.4'4g) I2O.64$, (47) 76.4'54) B3.3+ (94) 94.94$ (6>)
All Offerings with Price to Publicbelow Book Value 9o.74 ( 4) By.32 (13) 7O.76 (46) 78.27 (B2) B7.O6 (4g)
AllOfferings with Price to Publicat or above Book Value 132,07 (41) 132,14 (34) 109,36 ( B) 117,62 (12) 112o67 (20)
+Jsnunry 1 - October 14, 1976
Soureel Oosrutee reo~puros actus for sects offer.
I
COt9$ 1$ STOCK OFFIH109AND MARKET FRICE IN REIATION TO BOOK VADJE
CAROLIIS PCMER 5 LICIT CS&h1K1972-1976
lhte of prospectlLS
1972 '973 19?5 19?6
Jangggy 192 1972 Noyc333bcr I> 19?2 Noyc3sber 82 1973 Jan~ 16, 19?5 october 28, 19?5 October 13, 1976
Neer of shares
Total price to public
Price to public per share
Boot value per share
Ratio of price to public per sharePo book value per aha?e
23 0002000
f 54,750,000
4 27.375
19,20(11/3%1)
142.58$
2,500,000
g 71,0?5,000
4 28.75
20,77( 7/31/72) .
138.424
. 320002000
$ 63>7502000
21.25
23.22( B/31/?3}
91,52(i
4,000,000
$ 59,000,000
14.75
23.23
63.54
520003000
f 89,375,000
17,875
23 Ol( 8/31/75)
77.68.2
3,000,000
f 66,750,000
22.25
22.54< 6/30/75)
98.71%
clast reported s3arket price and ratio of last reported starket price to book value per share.
gouraee carolina lhver 2 Ltght gonyanye ~osaeatue, 3,000,000 Shares goennn'gtnak, govenher g. luyge Pages 1, 23, 27and corresponding pages in previous prospectuses) Prospcctuag 4,000,000 Shares Co333non Stocky Janua~ 162 19752pages 1, 7, 29; F-.o".~cctusp 5,000,000 Shares Cotton SSocJc,october 282 19?5p pa@ca 1, 7I Prospectuep 320002000"heres Coeaon ggouo ager 13, 1976, pages 1, 6-7,
ge
I ~, „~ Ce~~e
zxpucexzom mm mr To no~'" ~~asot)froid «CLCLS uucctucs
CCLytsueusu aad )Cvg Co Cereerste askd usllnct lnclvciet CowTssi ef Cselsets)
ISLS fLLOS«awl tedettrls) ttv« IWO Oeudejrer NNlag er snd gssUOSLLSA ef mosey s rseweipsL U444 fstlscw see
lscefvnstlee 404 hsmsrasL In tnenr lrrucs, noUbfr fotficu ge«pere«eedf )geodrb Send fkvcsrd coven ever I".co) LI«Lrs aad liluaueasot «ALCA Sppfosuulvir 4 Coo cenleritulg Ine CUSI srtILOIL. Sfe Ifvslrd lnOSLCLL aff4f4144 Lne uter sl ~ CIsnco UI0 ssseausk Ckcis fc)4uag 10 IastlielsaslQea 444 ~ ISQsucsl bscsgteuwh
Title et Asem )lame of eorpersQen, tocetbee «1)L eouoen aed dale er ~
Cre clvvn I'Lvhrre QQS ls pfinit4 ln asls tace type suchhsc cenvrrIIDL~ dc pc svcufI Nrs 0'uisUIniulc Ic Ivd LLvuvv sre
tace ste Spsucsblc lo eii gtnetsl oh ~~tercde4 br ictAufyLILCtrm ~poh )n Lne case of donvtiic munictpsu. Csi~
lalsrest Dsiesl Inleresl dales snd 4sle ef lbe CLLOLLIAot utalurllr glveuC)stfvtkasl )SIuv Svsvtsf Iss LLSCL svsIS vf «vetoed,
ftecksksved Uoeesl sends Issued 04)r hl
Cuber
rglslce4 Iotas aco )44)00144 «LCI lba leuet Lfh
CLefseftsl )A cases ef Inkerett er yttadock dcfsLL!I, ihs dais fogelbcrI «fch sypmpcmkosrfabol is utuskkr She«4 ln Lsisrssl tukuuuk
rite a» ef ibe dale et Chic yubucsL)en ir giveuUL ILQ esses possible, SA4 'vl bs
)44)Saws CLSO. Sush chance bvccuaes slcscure 874LSOL is) aller caLL ytlca Ld)SSLSS ple sahl scc 10 casks+
Meed~ ltslisgl hfsedr'4 lishng It given Co 4)I ltruss kn Chic pub))tauon«hers PLLIIUIS41 dslk srs svsLLSALC A discusslea and SLIPUASUOA 0Cscaodr's tsLULck wul be f4444 44 ysc ~ Za
L)eosI C)ueUUens shove It> ss fsyeeIt;gAuc fuvtu Ctusuusns for iisied Lrturs reprerenl actual ec)e pseeeunrsr as POLLIp)~ le Lhs end ol iss msnlb yfrccd)nc dale o pus
UcsUOIL, Wnvre ho rccrnk Ltsasscuoa ls tepotiwu cbe lslesl le~44 stasd prlees afo clvcn.
ls ihe spptosfnmcs5)sgsvc CLIsvsII fuvru C)usUusns s)Iowa teynsfn ~~Pfea4 hei«ten bid svt used Oritn fer,lslcm OV ~ceding 4414 of yusucsusn. 'Sfhvro ~ ic SAILI vsiy are avs)USLC, ino~vecsce ef such hiss U rivets where ause FIivw taly aro svkis)LLCLtbe svefsco Dl 'ihcnL U givcl4
ger)S) )Svvu 'Lrnefe SSCA mslutf17 IS net CLIOIed Separaks)rq iba qeeeCslsut shown ls Luusikr fer lne aversce maltuitr.
ve )I~u Istucs ysysbis snlr in Csnsaksn tunds an so suoIA4ickird VILA 44 uLCCLSLL fv) UI lhe CulreAf Pt\CC ee)uuuu
I snlccd, In Lho cate 41 Lm)IIISC Ictus', aus1$ QDAI 44 tLOI
ceptessnt acIusl Ltksucusnl.kss tl 'Z)LS high snd )01r sale for SII Ltcrd Issues~4 sible 10 Lh~ end of lhe numlh. 'The tsnce for unlitlsd
'ILsuss tsptcssnU hLCILc)veIL Sr Assr as POILI c 10 ~
I)sadg pries Usncet The high aad )ow cs)a price far atk )CLIfd Itsu«save been Lshen Item fvtercs fof, lhkl pellsc In 'Lhe cs1 ~ ~ c uniute4heads lhe blgb and lev bid prices a[s Luec4 ror beads lssuIho tango coven 44ir Lhs pst)44 stnce llsusscs,
T)sfd te Meter)tyi 'The is)4 le mstutLN Is shown oh 4)I beads paringsctu)sf Inksrrtt. where ss)c ptite is nec arsuspk4 che rlsi4 ls cacao~4 the bld yclso Csr vaiusuea putpessa.
CsILersf~I«meAU) benLLA )Nrsl ervcioyiaeals ato noled la Ucu og slsQsucklQruckl oslLutulaed oa cotpsfslo lletas
~ htt)O)syvg CCCL)CCL CCATC)CCC
~ pwaosst Tbs srstcch oc raudg scutlQCO «ss pcfgisacad br kobu MOOLU
«ilh ~ sunsi ~ eysteta ol crkdauoa lrr «LLLC)L lha cclsuro suvesuasal pukka
are indicslsd bttaunt srmsL LL. Sech ermusl repfvscaILAC a group La «Aich Lhe 4cbtrScfeftsucs ue bfsaair UI~ ssme There nfe n . ~below frets Ihsi used le deslcoste )ekust Lnvecllrthf fLsd Ll.e» hlsam'owesIIAVSSLALtnlAILSLLCrl 14 Lbsk deusl)Ag CteaLSSC IAVOSImaat CLSLL CLkvIavssuacal quLULFU
Aaa Aa A hks So Cas Ca aror CCP)SASUOA OC AWULLICCyaltl4)ag Srtababb Ch y ftlcu)at Ihe AS5 auC
Skwl gceuyc sce psge Cte
U in Li Ao lone r avsussi't «hlcnuc Aei ssu fs~"Iy ~rg MR rfe lf ~Kteassnsair up Ls dsts osis Io pcrmIL a )udccsvnc Io pe garment 4)4 rsusd for rcecmpusn, or ler omrr tesrens.
Wnvre no taunc bu sees sfticnvd or «here ~ ts c uchat fscl slane mwl uol IA anr «sr be ck)LSA u ~ raflrclUn onIty I be ~~i ~kh,~sea~bewhere ao rauag bks been
1410 bends, oaugsuork ef Lhvcsuncal ULQ1tastier o) p4ycr, vCS teak'KULO~Ad bsn)Ls, aad pacrculir, psrSUIm deilklp
7 pfhtte tsuncr have been requcrkcd cer esl ~Ir placed bea~ such rsunke vill nol be published )Ce tsiiacs ste cssicpsd er msr b"
'sainlslnedwhen oupUe intrtrsl IA sar itsue Ls rurusbceswe of lscLL of esseausl dsU, or because OC
red'h
bscn of dais deer vd 10 be eseeulls) Csl~ soun4 ) ILdgtsssl aa lhs Iclvcscsseat qukutr at lhs Lktsea.
cnsagve ln ltsUOCI Tho qusU)r of ALCIC bonds Ir nol ffvvd an4 rtssd)seer ~ pehe4 of ume. bui lends lo undrtgo cm144 rer Lhir fruetcltances ln tsunst occur so u Io teasel lasso vcr+usaf lb lbs IAUCALb
'uluenot individual honda* ch4scs ln rsunc Iusr thut otcltr svisual fssw. guck tsung chance snoul4 rene
Aouce'osiea) Ic UoA Ih IA'v unefsung did Ael fuur reflrcI lne Ausulr of tnr pe~use Of Lncu vtrr ASLm. Asntn m 10 bted SO~C ~LCCACI ts Uncs. AVVmwnonc b044s of lcv r fsiulcr lhsn among bondsnof .c
~U reunc~UL h)ch and Ls«rsunt~ctssr Ls he ~ ~yeetayQr aar SLCLLs ot chasse IAlhvacuseai scalds «)Ukh cusr eecur.
IC)CT TO Ssooo~ Co)LPCLAATIC )CAT))CCU
Asaffoods erhlcb ore tslsd Aso'sro Iudcvd le be ef ibo bstl nusiilr. 'Cher
Carr) Ise smsuseL decree ef Invcvunenl nru awl are renvrsklr tetsrre4 CagLLC ecru In'Iftrll psrcnfaU are prsirc~ b7 4 )srge Dt CIr 44RLcepcouaur 44414 martin sad principsl is srcute. IV)LUC Lhc est1ousyreleeuve ~ lervenU ue Uaelr lo CASACL Suth cnsncee ss csn be vuuslueaare cnesc Iiklucal7 10 Itsyskt'h4 cuudscacnU)kr ~ ItptLC pcoiQ44 of cucA
lo be eC h)gh dukUrr br 4Q standTesetncr «LLA UI~ Ass greup 7
Lh Ihe bc11 wIAOSOSCSILSO nuuCIns PfoirCuen msr ILSI be uC)ueuISL)en ef PrOIvCLIVS CIVmenls msr be 4 ~ ~«Lkr be OLhrr ~Iements prevent viudI ms)Le~Outs«Ass Urget Inan Ln Aks securtuoI.
"AAIanr favorable )nvvsnnen\ altrlbelvsr taedium grade oblicsusaa rscfom
nruirf 4 ~usLC bel0)emesis msr be ptrfrnRL «)LLSA sCgu
Iuuuwssfeeumo lu lhe
are ceufdrfed u Inedhua grade ebugauens. Io incr sre nvunvf nfrnir proICCLvd n
~ r Il+ cnsr I ftlucs IQ
tune ae cn Lena 14CLL wILLUsduIc Inunftusbie sv» snr creel Lrnctn ef tune. aucvcvuucAL caefeclsfisucs SOLL UL ckcl bsro ~
yoSends «hICU are tated Ue ««)edted CO bavr CPSCulsifVe e)emsf,their future Cane I be conII4srsd ks vcfk auufca. C)ften lae Praise" Cninterest and ynnttpa) pkymenU mcr be vctr mtctrsi ~ and UIsnpr I«SU ssfecusr4sd durulg both coed SILd bsd I-uet ever chs IalLIUseercsIntr OC yesiusn cascutctktss Oenas IA Uus ckksa.
aSeeds «hlch ars tsied CC ~ere)kr )sdt chsrscitrisucs of the dnlrsllave unent. Assursncc el IAUresL knd princtpsk ssrinvncs or ol CUIeneece ef oibst Lsnas ot tak concfscl over anr )tag ycrisd of CLcss mbe smku,songs «hich are tsicd cks are oc poor stsn4)nc gush Issues ntsr bedcmlul ef Isrfe msr be prsssaL ~ ISIOSAU ec 44Acct wich ctspscl Ia yrIRpsk ar lnwcslhawk» «h)th aro rsisd Ca teoresenl ebycsuont which sre soecLdskIIa 4 turn dtcrss gush Issues uo allen la usfsuLL ec have olhct mant
~aefceemkng4
SImds «bldL are rslr4 C are L)LS )ovcsl tsisd c)su of bonds and IItuse rated csn be reckrdr4 ss hsvlnc eslfvtnsll'vor prospceU ok ev~QALALA4aar teak utvesIOIeal skkndisc.
Ra~IS tmrCStata SerrfCCS XnC.S Bmdyta Banl RCCC)r4, OCtObCI 1974s yaaCS 1 ac% 2.
I'
Page 56
~ .'.~ Teah ~ ~
l
EXPIA2tATZON JQID ~ TO STA?GIRD E POORTS CORPORATE BOND RATDlGS
STANDARD & POOR'S BOND RATlNGS ',
CORtOTTATt SOTTTTS
IANTs's OUAUTY aOTTTTaNNCN Ntwsc fohwwscsw assw setotsssoae aoaceNstc lo ow Nt Itrs cwfcvwt IAAl.AA. A Na v we oowosoao cosvwfNo ltcNEOC u sstww IN 'ONN wwuh»ALA A A ONSCt INOC AlAIfe Nfltll~ SIW Owsf NWW, Tlltftttwu OW OHL
suf cltsw cl Ntstfswh H w thhcstss the ahfsssa vvsosrsw Nof~ow «sos lawtu It»L ooc Itsw tstssct ow sarsrw Io»st oh oa coshsL
~ohcl sosoc AA ~»0 eouof u Nca f»tt ooatlswaL NN la 44sow«sf N ssL'thill EJPN sslw *Al slWtt oasf 4 NINI alosos
ffvas T0L Oswft west r '1 Iat Ilhf IN» State SVWl
A Coats Itssc A vo ssfvcsc I~ eotw shwwhs tsocL Tswf aowcersNNIN ~ rwstsftss N»ITN ahl No 4N osvtsf lstt Iww
~ ocsvw ecocsl N cash tl s1 ttoatssc tho Itic~ cwsooaL Istical Ihl~ssacww vo tlffsftc II CNL Tswf VIEN«aohtt Itttcs aohof INot 4 swsvuc tusssv osl so If«0 eossha Nw ocwwww toaorwoLBBTT Tae ccL N stot«s Tslc ~ ELsttsf » aucwaw atshooe cowlufV what owll'hl lh~ fatso rhNO Nt Ioossssssa tsusoN oooo»% Wco«EAINL Tafw Ilacl sllw wtsww twol usos4lo NN «N«wftssocsot Ef ua.ssllstsf IN«tTL Tfle wslttatossf w cauwhw cwosoal.OVIIWINII V Cttstll IEL Isllsts»wl Coo»HI rlsulwc, VNINhstL~Nwo tw sve sllttt«w so ct wstll sot voto cvNslww 4th la saslslw~NEL Tw Cswo w st wasstrawa otwshs Iv INesosfsN Esao llswwsehL
at«Is Cloth 1 Ca IIWI Nt IOTVCOO al Ie«tf SWWS 4noo. Tostatw tssf fsnfi wwllswhl cavsuthsala. Ih so cast N rsah»L
blasuc st ON«w EN»w'shel esl of auwr svwsL l1 Nt cits tl osv IstttN ONSCNL CONTI ~ No ~ SASOO Oh IWS444 ET ~ INS OWE«I 'lel la toN OOSWCC~oauc Otuo«WI No toll No
Q Losel sssoo 44 Nw ~ I ~ vt Ioocscw»L Otl«NK af lsslswl cwraloo clfrwc Ehctf tslfrc CEettssl wacsswrL
CCC CC os lsw w«N srshc osawwf rwot»WN Sa ONL aht CLEOAOWth Sl CfsWOOENO ill ttSWI~ al Htf I/44 ~~oacastaL la fst CNO ts cC slaafl 40 aoaao «» ao oe ah lactea 44«0~ac 0N flfewa Nst oo lsw
Tlw stoat N C II ltswesc fw IAON00 Coaca ea «NNI ao Ih»stolfa ICNO ONL
lNVESYMENT SECUtoocow cota TL ftcL ow ct«aewsv.of oss cwwaff lssfoc so fworrsc
wwsleost otwswc so I ~ ewcallo IN ssl 0«a tccwas ol shwssstN loahsaw~f ~ awoaw wlo es ~ C»so sssow 14AE N 44 foow4I aowwe cfssool,Dt6nlaoac.
Taa wwa shwwaoal steehlf ewwo ~ awttsto» EN»stoa le 40 INNoc 4 400L ww v eoooaswe «asoa Il awvswwf socwcoc 4 ~ oa sseswwa
P P D D s Aa ao«ct sotto oocL Tfo NN 0 Ne it oscsCL sttwsosa INEaowwssao ew INossw oossteo otsrL
Oausw CSNIC,ctaosw oweoww aoaco aw sasto oa 40 teat oowt ao Asawfua ENCNON
~wtl, Tat IN«os Mlww w Neshlw swt N so OOACL arc owf 40 ONIww Nw occwal ulavlffW tsw tatwstsaetL
QUNCTTIAL aoTTQaCINNVC A Oefl'I NONNIN Coho alsshfl eesN Oaaclswhl ef I~ Nstl Of
wowsswwos sa Icl:ath w fthHN 0L'scswhs Ilsacl ast owscswe v tNNIaww» 4 \40» os sA tillIww IlouN sosttrtl
TIWIO No OWfNSNW N W Atfaou f1owl'ttfAOW Clt St«ONNIOILAIIN cts .L Ih ~ twsoo tl tcwtwc wtl~ ~ ~ low»1 «4 sfv 40uhlclw CI4llhtt sh shff w NN ssel ae»IN WsulIII~ lo ~ 'lath»I» tHIIII~osol Ooscsh I~ swl twstwussf AIEL fwwaso Iwfasse Ifltl» oowsue I~
lo»» osoohcww aoooL os»all N swocstwa «ehc INI Iutv Io«»WC V sftv«thl N Cfstfww tu INNtll
Aawssfa cssoas«fho vfowsww cllofocsta»wo of ENNE lh f«I fw«t w oasfIlT.'wf »so slwtt fslh stl ~ N sl oaaw Nsuef slseos aohcl lllta AlaoseOw Ittohc Neoll I flllsalt ol CwtfsL
ACtw csol~swcstu IAO aat»N oss aescl 44 Tsl ~ Eolofwf osoNolsttc ll ufo, Tsw sllwf Clsuwot 40 ssso»ttw Vefllsrf V osslhw IIsos» af s I ~ lho scots swats otcww sow II Ilaw «tsshtw. Ossos la Ehe»EN scfhN«f till. Ih wls tow' lae auvco cN«tta stsoshot ulc~loww»stt v rs c Ill:fof lhwoowwoL UINN Essssw otsNI ~ user«I»httLrsf Nw stoa «osotoss s«pl swarf 40'ossssf N w»LOI w stw Cole~Iacuftal Ol CIS~ f«u~ Ctw, ~
ocLwahs Ossa Tssst IIso so«ow fhwswwhl fsoft Hcwwf swtc. IJACNwnsw sf»su Cl IAWIIL Stsww N 40 IWW IIVVICossf uaSIWIS ~ lo ~asfhos ct;lsll Iseflases, Tsw csfhsohw otshooa A lh4 O ~ 4 ~ Nwfl il IIEN o'0Isssw wtht stw ow tho Ithoohwhsu rtssss»L raNWI fst INtsv tal«teh» Nw cltcwsof ~ Itf40 slcwo cte«lt»c
calo«ts voters cs ~ Iffcthco IA INIcssw also lww sshwshwsw cautuosfsacL WI slf at IIIIIINoc«WWL ftf fw sEll Ovl 4» IIWO ewwolw 4WICOI4asf, as«wstlftsfa Cswt OWCIS»swtr csoawlawllaoac cavocsssusca Ne wfuvf aaaw«NW aac cwosccCtrw 11 s«wawa
caot»uwsasstoc tact v fslacsosc la aswesa
RlTlES REGULATlONS~otwaf. IT oooo afl Csurae ~ ooaaoas ca»a No oseeosssaeeaf otwwwsw
'1aur»,Tao w teoac oocrw» awawot eoafwww OI ow i»aoc oas»t oac
~fowofewcoauw ol 0hf Oltlt4f 40 lkswc Cswsa of oc ahf fthacos orw swweOwseel,
Tsw stoa roooofsl acsssa»w ef wf close". IhuhHe ~ cestst. 4 e. Itws ~V ONV Soewtttw Wftwtawa ~ O«VW COSAVSSfs laa ONWWf ehf OONSCSf
~ ~ ~~ ~
~ ~
Standard k poorfs Corporation, Bond Guide, October l974o page 6
Page 57
h?flfugr.Erne ANQ I?tvmgTMENT Ltszs January G, 157G v hfoody'g Bond Snruey ~ '178l
Whee ig Ztferegf Coverage a Special Cotteern?
. Icwcr oe dccUning coverage of interest charges k, natur.a?ay always a matter of concern to IOoody's. And, lt is of
special concern when lt cotdd pteciphate dcspcrate andpoasfMy iznpzudcnt measures. This could happen»hcn bondIndenture zostricdons come into play.
hxkntuzo dhcipancs, Including coverage tests, were de.signed to protect tbe bondholder under admire conditions.%e must assume that the bond investor put his money ontbe Ihse assutzdng that this indenture coverage restrictionwas a sccszze hst linc of defense. Clrcumvendon of bond ln.dcstrure odgiaal covcttants is a mancr of great concern.%bee a conzpsny cannot seU bonds because lt is not gener.athtg enough camlngs to cover its hncrest requirements bytwo times lt must get rate zelkf or scU stock, zegardkss ofthe tUfAcuhks lnvolvvcL
is ft not contrary to the spirit of tbe bond contract tozesoct beavdy to alternative forms of debt Qnancing? Suchmight hicfude leases involving generating cquipmcntt highkvtds of tzutreoAcss permanent layers of shoner term credit;and shifts so*bentuze financing where eonstralms may betutee modcmte. XVc cannot overlook such steps, which arefor tbc most past symptomatic of deep and unresolved prob.kznL '1he lneuzrcncc of Qxcd obagadons of this type, re.gazdkas of vrhcthcr or not they are subordinated to themmtgage beads, does not hnprovc the quaaty of senior debt.
Potlutkua cnntml Anancing, no mancr how noble its puz'pose or bow economic its use, could become an increasingthreat to tbo quality of other debt uwlcr certain clrcutn.stanrea. Ifpayments made to satisfy terms of thc instrumentare nsc zeQocted ln indenture tests pertaining to coverage,for cxamplc. how much cheer ls the company to that t»o.
thnca coverage Umitadon? Or how much has lt gone bck»vlt? Can poUutitm conuol Quaking be considered aside fromtbe normal level of debt? lre do not think so.
%'e bcUcve lt ls»orth mentioning that most lndcnturesaze sQcnt with regard to tbe inclusion of aaowancc forfunds ascd during amstzuctlon in camlngs as definedtberchL, Ilowenr, this once insignlAeant accounting itembas become substantial ln she. and in most Instances k in-cluded as an earnings credit, for indenture coverage pur.poses There aze many who question the quality of suchearnings czecUts, and their acceptance bas aUowed somecompanies to Qnancc via bonds where other»iso they wouldnot have beets petmlttcd to do so. The difference uatursayvafka fzocn company to cocnpany, but, for tbe huiustzy ln
gcneraL these credits now account for over lotv ol interestcoverage. This, ln our opinion, makes s~aacd circumvcntiveQnanciug aU the morc questionable.
lt concerns us grcady that behind thc saosfaction of themortgage incurrence test of two thncs prctax earnings coveragc: of interest charges Ihcrc lies a large aceoundng c relic,~ nd that, outside o( thc control of that test, thcrc may bekrge anuxtnts of other forms of debt. Any such situationwould bc a sure sign of »cakncss aud wouhl reQcct upon icompany's financial integrity.
~ ~ ~
Mooch~s investors Service, Inc., Mood 's Bond Sttrvc, Janttary 5, 1976,page s 1781-178?
~ „
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1
e ~I
II
I
Pag
scudt ofo ~ss4ty kcrcsse to thc LcacLtf$. TlN$ tahe psrstkk therecent risc ofIbc stuc euinienvm teacher'$ $$4iy. Suuab'hes hsapic tSD's psy scsk st 55(O sho c 0» ustt nunimum, Tbc sdo(etmn
of Ibis 'scrcsssd sskty apcnsc wss nisde poieibtc by the ntw stucfundkg 0ecsteioo which incnsicd ustc sil Io Ihc 4sutia. Incrcaicd4Cbt Sauire COSCS Of5SSSStniS Ibis year'S budget are S4O hnteettant.
Taa OQekctknn m Ihc cuncat kvy have averaged %42'%or thc4$t gve yeats. The diet rkt tss rate hss increased from (19 mdts inIg(0 Io ides mw4 cuncnuy. Sn4 OSc44 aspen h to rcensin st Lhufcvd forat ksss thnc morc years. goaded debt is rcdrtd SIowiy, whhQSIye ttrired widue fre years, sn4 2U% wnbia $ $$4
Sod cooaoosec dsts for tbe Chy ot hteuiuhc aun pares 4votsbly~hhTessu
gseisettrees
ms?$
ISO)IJ
5 5Sse
CurstNoseees5 CJQ
UTILSISSS
uo5 asst
Sw Ceeeee ISenov Seeies ueveesneeeerv eeeeeseer INSeenov leeeeeeSS au'acr Ieeweesse eeeeor wee csee LLIIOnsr leeeeseueeeewee SISSenee neeegeest Seue see Ceeeee
tsevevaguo eeseweee Neseeeen leis ssveul
hctordisg Io tbc Ipyo ccnsut, tbc mofisa home value lor tbc city(g(5sgrsiis Ligbcr than that ot Ibc NNc (5(?ADQL
Ssrseuirr (SD liu tslebirref Seen( Seoeerb t(»eorrrvfrrers «ss(kyar
~ooeetvef lu tuereerrs uv((. I(ourvrr. drgt u iran oeeef rlt rn(rrverrursclnfu(r u s(ow. IVC ort toeneeuing our "A"(ueoe( (ence(r nusse ooRan(col c lgft
FUNDAMENTAL APPROACH TO PUBLlC UTILITYBOND RATlNGS
Oat Public fj(ffi(ySection has prepared (he followingde(a(lcd review selling ouf ourapproach and (he ntafor analytical conslCera(fons involved in ra(ing u(ility bonds.Hopefully. ibis survey willenlighten our readers at (o our methods and analysis in this
Su(rid@follower( arta and (hereby allo~ (hem fofollowour ind(vidud issue rating re-inbe((er perspec(ive.
0 ~ ~
~ CVSIanting OLKI7CICdit ristse OVr usnk5 point 4 all Saaiyda Of' ~U» vstyiog opsrsung ss4 5aaocid riits shat msy be facing Ihedsctric, gss aa4 Lckpbone wriorrta ia U» yars shc$ 4 midaddfcriag cconomIC Sctssriot. For Ihc dcttric uuTity isdusuy, this in.~sdets 0» derek@ment OfSala SS4 ihianeiSl Statement fOICCSSLS for afivwycar pstio4 wiing bat guess csumstcs snd rcstisuc ccononucmsumprions, snit 0» dtri Nion of s compttticns(vc Sct of opcrstkgas4 Saaacid parameters which sre used Io matc Compsrisont.%'oriringvehh this mcdcL wcinvagatc kduttry Iokrsnccs Io worstesse~ Suds at the totcnrid Impscts o(oa-(ok g doubicvbgithdkfJ04y OC4ct Ofaaaa Io Ihc ca peISI mal tSIL of ttctsQoh.endured
chub saks dcdiues and fsu pscsd Iosd growth. snd of seriousladverse dsvekpsscnts i~ such areas as fud supply, cnrireomcntsl rc.Ipdism vts ssd oud tat poser. Wc fcd this type of N»iysit (donemars loosdy for 0» gss snd Ictcpbooc udust rial pnniidcs us with a
~ 'Srm bsctdrop for teniususg 4nrtam general indusny ritt snddmus attention So subiaduit Iy SCaors whh ps nicu4r vulscrsbgitks.
In Lbi! Contest we sre sb4 maedngfutly LO campsre thc rdativeopcrsring snd f»aocQI poehiins OfhuiivIdust utilhICI,Thcnest SICp IIILbe thtuktcrne'esarios pro cts 4vdva comparisons of inibvutuslutli6a. Lhc Idadee opcrstinf. sdvsntsga and disadvantages o( each,psnku4$ Souetns of inSISMity or uaccrtsenty, and debt safetyperamttta that sboutd petvsd in future yeats, given s rcsihtic sp-prshst of~ ss4 ittu4IOry dieistcs. Wage thc emphasis ofoet asstyricst wort is ou pnw'tcring thc (utun when Ihc debt is to be~utussdeng, Steuoa unatikistion inset Itin bc Civtn Ihe I rect rctor4Ofthc PSII SCVtrsd yea r$e ul Shot II rrgtt1$ OISelsgtneent $ rt4IIVeSuc
cess in mrcdug goats sad drsiing «hh probtcnI arras. Fvnbennocc.brltgrd kputs kto ouf SIISI)sll srt Inost curfcnl cspiml structurtpcuhkns. usted csphsti euiui gaals sud Ihtit rcseonsHcnrss, snd, inU» Itgdstory arts. Lbc tonetrsiats oC state Iswt, pbC pui»ks sndprecedents sn44efecsttd 4ture diiccteoss.
ht, gtsudsrd a ruor's wt bsee come Io thc «nndssion Ihst one ofLbc st ron(CSL forms u( proration of interest psy ments seed lundy rtpsymrnt o(~ 4 s trestle sntsni o(healthy csrninrv. hsctcdup by cs* Oous Uest sic satutsctory on thur nwn snd not dupropoi.Lioastc Lo tspitst an4 debt Icmcc rtepeirtmtats. Wc IooL for dspis.
dstioa rua Io bc st retinue kvds. based oe engineerin ond cco.- oomk gauges. hitbough we have IiIUc4tcrcst in becoming cmbroilcd4 tbc Lhcorcricd argument of whethsr or so$ present aiuomcnsbodd psy fof needs OC f'stare cuuomcn, ue rccogaitc that Lbc
prscricsi cffsa of inASUonsry condhkns is Shat the rett.matkg'roccdurcsof Ikwubrougb accoueti.g sad accrual of AFDC
(allowance (or (umk usc4 during constn»rionI csscnhuc a'ready«crious cash dow prob(cms for grow»(. csphsldntcnriec compsnks,rcsulusg in dctcriorsuos ia debt ss(ay parameters snd etcdh rsrings.
Covecage As An Andy(ical Tool
Tbc primsry csrnhigs sdntuscy tests Lande those ctntering ongscd charge coverage, notwltbstsnding Ibc 4cI Lbst dltfcfcnccs iscoverage Icvds have nsnovtd Signif»SCUy ia Lhe past decade. $ $
sand cevcrsgss have dcttriorstcd..p(cvcnhdcss. thac tats. iV'evshstcd in Ibc proper (rsmcwort, Stiit pnwidc Ihc nunt dintt in.dkuisn of a company s sbliity Io carry its pccscnt debt Iosd ss «di isto tate on sddhionsi debt. SS: p prcstntiy vsts Ciic tuitrsgt tests ofreucf 0$ cd charges. Ibt meet ienponsnt of wbkh for ruing purpsicsaic 0» pines and prnss csciuding hFDC for thc mote apitsidnlcnrive rett no snd $$$ utlliIICS hacr Ia I toetrs(C I lilt IIICOISStrloiis SI
Isation rdstiec Io Iong term hietoricd Itstistks «bcn du(ntncts inlss rsIcs werc Inuch Icss encasing(ut snd. Lo Ion» cstcnt. (orIdcphonc uuih»$ , ss mcasuia of rdstnc santa s ca ruin(I pm»r sndCavilst sccumu4Iuin putculkt 0( Icss cstvlSI<nt tneirc compsnlCS Ihsl(etc teucnt4(ly 4r(er csposurcs IO oNsomk diviietatiuis sad loog.term coeupcthiec threats, Our computstiens see $0 i» rursf Cistd
charges, kssmucb as SII tbsigvs hsvt Io bc inct tu prevent dcfsuiusnd wt give vtey Littk attention Io pro (ernie Sovtrstt, prrfcrnnginstead projvatd coverage based on a foll Sct o( aunonuc ssd ratecase ossenitu kelt
Lootks st pittsa coetrsrc alone. suit distuiskg rating guiddiaesin Ihc beu«IIN o( terms, wv (end it csncmrly ihtlnvtl Iu ensintain s«hh hens Itren Credit rsung on moet rubric utdiiersdcwetmcc itSuteitsndsed ssd does oet show erseeensHy Cerm peveprasImtuovsensut to Ihc eeu'nieuuue 10 IS Iieuts kvcL For varying
January S, 19T4. Wage 9gy
Standard gt Foor'0 CorPoration, Thc Fixed Incottsc lnvc-.tor,Janttary 3$ 197SS Pave 9".7.
p
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Stssoeh we utuuay look Cor htthcfcofcrtgt at»s os tttphhene aa4gss uuWics Cbcmsluvuhsgty, for 4 ised»svqvsysy A cmdtt
oa sa ckcusc utility «c vovklhave lo be sv am of SeriouslyifIompttttag ~ ei muaasta Ac rsring whhis Asl category'o«Sagecevht aes he ccpictid to tepmie Io Iu ueir Ihc X50.2.75
times ttftt ia a scnssnahk ulsc frsisc, lfpfttaa coverage % 0447 LO~ Ifmcs or kss oo boch 40 Octad asd 4 pfojtacd basis. wc haft found
that wc must ~ sic«Sly qvcsuos «hnhcr U» tower Incdwm gadcgttttt hi»atmo« ~ k soprepriue (or thai itsucr's debt
)scoff, sf wbcAcf dcta asltty cuAions sa so iaadcqustc that oaly a~tsufcty specutaure gfsda
"sa" 1sltag cia hc 4$ugnad 40 Ioartcf«bees
14 sh|ehg abc 44~ thai Ae above s»sUoacd miaimumtsetrsge keck stake sttowanca for sn dcatic suTuy industrycst»ricncmg m afaferaMC cyde of scrioes csrsiags cn»ioa sndheoc4l stress. 'Ausa. ILc k»g tenn cbsraacr of our boa4 atiag
~ syntm wottd esquire that «0 look for lvghcr mvdmum cofcrsgc)ads Ihoul4 ia hecelat aidcat that tht isd«447 et IA&idustcorri.peaits arc taaagsg Csfoabk phucs, b«of limited 4uauoa. fa ad.46oa, a cstspeey's sttsisnitat ofstrong Ceftfs gt tfvds Cor 4 higher
tstcgscy k esty esc prtcosdiuoa for comtdtriag 4 tsuagupgtsdkg im as debt usw.
coverage gvktcV»a ars 4 Cottnttdty impotutatsastyttcs) toed, ILoycevtd tcsd to scrio«ty mhtcadihg coed«»as ifused ia a~ asd without a comprtacntiie sppaissl oC funda.mcstal opasting ss4 hasoeist ritkt. o( sovtta oC votsti447 asdstatvTtty, of ass«asd caA gew pfetcctioa, snd ef rtgulmory aod
Cetat Ptefegattuts. AlthOtgh wt ttad it CICCCdiagly dttt»utt IO
~Lade Ac shove met»em cofttsgt td'C44tscs lo«cf, cftn vbta tnosmostotLct kui»am»a point h fsforsbtc dtrcatoas. we qdtc oftcs dacr.mh» Ihst
warn»Is
rtqvirtmodastdy to I'gatf»sady bightf coverage)acts m iohidad cases «bae psntcutsr pmblcms. dissdf sstsga ofusctt Is(nuts tsfst r
Fanbctatsic. Aae srt casey kstsnccs «bat Ibtfcriag types efcorctsge tsriee are more svitsbk is mcssuriag toag»cfm csnuhgtasd csA ttww~ snd st Icstl ss msay cstts shalt tb»dcharge cofcrsCsscsts must be gtffn oaly n»dat wright is tht crcducfstesttea pfecee. The Constr erne is Iy(J(»4 by ssiursl gss utikka«tth saiees swtqdy pmhtfms. «hrrc iacfcascd sncsuea must bc givendckc serf»a c»icagm. h prie» cssmptc o( Ihc tatter Situation k 4Cast~ chctric utghy which ctpcas to triptc or qvsdmptc itscspiuJisstieo i» thc otst lift )csn. Thc pmjcacd corrapoodinggunn 4 of Ibc debt hunks arid Ihc csrlllags rtqwrcrncnts InsLcs fnk
Inure IappraisalPPfshal aa Ihe meit dtpavtcm os ~city 0( rtgvlstory CLIOI t44asnriat ~, sa4 stJttty Io carry risk ia IJsat under cosstn»iioa.
Fmstty, ns 4 soot s»ssvrieg csrsbigs ptettaios, litcd chargeCoftfagt Swwiyvtf Olest bc uippkmcotcd by csA ttow ssslytk snd
so ss sdfqustdy Io Ishe Into cvstld crstlon fvl~Ifs 7 anQit assaks dcdinCS Ssd a»i catstt'om and pottnttst vIJuiluy
y Iasrgin I)Iso st
(SCIOIS.
PRlMARY ANALYTlCALCONS)DE1LLTIONSJest sa che ensht rstiag prortsa CansOI evaluate fvturc csrmsgt
ptetcaka m ~ vacuum, it snurntly caasot timtt its saalyticsl scopeio csrotaga Oetcctten shoe. Thc mote lepvns«sastyticst coa-stdcratieescsseiing h»o vttTsy ausgs are Ibc fotlowioo
J ~a(wood tfpr0/vtwnvther. Thc portntisl bcscgu and'l «faggr»trnt cvwtiihy cse ne mnic I» itooicd than Ihc~ ciyeevics
'Tbc tate isPeatiblc ciyeevICS uf Imstt «John Icrfiht tin«ted SICSI.
fsr Cmm cknrwvt, hvscftr, at cridcoad by Cvn tMiua(I 4974 pIOL.lans and Ih»csccttcst Iavids ChstLtd up ay mssy mvdcrstc sitedauTktca. Abc. «c mrnthvwd Ihst «c 4»k for htshcr arfcaccs oen»tl gei eel Irtctt»oc wtu»I, tior cemtnost»a vuluics er44tru(icdcwspahia, «C Ity, In Ihc cstcni phiulJc, to tanuticstt Ihccndh orUJ»ccs sf cath tuuiacss, sad uics tvuk le r U» sdrsst acta et
1'sgo Stta
Sta»tia~ itt Poortc Corporation, The Fixctl
4444fastsgcs of the coinhh»d cone»sy as aa navar. 94'huts cosapenes crvoder Ac Sett hlntm vmbrdts clearly brocut m rtuey wtyamm U»ir «IOCist»S wnh Iha Psit«4 4974 dtfnvsstraled last ia a
ttnsscist pu»h iadiridust debt«'Iaw'og tutntdtsria caa alto bc duad.Vsntagtd hy Acprobtans ad«ting Ae psrtat bohhsg cempaay.
A) Thc sua a(a company'4 rcvtaucs. cstoiogt, sad unct»srsing»vest»cats ssd fisted grevtb (scton profile hsNI ecmurf«Incats by «htch oac csa gsegt Idstifc tstu»ut ~ Io neriutfopcratisg. economic aad gasaciat risks. industrial saks venustcshtthust snd cesimcici44 tughct priority gss saks rrnvf to«crpriauty etage. Iott fcn« tocst phoae revenues, «hotcsak fttsUvtio tctait tn»that. jv~csfsisgs, ssd infmtmcai shd csra-isgs htcskdoem by fcgstuoty lsriuV»ikms stt moil Cusdss»0444
)4) Tlitstrrice sita a «ittty ls tapootihle for pnridcs U» 00.dtrlyiag ftatacist SOPPort fOr uti4ty opcrsuos. ttctogstriag thattunes»r or dcmsvd gnn th is aow n»re aftra s benlcs thea ~
yoUYnc sttributt. «Ctistuatt thc fstyihg tyPII of grovtb scd Atirbnpbcsuost. tat tinsitat1 7 imPonsat sfe Cuuemcn'btkty 444 «illiagnas Io psy, dc grec of ctosonuc 4n cttity of Ibc arcs. Sad Ac 4 m-ptttathms of gtegaptvcst locsuoa. Svch ss rural os4 erbsacharaacr, tnrirssmuust coashkrstioas„ctimstt snd Cud soetcepn»lesly os utility oprfsting cost,sad cty»kacy facts. 'i'o bcCsttudef are peliYiCSl aad Sotk«tceaemtt SniiudCS te«ardt gte«A40d pnfate mdmtfye
C) Tht qut lay ofIcrrica prof'dc4 ssd thc adequacy o(catomcrQKI public fctsuoai srt ktys 'lo atctf tarn»g how udt 4 atiTsf is
eectiag iu (rsachitc ohtigstioss. tasdrqvsritt ia Isac arcts (mottpcnthcat fer trirphoht Cempaaittt pottiiuslt) UircstC4 Scricrabk
tcfds from boA ah ccosomic s04 s ftgutstoc Its<poiauactisb2tt of fvd s04 power suppty, ctpoturc to cnr«os»caecatsl7pretdtmt, operating t&icscics, Iad OC ptsat modcmit &o. gsssyacm Isfcty aad At sdtquscy ef neietcasact pratuccs arechecked fot pottaust pmbtcms asd Ihoncemtagt.
For the dtcuic aad gss uQiYtct. Cud supply potit ion mty stilt bcrtgsrd05 ss fsfeahtt or unfavorable ia terms Of cost 404sfaitsHtty. Ho~a. U» tong»crm tread to astioavidc energypot»7»nthig 444 tnd«nc sttocstteas 44d thc nov scly hsty outtock rr Carding ovmi fvctt maLC'n dtfcutI to saihfsaordy aslustcrisk ia Ibis ares.
fy) The crridtag km«»r(vtriy cconomtc ritks sft. SI «0 sccofu c.them. i)dCtrriOratihg vttthtad gII Supply and Sn Vattnae Suppl
mentary svpfty oudook fet Ihc gas utiliua; 4) Actvsg»ere Ihftstof coepcutioa h Ihc merc Piegtabtc areas of thc tdryhonc is-dastrt- sad h) thc ris of not bc»g sbtc to csrn 4 Inurn or rccov p
0ISHc t.Ihe Cvytlhftst InCSI ui 4 Illstoruavta4 04tuiuhcd, of 041nsHc
a Efdveiiss o/ Isr comtviy'r Pf«yiwr fverrivrr»e piegieha.Tl» lsrgCf thc Ike 0(AC pIOgrasa ICbtkc IocstJIStttstioa. Iht Inortieponsat aic kforsblcopcatisg ssd fioasctst psamcttts shd goodvtdtvTtty. Our greatest cenccrnt aic «hahcr Ihc basis of Ihc programtats 04 high at low cuuastcs of 4cmsad growth. «hctha thcrc isSu icicstf I ttcutvhty to adjust th'c progam upwards or dove«srdt io
SoJ «htthCtfvtuitCasts «ttho«csdssgrrisg thc sctvkt obagsuos. SoJ vfcfsosst Jt coll mcslstsis fsaois afc tmNoytd. ttrcskdu«n of Ihcpmgam toto fnvro9I«uhsbtc piojcas aad aoe-Icvcnvc piwlvc»g.evtt ii revest iag. «LJC adjestmmts sre msdc fvrpotuhti omktcdpier«Is or Ceumgcat ttfemhtvits. Tbe tack rcror4 IqvSC7.
llysef sd
qvstuy 444 Aonfstt ~ 0( patt fcsss»g ia ICIeuouel for indi'srioas oC
Cvttvtut fvivrelIobtfmi.
J. arfv(srvrf rliinutr. Corfwlvtg twrffri'>4«n w»glef «uf orrvvnr»f lrrarlvroi, llc sai447 o( 4 vil447 stint«ntinty I.i Cvnd ntfenstm'lies tv«gram sh4 to ovra cviitht Shd futvitstrvu« farvirt.nifsts u tvlimstcty drtwodcnt os Ac taro»fs and csA d«w tcfctsotto««4 fstthevsb aot gusrsstoutt by thc jviiutinwnat nsvlstory
AXED lNCOMC )NL FETOR
heemo lnoe.-.tet, January 3r 14)76r 't~arJC 4IS.
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4~a
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II
III
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Page 60
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body, la sddbioa to bti»g fsevy¹r «i(h (hc bnsic ttgiterive stc(u(tsSad mssds(cd cours b(crpmsu'ons whkh s(aft out ihc ground ruks~ader «Lkh s rcg«4(nry scoK7 n(uu Opc(Ae «e fs((0« mssl ofthcbapo(test gene(st rsic cave dcciisas fot g«vlnacc ss to comniisionpoLYIcs snd p cccdca(L la rcccni years s wcskh of i(forms(ioa hssbcoiw svsibbk 4 this sicL s((hough. Ivdonuns(dy (Lcm o ~
spaiu(y of upcodsm cosh rubsgs rcgsnnaa the rcsu¹sb(cncss ofcommis(ion dtcb'uuo seder cetrcs( btkuooery cond(ua»L Con«bbusg rasasgtmcnt ssscssmcs(s of their caps»ics'ais ¹crcssc«scds ss4 stis(cgia, as wc(l cs istornIS(ioo s»4 phi(oiophy g(essedtrots psst come«iuoa scuons. «c dcvtkp 0 ccuoldcrcd jdgcmlcs( cslo tsturc rs(c csee os(cones sad urn(»g. Tbo cvs(us(e¹ 0 fl¹ds.(ncstst to our own projccuoas offuisrs 4cbt safety msrguuL
vts nest bc ccpcctsd. Cvskstin of refutatory chmstc b ot(tn tLemost ddfcutt SSPcet ot ibc bond rs({ng pIOCess. Psrutuh(ty so statei»ports»I cbshgcsis cornruiuoli else(be(SLIpoccef wuh fcgshn(yvasd fusdsmc»41 chsagts ¹ thc gowrmng kgok(bc sistu(cs arebcsig made «ih incressicg trcq«eKy. Ihccon(¹gly, we try to become~cqusk(cd «I(b po(ides( ssd cmoumet aiiiudcs tows(d Iegitia,
is eaictpric ssd govcmmcn( in thc jsrbdictmsst arcs to «Lich s~tgity bctosgL IttuL «c t(7 10 ssscss tbc dcgrcc of coelpclcscc. so.phbucs(ton Ssd gmersl adequacy ofihc co¹miuoo s(s(t, la Odd(use10 bciag ibC «Orthsna Of tcguhusn, tbC Stc(f O S(SO able 10 Providebdcpcadcst judgcmcst the( of(ca re{kata 0 los r(crm undcrstsndiag~fpsnicekt utitiyprot(cms 004hc{ps cise(e coausui(y ofpolicy.
service rsq«rcmcs(L compsey f¹SSCtsg P40S ssd msssgcmcnt'sCapi(st S(ruc(ure Objcc(ivCL Ltutt impuhuat 10 es SIC the prehtageofcash rcq«remen(s that »LIy bc liasaccd from ¹(tres{ Sources. 0»4thc imt{KS(ionsol ibc prag rara for coauavvag csrsI-.gs prwccuon {asmsssorcd by debt iocsreshrsuua. snd dcb( te oct gisnt asset rn((osh%be 4NCS O ICgcrdCd SS kis imsnr(SS( O»i(S owe lass iIS¹ (C4uOa10 its c(tee( on probubk snd pwcnust cshusgI pic(Stuns ceder thccons(rais(s of regula(017 Po(Ky. TbuL ccr(s¹ comscsss(¹g 4ct0(Lsuch as cscctkn( voibility regs(4ing s lugh return Oo cq«(y, (nigh(s((ow same uulcics to tive wnh s highct deb( raus ihss 0(hci«bc«ou(4 bc uK cssC. Tbc crccht s(s¹hngs ot sirk eubYIm wouhtLOWCver, 404 (O be mo(C 0(acrabk (O uncspct(vd Shartqertn S4.vehhbs uakss th(7 «ere sbk to msia(sk fsvorstk 6asaci»g ((csi.Laity.
$ . Fiscnckg flrmbi7lty.Tbc todm(ry's cspcritaccs tn tyN c)carly= dcnuuo(rs(cd «hs( msay observers hsd slwcys stop(tied, that thc
csp'nsl markets S(C aO( OCCC(tsnly opce for most ct thc pcopk mostOt thC umph C»d ths( the Pub(K u(dey NduS(roi. «iih thCir hegCcs(u'isl demssds. csn bc scrieo(y impacted «hce 1's 400(S Src Closed
lot some ol uK ptoplc some of the time. pshi+1(ly i» ss once((sinus(4uoasry cnviroemcat. it o becoming incresiinl'.7 im(o(tsa( ihstet(7(ties hsvc good fins»cisg AcubiTit7 if(hey etc to main medium sndhighcrgrsdc cr«lii rsiiags oa their debt issues c=d meri tsvorsbdccoasidcrsuoa vri(h regs(d 10 commcrcul pspcr rsmgL Osr saslysisia this arcs involves an erst as(ios ot
Wc do oet bmt aot io phj«tfe the outcon(e Of rats Cases. (ccogobteg that such qussij¹L'ttst p~ bnobc s dynseuc C4ucs-tknsl process for s(( ps(tbL la numerous sns(aa:cs wc stein con(sc(«iibcommisuoo members snd their sts»S to Oh(sin Sthbtionct iniighiis(0 thc pb'dosophm ss4 impi'csuoaa ot rcgulston aetio»L csd «0«ckomc commbsions'q¹nts ss to our tsiiel philosoplrf ss wca asits sppGcsiiea io psr(ice{sr comfsnkL (('c'rcsfcc(tully cmphssicc iocomeuasuKO, utilIYICS C»4 fnvcs(0(S that oor Only ConCCrn iS for Ourts(tngs to bc ss secure(s sa spy(sist Ofrik as is humsoly potsiMc.%ado oot testify in ts(e casa. however.ms(much cs uc bdbve thai~ny psnicipstbe is s ccic cou(4 scrionrly im;sir our objcctivi(y 4ts(kg dccbsAL 10 cvs(ustbg (sic csics «{(tus s pet(K04( jurisdktioa, 0» loot poshivcty oa conducnt. Oc(brcssoacd polKy dccbessthat address thcnoctvcs to u(ilny pest(cmL Su»dc(4 4 Poor'1usw((y 1 cfr(is (ron( (sting posi(iuo on vsnoss conirovcrusl rcvvdstory bsucs, b(1 docs Iccof sitc (hst boih co(nmirions s»4 uuli(vcorn.plans w(lt hsve io coroubr~ rcgulsmrv s»4 bssncu(g sp-tuOSCLCS if SSPCC(atlc Csmiags Snd CSSL (4« PIO(CC(iOa SIC (O OC
eisis(sioL By aeccsshy, ue are~ wi((e
1) 4»dtigs on rates sf mern ss4 rsic bssL sdjus(ed to timetrs nun swl cquhy lose ¹ incca(vts(ks(u¹;
6) a(ca( of trgukiory hg. «bkb might constrain coa(psnicsfromcs~g ihc mots s((owoL.
¹) ccououng snd rsis mstbg gv'«csdu(cs prcscrile4»hkb'bosn(ty is((ucocc (bc qnslcy" of ca(sings ssd ress((sa(
cash t(0« prwtcusa,It) 'ibc sv«lsbgi(7 or 4ct thereof of tn(crim sad/or ecftcscy
ts(c vctbf, snd plcccvuh(LI»s foc 0pprolsLv) st(inks cviksrvd iowsnb co«IPsny erg«meats based on ia.
tcicst covcssge rcq«'rein(sic sot tLc ac04 io Inch(sin crcdb "
Stsad¹gvi) tLe prescore or sivcwcs ofs(vsroccrm uifdiypro(cctien agsbo(
vohu(0 fur{ssd psrrhssrd fowcv I(octu(iions.vu) ssy tsrucvkr eigi(y rtgu(s(orv 1 Ion(rno wnh mtwct 10 tbc
~dcqusty ol commusbsuunL Cnipetsi»CSCSS Snd crhh'(uhi7.
4. Rc»»r»se Rrqurrrvutwrr, C'a(w'so'KOI(»e 004 Assrr PIIurr(i¹.ltsvbIg ((sask(n( (hc psrs¹htrs Of VVC«4(017 Chvus(e ¹ tv(ms Ot
prsbsblc future fstnIsgs sad cash duw pwca(ill. uc procccd 10
evstuste (lair sdrqsscy rctsuvc (0 the coasuucuua proc(urn, dtbl
1) phscnt sad po(cn(oi bsnk ciob( cvmlsbtc csd bsctcqi oa~ comme(cist ps pcr bsucL
u) AcxiQuy to issue fu»dcd snd uatccurel dtb( snd preferredsuck under thc vsrious res(ric(ivc covcnccts. {:Ompsnks srest a psrticutsrdbsdvsatsgc if ibry coaue ally bump sgsimircstricuoas which srs regarded as'ressossblc 4 (heir owengbt.
R) ndacrsbihiy io short term oretc(ing snd henomtr ibtLb) suings ia shoh.icrrn debt iosgc snd fuicrc poSy in this
regent Hither average esc of shor( term dtbi bhwcce pcr.mesc»( thsncisgs i recognised ss litic morc (hsn mais-tcasacc ol'pc(ms»ra( debt i» the ca(utst sir qwr.
v) sa sbiliy 10 Sasscc ibrough prcfttrcd s(IKi.prcftrcnce suet.Or COmmOa equi(y. (Lc 4(ter Si (CSSOSL{C mcrth vctW (Oboot value ratios.
vi) rch(ive uic of0(t bslsnce steel f(asac{ng sA f(cttY~to ksscer sc(l (Lc mote liqui4 compsay ssic(s in crwrgcncbL
vu) deca»lit to reduce tbcooas(tunk» snd Iniuoees»ca programsr»owly cIN4ngcrhlg sc(vlcc or tC't'I'e ctbcf pshbs
coatribu(c to {werc cspiisl rcquircmcnis.~v~s two yes( fonvsrd snslyiir of prorvhrd'lsrgdy undcfcrvsh(c
et(cruel espial rc'q(drcmcn( ~ 01 Ids(04 (0 cspI(s({tauon siresad coniingcnily svsi4h(c cspiisl sources.
h) potidcs snd par(ice as to ssk of Iohg it(el so:NriYICL bw
c(odmg ihc dtgrtc Id coaicrvsiini cvtdrLicd ul 'pfcpsrulg forupco¹I»g rcfundingt.
s) «ors(Kssc cea(i(testy plsnL ioctuding CIuvddcrsuon of bovmsnsgvmcn( vien is prcrogsiircs s»d pnoriYics under sudIcoNQiseL
4. Ev»iumioe Of »IO»OCVI»rnrr ebb b wbhsct 0 doubt tho evsst45cu(t ares ie ~Lich io instc sa ohiehwc snshii, ihsi hss vs(ich'17
ss s rscnsutcmcst st future dc(n ssfhy, Yct Iccogrnr¹g ihc Ielpohsare ol iho vsrisQc, wv 40 mete judgmhus snd evaluationsbased upoa
the tear(crm track Icr«rdi how swccsdat Insnsgcmcn( Lstbeen In elec(lag Shs fcho(dcf ~1IvCL Svd «bh acr sIKL suet(casts or t«luhs csa bc s((ribwnl io msnsgcmto( or 10 whetcsnsikrsuoaL
jsnusty 3, )976
Randard 6( Pi(or(n Cnrrit(raticn, The Fjxcd Incr(tne
)'egc fg9
InventnrIJanuary 3, 19.6I ~a!e 989.
Pa 61
~ A
I) crid<nce ol <nphisricstcd snd «riL<c<aoned pbaaisg for Acferiuc ssd thc Ocsibgity Ast <asssgc<ncat b<a<ds ia<o sujotpoGcy 4<chio<m
SI) dc<noa<t<s6na of ensccvva<~ ia boA opcrsriow aad pisa.ab<g. aad stg srins<en< aad ods«bn<» tsch6ag or <shb<g
psshinas fefades< ry p<ob<c<a srcsul<) a<seats<scars ~ uw«<ds hssacing of pebbc sa4 pri<e<o
priorirics, ssd hs swomaess ol <hc i<nto«ance ot the debtor.c<c<Qot <cts6<e<hip and <c<paau<arirics to«ants <ncc«ng costtsctesl o%gsrioss aa ria<c.
e) a des<nest<a«d <ccard of c<cdibghy snd seoc<asf<i <etariont~fth Ae gasorist coouawhy, Ae peb4c, tbo <ac<he. as4 ofcae«c. Ihc t<gris<o<y at<acies. apoa stl of«be<a Ae co<npsay<past t<ly>
AtStands<4 R P<oA. «a My<cog<ntc thst th'esecccss or fsae<eofoar ts6ng dcririons csn Liege on Ac co «cc< cvslesrioa ef <nsasge.a«at. Yct oer crsls<6so <nns< sbo be s<IWi<n<6ag. since ac<y poora<snags<ass< a<ectly is ac<dec<ah Also, «e recognise <hst <nsaya<snags<a<a<a herc sad a<e conria<dng <o lcs«< f<o<n psst h<dest<ya<hts Les. psrricetsriy ie thefiosnrisl a<ca.
7, its<any Dot<an<at<. TLcsc docs<nests, and, pa<6c<dsrly, AeOl<t h<4<a<e<e («hcb sp<as oo« hc contract b««ssa hsacc snd
. hosAotht), s<e tbe bed<ash of the pab<ic capital <neth«< ~ sad s<s
csssabn<d ss <o both Ae eaeensa<s agreed <o aad Ae <a<«nina
,stccig<d for 4ch of conpVisncc. Thc s<sadsrd p<oririeas o<e. clcoo<ac, Isohat for. sad <L<fccnrisrions <nsdc, «here <no<a n< has p<o.to<tine is a<to<dad Ac boadhn<dcr. or «herc aadely <c«nairc p<on.Since LS<np<t Ops<Sunna Snd t<CS<<a<nr. Libs<thtcunnt W Ae Cden<etc s<c ec<66not ««h ps«u<da«cnaasaasa as toj~aad <ca<oath<casts aad «b«acr <hcy <nay Iced <o bat«a<ed c<cdscist. A«cs<p<s by co«panisc to circe«ncs«c<tricriae covcaseo«h<ch a<c ao< w<cs<oasb<c ia Aritoaa <ith«. nest of««do as<stQghst rich lsr bondh<ddc«.
TLc total seta of oer saslyrit, epee<cd for each a<airy rtgetsdy.serves es Ac basis oa «haA «c co<art<a aa4 cesies<c <c<s<n ~ a<dabeohne c<ado ris)s for oner 250 eri<ay issec«. One a«cc< «e swpsnicnls«y conscious of. i< n<sb«sinh<g <hc mast prot«r st<go<neo<:fc<cdi« srisgs fo< a<ili<y hsec« «i%in cs 0 <cfats<o<y jsri<dinio
'c<asI<y,tLc rs6ag d<cisios-<nsbiag process is ddsc s dlasn«C Oss.
coa<b<ooedy <c<<sc«iosing snd <cdc<s«sbung Ihc aery hs«: i<secs a ~
so<red ia c<«L«i<h ssd hs crates<<os not coil for e<gr~ b<a fsrsa insects. UI6<ns<riy. oet cfe«s s<c t<ritcd by a dc<i<a <o be ss furss possible to thc a<wr. «Lgc p<aridisg Ac <no<< objet<no aad s:cess<a spp<risst ofric ss is possible to Aclore<<or.
SEASONAL LULL CONTlNUEDQglg pm'.faUng and yea~ portfoliopositioning wat fn cvidcnec fat t wccf:, not
gt<tprfti«g %cr the strong December raiiy.in»hich yirfds dmlincd haffat much atduet'rrgghc whofcsecondhaif. The advonccin yiefds lass «cef'at minor co'mpored uithfj<cderretttein the previous Iwo wecfts orso. There werc no ncw offeringg.
37m January calendar wfffbc decidedly fighter than thc rcecnt monthfy avrroge andweffbefow halfoffatt January, a prfncipof crpfonation bring comparatively good t'orporafc ff<fuidiyy. A slower rotc of inffotion should encourage buyer intcrcgt,'hichwoufdbeenhonced werc equiticy to contfnuc to reco<crondbceomefegs compttitivcon.a yicfd batit. ZT<c FeA, morc accommodative poiicy gfncc midfoll if onothcr fndcets<cnf, together with lhe reaff:ation that it acted to hefp preclude record rates inljyFSin fhcfocc ofsome SSO bffffonoffcdrrofdebt financin. Thus, the market shouldbc refatfvefy steady &< thc near.term. an<f resumption ofccfccffvc purchases it «t<rt<<ttotf
Corporate Analyses and Briefs
NElV ENGLAND TELEPHONE <ft TELEGRAPHCOMPANY
hfaintafn "Avf-"Jfotfngc «ccariy cen<ptcscd a M <sting <eri«of <he Itc«re<gland
Tc«phone R Tc«graph Company. sp<sf<t'ag, <he fends.<a<a<el 6<as<ion b< r~ nfAc 0<tobe< 27, Ig15, Ltsssschnsc<<s ts<c4<<i<ion and a<hat chances w Ac oa<<ooL." The co<atony hsd Iss< bc<a<cric«<d en gisy 24, Ipy$ (<cc page 429 ot <hc p,l.l.h «bca. ia con.accrioa «i<L <bc sale ofStyl <ng<ion of dcbaate<cs. «c changed ths4<ao<s<h<s oa can<«Lg snd ac«debts<a<a hsecs <o AA-, (<on<AA"p<crioe<ly.
pic<a ebs<go canc<ages are in <bc p<ncc<s af bo«onang on<, sktcdby Ac h<fnrinn of5<25 <nh<ioa ofra<a<ann en«i<y 4<< <<<nil, <a< c <rii<f~o« Icing cn« tc<nt. snd a <<dec<ion n< con<««nkn< csee<au<a<a <c
qdde<n<n«. I'enb«san<a. <and<<a<a ln<p<nac<ncn< in dc<a pro<et<innpe<sou<etc i< n s«nadke arsr4c<as capes<a<i«a snd «c nn<c <hs<
Ae co<npsay « dditnnty pe<so«g rs<c «h<f <0 a<eel<ate<a a scnoes
r<gsts<o<y lsg prob<<<a sn4 «<nsn«snnng s uth« aa oa both cs«otapse<bag sn4 ops<sung esp<a<ca Cnnsutrnae <kr yv<rn<nlt,orhap<oar<«ra< ta ln<k ia<rrnnf r<nk grwra<inn on<t/or/s:alv rnrnrnoto a<err rfo<<ty epprnerh <kr rr<vn«otto~. av sNr pwrrr<fv~<a'aha <kr AA ra<<aeon a<ton<<<««bag Drkrn<vrrrofac«&t4nn<t Wrpkonr 4 Mrgn<pk Conrnsay.
~ LfDIANAPOLISWATER COMPAA'Y
Scffing Pirgf hfortgage Bontfca <nhl 5~<y, I~» Ws<c< m v<fc< Sig.t<O,<rn res<
L<nntssc «nnda r<nc lpga <Lrnnth sn wa<c<«nunc <Indscs<c «4Sy C'wMaL<a. Sachs *Cn. Thc hwc ad<, <c et«<<et nt zrim< tnac<is<etc<<xi«« cfnndtng fnr five >cats I'<ncccda t<n<n <sc +dc act be~s<4 <o «<uc a«as<a<ay SIL,75le< p<ianra a<anna< at <le cern.psay's I'n( hto«tace <<«ad<. 2s<>dae Ip)n, ahh <bc I dance«i<hea« p<«n<cds <o be sdL<«I <o Ac c«a<peal's gene<at fvn<h: la
FIXED II4COMG t'IVCSVORPage %0Rat<dard fc Poor's Corporation> Tha Fbc<td It<cott<o It<<ra tor Jan<<ary 3< l97;«.a;e 99 .
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fNOVSTIIIALCOND YIELDS
s
i ~ ~ ~ 'ogwv I I
IOLAC 'scots c44tssssctss'S
IO
Ia
st ILO sst FltCAal'+ ~ ~ saraarco ScaaC
s ~ s4 ~ 'sss sos%
although outsUc purchases are niadc. from time to time, to mcct tem-porary shorta a.
Other than its steel operations, which account for approximately9SPo ol'ntional's total revenue thc company partnSpatcs in a jointventure «ifh Southvdrc Company (a~~xlmately 205 owned by i ta-
'ional)to operate an aluminuin rcduaion phnt on the Ohio Rivet inHancock County, I'cntucky, «hich has a rated annual aipacity of ~
l80,000 nct tons of primary aluminum. It reeeivcs $0% of thc primaryaluminum produced, which it processes in a plant it o«m adjacent tothc smdter. The company also operates six alum'mum fabricatingplants, «hi manufacture foil for electronic components andpackagin 'iding, dov nspouts, gutters and other buililing products:guard
'For bridges and highways: and cxtrusions fora «idc variety
of
YationaJ is a partna (40~» interest) in a venture to dcvclup a com-mercial process for the refining of alumina from hrgc reserves ofalunite held by the partnership in Utah. lt also lias an approxiniatc6S% interest in a magnesium phnt in Snyder, Texas, «hich producesmagnesium from undergruund brine deposits. The phnt bccume fullyoperational in f976.
Over thc years, National Sted has been amon thc most sucemfulof the domcsuc steel producers; since its incorporatinn in l929. it isthe onl) one ainong thc major companies to show proFits in everyyear. its products and markets are essentially oriented to consumergoods Industries. which normally «re less cyclical than acti Iy in theapital goods industries. In I97S, however. demand Ior fight Il -rolledsteel products was particularly curtailed, because the eco mic
(Conthrurd en Page5v Jl
CHAI'«GES tN THE U, rLlTY BGMD Rt TING PROCESS
On Junc 10. 1976, Thomas G. Fendriel.. Associate iffanager ofPublic UtilityRat-ings, presented a speech to a group ofutilityfinancial et'ecuti vcs at a senfinar held by anfajor ufvcstntcnt banling f'trna lt is in substance reproduced here to give our sub-scribers further ufsight irto thc bond rating process and our present vicxs on variousutilityissues.
4 ~
t S k, P our priinary objcctivc is to provide investors with themost accurate and timely appraixafs ol'redit risks as is
possible. To hdp Ineet that objective, itis impcraiiie that we bc as fairas possible to thc debt issuer by maintaining an ~ing dialoguethrough which «c can cxckangc hifortnation and viewpoints. In thisspirit, I «'ould like to update yvu «ith our present thinking regardingutility industry trends, where thc cniphasls is moving in bond satin"decisions, and s'ome ways in which you might hdp us do a better job inrating your companies'onds.
Today. «c can all look back on tbc Gnanaally strained months of1974-7$ «ith a good deal of xausfnetion. The utility industriesweathers their mua traumatic pericrI in the ~twar era, and allthing> considered, they hnic emerged stronger than when they hudentered it. Regulators, Ity nnd la~ «ithituod tremendous pressures,but ultimately, inost ol'hem did not shiit from their responsibilities.Financial management swallowed haril, hut soltl cunimun stuck atheartbreakingly low prices Io support equity ratios. Utilityoperatingmanaganent «as fsireeil to draw up alf fiirnisofcisiiungency planning,which furInnately. did nut have tiibe impicmentsxl.
Looking ahead tu the cnd of the decaaJc, it is quite ~hie to view a
inure comforting scenarin of industry prospects. Wc can envisioncompanies raising capital «ith Iefativcly less strain. and at the sameumestrcngthcning their cash flows, their finanaal flexibility,and thar.equity cushions.
For example, our own projections for the cleric utility industry,indicate that pretax cnvciagc ol'otal fixed charges, a kcy indicator inbond analysi»s rose to about 2.7$ times in l97$ , from AS thc year be.I'ure, should approximate 3.0 times in l976 and could fluctuate in the
"3.0-3.IS range until f980 or l98l. Capital outlays could bc financedabout 40% from internal each sources, versus 2$ o.30.o in recentyears. Gaierating Iescrvc margins would coast down tu a morenormal 20% or fess, from the 34'~ high ofhst year. Safes growth plusmoderate general rate increases «ould allow the industry to vriunllyvvrn l2% I3% returns un equity on slightly morc healthy equitybases.
Similarly, the telcphnne companies could he projected to impro~einternal ca"h generation to tf0% or morc froin 6$ % or sii today, toreduce deht ratios and earn inereasal Ieturni nn equity as regulatorylag is alleviated. The gas inJuxtry could well benefit from a partial andinferniediatc term Staliiliriitiunuf the gas supply situation.
July 24, l976
Standard 5 Poor ts Corporation, The Fixed
Page S'il
Xncome Investor, July 24, 1976, page $21.
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Although changes are (aisfy good thuL the next several years willunfold along Iheic lines. it is also not iroprvbabfc tv psviect a numberof adicssc devefvpoients that could qui Lly and seriously upcct tliisoutlook.
First and (orcmost is Ihc quc«ivn of inflation, which has a morc insicfious iiopact on the capital-intcncive utilities than on most any otherindustry.')Iit.h inAativn ratcc entast e caPital sequisnncnts of utiliticsat thc same Lime that they substantially incscase Ihe cost of capital.Iligh inAatinn also accentuates thc need for sate relief fur «hat is astrictly'rice nd profit.regulated induitry. hnally. high inAationIeacLc tv saluced access to thc ca pital markctc and raises quc«ivns rc.gardin tiic viability of thc industry's psivatew«nership structure.%hi!e I dun'I think any of us really l.no» v:herc inAatinn is headinglonger term. ituva, concern mc that after the steepest session in thcPostwar cra inAationis only expected tv bottom out in the 6%area.
The second calegory of posciblc adverse dcvelopmcnts recognizesthat thc efcctrii gac, and telephone utgities face major risLs peculiarto their own industries, any of which could cacil> upcct the delicatelybaiani& outlook Cor the >cars ahead. Electric utilities, for example,
~~
~
might be forcal to endure another Cinancing crunch should another oilembargo or multiple increase in,f'uel oil Pri~ occur. This couldinitiate a new cycle of'o«cr kilo«att-hvur sales, heavier «or'Lingcapital requirements and limitaL access to thc market. The telephoneindusts> fakes cicry distinct thrcaLc Crom compctitiun and from a rapidsate of tcchnvlogiad chang:. These could play havoc with existingcommunications markets. «ith the remaining useful lives oCtclccom-munications equipment. «ith priang patterns for telephone services,and with anticipated attrition in earnings Icvcfs. As for the gas in~
dustsy, long-term supply is the psecniincnt risk; ifsupply worsens ma-terially, it «ovid not bc rcgected as much in thc earnings trends as iu agrowing inability to obtain Iong-term financing.
Our third area ofconcern is that ifutilitydevelopments do work outfavorably in thc next fe»'ears, to what extent »cwld it lead to com-placency by both managements and reguhtors? For it is evident to usthat thc positive factors in the utilitics'pcsating environment duringthe next fire years are not likely.to bc rep«ated during the 1980's.Vnless this is generally recognized and p!armed fvr. utility regulatorsmight view thar ra ponsibilitics morc casually. »hile u!iHiy manage.ments might lapse back into less cunservatiic financing goals andpolicics, rather than prepare for thc much mose challenging environ-ment that lies ahaiiL Basically, these cvnccins confirm our cautiousand conservative rating approach that must judge how companiawould fare under thc worst conditions, not under thc best. Personally,1 have hopes that «e«ill bc able to raice mori vfynur companies'at-ings in the next
five
year than «e «ill have to do«ngradc. For us tliatwould be a pleasant contrast to the 1970-7c ecpcsience»hcn we couldonly maLe 27 upgradings. and v crc rcquircd to put through 94 utilitydowngradinis; g0 of those rating cuts were fvr electric uti!ities. So farin 1976, utifitics haie turnal the corner and arc on the right track a»wc have made three upgrai'ings and only t«v dvv ngradin c. Pnhapsmorc significant is the trend in dcnntatiuo changes under vur plus andsninus system. «'hich «'c do not tally as rating category changes. Thesenumber eight on thc plus side and only three an thc minus side.
Turning to Ihc bond rating props and how we at Standard Sc
Poor's iiew it with ra ard to utilities. I woold first like to cmphacisewhat has nvt changal. Basically. our rating syitem simains wlmt it al-ways has been, «ith the letter ratings structured for long.tesoi mean-ingfulness and fvr consistency, so that an "A" ratmg inilicatcs thesanie level of ncdit sisL «hcther appliai Iv the debt of a utility. banLholding comp.ioy, municipality or (oreign govesonicnt. Ihc ratingsthenisdvrs are relative nivasuses vfcsnlit sicL «ithin a (same«orL vfabcolutv sic'k. Uvnd~ salvil "UUIV'se thc lowest invectment graderated securities which unsuspecting invcstvss should bc able Iv buy
Page 63
and expect to gct interact aml principal paid on lime; Credil quality i»
graduated do«n«ar J Io the sf«cmlative lioods ratal "IIU"and Ivwef,and works up to nicdivm grad- inicstment ereditc, rated A Iogh-quality csrfitc. sated "AA,"and Ihc best credits available outcidc ofV 'S. gvvcrnmcnt securities. sated "AAA."
Our rating pvlicics rontinoe as they hare heen in that wc still satebonds hy comniit Ice. Wc dv not finalize ratings unlit Iho company isnotiCicd of thc decision and the seasons for it, and wc dv vur hat toprovide companies «ith every reasonable oppvitunity to defend tharcase and provide ux «ith additiunal relevant information. Our op.ra.tions arc completely segreuatccf from Stzf's stock research depart-ment and we arc subject to Ihc S LiC's insider rules.
Now what has changed at Standard Ik Poor's? Weil aside frvm thc
, departure of vnc o»pectcd cralit rater, not all that much. We haveexpanded further to.a corporate rating «alf ol'3 analysts. ofwhich (our work full.time on utilitics and fifteen gcncrulicts «hodevote past of their time Io utilitiia. I am ah!e Io tell yuu that we ascdoing morc professional and niosc thorough rating analyses than ccerbefore, not only because «c have the stalf, but alco because our plusand minus system requires that we linc.Lunc our ratings more shar plythan in thc past.
In terms of how our rating process perceives utilitics, I have givenyou a broad overview towards general industry ricL. Now whaL aboutindividual utilitics? Well «c arc phcing a lot mote emphasis onanalyzing five-year constructivn bud;ets, their details and,their un-derlying assusuptivns. hlorc than any other financial schcdulc, thecapital budget cxp'hins «hat a company ~ants to dv or has Iv do, andall other financial and rate.case planning has to bc built around it. Butwc have learned thc hard way that capital budgets can either be quiteAvid or quite rigid, and understanding Ihe parameters of Ihc budgetand how management views it, is basic to evaluating thc financial phnand total credit risk.
We arc spending a eood deal more effort and energy in evaluatingregulatory climate. When we visit «ith commissions and tticir staffswc try to ascertain not only where their current philusophics and di~
rections lead them, but abo to assess the structure of reguhtion-whether it is oriented tv an understanding of utility psohlems andwhether it is in harmony or in contlict with the underlying political.economic and social forces in the state. Wc arc interested in hvw com-missions view the job that utilitics arc doing. and what thur attitudesare to»ards sisL and retura. O(major importance to utilitybond rat ~
iogs in the future are thc (vllvwing three issues over which com-missions have responsibility: (I) The issue of CWIP, allo~ing a cashreturn on cvnstructivn work in progress. v iII become extremely im-portant tv the electric utditics'inancial Iiea!Lh as they move into thetsemcndous building programs of thc 1980s. (2) Thc adequacy of dc-prcciativn rates. while impvstant (vr trlcphvnc and clcctric utilitics isa csuch I issue for the gas industry, (3) llcguhtvry la, which wcdclineas thc inability oi' company to curn Lhc return allowal bevuusr ofconstraints in the rate-making process, is important to all utilities, butis a central concern I'or thc tdcphvne industry.
In measuring financial protection for tlic homlhoidcr wc continue toemphasize earnings protection rather than aciet protection. sincehealthy utifiiics should he nicctiog debt sesviie obligationc with adc.quate earningc, or «ith Iiing.tnm Cinaniinl. hasal on adequate earn.ings. Cash Avw protection ic hang emphasiral tv an incrcaiiog extent,«'erc cash'earnings differs nieaningfuily (svm iepvrtal earning». Intermc of fixicf charge covcraf:e, «c nre paying muse attention tvprctax coverage excluifint allo«anecc (<ir fumiiural during construc-tion in eaces «herc allowanccc m-Lc up miirc than 10~ of psctaxcovesage. Oor analysic here ic ioifucniMhy nn evaluation of Ihe relia.bility and iiiihilityof sil~ul,itvsy climate wiiich maLes an importantdifference in evaluating the true sisL in CWII':
Page j22 FlXED li4COME IfcIVL(TOR
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the area of finandal Acsihility and capitalization gnab„wc are
plcasal tv see a rn<iJ ninny companies operate and plan m<scc con-
-rvativdy than in thc past. tVc view such eifocts as helping t<ssoppvrt
ad ratings. There arc a number of companies. hvwcvcr. that ace bc-
)bc lima in this iq',aid, and du nut secni «illing tv fu~wep tv thcchallcrgcs of the l<)ki)s. I am ai<n r:n»iwhat surpiisal that thc
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~" BA"-catal electrics, uf v hich there acc now about 25, (versus only
t 0 halfdoran fiie years ago) aic nvt making better p~iccss in
covirg their credit pvsiiiiin. For any dcctric utility with hcavy
capital requirements, it scetus tn mc there arc vccy cvmpc%ng cost
~~- ings and qualitatise advantage to bc gainedby «'vcking t<s is<prove
credit position above the UIIU lesly.I
Finally. I think you should bc a«ace ofhow conscious «e are of the
, importance of cegulatory and management prerogatives in rsting de-
~ ns. A management team that understands thc imp<sctancc ofiaintain!ng a sound credit and is con)mitted to dv so duccng periods
of economic stress can go a lung way towards assuring th" bond-lder that long. term credit quality acttuOy will be mainLHncd. Qf
rsc management cannot dv it all alone: it needs rs~tocy appre.ation that the goal is worthwhile, bcckcd vp through tale actions as
rcquiraL But whai we da sce thc t«u working ia tandem to protect
~bondholder, through con<:rete regulatory actions and a ccalisticnancial plan, v c arc convinced that morc protection is bciiig pro-
the bondholder than any ev luation of the numbers casa ccvasL
Before dosing. I «ould liLc to Icavc you with some thoughts as to
~
~ow you can facB!tate our «ork, and vthecwisc ensure that thc SE'P
ating assignal to your bonds is thc most aocucate appian csf creditrisk wc can make.
;~Irst, although thc quality of the information and thc projections «w
Icc rccciving from most uiilitics has impr<>vcd significantly et recentyears, l must say that a nuniber ofcompanies are sti!I ddidcot in this
respect. Ifany ofyou have any questions regarding «hat we cc<snld liLcsce, or ho» we calculate our rauos, please fcd free to contact mc.
nc thing «w «ouIJ like to see more of froin dcetric utBitscs is theconstruction budget eitcnding tv I985, recognizing of coucsc its verytentative nature, but also its niajor importance.
d, «hcn you do come in to meet vdtb us. please give us as muchtice as possib!c. Our time is ve y mu% governed by rating
deadlines. thc publish or pccich syndrome aud travel commitments.>~ad it hdps immcnsciy to bc able to p!an our time in ass orderly'Nashioa.
Thicd, should vou fcd it ould be orthwhBc for us to vi, it with youa )uur horne ground and tour some of your operations. do notcsitate to Ict us know. iVe have allocated an increased amount nf'mc to travel, and l am sure you «illIind ui quite cager tu IeaccL,
oucth, when we meet keep us currently informed not only as to thctest dcvdvpmcna, but also "s to your corporate goals assd objcc
'ves, and ho». yvuc p!ans will allo» yuu tu meet them. Ifyear com-
pany has particular advant»gadv nvt fail tv heing them toner atten-
d~
~'. We wvuM liLe to think we know everything there is to kc<vw. hutct's face it, nobody Lnows your business better than ynu <La. As tvvur problems, it i» generally bet ter us explain ihcni to us, r~t9<er than
for us to tinduut vuccdvcs. Ifynu neglect tu tdl us about theat. we areunccrned that you do noi knvu'ow serious they aic or tbas y<w do
ot have a sati»fsctucy plan tv solve ti<cni.
I"<nally. I bdicve thac is room for and, actually, a nccd for furthercommunications «iih many of yuu. 'I'his despite the fact that wc
vcrsgc over 300 niani<tien<cnt mretings with u'.ditics in tl<c cuersc uf a
year, and many nioce phune c«nsccsat<uns. Yct I ain sure i)est many"-"utilityc»nipsny nisnatcnlents Jv nvt ical)y Lnow huw S~ac<l A
I'vuc's views thdc csiit<ng ccalit catiuiic at thc present Iiinc. And it is
nut because «c are reluctant tu tell you, hut rather he:ausea<any»l'yuu
d<s mit ask. Sn I «uuld like to cstciwl an open invitation Myou tv
IJuly 24, l976
ar, rd. 5 poorcs Corporation, The Fixed income
contact us not only bcfvcc financinfs. but whenever yuu fcd <I «ouldbe dccirablc. I ean assure you that «hen «c fed it is ncccscaiy to
,contact yvu about a rating pcuhlcm, we willnut hesitate tv Jo sv. Only
by that time, it may bc tuo late for yuu tu taLc remedial action.
rln $<4 P paniphlrc chuc dicruacrs ln a fuirii )borough /i><hi»» «uranalrciral approach cu racing uliliiudrhc is availu)>lc Iu su.'v<'rib<vs.
Thr pa»<phlcc is a r< print nfon accirlr )hue upp ra cd in rhc Pis<4 ln-conic'nvrscur <>fJanuar) 3, l976. $»hsrrih< rs inirsrci<vlin i>l iuining
a complin>rncur)'c>pr may «rii<'o hfs. llur< ni r Flynn. Sca»J<sr J <f.
Puur's Curpuruiion. 34$ lludsun Sire'I'(, <Vv«)'or)', iver«' uri',NOI<f.
(h'acinnalScrrf... Canc'd. from Pg. DZlJ
recession was magnifial by the coincident liquidatinn ofpresmusiy ac-
cumulated customer inventories. The conscqucnt maiecial raluctionin thc company's vpcratinns, couplal with 0 price/cast squeeze
amplified by thc then rdaiivcly lvw prices fvr'light Aat rolled
products, caused an unusually sharp drop in Nationa!'s earnings,
compared to thc pcaL lords in l974. Starting carly in l976, vvluinehas rccovcred strongly. principally in response to ricing demands frvinthc automobile and container industrics. Gut thc cvrtinuing squeeze
on operating margins kept earnings at cvmparativdy low levels in thc
5rst thccc nionths of this year. There «crc price increases in tin millproducts in the first quarter, and on sheet a>ill products in Juns", inboth areas, demand continues to be strong.
c)9NIic<Scic< Iht L51 444.1
Nct t><c. IML5) IL4Is<c>csc 'times Fc<cc<h
S<C<cc lcc. Yc<cs ~~C
acr<»c I><c. Yec< 244t)>>cc moc<ss ao hlc<cs Sl.
—Year<a<4«t Dcccmsc< 5I ----cl975 19is 19)4 I9T) l995 I9)I40IJ 5 ~clJ Lc~c 4 c la)J IS<402 I <? I
Z).9 5LO l)SS %.) 7lJ 4!.9
s.cn 295 L45 5.ls 4.00
7JO Lla l545 SAO 4J) 4.IO
Page S~R
Investor, July 24, 1976 page 523
Longer ranp:. sales prospects are favored by the company's very
strong position in its ectablished major markets. und by its increasingstrength in other areas. Current and I'uturc plant expansions promisethat increases in iis volume of output «ill at least match thc gains cs-
peetal in total dvn>cstic steel production. !mpcvvcments tv alreadymodern stedmaking facilitics, and thc a<Ivantsgcs of an unusuallystrung position in raw materia!s. should inakc appreciable cvntcibu-tions to thc company's ability to control costa, and cnhancc its profitmargins in the ya>cs ahead.
ASSET I'RQT ECTION<'. These first mortgace bonds arc scoured
r4tably and alually with thc $ 256.OW,000 first mortgage bonds
outstandinc on Murch 3I, l976 by a iirst lien on virtually all vf the
corporstiun's stvd plants. certain occ'prvpcrtis~ and rdutcd mining
facility. thc capitd sto'Ls of majur suhiidiacics. and its stock
ownership in and cuntracis with Iron Qcc Cvmpany v( Can da. Athtarch 3I, l976, Ihc corporation's othec lung.teria indchialncss tu-
talal 5332,46t),97$ . including 5!I!c,932.653 capiializal lease ubligaiinns
and $ 9,4g<),0>>0 cunvcrtihlc suhucdinatcd dcl>en)ares. AtljusicJ to in.
elude thc ncw bonds. total long.term debt on hlacch 3l. I')76 «ovid
have been 3g.l < ul'apital>cation. Average cash )low in the years
l973 )975 would have tace equal io appcvsimuicly 32~« of ud)uctaltotal 4<ng-term ilchi. I'co fuima. at hlacch .il. IM76. total lo«g term
dcht «uuld hase huvn 44,5~< of net plant I40.3 c including invest.
i>1<;nisi: wvcLm; aipilal «ould have I>ca) 37.5 ~ vf lvtal loll)!~ Icclll
debt, and nct auoi hi><aI ass<;is 261.6%,
c'e: ~
,) <
1
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ge 65
March 3, 3975
~a,re~ ~ ~ r
~ r eI "f.. ee J"-'f=.;it '."'
Mootfg's Bend SI)rt/c'I ~ I
Public UtilitiesComment'cgtric
Ubtity Gantt RatingsMood~ seduced thc bond ratings of 28 electric utility
companies Ju 1974 and scvcn thus far ln 1975. Only twocomps)dcs had bond radngs raised during this time. 1
vesuus staenald Dot conclude that this unusually large numbcr of doecngzadings Lndkatcs that we tack confidence Lntbo kaaeoczm financial viability of the electric udLLIZ in.duttty f+ tbe contzazye snd rccogzdzing.that there may befui)hcs teeing redact)ons, it could WCLL be that tho worstzaay sooca be over for most af d)e cotnpanies in thh in-dustry. Reenters of Bown Staving should bc aware that eachdownwasd gating adjustment reflected a speeifk and idcnd.Sable problem related to the company Ln qucsdon.
While each company Ls different Ln Lts stronger andvecaker efcauents, there has been a common problem amongthose rrbohe debt has been dorcngradcIL ln a broad scnsc,Inany og cbe things tbit co)dd have gone wrong for thoindustry did lust that Ln 1974. Skyrockedng oil prices, zunaway LDAacfoo, disasterous bond and stock markets, near-zczu sales gstywth due Largely to eonservadon, unpredictablefaults ln auocfcar power units and stow regulatory tcsponsesln a atlt5)cal year hsd a thumping adverse effect. Com-panies that trent into 1974 Ln a strained financial poddonv/cze feather weakened. And, their problems hare beencompticaaad vcbete Lntczz)al cash gcnetadon bas been ndn-Lmat ln zetation to espltal needs. Tlds has really been thobask ptobteua af the industry. ttctadvely low cash flow, afuncdon. ultimately, of inadeep)ate tate structurese neces.altates Ioo zauch reliance on capital markczs, partiadartyfor debt capitaL lf this condidon cx)sts )Chen intcrcstcorerage ls aheady under pressure, vee feel obHgated totake a menu etaI!Czvadvc stance with regard to radng,pending aasisfamory zesotuzkct of Lnczznediaato term pmb-Lams.
On tbc oclacs hand, eren where )bete is a cunent Low levelat interest ooveragc, wc aze hlclined Io a n)o)e positiveapptco/.'h Sf the company'0 Anancing requirements are ofa zcceoaalele size. all else being cquaL 'This La particularlytrue Lf tbo caxmpany rcccndy rcccind reasonable rate relief.We ICLB also taLe a pending rate lnCZeaae applieariOD intOconsldcxusicm, aasmzdng that Ibe dcc!Sion will bu SuadezcasonaQy soon and that tbe regulatces have a zecotvtLad!ra)inc they will bc alert and responsive Io die cocn-pasly 0 neheds,
So, as wo hare for many years stated, Moodz's concernLs not abusers !LIC absolute Let& of deb) pmtccdon mcasu)e.ments at a giren time. but rather Ihc ptobablc trout oftboee zncuuurernents. Wldle thcrc arc, ecrtainlZ, otherfactccs tbst iufl»ence debt cpiallty. capital IIv)ulrcmcntsand Ivgulaaion have been predominant ln )event ye 0th andwilt zczuain sea C'Iu)at)uetion budgets have bavm IrtuimCdconsiderably by DISIIZ comps/drs. Ond there are CIIcourngingSigna frame SO)lie IC'gula)eery CCNIIIldaaionc Tile horrc'lu)eeuaptobkma of LS74 atu nut Likely Iu disap)war, but theirmam)itueae shouLL n)tulrram. Tl/c clcvirk u)ili)Z ln/h/a)eystLLL has n veaz ue sa befeere it rvcuLI)s part of )Chat it hnsLoN Lu Gnaneiat puaII/Ir. Lait Cue Iioiv Ibne aec sonee in-di Iiuas cenrrc)II@ that ai)gtust at least i dcg)VC uf smbili.. I)ou ea the hocicee.
Raf))sgs PctfvccdCaroli!sa Power 4 Upht Company
Kupue Sdl~ OI!L)knt rf rate Ivlief that waa in I ffrrt for
owa Gectric Light 4 power Company
ftk)qrelkf Placed Ln effect ln 1074 has Pmved ho~fflcientto halt d)lu!Lon in Ln)crest coverage ratios. ktcangdh, addidonal accumulation of debt without Lntec<oyc of equitycapital has zesuhed in a rctadvely high dcbtWth, In v)ewaf dds, Letoody'0 is loivertng the ratings on tbe company'sfi)st mortgage bo)uts to 8aa from A and ori Lts polludoncontrol revenue bonds to 8a from Saa.
Ncw lsst)cf ~
Central ttGnois t.ight CompanyFirst Mtge. 9I/ds. 3/I/2005
Anuwmt Call Of)enag ~Y)a)dsaauag I)II!1) pnce pnn cures t ata)uc)trAa $25AI LBLL0.00 100.75 9.18» 938%
QLIoneefundab) ~ proc Io se)/zz. rtth debt at an Interact coat or)cca Ihan t Io annuany) oiherrue ea!icicle as a «hole or In oactal any lime on so dare'oiece ai I!e.w In/ouch ters/Ic: ai Iie).caultelech I/zs/tz, Ieec/Ileum eeceecclhc Icelhee SI;)00 o/ s) )00) aelhWI)y Ihereaf lee llaa)i On I/I/a)I IO loa On I/I/ eel. apeaa) eeedemauOn aI Ioa)S IOC the Iuai aine yea/a. )Ore/ Ihe/WIICC.
~du Offered on February 25 at 100.75 to yield 9.18ee.Winning bid. 00.677; cover per bond, SIONBI cost Io corn.pany SM~r. Other details ln Bo)ID Suavgy, February 17,1975, page 1619.
oo/e)eo/ These high.grade bands aze satisfactorily pricedagainst the secondary market.
~ ~ ~
Ci'tizens Utilities CompanyFirst Mtge. &Coif. Tr. 8,30s, 3/I/85
jLmeemt Ca)I Otfere ng Yle)dena Nag Il)II@) pncu pr)ee current a)atuntrAa Slyly LOL00 100 L20% L20%
II)nedeemahle Only Celahiag Sn/SZ and at )00 le .Oeacu/I)resoec/a) redeeaue)on aI )ce.
oe/eur Offc)ed on February 27 at 100 to yield 840%.PrkC IO CO/I)pony, 99.25; COSI IO COmpany 8 41,4. Other de-tails in Bo)IO Suavav, February 10, 1975, pago 1051.
oo/aru These bonds offer no special concession; sceopinion utukr 8tes. bolo)r.
Citizens Utilitics CompanyFirst Mtgc. 4 Coll. Tr. itI/as, 3/I/2005
/e eeeeeent Cen OI!eecng Y)eid~I)sung Is)DLI price prier cueeeal auelutl)yAn $20.0 01108.02 90.75 SAlcrv a90%
ie!)/ence/eeeedah!e Iee)oe Ie S/I/aa, r)lh drlel al an lee)creel eeet ot)eeee lleaee a:ale: ameeaellf) olhecrlv eellaiele aa 4 «heue ee In Iec/I.ai cele lienee eeee aee chere neeeeee, al )lee ca ue/euc)l 0/ze/)I: al Iecxawe/mech s,a'Izi ueeeee>ence «Ieee~inr. Ieeileee I/ler eee ze/leul anneeaile IIreee/Ice ~ Ie/,II «ee S.l'erl lie llr eeee aeI/ ee), S/eeeeeei tedeeeuelien Iaeu leer lhe'ieceeeeeeel eeeehleeu uemII ai w,
oe/4//0 Offcllvl n/l Veletuury 27 a) 9/L75 to yhbl 8 <Io~wPr)cu lo e//nips)IZ, !IIIAe4) «veot.)n ruuuen»y Se))le». C))leerde)alla Lu l)ehv/e S)enrhr, Fcl/eunry lo, I!)>5, pare )Ln) ~
Orhuov hii ln liar. ykcbl widi nn a)nvial a)e)erat, L'navvetsfnun el)clenol))eui eef IVrm)II pruPC/Iy can leu Iaaf Iu Ice)cv mIL)ctu! bo/uls ut 100.
part of 1974, c/Ivcrage of flxcd charges and p)efcrzcd dtvl.dcnds has dccthicIL Io unsatiafac!Oty Leave)4 k)canwidlc, thoccunpany'0 construction prograut. coen after subatanthd cut.backs, Ls call:n" for spend)/ig uf Sl.l bLLLLOIhovcr tL» 1975.1977 period. 'llils ls a hcavy ptucram relative m internalcash generation and outa!dc AIIaiicli)gsate expected to con.dnuo to ptvssure thc overall fbmucial posturo of thu com-pany. ln view of thc above. Lifuody'0 has reduced the ratingsoz) thc con)piny'0 Atst mottgagc bonds to Lgoa.
Mccoy'a Iztvo)ttoz 8 Scrvicc Inc., Morwtv)9 Bontt SI)zvcv . hfazch 3, l975e pago.1557.e
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'foo(b/sBond S(frt>«TJ o 1411
Public UtilitiesQ >foe O<lsrlngs
PoNan(j General Hectric Compo.)yFirst t<)tge. 10s, 4/I/82
A>count Can O//cffng ~Y)OM~i(anne (a>>L) pf>co p»co cuffed( s(a<us»yBaa $40.0 I5110.00 100 10.00% 10.00~i
gYcmfcfuhdabtc Of(of >o c/>/10. wcch dchc at an >n>cfcst coat ofI<as W>sh >C.og(1 aheua»y> ousCCW>S ~ Ca»ah><'s a whe>c of >h Oaf<~ 1 any cwfm an 0 va>u'o<>cc, a> )>0.>o <h>ouch 1 c>/>c'c tosooCh>ouch 0/)>/n> pfchuu>e Vcr/gas>ae )00/>u<O unouauy, >hcfoa(<cflo )00 on I/>/10 )Co s>e>»ac feud.
Oeteas> Oftczcd on Ap(5) 3 at 100 to yle)d 10.0~i. Price Lo
company 58.70; cos( to company 10.27%. O(hcr dcta01 inBo>cn Suhvgr, 8)arch 24, 1975, page 1468.
op(a(de< Tbo offer)ng y)c)d appears suitabJc Jn the presentmatkct cons)dcz)ng quality and maturhy of Lhe bonds.
Gvif S)ates Utifi)ies CompanyFirst M)J;e. 10s, 4/I/2005
Amoun> Can Of>a>>he Vfc)dno»ac (atn>.) pf>co p»co current htacufwyAa $40A) (5110.0 100 10.00% )0.00%
!DBonfcfundab> ~ of>of >o c/>/10, w(>h debt at ah In<crea> cost of)css <hsh Ono. ~ ahhuau>'; owlct><'uc ca»so> ~ as a who>c of u> flat<~ 1 any 1>mc or. )0 days'< wcc a> >i0.00 >htoufh 1/1>/>(: ~ 1 Ic)A(eh>ough 0/1)/>f. Ofceuum dec>c»s>nc ccwhcf 0</>oo or )>/>o>> aahuawy >hs<cawtf (:Oaas on c'1 "0»0 (00 on c/>. 00>. Spec>at fcdomo»on (aud fog chc op»dna( au< u>/>c lund> ac >00.
oc>ovs Offered on AprA 3, at 100 (o yield 10.00%. lV)nning b, 99-"8; co<wz pcr bond, $ 1.08; con to company10.08 ~ . O(hcz dc(ass Jn Qohm Suaa~> h)a)eh 17> 1975,peg 15M.
p>afo<u In Ihe cu>zen( market, these high-grade bondsp o>%de a saU)factory return for longer term )nvcstors.
Proposed Nots/ fsstfos
Carolina Power 8< U0ht Company...... bas filed an S 7 zcg)stra()on statement cover)ng S)00
m0))on of first moztgagc l>onds duc April )5, 2005, to besold on or nbout April 23 h) a nero(lated offering by as)T>d)ca(c headed by aicfrill ).ync)>. Piercc. Pcnncr & Sm)th;
~ )Gddcr Peabody & Co.: and SaJomon 0fot)>crs.ouof><y *ao»nf>> )>)cd)uw> grade; p>ov)s)owa) Ban. Althourh
pro)en(cd con>In>c>iow outlays l>ave bccn trinm>cd, fu(urcfina»cloy Tcqw)fcn>ants re»lain hcavy 1st 'ric'>v of U>ls, colltinued pres»>fe on dcb( Pfo>ccUon mcasuzemc»ts >vouldappear likely in thc ahab>co of funhcr and sub)(a»Un)rate zc))ef.
lone ol eoe/n Hc>r bonds >vill be regis(c>cd bonds. Jntcfc stTcl)l bc payhbic semi annually April )5 awd Oc(uhcr )5.
po<poso< )'focwm)s ffu>» sale of bow<la will bc used fnr rcn.cn).co<poco>V Pwn>oscs lwclw<ling Tc<h>c()uw of c<e>s>cuc>JO»
)oaws, trl>ich >vcfc about $ ))1,7)f>,L>00 uw Ychcuafy 28,1575, nwd wbirh hrc chi>cc(cd (o bu about $75 million atUn>c of sn)o of (h<s wr>'r how<is,
«ons>tuf»o *fn e<>ec> ('ows(f>>ctinn )>roice(s are hu<)>ytnlat hlaau( SI,I I > 7 milliu>1 <luring tlu> years In'/5>. )0VG nwd1077s a 1« iu> (>o» of hhnw( SVrdi w>i)liow ffon> ocici»ai Pl:w>s.Abo»f 5:I)!I >w>)linn h< ><)he'n>f<) In If)73, a ><eh>c()o» uf nhou($ )0) w>iiiinw fnuw (hc p>iof es>(w>atc.
H>c re<ill<XI) l>fu»;><>ll <>f cx(w>><lit»res ic Ihe result of)ov)s<v) ceuvgy fnneos(s awd (hv Jack uf c.q>i(nl «» rcas<e> ~
ab)o (em>s. 71>csc reductions CJ)m)na(cd five gencmt)nf>t>nits U>at would have pfnv)ckd IS&!>00 kw. of capacl(yand stfccchcd nwt thc )w~ rvlcc dates by about t<ro years forunl(S crhiCh ><4)) haVC )G '0000 k>V. Of Capo<i(y.
ln addhlon to sa)cs uf how<)s a>wl pfcfccrcd stock durh>g1974, U>c company ra)sad $52 million f>uw> U>e sa)d aud)eascbaek of nuc)car fuel aud eleven turl>ine gcncratlngunits. Pfinr to the p>of>nscd offering, 1575 fina»«)ng in-cluded $22.4 m)U)on of bn»ds a( a priva)c sale and pub))csales of cow»»on stock for $56 million and prcfcrcncc stockfor $48 miaion. Lucr In 1575, an add)(iuwa) sale of seeu-z)Ues ls plan»cd to raise another SSD million.
To issue addhlonal prefer)ed stock, gross )»come afterdcpzec)at)on and taxes shall bo equal to I~e times tho sumof annual ln(cr«)t char„s» and pro fonna prcf«fred d)vldcndrequirements. Such ratio at Fcbzuary 26. 1575, was 1/48and at 5)arch 20, 1975, lt was 1.51. As of February 28. 1975.about $ 54D AU))on of bonds could bc i)sncd on the basis ofpmpctty hdd)()ons, but only'291 million on tho basis ofeandngs, vchich tcflect S22 million of defamed fuel cos(iand about $554 mQ))on of revenues collected subjcc( to
'osa)MOrefund.Io>ofo 1 ( pc 0 > cc >Ion> Antn>al ln(CZCSt Tequi(«manta On 6I~
159,23),000 ot long(czm debt to be ou(s>ending on corn.pleUon of «urzent financing azc csdmated at SSS,<.9,000,ah(h thc nc>v bonds at an assumed rate of 10% and long. lIterm nf tcs a( 5>/1%. Earl»~ balan«ca consist of operating)»come to which have been added all Fed«ra) (and Sta(e)taxes (charged and deferred) Tc)aU»g to income. allo>vantofoz constn>«Uon funds, and thc nc( of other income anddcducUons. >>o adjustment 11'as made for rentals, >vhlch, thecompany states, aze wot ma(crlal)n amount.
)TTS )0)t ITIS )TTZ )STI I)TOSTO>cs csfhcd 3:LA) )AS Lao )DT OSS OA)(gAc<ua) covcfacc . xLsz )M aa( iso aae zas
8)ywciro months chdcd I'cbcwfy n. y;/>s oun>hcd In the prospcclu<»'ot cho fan<%, caff.ines Conc>s> 0( hc( >hcoh> ~ hh'1 >:1c, »1 ~ca><fs ahd I»'cd chsffcs> c>bcd chafucs cons>sc uf >n>cfc>< cha.rcsp>us an f>huu>cd !n<cffsc (ac<of no<<cod of f<n<a>s. tacan>hangcsun>airs 'pto Cof>ha a> ) TC w>ecs~ a>su<suds ah IN<cfog( fa<o 0( >0/aon >hc hell'ondh
coll foo>u/c> Nonzefundab)c at lower interest cost prior toApri) )5, )985; others>4sc callablc a) prices to bc suppliedby a>wend>nant.
scn»>y> Nc>v bonds and all (bute outs(and)ng or to bcissued >rill bc scen(cd by a Arst >no»gage J)cm on a)l prop-cnics now o»T>cd or hcrcafccr hcquirccl, subjcc( to minorcxccp<h ws. Addhlonal bonds may )» generally issued on thobasis nf> (a} 70/~f of wct pfopcfty addi(iona; (b) rctifcmcntof bow<is or prior )icn bone)st (c) depos)t of cash. L'5'JU> cer.tain cxccp(iona iw U>c case of (h), c.am)nrs, before Jncometaxes, nu>sc equal taro th»CS prO fonna inccfcs( Charges, or
. -equal ) 0% of «ll l>on<1» ancl )niur liens tuba o»>standing..hepfovomoef f>uu/> As to each outs(an<ling scrics of bonds,
paymrwt ls nv)w)ccd nf >/. of )% oi'hc gfca(«st amountof )e>wda ou>s(n»cii»g pfiof to pn)mcn( cln(c, payable incash. I>on<is or Pn>pefty addhlu»s a( Zo.a ()co~a ln thccase of 10'>V nw<l awhile(wcw( sef)cs lu>w<lu). )Lcciu)cc»>cn(s>way hc a»>I«i)>a>cd. )hp(win»><d>t n» l>owdd )ague<) priwr (oIhc )007 sc>)a» is ) ~u. '3l>c w>u<(ndfc >why bo n>wcndcd, >v)(h.uu( n>wsuwt of (hc )557 nn<) awbs<v(wrwt J>nn<)hnh)cfs, Locliw>iwa(c Ihc lwq»uw»>cw( fww<) n quire>»ow(a, Thr indcw( >fu nl < wl.l <» ) >uv> hu> fur a »1ahlw<w'1»cc a>wl Toplhc<'»lent Iw»'0,
0 s>eo> ~ > I'.Ifr<cl; s< fvi<n If, Pfnvi<lfsl In pnfcln»s nf )4<»ThCa>u)ina n>wl Suu(h Caru)I»a.'AL l>cbfuazy '«I
~ )075, clvctftc
Moociy's Izn/cstars S rvicc> Inc., Mf>c>f)o>c Rc>nc) Sc>rs/c >, April 7, 1975, pal>c idII.
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1412 e hfoodJ~s Bond Survey hpril 7, 1975
bc<us)(000)
Sf<off-term debt .. $ 111,745 54Bonds . ~....... 1,009,030 47'1,109,030 Sl.o(SO(hcf loapdcf>7>. 50401 2A 50.201 2.3
Total debt ..... $1,170476 54 Jl $ 1.159M1 53.3Preferred stock .. 268,118 13.5 288,118 1L3Preference stock, 47.900 220)Common fc surplus 621,475 29.0 621,475 28.0Iu< l. 3. 0 I 4 .. 27202 2.7 37202 2.G
Tnli I iln .. 12,13 IIG7 100.0 2" 174,022 100.0
Ifnnthulcs 5AA<OAco bank loan duc tys>Ifs. (sou<stand<ox ac2>Accxca s>iotas o( ¹e pat value 007<227¹c2 s>ock.
Pro roctna(000)
Lone Star Gas Company...~ ~ ~ has A)cd an 5 7 rcglstmtlon staten>cnt covwII> SCIO
rnllUon slnLlng Cond cicbfn(utes duc April 15, 2000, to besold ln a nero>(a(c<1 uffecinr Apr!I 2) through a symllcatchcadcd hy Solomon I)ni(hera, and Anhhnnn Sachs fc Co.(scc page 14)G fc r )In>(ipse<i prcfccre<I s(nck ofi'2>lna).
ave<Icy <t an<cot< U>p)wt a>c<llu<I> nra<lc. pcuvishinal A. N<ill.utlli(y earnings have ch(i<u><lcd >ho<ply uvcr Ihd past feWycafs c>ld no'>v Qcixhl»c fof a sulni(al>(l,'>I t¹2<c>ul> uf collsolkla>rd income. Slcamvhilc. (hn uvc r all Anancial (3<~((ion
of thc conaia»y l>as burin reasonably s(a)ilc an<i dch( pro-tection u>casucn>iciua acc at sa(isfac<o<y lc>vis.
leiini I) lien(un s willbe <ICII>vccil ln fully regis(etc<I Conn,ln Ilcnominationa of $ 1,000 a>>d Ill>Itin)ca Ihrrcuf. luce>ca!
servlco was bcdng Curn!shed to 043MO gcn«tal businesscustomers and to 54 resale custoaicrs. During thc 12 monU>scndcd February 28, 1975, 34.7% of opcraUng revenues, cx.eluding non territorial sales, was dcrlvuvl from rcs!dcnUalsales; 20.9% frcun industrial sales; 19.6fv from commcrcdalsales; and 15.8%0 from other sources. Approxicnatcly 84%was dcr(vcd ln North Carolina, ancl IG% In South Carolina.
Cencratiag Cecil!Ucs have a sumn>cr capability ol 4;058,000 kw., ol which GGS.OOO kw. Is nuclear, 2.6r4).000 kw.t>scs only coal as a fuel, and thc remaining 728,000 kvt. canaso coal, oU, or gas Intcrehaageably. Two 821,000.kw.leuc)car units, under consrn>cUon a! a oomblncd cost ofabout $708 million, am expeeccd to bc comp)0(cd ln IS75and 1976. In 1078, the compaay cxpccts to eomplcto a720,000kw. Cossllfudcd plant. As to tbe projected 3;GOO,GOO kw. nuclear plant to go onstream la U<c 1980s ataa cstlmatcd cost of more than $2.1 billion, thc Nl!C hasasked for additional information on the financial qualillca-Uons of thc company as well as a need for the phnt. Currcmdy the company esUmstes that 734% of 1S75 po>vcrwIII bc genera(cd using coal as a fuel, ~% w!II boaucicar02.G% hydro, and )46% Number 2 fuel oiL
Thc company ls regulated by thc PUCs ol North andSouth Ca(ol)na. the NRC, (he FPC, and cn>4tonmcntalagencies. During 1971 and 1972, rate In«teasel wet«granted for a total of $600) million. Iilgher rates collected
'on an Interim basis were made permanent duf(ng January1975, adding about $61.5 mIII!on to revcnucs annually.
Operating income for twelve mon(hs ended February28, 197$ , vfas equal to 4.07% of PMod~d nct plant, workla progress, and nct nucicar fucL
Cop><ofaeaen< As ol February 28, 1975, cnd pro fonaa as
taming rcpaymcnt of shor( tenn dcb! Crom thc March saleof preference steeL and the proposed issue of bonds, butwI(bout ad)us(meat for cap)talisiag any portion of ac(ualrentals paid >
w Il,bc payaI>lc scml.annually oa April 15 on<i October 15 laeach year. AppllcaUon will lic u>s<h> for a NYSIt I)sdng.~oc I'rocccds from (lie saic of deb«I>(utes and $40
million of ptcfcncd nock (400,000 shares) >vill bc used ton~ay bank loans n>aturing in 14375 and 1076 a<ul to rcducoco>nmercial paper debt. )Vhcn pmcccds orc rcccivcd. It iscsthaatcd that co<no>etclal paper nu(a(an<Uag >xiii amoun!to $3G,000,000, bank loans $25,000.000, and currcac maturltics of long (c(m debt $ )0,423,474.
(ntctest pfecec<(enc Assuming the samo Interest rate of942% as used la thc ptospcctus for thc nc>v dcbcnturcs, aadusing 74% for loans duc ln 1079, total annual Interestrcqulrcmcnts on $445,757,000 ol long.t«cm debt to bc out-s(ending on completion ol cunent Ananclng (scc Capitaliza-Uon) afe esUmauxl at 532.088.000. P(c-Inca>nodax gross
'erningbalances Include allo>vance for construction fundswith no adjusta>cnt lor any rentals which, for cxamplo,amounted to $2.482,792 In 1574. Dlscoun! on reacquireddcb! was excluded from ca!nb>gs.
)t(4 stra it!2 it!) )tro%727cs caniad . 2As 2.>2 IA2 (Ar, )ACQlAewa> covctaca (gsA2 2As sAC 4lt 'AL
(SA< ouu>ncd In Ihe pnupcc<us> catnlncs bs4nccs ate the sac<70~ 2 a<a<cd above and Inc>ude con<a>s as dc(<ned u¹drt Axed
chatccs'xed
chatccs Include in>ctcs<. a<no<<Isa<ion of dsb< u<icounc a¹dcxpcnsc< and Ihc potunn of tcn<nls tcofcsci><auvc of <hc Iu>ctcsclac<oc. L<pto Iot¹ia would be sAI wiui¹0» beads ac s(0~n.
ccf( feocvfcc Non(«fundable at a lo>ver Interest cos! Priorto hp>fl 15. 1980; o(he!wise callablc at prices to bc suppliedby amendment.
Stoa!nt lend< Sufficient to rcUrc $2.250,000 principalamount annually commencing hprII 15, 1980, calculated tolctlte 75%0 of the dcbcmuces pdor to maturity. Cu>npaaymay make pay>nents ln advance but not ln an amounc ex-cccdlng the am>ual requlrcmcnt. Such advances may be usedas credits In subsequent years. Unused advances >nay notaccumulate. Paymcms may bo made la cash or nc>v deben-tures
soceiayc Tho dcbcntutcs wIII'bc unsecured obligations o!the company pco(e«tcd by a negative pledge ciau>c, dividend,and cuber restrictions. Oa 0 pro Cocma basis, to>el long (crmdebt will bc equal to 55.8% of nct plan, >vork.inqirOgr«SS,and invcsnncnt as ol I)cccmbcr 31, 1974.
Thc indenture contains provislcu>s restricting con>pony orsub>Id)at(cs from incccasing funded Indchtcdnoss, cad thccompany from certain transactions in subsidiary stock, fund.cd dcb(, or property.
Seifncss< LOno Star Caa CO>npany IS an IntCgratCd naturals transmission m>d dls(f!buun>> Cmnpany. It oivna Cndcra(cs Irons<a(42)on ancl ra(hc ring l(acs. 0(otae: n:scrvolrs,
distribution systems, on<i tc)0>cd foc!)Ulcc. Natural ras isscnM Io about 1,090,000 cus(u<1>urs in )iorUo<>s ol Texasaml Okiahoi>>a.
'll>tough >vtuilly ownc<I suiisiii(otic», thc compm>y Is cn.gored In: (1) cxplucinr„<lcv< lupi<>g, mid u>atkc(ing oil nmln.'a>it'll gas'2) tta<uull¹cl<71> uf II,'>c>lfal ('.as; (3) n»'lufac>ucc aml n>atLi:Iiug uf fer(Uif<r, a<ul pins(ic !7!(ic; (4)pn>vi<llng ciil au<) ras fichl sofv(e<na> (5) ptnvhliua hco(inr.an<i coulh>I! acrvi<i Iu lucre v<7¹>)i)race aa unlnni>ics andn>0<II<v<i I'<'Iil<'fc,
U(ili(y rac limfi<ln) GG.S» uf r<37<s<l)(ii<2(<vi <7(»fa>i<>r. tcv.cnuc fcf I!IyI, pc(t<deuin ca(du<a<i<in un<i )ifculi<c'Il<u> ')!).3%chem!cols and chnuicoi )7<<¹l«<(s I'04%, u<hrr au)in ).4%.
I)lc<ulrl< a Ililnhli<1f)', <vill>)iall)"<¹vln<i Sf<el<<I'(!<In >vua
09,057 n>im'f.„uf 11)niu( IS.(i'» iil l)u !i05ni IO >¹u¹;f. Ini)<I (n1074. I'ucchuu<'s ft<illl<1(lief )<f0<k<cela a>110u<1(<'ll I<1 4 (2,370
Moody's Investors Scrvicc, Inci I Mood I s Do'nd Sar vo hpril 7,- 1)750 page> 1412.
4 w< ~~ ~I
I
I,
'4~ ~
Pa 68
a two a a ~
1340 ~. hfoocffs'Don<i Suroe JI
Affanffc Ciiy Electric CompanyFirst hilge. 9)/ds, 5/1/83
hsnount Cs4 C)tres< ng Y)chtRauag Isolu r'nce price current staiutttyAa $3%0 6)109M 100 SM7'4 0~%
tg)<onsclundabtc pKOC Io I/I/te <KIh debt al an In<esca<~I otICSS lhan Sa)ltrs annuanyl O<herWI<O Canak<C a» a Wnu<O Ot Us Pa<<al anr umc on so dsrs'once. 41 Ito 0 In<ouch CIA<I)St ~ I lshtlIhsoucb </m/)rl plcnuum dccstai<nc Iv<<hcc I)Ill.cus or lmt.0%1aunuauy lhclcslu 5 1101 I on I/Ilsv< Io 1<a «1 Sli/sl. 5<o smko<ctun<4 apcc<CI scdv<nnuwl 41 I00. Nou': illU Issue was pus<puacdC<o<a cvT<oustr schcdWC4 dale ot Sta<ch IL
Dolnflss Offered on hpIQ RL at 100 to yield 0.25rs. Priceio company, 00.175; cote to company 9.40%. Olbcz dctaQsln lfono Soarer, March 31, 1975, page 1658.
oPUIoo< The bonds aro reasonably pticed for holdsmaiurfty fncotno invcsunent.
0
hprft s8, 19'F5
Lone Star Gas CompanyS.F. Debcnfuro 10%s, 4/15/2000
hmnuat Call Ortcring ~Y)cu~Rating lstitu price )vice cusysnl stamnA 560.0 tal 10825 100 10 QMri 10.f12540
I<!)Ionscfundatde odor Io I/I$%, rlih dept at as Ia<cccst c<OI OCtoss lhao 10.<est) annually; o<hclnnc caus<no as 4 ws.a<r os la psn.41 any <imc on p< ds) 4'Ucc. 41::e.t 0 <nnwrl\ I<I< lrc si;:cdtzthrough sl)l.tn plw»<mn dec<ca<;au <ciihil 4< Ice or is'Ii)< anWally \hC<ca«er <Inc <11 On ~ <Iato Iu lld <S S.t)"5). hl N Ist Iht~<aking lund bccinn<ng hp<ll Il Is<) aac aaauau) osc<csl<cr
Do<On«Offered on hPtit 25 at IC0 to yic!4 10.625!$ .Price lo comPany, 09.125; cost to comPany Irnyars. Gthegdciaus In Bor<o St<hvar, hptfl 7, I&75, page 1412.
opa two Pricing docs not offer ar.y ccncccsicn in tbe cuzrent market for A ralcd gas ulQitl'cmpanicsl hosrover, ftpr<N&cs an adequate return for Insvstors saekh)g Icngcgicon Inrcstznenta
Oa
P iladelphia Eiegtric CompanyFirst 4 Refunding'Mfge.'11s/ss, 4/15/2000
hmounl csu ottcs<ng YICMRaung <son J plica pact cut<cat st< mrorA 565ao t0112.70 101 1141$ 'l1.50!c
felons«tundsbl0 prior lo I/I)Is:. with 4 sbt al aa la<etc<I cnt otla<a lhaa Il.ter< anruaur: OltssWf<C 0:,'.US;0 SS a W,'.0:~ Cr 'arisi any Iunc on )0 dsrs no:<cc 4: ilk.) <Crouch ~:I ll< sl '!.5.50lhr<u,h </IC/tl P<cnuu<u CCC<CS<:ag I/4<,.il 5 "50) Or 'aith Saanuauy kncleaiisr ulaco Oa II)S I)< 10 SC'a C/u.)L SCO S~g5uad
DOICV<< Offered on,hptQ 23 at 101 to yfcfd 11.1!W.ning bfd, 99M: corer per bc..d, 51185; colt to Rnn-y, 11.71% ~ Oibcz dctaQC in Bo)CD 5'LRVTY< hprQ 7> 975<
1414.pin)on< Tbfs issue provides a suitable yfc'n thc cuzI market.
rolina Porter 4 Light CompanyFirst h<fge lls, 4/15/84
h<noual Csu Or<snag YieldRathsg Potu P<sco ) nce current sta<untyflat< 5100A) 6!110.75 99.75 11.03~<v 11.04 ~s
0Non<etundsbte ester Io c/Iz/cz. with debt al sn In<crest coal orICSS inca ltd<)<ea annucuyl O<herWUC Calksslc In WhOIO OS In Para~ I sny U<nc on se dsrs'once. sl a'I) <a<ouch ~ l l<llc; ~ I Iss.t)us<ouch client'scniim 4ccccss<rc lclihcs I)all<40 or Ist<1000)aanwnr Ihcscaimc <0 Io) trom <Is)<i) Io masuts<r. spccss) ssdc<apuoa al )00
ransek Pipe Line CotnpanyFirst Mlge. Pipe Line 9s, 11/1/80
hmoual Csn Of<snag YieldRauag I)to<.) price pn ~ currc t a!su<cityA 512 0 'EI09.00 160 9.00:4 $ .00ic
KÃoarstundabt ~ priss Io I/I/50. «Iih.deb< at sn!atsrcsi el<I e.lcsi lass SA~r< annually: omc<ns<< c .'"c.c as 4 w..s<s ir pss.at Snr Ome On 00 Cay<'OUCC Sl 10).~O '-stuurh I 0<IC: al ISI<slough <<spit:, pscmwm die<ca<inc '!00 ~ saowifr Ih<:<st<ilo )00 on II/I/t).No su<king lund.
Do<on«Offctcd on hptQ 22 at 100 to yield 9.CCrc. CYfnning bid, 99.056; cover pcr bond. 2.c; cost to «otnpany0M~. Other dclaus fn Boa> Suhvrr, hprQ 7, 1975, page1413
op<alon< 'lhc issue, nontcf«ildaUc prior to mardtfty andsvfth no sinking f<md applicabic, affords a s tfsfactog re-turn for hlvcstuts inlczcslcd fn shiner term bonds.
Cievciand Electric iiiuminating CompanyFirst Mtge. G.G5s, 5/I/83
hmoual Call et<snag ~YI~ ldRauag INilu ~ price plies cusrcal 054u<rnrAn 5504 !0100 100 L85% 8.85CS
Iancdscmsblo only began)ag I/lisp al !00 io mah<KIy. )Io so<alag Iua4
Do<el/s< Ottctcd on hpzQ 24 at 100 to yield 8.85<%. Priceto company, 90.25; cost lo company 8 98%. Other dctausin Bos<D Suhvxv, Match 24, 1975, pago 1469.
oplohn<s Tbfs shorter dated issue Is apptoprfatdy priced.
Cfevelnnd Electric flluminafing CotnpanyFirst ihfge. 9,85s, 5/1/2010 Proposod Mcv/ fssvcs
Chesapeake 4 Potomac Telephone Co. of Y(cstVirginia . ~ .... has fncd on S.o tcrlrdriilcis ymlc<ncnt cov.rig' 2
la!!linn of dcbcnlutcs <Iuc Msy 16. OIS, lo bc aM =: coc:pell< ivc hi<id!no on shly 13.
ow<vly 4 so<lap< I'rond qual!Is'; pros fainna! talus 4 Aaa.Io<m ol ooasn<ws< Thc nc<v dcbenl<:tsm Ivilibu l<s«ed< onf y
ns registered dcbeniunv<. In <Icno<f In)lh<n'I and Inuhi< tcs cltSl,ek). IUICICSI irin )W'ayibie Sruti annuaf!y n<l 5&y 15and CC«re<aber )5 lo holders tut;Is(«rs! on hpril 30 .<r OrrIobcr Sl prior In dale of p;Iyn<cnl. hppliualio:I Iviiibc cladslo fist lhe debentures on lhu ibySE.
hmount Call Cllcslng YieldRau4g Isntu price rheo cullen< sts<urlirAn $ 100.0 6)109$ $ 100 9.83% 9JQrs
[~INOnro<undab<C Pliny IO S/I/aa Wi<h dnhl 41 an In<rrrn <OSI Ot)os Ihan 0'sits san<<Cur: o<ncswiac caus< is as 4 wha<r ns In nl«.~ I Nly orna nn sc uas ~ no«<v ~ I Is)as <as<a<eh il)c'lcl 4« as.s)In<Ouch <oolttl p< ~ n<mn< d~radnc < ~ ~<hrc as ~ <40 <n 0</no) annuaur nwrvsocr I<0<as» w< s/I<So) <u lso I<wn )ll/)00< In n<s<u<nr,)<o sink<ad lund.
ooloun Offered an hpru 24 ot 100 tn yield n.ns<rs. Priceto Can<pany, ns.)2il ca I lo cpnln'u'Iy 9.94 ~ ~ Other detailshl I!onn Sunvrr, M.<srh SI, )075, pago I l69.
op)alon< 'this Issue provides an hl linc yichl ln the ptcs.cnl )nalkci for long tenn bonds.
oo<oass Offered on hptQ 24 at 09.75 to yirld 11.04<a. 1YIn
Price to company, 98.65; cost to company 11N4r~ . Otherdctaus fn Bown Soarer, hprQ 7, 1075. page 1411.
apUUa< Thc yfcfd provided on these bonds fs zeallstfcder ptescnt conditions.
T
Moody's Inventors Services Inca s Moody'6 Bond Survo s, APril 8, 1<f75< Page 1340.
1'»I
~ ) ~
ge 69
~ ~ s
~, price )sage. sad inaay iddct buancs a)oag (be risaffon( sfe ratucd iacsccssof SMLQOL
City knseds) upas(leos since faccp(ksn hsue baca gooaL )7uring(974, oa W(sl fcfcsecr ol $2J97 J)4(s, ihc city sbu«cd a au(fun( yes(sufphfs of Sl I VOJ. hi (be duse of ihc fwat yes(, cash and bsfcsi.aacais (o(s)ed $9fs)J2'hi(c cuties( Iasbli(ics emu«a(cd io oa(y$225J$ 4. Pf opcf iy (sacs «cfe the tsfgcs( skag(e feaa»ue soeicc. sc.caus(bag fof s ppfusinis(dy one ihifdof io(al fcfcnucs: s(sic tea(suesbsring wss aso(hct (9»n of tcac«ucs; snd fefceues lfom s eh«ageassess(d sgsiai( rsesat lo(holdcfs fuf me«tug snd msbi(cue(acecoa(iibuicd aao(bcf (0»~ On tbc cspcnsc side. mute (han 20» of snmoneys wae capcndcd oa ca pi(sl Bema snd lsnpfofcmea(s, pfimsiity
fof sitcct and ci(y hs() projects. f)cb( ac(rice oa (he diz's ihof( tcffnwasoaly 7ab»ofcspcndiiufcs.
hiiboegb umda ofCape Cufsl tens«in s usadefdupcd and flhC Cotpots(iasn s(IB bss a suba(sn(is( ina(asa( on (bc ciiy, scswasfa(fng fuf I2»»
of pfopcfiy iss fcaeap(sahfccily ssnd sbuu(g9 andi(ectly ihfuugh psymca(s pfofidcd IS nshC tcsacca„ the ciiy has upas(aa) in s mote (t mss(isfsc(usy fsahiasa (u ihs ~ puint. I)awdupmcn( hss Isucn es(ensile iaoac ps((ofiheciiy,and «ub ffgsfd ioiwmcsiaiheS(0!)Ndssshssbica of bcucf (hsn sac(sic cbsfsacf. II'klyc fsfnpfaafff s ufrr onsfsrascr re(re efr 4'ck. usaf( fkui fligiswftio ksrfcmc/uffkff, fkr tasnafr
)koahf br uf Jess( I5(P» sftffuepuf fine inifinnyand bar(sr( rnsassr su afgfowfk cur(seers. Bffnso. (kr (ec fufr«ayf ffmea'n rsusfrfwfc. Ii'rufrtkfsfffsfrrrsfscnsng onr BDD sssfafsnna gfudr raus'ne tu fkc Sfnfrfdobfifrfionbonds ofCrpr Cnfuf, Pyuffdfa, 1
s r
HaS W riICm LEVEL SEF.N REr CHEDVP'allowing several weeks ofsteadJ price erosion, price's in lhr corporate bond sector
turned modrratrly highrr last wrcf:. Short earring by trad( rs and lhr su('rrssfifl saleofseveral anractii rlypriced ncaa issurs yfidrd lhc advance. 77ir (farci"s nutjor offeringincluded o dual offering of$7$ ,000000 lalotts and Drbenluris Ly ff'orner Lambrrf Co.,priced ta Jdcld $.30% in Iin years and 8.93% in twenty five yrars. respectively. Bothissues of this rfrfrfcompany (arri well re( rircd, as were (lir$7SD00000 ofr)sian De-vdopm('nt Bank five > rar notes. which werc pricrd lo>gild8 7S%.
After Ltcrcasing ot a record pare, yichls appear lo hnvr rrachrd a lcvrl «%( re purchasers arc «8ling lo comma some long t(rm fffnds lo lhr mvrhet. Underwriters,some ofwl(ont have sustainrd largt'osses on both niw issue af(d secondary issues. arelahing a son(ra%at niorc cautious approach. and o nr««r)rhing lrvclhas bren oftainrd.llowcvri, tht'arhrl is still istic(t(riJ concrrnrd about Iht lcvrl of corporal('nd ~
governmrnff(nanciffg and fear ofa risurgrncc ofifijfationnncr thc'conomir rrcovcrycls undrrway. Thrr(fore, investors are advisrd to maintain a cautious approach
laward new comminnrnts.
Corporai(5 Analyses and Briefs
ChROLliafA POPOVER JO LICHT COhlPhNY
Ojlrring First jiiongngc Bonds
0 a hpfl D.sa eadefmismg syaaics(e hanffd by hie(fill Lynch.Pic(ca. Fcnncf S; Smith, Iaiddcf. Peabody Sa Co. and Sslonaoa
Bfo(has «OI otfcf $ (00.000000 Ca(dine Po«ef a Lith( CompanyFit(i hioi (gage Bonds. duc APfll lb. 'N5. 7'bc o(lcfiuf m(l s(fofdpfo(cdiun sgsini( taa«efdn(crea( essa( fdundbsg un(i( (97$ . Pfuccadsfiona (hc o(fcfing «Jl be uifd tof genes el coi(»mic Puf poses indw(ing(bc tcduc(soa of s)wf( icfm )awfu«isags incutifd priinsii(y fuf ibccons(iud ion olac« fscOI((cs. Suass ihni ( lani homo«ings (n(skat ap.Pfuaieia(CIP Sll)a))$ tsy) Si Febfua(y 2C, I'915, m«l Sfeea(ace(ad io
sic $750tOSXN imnacdis(dy Pfiuf iu (hc dc(ifcfyot ihe ncwbonds.
Coas(fasc(ton capfaadi(offs sic esp(ried (n sppr naims(c $)C2/OOrON in 1915 and ha(X).l(s0(a(C bs ibf Pc(bad Iu)("77. Ia his(eh snJJunc l9)d, ibs compuny's funsifw ilaan pfaS.(essa wss ffs(uccaL in.dud'eg fcduaei»a nl sprsaasims(riy )sfasxx(,(xx( tof (9)s sndsptuoaims(f(y $ )gl.( J,(Xsaa tau (915. L)n l(cccm(wf .'I, Iu)s, (becalm.psn)'s Ca»affmeisan psaS.(S«a wSS tufihcf ffainara) «a i(mi ibc strfcfr(C ((due(wn ia sr(afusfans(C(y $ )XS,(CX)(XX(fof ((sc )essa )9lb 17,lbcac ifduf(iles «aces«ass( tly seas«J fsacfrr to(casa(asm( ihf Isckol cspi(sl on (cssaans(CC icfma. 7 hfss'aalw in»a inf(naif ihc clanai.
ns(NI a I roc ral Pa acd ilc«ra«cfsaang allis(i «blah «will Iasa'c I il'id(s)sn a Ja(if(a»st o>nf (sas) Lw of ta«cfr(sns csprad(y-. (hc Jf(cfial
nl csah of ihc f(a .'I ul ibc e pass(««a) uixk(xs( Lw nua(cra (sac(cd
Cans. u«seen(sal.(1(asns (»»as(ass iiisasu El»fsr sans(a
safa. nr. 'I sass
uaf Saf.inn~ a)»sa»aaassaaaaf (S«a»f ia.
-r~~)(~-isi)a sais if(i saf) iiii
)((S) asoaa )ii \ iul ii )(a a(s) io ifsa isis iui) aos)
I.aa isi ),is )aa ) Ntss (s) i aa i a» i i()(as lac L)s ) iu ) sf
hsnll I'I(()yl(;I'ION: I'iaa I un»Inn( ~ (final(f(u nf $ (,IS(sf(2(s,.LQ ss sil (isa( nwiirsrc Jf(a( caarp( list 5((s»(XL9)X uf allies rs)s(s(c.
uai(s of (bc Shee(on lisfris Nuclear Powct P(sn( by sppfosfms(clyIjgyesfs and ihc tout(h unh by two yes( s and ihc two yes( dcfcffsl ofthe720000Lwcost filed Rusbofo Vni( No.e.
ln Jsnusfy l915 ihe company issued $22J50.000 ol fsf(i rnongsge-bonds piicsidy snd sold public(y e.000.0N ihsfes of comnlon stockfuf $5(sS)N.ON. snd hi h(sich l515 thc cosnpassy »JJ publicly 2.000..000 slates ul pfcfcrcncc siucL fnf $(7,5N,OOO. Tbc companypic(en((y caiims(cs ihsi ii ~ i(l nfcd addi(iona((y slapfounas(dy $50n000 ON Of ihc funda (ca(ui fcd !of ibe (915 Cnsaii falC(nial
P fair fails ffalai
loag (cfm sawiccs snJ «iii issue iccmiiies 4(a ia 1975. (hc (ype.susoun( snd (in(inn ul «(sich nil aicpald «pain mssLc( elands(taws sndtbf needs nl ihe company. For fuakff in/slrsnnsissn nsnsrrnine fkrrpfnsfklnislf(usssnnr Pss«rf sC ISSkf t <>sntsrnp;inrtndine frrf«ffuffksrrrear astra(are (kans. Nrfcsr cfsnssslf fkrRafa( lnrannr Jnarsfur sfofrstklrfrkg, f915.
Porc 7)$hptil l2, la)75
Standard ic Poor's Corporatioii, Th(s Fi):cd Inco(r(c Investor, hpri117., 1(j75, Page 743.
~a ~'
s
t
cP j
Page 70
, ~ i ~ ~ ~e ~
hlortg gc debt is secured by a first lien on aB f the pfcecnt prupcrtksof thc company, subject ui certain exceptions. This ieuyc «ia dsu bcentitled Io lmpruycmcat snd Maintenance snd kclqsccnirat I'vndi.la sddiuua, d, *ring say I).ynvytth pcriinl, propcriy is yGytnyycJ ofby oHkr of ur funny go'ycrnuicntsl authnrity, fmvlting iil thc fccdptof$ 10 C00 000 or mute as prvcccde there(uf, the curn puny must applysuch proceeds Io thc rctbcmcnt uf boeJs, Pro (orms n«wifsge debtwy7( equal $46% snd totd *bt 56.9% of ort plant. Tvtxt ikbt «JIequal 54.7% of cspitslixstioa. Baird ua ihf siahducrh» of j(xrdrhurgf iuwfprattling ruir frlirf,iw herr ar uiaryaard oar et
"rsiar5 oaihc First hfongagr hondi o/Corydinc Power 4 fdghc.
PHILA DEIL IIA ELECTRIC COMPANY
Ogrping S(jS hlillionBonfig
0 a AprQ '2), l975, Pbgsdd phis F) cctfie Com pxny plans to OI(cr atcompctitire bidd'mg . $65,000.000 of First 2 Rcfundby5
Mortgsge Bonds, dsc April l5, 2000. Also, on or about April 22.1975, thc company plass to sdl 4JC0.000 stares of common stock(spprodmstdy $45,IXO000) through under«ritcfs hcsdrd by DrcxdBerabem B, Co. sn4 Thc First Boston Corporsiiua. Thc axles o( the~ew bonds snd sddyYIonsl coiilnioa stock src scpsrsic tfsnssctloIS,aad ncithct is coniisgcat upon the other. Thc acw bonds wgl bcprotected against lo«cf»ytcrctucost rcfendisg prior to April l5,(950. Tbe act proceeds (fom boih sxlrs wgl bc applied to tbc psfrislPayment o(short tenn dtbt incurrrd for interim financing of the eom.psay's coat tructioa program. Such short term dcb( wss SIBI mgthwoo htarch 2l, l975.
Cs(dtsl fcqvifcmfnts fof l97S stc cstllnstcd st $502 mgiioyu of$4IO mQIioo k for conttructkn cxpefditures snd 592 milGon
foc bond mstetiYia snd sie4ng (undt. Of these rcqvircmcntx. sbwt5 I45 mglion is cxprctcd to bc sepplkd (rom internal aw rccs snd thcrcmdndcr from thc sale o( debt snd equity sceuritirs snd the vsc o(short term debt. Total capital rcqvircmcntsfor thc)csrs l97S 7$ srccsrimstcd st shoat $23 billion. contiitiag o( about 5' billion forcoastfuctbw sad 52)l miDisa for sinking fund psymccts snd bondmsturiticx. Tbe company csumsics that spproximstdy S$ 50 misioa,or )6% of these apitsl rcqvircmcnti. will be obtsinof from intcraxlsoerccs snd tlat spproxiinmdy Sld billion, or 64aa. «ill be obtsine4throegb thc ssk of debt snd equity sccuriuicx, subject, ho«eyer, tocertain csfnkg'i tert rcstllcuons in the conipsny s iiiorrgsgc build laden fliteand other con sikf st ions.
Phgsddpbis B)fctrie proridcs clfctric. gxx snd stcam scfyke insovthcsst crll Penes)'lesnis, snd seblilkflcs pfayiJc cltet tie set eke ln
~ I«o cywaCies in northeastern htxrylsyid. Thc total arcs screed by thecompsay snd subidisrics coycrs e 415 square miles. Approximstdy9$ % of Sis arcs is in the suburbs around Philsddphis snd 5% withiathc city liinits. The pe puky iua of thc srcx is shout ) 900 000, indwGngI,950,IXX) in the Cityof Phitaklphis. I)cctrie scnicc proedol g929yofopctstuiginCoinC for the year l914 sa4gsssnd stcxnlPfoyiJCd thebalance.
Dvrbig \914, dvc tu thc astiivysi energy criA, the cuinpsaycxpcrifnccd some curtsilmcnts by iis cuntrsrxcd fvd ddircricx fromsuppliers syd sut»txatisl incrcsics in thc prices o( sll fus«7 fuds. Thccvmpsay Is eoatinukg to supply its customers'uti rkctrk rcqvirc.inrats st picscnt bat is unable to prfdict «hst iinpmo fud slwrtsgcssad price increases umy haec nn its futuro operations. Bvldcct to thcsfsgsbgity of ihc esyiaus ryprsuf fuds snJ to oilier cuntinfcndcs bc.yimd tbe company's cnntrol. thc cuwpsny's dcctric nvtpvt tiir l915 iscxpcctcd la litONsinryl (ruw ihc fi4tu«ing sources: 2 I ~e (ruai nil liicd'generation, Ieaa from scythe arcs e«A fiml gcncrstnm. 'IS» from
mouth gcncrsiiun, Iga» (rom nurlcsr capacity, 4 ~ (rvm hydro
itysdty, 1% fruni internal cumlayMiyn swl 2e~ frow the Pcuasylr 'cw )rrycy h1sf)bnd latcrciyanrctiun (I')ML'Ihc cxwupsny isv«yIJC tu prrdict theat(est thfa furl prr44cms ufo ther member s uf theP) hl insy hsye vn the sfaitstetity yd purchased ckd tie cncr gy fromthat suurce. I'refiled that prcycnt I lih sttucstiun puhcicx src notays~ly chango!. Ihc company expects that its vil ddiycriesthiuvgb the remainder u( I975 «JI meet us projected rotuircmcnts.
The company it rcguktcd by the Pcnnxylfsak PUC snd the FPC.Oa )snesry )I. !974, tbe company fikilwith tbc PUC for 1 Sl)6million incrcssc in ckctric rates for atl dxssrs of cvnomcrs to bc.coins dfccriyc in three parts. The PUC pertained tbc first pert. «hickncrcsscd anneal icecrwcs by spproxiustdy $24 million. Io go latodfcct oa April I, l974, subject to possible refund with intcrcsu Tbc ro.msindcr o( thc rcqecstol SI)6 million fete ioeresse wss suypcndcd (orflicmaximum statutory period, unul Dcccmbcr ) I, 1974. Oa )snusryle l91S, tbc 5 I I2 mglion suspcndcd tate (ncrcstc brcsme cfcctirc byoperation of lsw, subject to possible refund «ith interest uponissuance of thc Gnsl order. Oa hlsrch 2S. I975, thc PUC snnoaece4its final dcciiion sppfoying s rsic increase of $ 105 mglion. The corn
psny estimates that excess rcycnuc cosccttd (rom )snusry I, (91S,through hlsrch ) I, l915, will amount to $54 million, which will bercfundcd to customers withintcrcst.
Oyer. ayeeeeey (Ml,ttneea teieae tMS. n.Vii»Csyyre Ceca Sic
nn. yeeeae 'teieiM.Ceeiu. Cr.
Sye teee«e Yeeii
Year teee4 eery«iyy SirfM tfrs tslt trit we
tfitrJs sysss ytset sfe.tt toxxrtrfxs ttxts tts.ts tlorf lfsJS
sxu xss L7f wt S.isLys tdt txi tft txs
1st 1st xse 1st
ASSGT PROTI'.CTIOII: These acw bonds wiD bc steered cannilysnd tstsbly «itli $ (,47)DIN.000 nihct first mortgage bonds noriwtttsndiag by s direct first mortgage lien on sul»tsntisDy sll vf thecolntlsny's pfo petty. Thcrc is st to 5) ISQI2)gN u ther hmg term debtovtyisndieg. Fulhi«mg this dud finsncinge invrtgsfe Jcht «Jl equal45.2a o( nct vtJity plsnt. «bile total umg term Jcbt «ill rcprcernt54.4%. Tbc long; tciw debt iu cspitsliration rsiiu «ill bc 5).5aa. Thrry»ypaay'f /irrd rleyrcr rurrrarf har dry'liard io a fiihiiaada»l Irfr(fiirihr prrfrnirrayiicard rnryac rarrcvry, I(i>eurrr, rrrradr Cry»rrdfair rrlefshyyuhl lewd iuyaayr miprayvyarwria fiaearial payuayrrnf faihr fwwr. Arr«diarlr, «vair prrfrarlp ayyaaryaaiaX uiir 8 faringua phdedrlph» IIryrrlr'f Fin< aad I(rayed»g h(urrxuga (fy»ds nadherc raird this uiar-d."
company hsd s coal inycntory un hsnJ st thc cnd of )snvsryI'915 of spproxinmidy Gtg.000 tvnx. «hidr rcpfcicnts appruxiwstdya 9Wsy supply fur thc I'hilsddphis ycryice sfcs units currentlyburning coal. In syhGtiw to shortages uf ncw gst svpplia, thc com-
pony is cxpcficncirg curtsgmcut ufJdiyciks onJcr cxistiay suatrscts(rom Its pipcGOC supplkfs. Thc current kyds of pipdinc cartsilmcnts,combined with rcdue& JCGycrics of propane. resulted ia tbc curIsgmcat of Brm eunusct gss to four msjaf intusuisl customers bo
grains carly in )snusry l975. Ddiyciks to intcrrvpuble gss cus.Iomcrs were discuatinerd oa Sfptcmbcf ), I974. A I'UC orderpresently in c((crt proyidcs that uo pvbtk utilityunder its jeriidictionmsy accept any additionsl gss sales cominitmcuts unless D csn bcsbo«a that its 1 ss supplies are sutGeirat to meet thc (aturc rcquire-aycnts of its existing customcfL Dered on present snd sntidpstcdkrds ofcunsilol
4cliycri�c
from suppliers, thc company cxa make uocommitmcnts of slhlirionsl gss to arly cskting cestolllCrs aor ncccPt
any aew customers. The company docs not expect supplies to impforcappreciably in thc immcyGste future. nor is there sny assurance that,ddiycrics to k msy not bc further caf tsikyL
Page 744 FIXED (HCOh(R I(4VL'STOR
Standard gt Poorts Corporation, Thc Fixctl Income Ittvcstor, hpril lh, 1975, page 744.'e
Page 71
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Sskllaw4IIS
4/IS
4/15
4/15
4/15
4/15
'4/14
4/11
4/IT
On4 Ave«asRoaiae a(L 5All )OLO
AAA u 100.0
RRR IOLO
AA
ROR
4/11 A laLO
4/11 A )004
4/IT AA SLO
4/11 * SLO
4fl) AA ILO
4fl) N(R 400
4fl) AA )LO
4fl) A SLO
4fl) AA 1000
4/)3 R
4fl) A 4LO
4fl4 AA )000
4fl4 AA SLO
4flC * l)LO
R'fl4
A )LO
4fl) 4 CLO
4/ls A 404
4fl5 A oaa
RECTA'
Sores Creat a) nen Trtnaeoe Cn1k Seasan«4 I (/Bi(u
sor(a 4 noiilnin 1 eteyavae Ce.teeans cl(/Iaa)
Wiuven I'easoaere4/ (/(ss)
Caevenae*Qav Rsilrar)kv'hTrav a4/4,)/Ills)4 so
Sesaaera Ikvaa Cai 4 Oeniic Cosvirat Msei(cse,,/ II/Iss
The I'Joteee'e.Netne 7/a.4/15/lea)
)carta )Sevv cn caNnt 51(ca 4/I/Ies)
Uearc Te(novnvrksrvaa lac.)e(retrrnsc/I)flOSO
Seek( e '(eai saak on Chnaka 4eIirFrsaasaaC«aimiee4 hates. 4/)5/lyN
Ua(aeo a kna(t 1;Ory.S.Y. )staeenrn y-TIL4/)$floeo
Ualar4 liinekCoiyI(oint<all)l(SS)
OI(saeva Cia 4 f)enrkCa.)745(etal51(Oper)
Noise«Cary.S.F Oeaeenrn C.TIL4/I l)000
Nark(a 0 Wnana Reurae(e.Tr«ut.5/Il)S)a ys
A yea(stake r~~ Co.ViiirMite. I I I/L4/I/)TO
Trai«oa late IhvCe.nnr a(ica. I'(ye list. II/I/it)a
Auesik City Denise C'nilia(Mice Sl1/Isa)
Iacnaen Rasa lachetesa )l4.$/II(y)5
Oec(Snot) I'eire(iev CeihCea, Ftl. 5(Ll 1rar. (e rer. Cen.
haa4(sais Oicuk C'n))n( 4 RiLMni.114/L4/15fleco
C(nr( er 4 Oenik (tars'v san 5 CoBnthnff 5/I/)010
Cine(ak Lknak Rirvvawg Ca.)liat )(iee„5/I/IS))
Carabao I'om *Lirar Co~1n(M(sr Cl($ ! tsMIkeuoo Oa 4 S Iirrii(a Coty
Cori.4l. Oronnrn )II )/IOSSCarnal Ti(ilaeae C'e. ot tao a(keen
CeaL pl4 Saor L (lv
sar�)
)oae 5 iat Cea C'e.S.r. it~name/)sflON
LoeeS(ar Cai Co.Can. ITLSiL(asset)~nn~c~Noise, 4/1$ /Its)
NC451 INNC4)1100
NR41) 100
NR4$ 1)OLSO
NC
100
SSA)5 SAN
)N LS.
100 1)4
100 ~ SASS
SLS 985
SL)5 04
100 SAS
tt45TSOJ545
10(LOS Iao
IN 94
IN WS
tLT Lg
NR451 104555
NC411100
NR40;
NR451 1045O
NC
NR4(k )0(sr
NR40i
NR40110L)5
NC4L
NC40;
NR40;
NL40;
NC40(
hR45;
hR4$ 1
NR40(
Vcr
SLO ILO($ 1 par)
I)I I)4100 945
100 L)5
SLT5 ILac
ICO 45$
IN IRSO
100 IL4)5
100 ILS)
100 )LO
ORPORATE 01'FRy!i iCSTk(4 Can
rdnNC~i leo
100 RX NC40( IO)AT
)N )055 NC411100
745440 1(C
lc
N
C
N
N
C
N
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C
C
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Coesrv«tenrtkieg
Acrqsaie
Ne aetna(au
Aceqe ate
Aniacdie
Sadil eatery
Aceaesae
Aurstdie
Rei(e«idOn I'oce
1)S
151
5) I
745
Ta541
744
Orn. aevvn tats.stOre«(sessr(aia 1(
Tevre4S one«On I( ~
ttsa trtl ffy) ffi( (tao)ffas aaaya fftet (ts.ts (StoaIJA( eyes )es) ))oo )tdt
r~ea~e~inJA tsr,1 asn )SI ).(a a)a )SI aaa
ncc'~.ca. Ltt )ao )o ~ )st asy.'i V L V 1»
AMI!TI'110flh pl()N: Pin furs(a lorn retina)cb(ISI 45 of cuir.(asia(ion) sill consist id SUI), 1(7(eat (irat ii«it(narc hiai) i. 5 3 I EST,
NO aiaL)ng fund dC(stn(u(C( aWI $ 3,SSS.O(XI u(hCr Ierg (rrni ikh(.
gcncta) rs(c rcbcf. These interim inc(ca(cs are nccdcd to mcct (hc ia-terat cm»tsge tcquhemca(a of thc company'I dcbenturc indcnturc.
Durmg )974 sad the Is(er pan of )9)3. Saa Diego Gihacspctienrcd ha«ct fur) oi)
requite(ace�(1
than sn(icipmed as a rcm)( ofbatten(cd aesdabi)i(y of In«et cost h)dree(re(tie po«er from thcpseifae Not(h«csL cua(on(et energy cut(siioicnt aad worm «ea(hct.Therefore, some of tbc unde)net cd fuc) ui) already con(ractcd for wa 1
)s caccts ia eutnnt needs aad storage capaci(y. This nil «wa sold at a
prof t, thus s oh)ing thc need (o (sLc the oi) under taLc ot paycoa(rsc(s and reject lets capcninc aa(ural gaa and autp)ush)dtockcttic po«ct. No auth sa)cs hate occurred dming 1915, aadnor» etc euttrn(1) ca pcc(cil.
hlongage deb( contti(u(ca a valid Sra( lien upon s)l proper(y srd fran.chiacy o«ned by (hc corn pony, wbjcct IO pct mitted cscep(ionL These$40.000.000 bonds «ill also he cntidcd to a main(cnanee fund. Proforms mongsge debt «itl equal 5)3% aad (o(sl dch( $ $2nv of actp)aaL lloard nn thr Irrriare ngoffacrd rhorgr raaurogr or o soilyfortory Irrrl, «r ore aioiarolang our "r) rmo g on rhr first mongogrhoods ofSon Dlrgo Goa il hyrrrrirCorn/tony.
SYDRON CORPORhTlONTcn.)'c ar /Vafrs Ogrrrd
En rsr)y May, Sybton Corporation plans (o o(fer $35.(O),000 in
Nutso doe A(ual I. 1955. The no(es atc pru(anni against Io«er is-(creat»ual tcfumliny prior to April I, 195$ . Th( cnmpany ia(ends touic opprotimstrl)'IS.(yJOAXÃ) of tbc act pra»cc Ja from the sale nfIhe no(es Iu trpa) tlie nu(itsadinr iri(elniicia under (Iir area)nagctrdil sl.'rn nirnL The tcniaindcr iiftbc nct 1«a«en)a «ill Ir'sed fnrycncta) curporate fsirt iaca, ina)uitinr inirLisp eapiw( ant«irenics(s.
Syhrlva manufacture\ olul ac)la, uii a «air)i)««le)alai(. a diictailicdhnc nf rq«ipmrnt and au(quire «)i)a* IJ)l in(u four prinnpJI pri«luc(alcJa; heal(la rivi)ua(a fnf ~Icn(ii(a, lshysiaienL I«a(pl(ala, sall )a)sat«Iotira; ina((un(en(J(raa ays(en(a aad cuuipnicn(: ptaweta ai«l «Jtcr/was(C rqvipnirn(: aai( apciia(il1 cliciliicals. 1 bc can(pony is urfAnurd
hpri1 26, )97S Pnge7)S
Standard h Poor( s Corporation, Tb» Fixe(1 J(ILom'o Investor, hpril 26, 1975, pago 715.
~ ~
~ J
II
GlROLDQ fo>~i AR7 LZClfCoiRVifCC>Iaecg Or rZan CHagcgg
1965-1975
gage 72
196$
846 > 691, 000
1966
649,816,oco 19l5
8217>012>934
lo67
8$3>252>000
19GS
661 >683 >000
1969
853 >306>coo1973
8133,444,eM
~1
8121>954>000
1971
879> 869> 000
1970
854,362,000
1974
+49,68$ ,490
ac=a arailsble for fixed charges before taxes 4
8 16>853>000 17>140 CCO 17>592>000 21>664>000 17>495 >CooLees: Shame taxcc
879,ooo 2$ .436,00010,796,000 „19,712,000 10>791>0005>580,00045,811,000
~~a=a arailable for fixed ctmgcs af:er taxes 0All=-ace for fonda ase4 dart~ coastraction D
29 S38 000 32 676>000 3$ 660 000 40 019 000
1 >628>000 2> 1 $3>000 2>803>OCO 2>927>00069>073>000 102>242>000 122>653 000 148>8C6> 0 191>57 >9
14,7OS,OCO 24,759,000 38.093,000 54,608 879 59.955 830
4S,782,0004>397,000
10, 505,000lrr-xc axsilsble for fixed charges before'teres-a exc " sg ~ llooancc for fends asc4daring corstrac ion 45>C63>000 4f>663>000 50>449>000
s>cs~ avails ie for fixed charges after acs~ai cxclaiis alienates for fhds a>cd
37,092,000 41,414,00028>210>000 30>523>000 32>8$ 7>00054 36f 000 77>483>000 84>560>~
31>599>OO 41>713>OCO 56>654>000>
76>'535>934 69>955>2o3
0 . 7,881,ooo 9,425,0oo 10,642,00038>277>ooo
14,OC6,NO 18,427,000otal irtcrest charges
23>957>NN
58,756,000 58>909>00043,8$ 7>CCO 6$ ,161,000 97,195>000 95>351>OCO 9$ frf6>
7'-ss i arrest car;.cd before taxes(1 t 0) 5>92x $ ,29x 5,00x 4.4oc 3.44x
2.27x 2. 53x 2.36x 1,56x > 2>blx
2'-cs irteres cerned before texas an4 exclcdingail~a-. ~ for >ada used during const>uctioa(=.! c) 5,C6 3.20
1 83 2 C6 2.33 1AS 1.24 1.75
A%5 In'teresa e& ncd after texas(c . o) 3.79 3.47 3.3f 2.86 2.49
2,19 2.45 1 54 2,13
='cs i-.:.crest carrcd a.tcr taxes vA cxcladloga~;a=ac for fc.-ds-osed daring constrootioa(F+ C)
3,58 3.24 3 09 2.65 2>251.6o 1>72
1,86 1 49 1>23 1,46
gear ~ s Ar=:~l?>cert of Coyany, 1975 ~ 7ages 28, 29, an4 coni>arable gages ia ywioas reports,
II
CAROLIlUL MAR 5 LIQfZ COHPAHYCOHHJTATIGf OF TilZS Ibi'EREST EAHDED JQTER 11COEE TAXES
FHK! COST HATES FOH CAPITAL le) CAPITAL STRUCTURE RATIOS
FuSe 73
CostRate
CapitalStructure Ratio ~Ca @nant
Ccemon equity
Preferred stock
Common equity and preferred stock
0,01
34.96$
14 10 1.13
6.11
Debt
Interest free capital
Total capital
7.72
0,00
3.58
9. 69X
Fair rate of return on total capital 9.69K
Times interest earned after income taxes
~ Component for common equity and referred stock plus component for debtComponcn or e
~ Rate of return on total capitalComponcn 'or c
2.71x3.58
lA
CLROLHflL BNER 5 LICE CONKCOVERAGE OF FIXED CHARGES AFTER IRCOHE TAXES BEFORE COBSTBUCTIM CREDITS
NORm CAROLINA RENIL OPEBATIOBSVINE HESEIC RATES JQlD USER IMPOSED RATES
TEST YEAR ENDED JUllE 30~ 1976
UnderPresent Rates
UnderProposed Rates
Ret operating income for return $ 99,315,367 ~l,ll9,500
Interest on long-tena debt
Total fixed charges
48,445 747
48,445,747
48,445,747
48,445,747
Times interest earned after taxesbefore construction credits E F 2.05x 2 7lx
Source: Rule Rl-17~ Xtaa (b) (9) ~ Exhibit I, pages 1~ 6. Iangum ExMbit Ro 2, page 8.
I
I
I
+lWl»th' Mf twI $ b ~ ~
~JPage 75
COVEBACE OF FIXED CHMGESFIRST MRTGACE BOND OFFEBINCS OF EIZCTRIC lEILITIES
BI RATINO CATEOORX1975-1976 TO DATE
NJMBER OF SV S)
Coverage of Fixed ChargesAfter Income Taxes and
Excluding Allowance for FundsUsed During Construction
Ratings of Aa by Hoody's and/or AA by Standard 5 Poor's
Ratings lhintained at A by Hoody's and A by Standard h Poor's
All Issues
E.2Ox (8a)
1.94 (43)
Issues>!here Significant Bate Increases
Arc Reflected
2.39x ('i9)
S.O9 (S5)
Ratings of A Ey Moody's and A by Standard A Poor's"Just Barely fhintained" or in "Lower Range" of Category
Ratings of Baa by Fhody's an%r BBB by Standard 5 Poor's
1.68 (S3)
1.66 (72)
1.8O (11)
1.83 (3a)
Ratings Considered as "Strong" Ratings of Aa by khody'san%r AA by Standard EL Poor's 74x (23)
Source: Rhody's Investori Service, Inc., embody.'s Bond Survey, 1975-1976 to dutch'Standard L Poor's Corporation, %he e come vestor 1975-1976 to date.
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76
8) 0 ~ cfoodji's Bond StttvcJJ
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October I .')7'I .. ~'
Noody's 'To Assign Ratings 7'o Profor redStocfcs
Moody's ItnUnx POQcy ttcvtcw ttdtscd hns decided co c.tend its rsUng aerv)crs Co inrlvdlc qvnlicv dcstcnsctnIIS r ~
preferred stacks n1 of October I, 197'L The dral n«c torate preferred stocks. which htoodr's hnd alone prior cn I'13 I.wns prompted by evtdlrnre of investor interest. hiondtv's boIlcvcs that lcs raang of prctt ncd sudrks ls espccL1ny nprrmprince ln view of che carr tnccrnatng amount of tht. ~ sc.CuttUCS OVCStnndtng, and Chc faCt that renunutns boflattvnand its rsmiAcsdons have resvhcd cencrnQy in the dQudonof acne of thc procccUon atfocdcd theta as wcQ as ocherfixed4ncome secvxtdcs.
Because of the fundamental differences between pro-f«rred stocks and bonds. a varfsuon of our fsminsr bondzaUng symbols 1riU bc used ln the qvaUry ranking of ptnfcxred stocks. The near symbols, presented below, arc dacdgncd to avoid comparison with bond quaUry in absolvesterms. It should always bc home in mind UIat tbe pro.fcrrcd stock occupies a fun!or post uon to the boncL
Preferred stock zasng symbols and their dcAateons azoas followe c
~dao oat
ha issue which is rated saa is considered to be acopquallty yrcfecred stock. This rssng indicatesgood asset pzocectioa and che least risk of dividendImpairment wfthea tha uaivczse of preferred~ tocks.
Federal AgenciesFinancing Paco Rcrnalns Heavy
Ivhtle there hss been a slowing ln new corpocabc nnd taxcxcsnpt otfcrlnga, nnd UIC Treasury has not hsd to burdentbs macket tceqvcnUy, FcdcrJ agencies have been consh.cently hcavy borrowcrs. In tact, tbc volume of agency A-nanclng has boon on tbc increase la recent months. In theArst four xnonths of the year, agency mnxkcc borrowing wasrvnntns st a 52.6 bUQon monthly rate. But siaes Nay thexnonthly volume has risen to $3.6 bQQoa.
Tbo main causes of thc profusion ot Ananctng aze themoney needs ot the housing Industry and tbe agriculturalcommunity. AttracUvc market interest recco aze causing nctovtAO»s from tbc savings insstutionz, »bleb are the primoaupporl ot thc rn'ortgsge market. Ia August. for cxacnplcdtbe nct outflow trom savings and loan assoctaUons wasestimated to be SIN bQUon. To provide advances co StIL's,tbe FHLIVs have bcxzoatcd hesvQy, and FttMA frequentlyhas been in tbc market to raise funds for ics xaoctgagc sup-potUng opersUons. The sttusUoa bss led the FHLB' andXytMAto cbandoa their regular paaem of quaztcrly finano.ing. Instead, these agencies have recently been tapping themarket on nearly a monthly basis. Tbc FHLB's have bocatbe most scUve, Issuhg 56 ed'bUQoa of debt la the last fivemonths, ~ which 55.65 bUUoa vtas neet money. FytMA basbocxun.J S3.7 bQQoa over the same period, raising SL75bQlloa 'n new funds.
T 'c housing Industry Iso of course a, poilUcaQy<cnctdvoazca cnd aay alga of mortgage money drying up producesoutaies from cfffctsfs. Housing starts were down in Augvaand new pcxndts aho decQncd amid reports that mortgagcsvtcre becoming difAcult:o obtain. This suggests that Fedecal agency support may have to increase further. Thus, theFederal llomc Loan Sank Board hsc announced a pisavrhcrcby member $1IL's can borrow 52.5 blUloa for fumzemortf gc commitments, and GNhth 1cQI reinstate tbo "tan-dem plan" «herein it wlU be enabled to buy 53 bUUoa ofpxivatelyoowncd FHA insured morcgagcs. TMS acUvtcy sczong-)y indicates that boczowtng by tbc agencies to help the hous-ing industry wiU remain hcavy.
BorzoaaMg by the FICD's, Banks fo. Cooperatlvcs, andFederal Land Banks to aid agrtcuhuce is also growing. Since
Haatt
ha Issue «hlch ls rated "aa Is considered a blgb-grade preferred stock, This zadng Indicates thatthere is reasonable assurance that czzxdxcgc aadasset procecdon wtQ remain zeissvcly wsQ main.tained in the foreseeable future.
clot ~
, ha issue»hlch ls rated a it considered to boaa upper-mrdlucn grade preferred stock. WhQC
.risks are fudged oo be somewhat greater than lnthe "aaa and "4a" clssslAcsdons, caccungs nddoasset pcocccdon are, nevertheless, expected co bemaintained at adequate Icvcis.
Jnn.~dept.o 1972 ~ ~ ~ ~ ~ ~ ~ 16.64 IAS S I+~tnecvate moat tecetat *sencr ondt tt4etactrwsontotedt yvatcctt
~ccatedc new caaute.
the COVCrnment ix SCUIoely trying tO bOCet Crep preduCUOa tdboottit is likely that the agencies vtQI be caQcd upon to Iacxessa
ha issue which ts raced bsa ls considered co oe
This monch. ia sddluon to the vsusi FlCD and Coop lower.medium grade, neither highly protected n td
offerings, Udc Land Banks have mscuxities to refinance, nnd poorly secured. Earnings and asset yrotccUnn spfurther borroavmg by the FIIIJVS and FtCMA would noc be pear adequate tor the yrcsenc but may bc quosuon.sucyrtstnc. Alto, the Student Loan hiackcUng AssoclaUon ~bla over any. greac length ct tbne.(SCUy Mac) announced plans to make their first appearance tdbatfin tbc mnrkrc On Tuesday, they cxyecc to offer $ 1oa mUUoaof six month notes. (For a discussion ot this.agcacy, see . An issue whleh ls rated ba ls considered to haveBottn Svavsv. August G, 1973I page 672). 'ycculsUve elements nnd ics future cannot be con.
sldcred well assured. Earnings and asset protcetionFederal Agency Finsncingo
~'ny bc very moderate nnd noc nell ssfcgvsrdcd
lido I dod d I dod. o lol lo I Iooldooo o cbsractcxtzcs preferred stocks ln Ucs class.Sconchtt NewXtoves *vetoes Stonct
An issue «bleb is rated b senrraQy bcks che
Jan <.r ln73 ..-.... 96.76 guO Iqo39 chnractyitsUcs ot a.desirable tnvescmcnt. Assur.ance of dividend psymcms snd maintcnsnec otother terms ot thc lssuo over any long ported ofUmo xany bo smalL
hksody'6 Investors Scrvfce, Xnc.t hhody'6 Bon6 Survey, October 1, 1973t page 510.
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Ocfobcr I, 1573
~IesaW
hn issue which I~ rated "«sa ls Ilkeiy lo bc In ar.roars on dividend payments. Thl~ raUng'esignsUan docs not pucpoct to lnIUcatc the future statusofpaym«ncs.
hlI factors whkh hare, end «an bc expected to have, ameaningful Influence on thc dcgrcc of support afforded tbepreferred atcck will be «onside)cd. Among these Cactors acothe nan)re of the issuer's bua)ness) corn pcUUont quaUty andtrend ol earnings; interest and preferred dividend «ov«r.age) caPltaUcatlon structure; offbalan«e sheet flnandng,cash Acsw) financing needs and purposes; mansg«m«nt andfts C)nandal poU«lcs) regu)auon; a««oimdng prscd«cs; rankIng of the Issue within tbe preferred sto«k saucture) andlegal p)out)tonk rdaung to Ihc Issuance of addlUonal debtand pr«fc)red stock.
Issucts msy submit to htoody'0 an appil«aUon Cor rat-Ings on aQ ol U)elr outstanding preferred stock Issues at anyUmc, whether or not they have Immediate flnandng plans.
Iqewiy.rated issues of preferred stock w)Q be reviewedtn htoody'0 Bo)ln Suav«Y and Usted In the appcoprlatehfoody's hfanuais.
Pubiic Utilities /YiolCh bown Sharply
Yield levels moved down sharpIy last week, as lt bscame mo)e apparent that the Federal Res«rve was noc In
g dined to resist lower in)crest ratec. The pttce Imprctre-mcnt Icas, oC course, r".Qeetcd ln thc new4asue )narket. Forexample. A rated CencrsI Tcicphone Company of tho South-wcs! was rinoffcrcd at 7.84%, compared wtth a return ofL35% on thc «omparably rated Hairauan EI««crt« bondsma-acted duct last »seek. We think thee the upward pricethrust msy bc extended, !hough aC a a)ore mod«rate pacesp«ndlng a buUdup Innew.)ssue supply.
In this week's only scheduled utIUty sale, Southwest«IT)Bail Telephone plans a 6300 InQUon olCerlng. In the mos!recent QcQ System offering. ëw /«rsey B«Q cold SISO mQ-Qon of debentures Io yield 7.85%. Atter an In)UOI poor recep.tlon. these bonds are now trading at a prem)um. to yield~bout 7.73%. Thus lar. S636 mQUon of uUUty bonds havebeen Te«tst«rcd for sale during October. This amount «ouldbc supplemented by addiuonal rcglscrauons during tha n«ztseveral weeks.
New fssuos
Norihern States Power Company (M~) Rrst Mme.75/4 s, 10/1/2003
hsn»unt Call )Icccnt ~Y)a)d~))sunk Isu)4) pea»a race cd)rant sca)u)I)yAs 530.0 !9108.00
100t/».Icons<
7,70% 7.80%FJÃ~sundab)c psi»t Ir 10/I/Il. «Ith debt at sn Inlrsral rest et
)tsa Ihsn Tl)s~r annual)y) »inst«isr a»sabir as a «Iuur or In pass. ai~ ny umc an sc slats'allsc, ai Iaa 00 Inseuch sl)0/I II ~ I 10)asIhseuch 0/)I4T). Isscsaium dccsaaslnc Ic))hat s)l)csihs or ta/Iscihsi~ nnualiy Ihrtca))rr I)sacs la )0/I.)al in Ins en 10/I/nasa lsi I»0&1st Ihc annus) sinhine Iund bcainnine 0/I/TS snd 1»«ac )hales)iac.
ne+I)w Off«T«d on September 20 at 100% to yi«Id 7.73%'Wh)ning bid, 90M9) cover pcr bond. SL10; coat to corn.
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'any,
7,70~~. Other details on page uOL~ on)a)ans Thea«high grsde bonds represent a asl)afsttnt)
In«c~n Inr«stment,
Union LiSht, Heat and Power Company First MI8«. 85,10/1/2003
hm»unt Can OI)cstne Y)sM. —.nst)n«)su)4) pwc» s't)cc cuivent s)atua) tyAs 5IOA) m110.00 102 7A)4% 7.83%
ID))sn tc/undablc pi)or ta )0/I/Ta. «Iih debt st an In)steal »est etICSS than T.T)~r Snnuauy; »inst«IS» sana»la ~ S ~ «hair Or In raSIsi any iimb on 50 cars''nsiicc. ai 110 00 ihseuch 0/)0/II; ~I Ios csIhseuch 0/10I)S, nlsmium dcctcaNnr Iciihct Siliccihs rl 51/Iacihs)~nnuaiiy Ihclcs)icl 1104 1. on 10/I/1st Is 100 on )0/I/)aa). 5pcaa)tsdrmniian unciudlnc iha epunna) ainhinc land brcsnninr In I'l)1)~I IOCAd us)Ouch 0/)0/N, s1 Iozoo usleush 0/so/)5, )e«ct Ihcscaclec,
ONePss Off«T«d on S«P«m)ber M at 102 to yt«id 7.83%..Winning bid, 100.870; cover per bond, S1.70) cost to com-pany 7.92ys. Other detaQS on page 563.
op)s)aal This issue ls reasonably priced, but aft«@market~~blUty wQI be Elm)ted.
General Tel«phone Company of tho Southwest Rrst. tdISe. 75/ks, 10/1/2003
Amount Cat) OI)cstn« ')s)dstsune tsu)4) pwca priss Cu/rent Sts)u/ItyA S30.0 0)IOL75 09 7A)3% 7A)4%
C)Nssnsvtundsblr pt)et ts )0/)/)4 with debt ~ I sn Inictcct cost »C)CSS than T.S)~ ann»Sary eihsl«ISC Cauabi ~ aa a «ho)a Or In Pat4ai any urn» rn 00 dsya'rucc. si )04)5 Intnuch t/50/)II si )oak)Ihs»uch 0/)oi)s, ptcmlum dcclcasinc I~Inset «A/)00)hs or )I/)Ooiha)~nnuauy In»la»liat I)0450 Dn 50/)/)I) le 100 en )0/I/)/y/4 )IO a)nhathe )shad
Ds)r)lss Offered on Septa)nber 27 aC 09 to yield 7A)48» ~
Whmlng bid, 08.144; cover pcr bmd, S5.06) «ost to corn.pany, 7A)1%, Other detaQO on pago 562.
oy)alan) These bo'nds arc appropriately pti«cd fof In«on)es
Proposod New'ssue
Consoiidaied Edison Company of New York, Inc....... has fQ«d an S-7 regtctrauon stat«rn«n! «ovc)ing 6150
mQUon of fits! and refunding mortgage bonds, Series NN,due O«tobcr 15, 2003, to be sold ln a negotiated offering onor about O«tob«r 10. by a syndicate headed by ht«cr)Q Lynch,Fleet Bosum, and YJdder Peabody.
'vanlya asi)aki Upper mediu)n grade) piovtdonal'.~These'bonds rank Iow in the A raung «at«coty. Conunuadonof the present quaQty rating wIQ depend on the company'0abUlty to maintain lcs coverage of lntccercc charges at leastat curt«nt lcvds. '6'hOO recent rate action cbould enable thecompany to stay tree of Qnandng constraints Imposed bytho cern)ngs test pcovtc)on contained in its bond Indcncu)eover thc period immcdlaicly ahead, but additional reUcfwtQ be r«quired ln time. Thc company'0 abU)ty to ra)setbe substanttaI funds needed to finance its ongoing cxpan-alon w)Q d«pend ln large pa)c upon the tbntng a)ui amountol subsequent rate a«con~
Pennancnt «I««trt«. gas, and et«km rate inc)esses. cotaUngappmxlmotcly 5100~ mUUon. have now been app)or«d.Thl~ total eup«raeded $ 110 mlluon of temporary Increasesivhlch were put into cffe«t on January 10, 1973. In sddlUon,th««ompany fUcd ln Sept«miser and August. 1073 Cor edd).Uonol lncrcsaec ln gss end a)can) mick of appmximaicly527.0 mUUon and 517A) mUUon. )esp««uvely.
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Ek)od3('Ig Investors Service, Ic)c „hk)od '" Bond Survey October 1) 1973, I)aife 5l9» tr
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Slattge faeiQk> Sertke k p>avided ih ihC Cthi ISI ahd nafihtth Por.lions of Ibc I ««ct Pehi>nvls ahd Ihc cth>rsl snd ca»c>h staioas o(Ihr Upper Pr««nels. his!>r ci»t> vcr>rd >hclvdc Grrhd Itsrh(4 Mu«kcfoa. Ahh A>I«>t snd ihc Dc>rn» mc>rnrnh>sh ates (>hi> Isti sc.
)coehis (nr tAe o( npctsi»g t~hut>I Thc company siva a«ns s~ vmbtr a(>>Orate gilds «hicb pcrmi> summet s>arsgc (ot delivery >h
whutr >hah>hi. Ci a reve>>. gttsitt smovai ~ of gss stc svadsbk fatfina Ousia>hi>4 Ad>fi>iohd >tvthecs arc also provided by staring gssfor other ca>hpshics. Dvnhg lkc I«rive ~hs cndcd March )I,l97), aptts rihg >cvcnucs «ere denvcd si (alla«@ space hcs>ihg, 62%;fitm b>duurisL l7%: b»et>upi>bk ind uurisL IS%I commctcisL 2%:~ nd rcudca>iaL IJ%.
Haietsi 9 sv iipvrchsMd ptincipslly (tom ibc Mkhigsn lVhcohs)nPipefihe Ca>«ashy, si>a «holly owed br American Ns>utai Gsa
, Mkh>gsn Wncoh>in supp>»s spprotims>eiy g4% of>bc company's ro.q>n>emcee, wbh Pshhsnd>c Ss»cra Pipdinc supplying )0% andGrcsl La'ka Tish»nk>k>o Scnkca (50% owned by Amcricaa9(slitsl >m>(»g4%, .
C taCIS wkh Mkb(g>h 7>rnton>)h Piadb>»ealend IO huge>I )I.I Tbe company is a»bled lo purchase IJ)7/)5 mcf pet dsy b>
PREFERRED STOCK RATlNGS~ash>y fsiihgi oh prtfe>red slacks ~ tc cap>cited by Ihc seine ~~ symbo)s as those mcd la rating bonds. They are ihdcpcndcnt ofSic«dard ik Poor's bond ts>(h(s In Ihe sense Ihsl >bey arc nolaCCCSSStily gradVS>Cd dtwnwatd f>Om IhC tankihg SCCOrded thCi>su)sg company'S dtbi. In a msjari>y of cs>cs. ho~i. Ihc rsiihgassigned s p>e(ertcd s>ack «il)bc equal lo or lower Ihsn lhsl accorded~ absuet's lowest tshkiag debt obrgsiioa.
Ptsfentd 5>ock tsilhg> tCprc>Cht a Cah>lit>ad Judgmenl of tha~my af d~cads sa I ihus implkd ptosptcinc yidd
aabdhy Of Ibe S>OCk. Tbe ratings are as fOIIOwt:
de 2ower GraftSprru(s rive
C $>k g(a>gina(,
AAA PnturAA f(ig1 Grs!(rA qnvadJtWI 4(rreuhsG>ar(r
lac>are co>n>dered ia snirieg si a prcfcntd nock rs>)ng arcci»h>islly Ihc vs mc as theic tevk«cd in lhc case of a corpots ic band.Tht most imponshi of It~ stt: (I) Pro»idions of Ankles of Incor.
. phrs>ion. (2> As>a Pri»taion, ()) Fihshcisl Itcsaurca. (4) Future
bar�>vhgs
Pro>cc>iaa. sad I)) Msas Zema».
hi in hood shel(>a. ohc Of ihc impo»sai s>s>is>ICSI mes>utes usedIo dactmihc >he stcv>i>) of prc(teed divh>end psymeaii is Ihe cs4cvkrian of the number a( times cstmhgs cover fitcd chsrga shdp>elened dindend >equi>tmcn». In ihc psst. dvc Io ihe fsa Ihslprc(tried dividend psymcns were nar«dtdue>iblc for iss purposes sadIhsi ihc elfin>vc ihCOmt isa nits Of mO>i i>>vers (msihiy pubhcei>fi>~ snmrshicv) lt)l vrii!ins nsftow tinge. Standard 4; Poor'I calicukitd >h« thvenge ratiO SOlcly on an sile> >as basis.boihineludingahd ciclihhvc ihe silo«an:c fot (vhds v>cd durin con>ltuaion.
ln >ecch> vtan. ho ever, i!us Iss situation hss changed dts>ha>salk shd ihc ct(cane ihco>hc Ist N>cs o( utilitycomps nice no«vsn vvkn lh>hi>>hers!mc>» afincomclsscsdaes in(set provide~nmt a&4>«»A pto>eclivt c>nhkhh for >hc prcfctred s>ockhoMct, Ihcsdnr>ion'n(s ts>io mtssunhg eo>etsfc of fied charges snd prsfcirtd
ad>oh a Prcasc bass is con«dc>cd s pprop>itic.
Thc rsi» how u»d by S>ands>d gs POOVS for Ibk purpose k quiteWh«>at >O that rrceaily sdrsiid b! >he MC.The >hCehshiCS Of >bees>
euk>ihn art dc>cribcd h>W«. Thc numctstor c>m>is>s a( earning>
est>sin vrin>ct >hen>hi shd kiitta>noesis ia a>her thonihsot ihcycst.ThC firn> Snhuil Ca>situ>Chl ii)9).l >«»ihh CUbiC (etl, A&W~Arvvhsi bccn cah>tseitd «bh hlichigsh Nnchnw'h lo inc>cave >Sr v«rt .
Io IJ74&v I Mc( sad 40&J b>>4os cuhk Iici. tcspcc>ivcly. brr»h»gSn»ember I, )97).
cs>v>s) nmkys ih l91) werc e»)ms>td sl spproiimsiiiy 5'9l 0>>rL
0t>0. Of Ihii Io>SL $2SJ00000(s far Iten>mnuoh (sc>b>kv. Sl)PO,000 far storage fidd esp>a>ion shd dcvtlopmen>, 5l I,lyr>.>su> foras>em) gss pradvc>ioh Dcihfcu shd Ihc rcmsinihg $4~v)g>>I (hrmsia and icrvkc tens«sls, as>canons. Cad routine cons>run>oh.
Michigan Cohsolidusd is regulated by Ihe h)khigsa Pub(ic ServiceComm(>s(o>4 Ia addition io so ihcrcssc ih tace on November I, l972.Io oif>ci CO>t ihCtCS>cS from in>crusic suppiict>. Ihc Commkdaa suihotittd ~ gehetsl rotc iacrcssc of $7.000))00 ashes>ly, dfcaive)aheaty lv )97L
Opera>1>g reve'nets lor Ihc'wdve >noh>he ended Scp> r. S(L
)97). «Crc $40).ldg.9$ 0. Ca inc>case of 92% (rive ihc S)dl„gJcgfor Ibc compsrsblc fcr(od ih )912. Ha income for Ihc samewss $2M>40 0$ ), compared «I>b $)X&7),474 s year car lkc
svsgsblc for fiscd charges snd pre(cried dividends snd ihc dchomi.asia> b comp>ised of littd charges shd p>cirncd 6'mdcnd> Karhihgi~ vsilsblc for fised chsrfes shd p>e(crrcd dividends isdcfinid sana Icome bctoreiacomc tata. deferred iheomc lssa. bwaimeal Isa crc.diu, ahd littd charges. Fitcd chsrga cons)s> of sll inicrcit chargessnd amanits>b>a of premium. discovai. snd aspen>c oh dibl. Ptc-(cntd dmdcnds tep>csea> prefctrcd d)vidchds tnu(>iplkd by Ihc ratioofPte Isaihcooie Io ncl income.
LEASED HOUSlNC CORPORATlO'iS
Crl(erlaforRa(fng
T..:bc Hau>b>g snd Vtbsn Dcvclopmtni Aci of l96S suihorircd a
new Spp>OSCh (01 >htC>ihg 'IbC hau>lhg needs Of low ihCO>hC
fsmiiia. IIiincorporated ih Section 2) of Ihc Uni>cd States HousingAa of )9)7, ss amends>L snd s kno«n ss Staion 2) Les>ed Hau>ihg.li wss Ihc b»eh> of Cohgtas Ihn thc program wotk as a surpicmchita the lear tchi hae>v>g program sdmiasie>ed by ihc HousingAss(>>shee Admini>irnion. «iih the program operating lb>ough Ihc .local housing set horiiy s(mgstly lo Ihc public housing prOgrsm.
Voder thc pioviYbhsel Sca>oh 2) ibc Dcpsnmchi Of Ho s(ng shdUrban Dcvriopmch> IHUD)cn>crs in>o con>rsas wi>h local houungsuihori>ics suihoriuhg Ihe se>honiks io les>a from privs>e owacnd«ei>ihgs already in e>i»ence or io bc coh>irected snd sub>esse ihd4vidual d«e>ling vh»s >o Iow income (smilies ai la«mon>My renisls.
AI the request af thC lOCal bOO>ing SmhOriiy. Ihe Supt>vbing rogioasl olce of HUD vnll make s survey of Ihe loss) tennl housingmarket snd. If faund appropriate. ii «ill su>horite thc lord bou>ing ~
aeihoriiy to Icssc a Speci(» number a( housing enbs si ipcciiicdtth>six HUD thea cnicn into sn annual coainbu>ions eon>rect w'»h
Ihc local au>ho>i>y undct which >I con>teat io make mdiv(desi ahauslconiribuiions for csea unit lo bc kaicd.
Vndcr the Hou>ing Act of l9)7. as smthdtd. such annual caa> ribu.lion> psymenis src gusrsaircd over s fied number of years by thcVniied Slates Auihor»y. an ega»y and inn remen> siiiy of>hc Uni>cdS>sia who>c funain>s. powers snd du»es stc va>ed in snd est>citedby ihc Stcrasry of Houiing snd Vrbsn Dcvelopmch4 Ssk( Acl fut.>her I iovida >hei The (siih ol ihe United Stsics i> solemnly plcdtrdto Ihc psyrhcai of s>l annual cahlribmiohi conitsacd (at ... shd
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)anuary 5. 1974
Stau>Sar>1 h Poor ts CorporetS,ons
Page 92)
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The Fme>S ZI)co(r>c Zzrvestor> Jf>)u>r)r 5> 1974> page 983.
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'GGG ~ h1ooflJig Bond S(fyveff
Docoffcf Offcfccl on February 27 at Ioo(o ylc lcl 10%. Priceto cc>iiipniiy 98.00; cost io cnnifiociy 10.2ot~w. 0(hcr dctafiIn Uvvn Svnvyr, February 17, pago Ifi24a
opbdoni I'his viipcfuucdlu(II-grade lcsuc Lt anrictl forcofp rate Ifivc~(ufs al(hnuf;b, dvc to (lie rfuaU sixo thoIc c, after (no(Le(abUI(y may bo Umltc(L
s
Ratings AodugodCarolina Porfer 5 Ughl Company
The ra!lugs on Cafofina Pe(vcr af LIght Co.'s pubUcly heldpfcferred stock Issues have been xcduced to "baa" from"a". For further comment, scc bcjotv and page ISST.
Now lssuos~ Carolina Poiver S Ught Company...
... has filed an S7 registration statement covering 2mfifion fharcs (Ivi(hoot par value) of cumulative prefer.ence stock sex les h to bo sold in a ncgofiated offeringthrough hferxIU Lynch, Pierce, Fcnnar ac Smith,.inc. onhlarch 13a
auofffy a aoffn(fc NO rating applleatlOn XCCCIVCCLpuopocoi.PXOCCedx from the nCIV pfefefenCO StOCk tVUI be
used for'general cofporate purposes including thc reductionof short. term borroicings lncuxzed pximarfiy for construc-Uon. Short.term bofxo(vings totaled $ 131.T mlfilon at DO-canbcr 31, 1974 and afc cxpcctcd to be a! $ 12S mlfiionimmediately prior to the de0vczy o! the nciv prcfcxzcd stock.Capital cxpcnditures for the 1975 through 1977 period arecvrrcntly cs(imaicd at zcqulrcd 51,142.7 mUUon Including$342.G mlfiion ln 1975. After the sale o! the neiv preferencestock, the company wtlmates that I! >Cifi need $ 150 mifilonoC funds from )on term soutees. Thc'company Is presently
~ unable to Issue additional preferred s(ock under the eaxn-ings test in its chatter..
(whoofcoffonf The cofnpany Is au(herb(cd to Issue '2 nififioiishares oC scxlal preferred stock. It ttiU have 2 mUUon sharesoutstanding vpon issuance of the nciv s(ock. It Is also au-thorized(o Issue 300.000 shares of thc prcfefreil stock (237, ~
259 shares outaandlng), 5,000,000 shares o! prcCeacd stockA (500.000 shares ou(s(ending), and 10 nifillon shares o!serial pfcfcfxcd s(ock (2,150,000 shares outs(ending). Theauthorised aniount o! prefcrcnce s(ock may be increasedupon the con!en! of the holdcxs of a majoxtty of the to(ainumber of oui!tending pfcfcrence shares.
focnfnec rrcii None.Doaf Rccfrfcffoncf None.nnod Chorprc ond Proforfocf Dfvfdrodc yrofocffonf
1St! txfa 1t(X x!f1 tzfpra s I ~ rsas sas ass Ias sas
Infer ouivnrd In ihc prcuprcuac: rofnlncc ycprclcni nct Incotncphai Inrnanc inrrr One Iarraf riwreCri farra( CnrCCCr Crntcrrni in~creat rcarccrr nlui onr.ivied uf onaauf( ra nioic: nnai pcc fs eccl( aiiviaorna(0 cstars~ ni iscrarfcali aicvaalwasi frnuacvnavnar naulianIIrn by Inofolua Iiaoi InrnMc hri«cc innvnn corer wrcv. Io ncaa inroMc. Icpcofsvann raaverncr oniucicli Io cava cficci io cise laasarncc of Ihc IlcavIacfrccsll ~ Iasru ni on oaaaaiavvc auth(anal f'lic of 5 A, I(le zonulry0 1 rnir vf c nuiiiosa ~ Iuacan of ravwauan. Ihr pilaanrai cri»'f 5100Iauiuon fia ~ I Ma I ccacr Ivvvlc ni on nacunaavl cvac of sat~» In liw~rconsi aiuvcia'r uf 10(v. nasa( Ihc npisllcaiwn of Ihv pcocccvic Ihcrc(rWn. Ir auiacaulcar( by uac Conapnny (&
Dfvfafvndci 'llolclcts of the Preference stock aro cntltlcd toxc~ivc ccimula(lvc dlvbhncic payablc qua((cay on July ).OctolIcr I, 1 lnuary I, aud April 1.
CIIC I'Oil(DailyS ella!(CC a(nil (lic nlnt(gage IIICICfltufe Conta(n pfnvlsinns limiiin,, paymc(I(s o! each cllvhlcnds onlccnnuiun s(o'k unaicr crrtahi cirnimstanccs. Al Dcccnibcr
Maycjt 3, 1075
Ac(uct pro yorfno(000) gs (000)
$ 131,657 L4 578,000 3.7SSG,680 '47s9 1,009,030 474
Short tean debtahiortxage bondsOther long teandCbt . I ~ ~ ~ ~ ~ ~ SOM4 2.4 50~4 23
Total debt ...... $ 1,168.571 56.7 $1,137~45'referredstock .. R$ ,118 14.0 '288,11S I%5
Preference s!ock: — — 50,000(9Common ac
surplus ...~ . 548,465 26.6 604,465 28DD I. !av 0 I ~ as. Iaras 3.7 I.ua 3.0
Tvsa asasssl .. I-",O'f0050 1000 I" IOI,II3 3000n:a.ass(( nc p f-vo(w shores ou(c(roe(na xf.eaa44 Oho. Dfofoccnc.
Niagara tdohatvk Porfer Corporaliori......'has fUccl a fcc(c(ra(inn s(aicment covering 4 .000
abates of SIV(htiar.unhi«cicfniila(ive pfcfrffCcl s(o(k to bosnid ln a nccu(ta(ccl nffcfin„nn or alnicit ax(arch 11. Thosynilicaic ici(l ise Icd by 6 ilucnnii I(foihetc anal fdcffifiLynch,I'icfcc, Fcnnrr fcc Smi(h Ine. Application ICUI Ini made to list(lie 11civ pic!a'fcccl uii flic NYSL
cvuiiiy "a assi(upi xlulliam grade; prmlslnnal "baarIfighdx tati!is granted last week shoulcl ahl hi keeping
31, 197 l. $21.0:U 087 iras so fcsfrlctccl Imcicr !lie charterprovisions, lvhich Ics((le(lon ives fcnivtnxi ln January 1975
)vpoi( thc hale nf !lie cunmion stock,Tlie Clio((Cr viral CO((fat(if, P(OCIAIOIIS lliiil(liigthC aiiiniint
o! divklcfidr cchi li can Iic niaiic on its junior stock u(dosscertain ruins oC coivmon stock and surplus to (oui caphafisation arc mal((tainccL
you Sfofwc This Is a nciv uIOnCy" pfefefenre entltfing coxporate holders to the 63% dividends received credit.
CaN foofvrof NO( rCfundable PriOr tO AP(il I, IMO ata In(vcr In(crest or Pfcfrrrc I (Uvidcnd cost; DOhcxtffso calhable at prices to bc svppficd by anfcndmcnt.
~ucfnocv Tbe c(nnpsny provides elcetxle so(vice in an areaof approxlfnatcly 30.000 square mfics ln North avd SouthCarolina having an csUma(cd population in cxccss,o! 2,800,000. Ficctrlcfty Is fvxulshed at xctafi ln 200 coinmunldcs, and vcholcsalc service is svppficd to 24 miuilcipafitlcs.During the 12 momhs ended Dcccmbcr 31, 1974, operatingrevenues amounted to $461. miUlon. Itcc~ucs as o! thatdate ivcrc dc(I(M 34% from resident(ai, 29% from indus.tzial, 1059 !rom commercial, and IS% from other sources.Approximately 84% o! revenues ircrc derived from NorthCarolina and IGIw from South Carofina.
C(f the total instaficd gcncradng caPabUI(y o! 5,026 mivso55.440 ls coal fueled, 11.8fa nucjcar, OSfr coal/residualoU. 10.7fsr No. 2 ofi, and 3.6fgv uses crater poivcc. For ~
1975; the company an(ICIpa(es that Its generation still beproduced as fofiuovoi 733er txom coal, 225cw from nu-clear, 2.0% from cva(cr, and 1.6cv fznm No. 2 tuel oiL
In January 1975, the COmpany irax grm(cu Cni.s ~tWain xetail rate relic!. Also in January the company xvas al.loived to pu! Imo effect a 5204 mfilion «holcsale zate in-crease subject to refvnd and a foisil fuel sdjus(ment clausoappUcable to aU «hoicsale sales amovn(ing to approximately$20 mIUIon.
copfcofffoffonf As o! Deccmiavr 31, lvi4; pxo forms zeficctsthe proposed sale of pfcfcrence stock and the sale In Jan- *
~,
uaxy 1975 of 4 mUUon shares of common stock and $22:350,000 of fifst mortgage: llbifr Series due 1994, and sub.sequent sboxtqexm bozxocvtngs.
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)+ody(o Investors S~iccf Znco I I4oo()Y'9 lkxn< Giurvcv, Hf(hach 3, 1975, Pni.c 1 66.
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/««««««t «o«o ~ «« ~ ««a~ ~ Sacer~( ~<~an(o>)l~
iai) i~ >)a a'>oe. k>oeooo (>CI. I)~ (as(t St( )4 ~ S)r>(
A,A,I ~(wl,s) IN)S,())ta O(SO . S(S)c i>( wry.cec«aru.~
h(a>e (oc.l oooo~ Llt IS(Iu( C~CL Slt S ~ S S>s tat .
'o(eee Sec 7>en~ L>( (SS St™~ ~ a
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L>rLNSS>t
conlinuc lo f>c un side to mcct (be cata isgs lest re>p>I(cd to fssuc adt'u
(Ionsl ptcfcntd s(OA.
la October I'N), the company f(CJ wi(h tbe 74or(h Cs>a>line
Vtagi(ICS Commis))sn fI)CVI:7 ssd (l>c Suu(h Cs iul>ns Puldic ScrriccCon«nation f(ICI"A:>s pp(na(h>ns fw su(bu>hy to iacicsac hs per.Dasncn( (C(eil (sacs (0 p>no(dc sn sppiusieiislc 2 I «>sc(case iea rcae
t>ucs f(o>n retail ss)c>. Os January 6, l91$ , ihc ICCVC, by order.g(an(cd tbc cooipsay tiae >(>(urs(t>I snnusi rsie inc>rase r>ius) to sp.
FOI)o«ing (his fuasncisf„p>o foe>os cspi(sli>stum wi(I bc mo>(fuge'eads, $0.7«: pons(ios cosiiol noitt 1.(«sip>c(ct(td nocL, I)
7%'on>mon
ope>ty )LS s,~ Loe>g-(rrm drb(p(ut pee/rnid)>ark «CI n(u>dd) 9%4/nrr piss(
Corrrsgr of/>std rksegr( ssd per/rerrd d>a«(rods rrseo4 s odrq soirfor n>o4(rsssrr of o Ogd eo»sg, ykrrrfser, efr Aorr rotrd (ll(
'tsucofAiogorob(oka«k'>per/reerdstock "BM,"
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" CAROLINA POLYER * LIGHT COMPANY
Oper(ng CumulofAe Prr/crcncc S(ock
O.u Lfstcb I) sa uadciw(iihg syadecs(c headed by hler>iH lynch>Pm>ec, Penner I Sniith ls sch(dul(4 to offct ).N0.000 (hates
~ Cs>olios Po«ut ga IJSht Comp)ay I'rcfrrcncc S(ocb Seiics A, Cmsnub(ire («i(bout psr rsluc)„Thc shoes wall bc ptotcc(cd sgsh>st
lawn-b>(eras( cost tcfundiag uatg April I~ 1910. Tbe>cshcr they >nay
bc rcdcttncd sl thc oas(han of thc comPsny el rations Piiccs. Proceeds
f(om (hfs "acw aionry" c(feting w)ll bc used fo( general co(pots(epanposcs including ".ve >educ(L>n of thon term bo>rowb>gs 4ciarcdp>imsrgy for (hc coi>st>era)on of scar fs ili(ics.These shot( actin borto«fags toislc4 sppiodmstdy Sl)I,(>$7.000 sl Dcccn)bct )I, IN4,~nd arc cspcc(id (o sppiosimmc SI)S.N0,000 s( the (imc o( the ss)e
of (Lese shares.
Con(tree(ion cxprn(BO>es stc pic(en(ly cs(lmsied st 5)4).SN.000for l915 snd SI, l4) 7N.C& (or (he >us>s l975 (hrough l917. Dating1974 (bc company (rdurrd iis phoned l91)- l9 >7 cspcndi(utes by a
~ (otal of spp>osimsicly $ 7$ 'S,N0,000. These trdumions iodudrd thcclimias(loa of fere penta>5(d»cw Seacrs(ing units which would bare
,pioridcd so sdda(4nsl 4290,(>00 Lw of fciic(s(>ng cspstl(y. A(so in.' dudtd wss the difrnsl i I rsrh of ihc f>is( tiara ( f thc four proposed
9NNOhwnucl(st furled,unit>of (hcSbcsion list(is Hu(lcs( I'ower'lsa( bysppioaims(riyonc snJ nnr hs)f>cs>s snd (he (outthunit by
lwoycsis and t!c t n ycsr dcftiisiol thc 720.0>)0 L mal fied I:os.boio No. 4 Vni(. Thc rnmpssy now rstimsias (hst onc ol thc liar>ittbn( unii> willbc com(ee(t 4 rath year Dom IOS I to )9S.(. The rniircproject 4 now's>imstrJ io coi( sppioabns(clg $7.(0>.000.000, o(«(Jch 5$4),74IJ)00 is Lath>d(J in thc I97$ .(N7 runniunioaprogram'a addlh«> thr funds rrrt(f(J Dom tbr ss)r of (lac uc«preferenceslotL nnd thc ss)r in Jsnusry l97$ id cumnaon s(ufL anal fats(
~ mo>(gsgr i«and(, thr taampsny cs>ims(rs ihsl it «itl nrrJ sp-p>nsinas(f)y St)OP(S>,KL) >af (LC funds tra(ui>cd (o( thr (915 rosa(>uc.Ib» p>ones>n f>nn> long >nm >awrrrs. >br cnmpsny penrn(ly (4ans
lo tahe 4 (Le irrosJ >(us>tr> uf INS sp(a>naia«a(f(y 5((>()(WVO(s)~ tL>oufh thr )wig» )sir of fi>at ma> trvcr lwmh. Aal liihwsl sfa)»e>ifs«'ll Ie i)surd Is(rt in I')S, (hc () pe anJ ana>wn( of «L«'h willle air
lnmha(dal ties(thnr.
Thcrnmpsnyh pin(n>lyuns(4r tnia>ur ~ >Lli>kmslpitfrtirals(nrLundn (lie ro>n(sg> (rst 4 its a'hsi((r. 'I(ac iaauo>ifr >af pir(nruceSli>CL, bo«rrrra is not >ul>r(( (n nn rmnmga (ea(. In (Lc rom( (Lr
~ tnmpsay 4llt lo tie(he sa(f.(ustc snd (imtly rs(c (cl>t(, i( nisy
ptosbna(dy SSI 9000(O based on I9744fcl ul L«h sales. On January
IS, IN), lhc SCI'SC issued nn ot Jcr grsntiug the company an spproaiina(C Ik?«Snnilal inCtCSSC ee(u>) (0 Spp>OSI>naacly 59 f>00,000>
bused on tlac l974 Icfclofk«h ss(es Ties oiilcr rte)ui>cd thc icfund 0(approslmstdy SS40 000 li1)rd in l974 >a csccss uf thc a pprorcd ta(c(.
Tbc HCUC be)i>surd sn order buaidng the sppiics(L>n of thc corn.psny's fossil (ud sdjus(meal dsusc for rcsidca(isl cunumers io 75%
of the fossil fud cosis incr>red for a pr>IOJ not tu esrccd CO days spf>i>ca(de la Qls (cade(td on senl sf(cr I>eh(u sty I~ l975. I ice ting) hercbeen schcduicd wi(h re(pen io (hc s pptirs(ion of the fossil (ud adjust.mcn( douse. Ia hiarch IN4, (bc )(orth Cstohna General Assemblyps()cd ~ bgl su(ho>i>ing thc >ICVC to p(tmit u(pi(ics ba rs(c cases (o
'>(Siss a got wsr4 (cst pc>ice(. The company p>esca(ly phot to fife (or
. aa addiyonsl tc(s>l sate incrcssc ia 1915.e
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T>oooo(ot Oe>eeaaee >t~ '()t (rt) ts)) ts)( ts)o
ore>,neo«so>(stat)~ c(ost >(to( >st.li >ssoa >oassC>toe. So>ales(S(CS) )(JS l>SS >an SL)> >)soF>C.CSS>.C> .at )>LS>t>LS«CII I .I ul «UI all I«
~ae .I \ III Ial III lal«E I 'I Iel ul 'o I« IIIASSET PROTP>CTI0'.ll Cs(olios Power Ib Ught «)ll bare a pro
forms esp((s)its(ioo of5)V% long ieim dcb(, l4 4D> prefcncd stoA,2S% prCfttCIICC S)oct Si>d )02uu Cummaa C4ui(y. LOng.tetm 4cbtplus picfcrrcd snd pie(crrncc s(och «)ll e>(ud 70.)eb of nct plant.Thcsc picfeienec shstcs s>c soho>dine(cd in dirfdrnd righ(s tn thcptcfc((cd nock bu( senior to thc company's common sbs>es. (l'hdrnnrrcgrs ros>isurd m drr(4F 4 Ipyi, >hr rompnsy cr (hu( iimrhudno( rrrr(rrd>hrf>JI brrrfns feosi itr rrrrn( (sir Is. rro(r. Coawn rr4 (915 should,brgis to cshibii o n>ndrsr up>fred. Cv>rd on rhislmprorru>rn(, wrhair eo>rd rkfs I>euro/prrf>rrsrr rhorrs "VVV.
CROWN ZELLHIDACIICORPORATION
Ogrying S>'aking Fi>nd Dcj>cn(@yes
0~ n his>eh lg an undcrw>iYmg s>«>L'ea(e lacsdcd hy Lchman
IIio(Leis Iacuipsinir 4 I Js as tun(fee $75,NO (FA> C>n«w pal(nabsdi Co>porn>ion S4Lisg I>urn( Drbcn(u>ts Juc h(arch lb. 2(OS.
These dries(u>cs «i(l atf>iJ pna(fninn srainai La«u> iutcicsi cosltcfunding «sail IN'a. A )4Ling lund ca>san>rnri>an ia (984 «)ll ir(irc$2.2>O,RQ of thi akbcn(sees su>wally. 1'hr ufl'r>inr «Sl le «narc«>ed
lant pin(cnrd ley s n(gn(nr I irJ(:c danae. I'i of mls leon> ihc aa(fr>L>g
«)ll Lc aLI(J tn iLc compsny's grnnsl fun>la anal u vJ (ot «aa>LL>g
ra(dial asd o(larr no>poco>r pu>paar), is>I»Jmg Inip>nermrnl ofeshtisg fsritiYes, purr)mars o( sah(i>L>>as( fa)ulpnarnt asd sn(uiYiaim
of s>L(i(hmsl (iasleibnal«('v(»(sl ta(at«ala(u>rs for INS n»'n(hns(rdn( SI>$ ,0(C(JL)0. hear ls'a seal teer'tsa rua'riufra f w the» sr rnalnll>rccisler )I, (974. «nr >sc (inert snd s.27 (hnri at>pre(nuly.y«»rd e>s tkr i>up>varuers> is ihr In«( s/ f>aed fhsegr reaereugr nrrrihr pse( enrevi )a n, >lr suha>ss>i>d real Ital« us I >hr ms>to>sr'S
Sign>/>run> ps>i>has «i>kh ~ >hr Ilaeni Ia>eoi>s i ~ ludo>>ey. e )'hoar(nerd(hie Ie>ur >II e>slang /usd dries>u>rr f(. I'e>r /ueehrr (silas en>us>
rusrre sing Sir >pres>i esa e/ >br caen>p >sr ple)>ar reason(( ihr low'af(hr Iyard Iur>es>r Is>reise Jv>rd l>r;rs>ler 1, I>IIA
I'(>ge 846 ~ '. i. ' ' ':I)>R(> INC;Ohifi INYf'-%'Oft
Standard 8( Poor(0 CoiI>oration, Thc Pi>(cd Incoync In)ec.".tor March Ri I975> papa .",yv5.
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CAROLIFtA FOIER AND LIOIIE CMPAIIT'QVHVICE OF FIEFD CIIARCEE ADD IREI'ARED DIVIDNDQ
1965 1975
1965 19'969 1971 1972 1973 1974 197S
o>wl interee c?targus
rrefe..ed stool dividends
Total irte:est charges andpreferred stool dividends
g6,654,000 fr6,535,934 4 89,955,263
II 1,606 000 1,606,000 2> 835 > 000 2 > 966> 000 2> 966> 000 4> 699 > 000 8> 371> QQQ 9> 612 > QQQ 13,017,000
I 92487>000 ll>031>000 13>477>000 16>972>000 21>393>000 28>656>000 39>970>000 51>325>000 69>671>QQQ
20,672,000 25,752,000
97>207>934 115>707>263
0 $ 7 GG1 000 8 9,425 000 QO 642>000 +4,006>000 $ 8 427 000 (23 957 QQO $31 599 000 QI 713 000
Total In:erect c?urges ard;recense". stash dividerscn 2 c 't&x teals J 10>720>408 12>214>622 15>470>005 19>442>678 23>288>274 29>713>27S 42>380>848 54>458>512 71>805>788 '7>455>998 IRR>145>263
2"es Interest clerg!s anipreferred divMe.-ksesrred before taxes(1 v I)
4.36x 4.08x 3.44x -3.17x 2,72x 1,83x 1.88 2.24x 1.66x 1.S4x 1
75'!=os
i...crest charges andtref!rred d.'Iidertdsierr!d 'before tax 1 ard excludingall"ucnc« for f tds used during construction(. -::>
4,20 3290 3.26 3 02 1,48 1>54 1.78 1 33 0,98 1229
~ «s ~ ~ «res> c 51fF«s ard-.- ferred div!Rends
(c e i)3.15 2,96 2.65 2.36 2.14 1,70 1 73 l>99 1.76 1.53 1.66
7='!s in erect charges mR
ea...!-! a"ter taxes arA excludirg
tali�
"us=co .or furas used during construction 2.97 2 277 2.19 1.94 1.34 1251 1,21 0.97 1.14
2; .'.". « t C ~tt 2255 P 2 22 22 «2 ttt«222 I 2 2 2«t 22 >t«to I 22 t
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CAROLINA HBER dc LION COMPANYCOMHJIATION OF TIHES FIXED CNAROES AND HEFERRED STOCK DIVIDENDS EA1UlED AFTER INCO!R TAXES
FROH COST RATES FOR CAPITAL AND CAPITAL STRUCTURE RATIOS
Page 83
OostRate
CapitalStructure Ratio Component
Common equity 4,pe
Preferred stock
Debt
B cferrcd and preference stock and debt
Interest free capital
7 072
0,00
14,10
46.39
4.m
1,13
4.VX
0,00
Total capital 9 69X
Fair rate of return on total capital 9.69X,
Times fixed charges and preferred dividends earned after income taxes
Component for conmon e uity lus co nent for debt and referred stockComponen or e an pre erre an re crence s oc
~ Rate of return on total capitalmponen or e an pre erre
~ 9.69 2.06x
pre erence s oc
page 84
CAROLIIGL P66R Ss LIGjE COMPAKfCOVERAGE OF FIXED QSRGES lQG) HKFKRRED DIVIDERS AFXER IlfCRK TAXES DEHRE ClÃSTRUCZIGN CREDITS
1lORTH CAROLINA RETAIL OE%RILTIONSTEST TEAR ENDED JUNE 30, 1976
UhderPresent Rates
UnderPro sed Rates
Net operating income for return $ 99,315,367 $ 131,119,500
Total fixed charges
Preferred stock and preference stock dividends
Total fixed charges and preferred dividends
48, lA5,747
xs a86,264
63,732,031
48i445i747
15,286,284
63,732,031
Times fixed charges and preferred dividends earnedafter income taxes before construction credits E f H 1.56x 2,06x
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COVERAOE OF FIXED CltARGES AfiD PREPARED DZVIDERDSPREFERRED STOCK OH%RINGS BY ELECTRIC UTILITIES
BY RATIHO CATEGORY1975-1976 TO DATE
OF SS ES
Inge 85
Coverage of Fixed Charges and Preferred DividendsAfter Income Taxes and
Excluding Allovance for FundsUsed During Construction
Ratings of "aa" by Hoody's and/or AA by Standard 4 Poor's
Ratings fhintained at "a" by cooly's and A by Standard 4 Poor s
Ratings of "baa" by Moody's and/or 'BBB by Standard 4 Poor's
All Issues
1.93x (SO)
1.56x (35)
1.42x (36)
Issueshhcre Significant Rate Increases
Arc Reflected
S.O9 ( 9)
1.73x (10)
Ratings Considered as "Strong" Ratings of Aa by Hoody'sand/or AA by Standard 4 Poor's 2 llx (10)
Source: Moody's Investors Service, Inci, Hoody's Bond Survey 1975-1976 to datei Standard 4 Poor's Corporation,The Fixed Income Investor> 1975-1 o a e.
.CAROLIlUL HSER & LIQiT COMPANYFAIR RATE OF MXURN ON BOOK VALUE OF COMMON UITX
Page 86
On Basis of
Standard of Commensurate Return
Study of thc Fair Rate of Return on Common EquityAllowed Electric Utiliticsby State Regulatory Commissions and by the Federal Power Ccmmissionin Rate Proceedings 1975-1976
Study of Actual Earnings Experience on Cosmon Equityof'perating Electric Utilities in Fair Value Jurisdictions Used as Comparison Companies1971-1975
Consideration of the VaJor Upswing in Rate of Return on Comnon EquityWhich Nas Been Experienced by Unregulated Enterprises in the American Economy1974-1976
Standards of lhintcnancc of Credit and Support of Financial Integrityan rac on o Cap a on Fa an casona e Terms
Market price of comnon stock in relation to book value and common stock offerings,1972-1975, 1976 to date
First mortgage bond offerings of electric utilities with fixed charge ratios to support A rating,1975-1976 to date
Preferred stock offerings of electric utilities with fixed charge and preferred stock dividend coverageratios to support "a" and A rating,1975-1976 to date.
Carolina Power & Light Company
Fair Rate of Return on Book Value of Common E uity 14.25$ at Common Equity Ratio of 34.96$ »
Excludes allowance for funds used during construction
«Conaon equity ratio of 35.81 percent, excluding deferred Job development investment tax credit and interest free capital.
CAROLINA PCMER 5 LIGHr COMNNYFAIR RATE OF RETURN ON NORTH CAROLrrQL RETAIL OPERATIONS ORIGDiAL COST RATE BASE
vslrhS IHBEDDED COST OF LONG-TERN DEBT Arm INFERRED STOCKON JUlK 30 1976 PR0 FGRHIL sArz 0F cobra 8TocK IN oczOBER 1976
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CostRate
CapitalStructure Ratio
WeightedComponent
Long-Term Debt(page ll) 7 72'6.3g 3.58$
Preferred and Preference Stock(page 13)
8.01 14,10 1,13
Common Equity(r g«) 14 25+ 34.96 4.98
Interest Ace Capital 0,00 4.55 0,00
Total Capitalization 100,00@
9.69'air
Rate of Return on North Carolina Retail OperationsOriginal Cost Rate Base 9.69X
«Excludes allowance for funds used during construction
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CAROLIlllL P%jZR 5 LIG1E CRINNXIEGREE OF FAIR VAIIJE OF CORK6 EQUITY
anZ 30, 1976
Total Conan Equity at Book Value inNorth Carolina Retail Original Cost Rate Base 4 472~897i 137
Total Coarsen Equity at Fair Value inNorth Carolina Retail Fair Value Rate Base g 673,996,996
Total Common Equity at Fair Value inNorth Carolina Retail Fair Value Rate Baseas Percent of Total Con+on Equity at Book Value inNorth Carolina Retail Original Cost Rate Base
@73~996~996finis KpP37 [email protected]$
Sourcet Rule Rl-17, Item (b) (9), pages 2 ant.5.
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CAROLINA PQ6R 5 LICIT COHPANY
FAIR RATE OF REIURN ON COHN)N 8@ITS AT FAIR VALlE 142.52 PERCENT OF BOOK VAIIJE
Carolina Power 8 Light Company
Fair Rate of Return'on Fair Value Comon uity
at Iuir Value 142.52 Percent of Book Value
10.00) at fair value common equity ratioof 43,36$
Excludes allowance for fundsused during construction
Note.- 14,[email protected] 10.~
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RATE OF REXURN ON CO%ON EQUITY AT FAIR VALUE 142 ~ 52 PERCK2PZ OF BOOK VALUE PROM OPERATIONS
ADJUSTED TO 43,38 PERCBIT FAIR VALUE COY1%N EQUITY RATIOOPERATIIQ ELECZRIC Ul'ILlTIES IN FAIR VALUE JURISDICTIONS
USED AS COHNRISON COMPANIES IN TEST OF COMMENSURATE RETURN
1971-1975
1971 1972 1973 1974 1975
crating Electric Utilities in Fair Value Jurisdictions Other Than Texas
Rate of return on coinnon equity at fair valuead)usted to 43.38 percent comnon equity ratio 9,8Q 10.2+ 10,22$ 9,96$ 9.67/
Allowance for funds used during constructionas percent of net income for common 15.60 20.16 20,78 19,89 19 98
crating Electric UW.lities in Texas
Rate of return on common equity at fair valuead)usted to 43.38 percent common equity ratio 11.49$ 13,45$ 11,14$ 11.18$ H. ~ 54/
Allowance for funds used during constructionas percent of net income for common 7il5 9,40 12,52 11~.58
Operating Electric Utilities in All Fair Value Jurisdictions
Rate of return on common equity fair valuead)usted to 43.38 percent common equity ratio 10,43$ 10,74$ 10 6Q 10.6+ 10.37$
Allowance for funds used during constructionas percent of net income for common 14,50 15,09 15,20 17 99
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CAROLlllA PNKR Ec LIOtlF CRE%HYHORTH CAROLIHA FAIR VAIIE )ET IlPESTlEHT AllD FAIR VALUE CAPITAL STRUCTURE RATIOS
JUhE 30, lg76 PRO H)RYA SALE OF CQSDH STOCK IH OCTOBER 1976
Fair ValueHct Investment
CapitalStructure Ratios
Long-Term Debt 627,535,584 4O.39$
PrcferreC en4 Preference Stock 19O,768,545 12.28
Conzaon Equity 673,996i996 43.38
Interest Ree Capital 61i479,333 3.95
$1,553,78O,458
Sources Rule R1-17, Item (b) (9), page 2.
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CAHOLIM POfiER 5 LIGlff COMPANY
FAIR RATE OF REXUlml ON NORTlf CAROLIIfA RETAIL OPEHATIOIJS FAIR VALUE HATE HASEUSIllG IMBEDDED COST OF LONG-TEH!l DFPZ AND PREFERRED STOCK
JUliE 30, 1976 PRO FORMA SALE OF C(RhlON STOCK IN OCTOBER 1976
Page 92
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CostRate
CapitalStructure Ratio
ee
'fleightcdComponent
Inng-Term Debt(page ll) 7.n4 40.36
Preferred an'd Preference Stock(page 13)
8 01 u.H8 0.90
Comas Equity(page 89)
l0~00 43.38 4.34
Interest Free Capital 0,00 3.95 0.00
Total Capitalisation 100,00$ 8.44$
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CAROLIIIA HNER 5 LICIT COlQIUlYFAIR RATE OF RETURN ON NORTH CNOLXllA RETAIL OPERATIOllS FAIR VALUE RATE BASE
JUNE 30 1976 PRO FORYA SALE OF COlRSN STOCK IN OCTOBER 1976
Carolina Iver 5 Light Covyany
Fair 'Rate of Return on North Carolina Retail Ouerations Fair Value Rate Base
June 30, 1976 Ro Fora Sale of Coamen Stock in October 1976
8.44$
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