FUS-1315*;M-0099XXXX.O; QUARTERLY EARNINGS REPORT



PENNSYLVANIA PUBLIC UTILITY COMMISSIONPublic Meeting held May 23, 2019 Docket Number: M-2019-3009815BUREAU OF TECHNICAL UTILITY SERVICESREPORT ON THE QUARTERLY EARNINGSOF JURISDICTIONAL UTILITIESFOR THE YEAR ENDEDDecember 31, 2018Gladys Brown Dutrieuille, ChairmanDavid W. Sweet, Vice ChairmanNorman J. Kennard, CommissionerAndrew G. Place, Commissioner, Statement DissentingJohn F. Coleman, Jr., CommissionerTABLE OF CONTENTS Page No.Introduction..................................................................................................... 4* UGI Utilities, Inc. - Electric Division, SUEZ Water, Aqua Pennsylvania, Superior Water Company, Peoples Natural Gas Company, Peoples Nat’l – Equitable, UGI Utilities, Inc. – South, UGI Utilities, Inc. – North, UGI Utilities, Inc. – Central, and Newtown Artesian Water Co. have rate filings at Docket Nos. R20172640058, R-2018-3000834, R20183003558, R20183003561, R20183006818, R20183006818, R20183006814, R20183006814, R20183006814, and R-2019-3006904 respectively, and filed a letter with the Secretary in place of a report in accordance with 52?Pa.?Code §?71.4. Attachment A – Summary of Equity Returns……………………………… 5 Attachment B – Summary of Returns12This chart depicts the overall and equity returns (actual and adjusted) for the filing utilities for the current quarter. The last authorized equity return and the year authorized is also shown.Attachment C – Allowed Rates of Return on Common Equity14This is a historical chart that shows the most recent fully litigated rate cases for select companies in electric, gas, and water. A docket number followed by their final return on equity and year is also given. Attachment D – Distribution System Improvement Charge Return on Equity15Compares utility adjusted return on equity to Commission authorized return on equity for utilities with a Distribution System Improvement Charge. Attachment E – Explanation of Return on Equity Methods16Criteria for determining the industry barometer groups used in ROE calculations. Also, provides details of the Discounted Cash Flow equation and Capital Asset Pricing Model equation.Attachment F – Market Based Returns on Equity – Electric18The market indicated common equity cost rate range consists of data used from the electric barometer groups and is based on a series of calculations to average the DCF methods. Also, indicates Distribution System Improvement Charge Return.Attachment F – Historic DCF and CAPM – Electric19Historic barometer group DCF and CAPM average ROEs.Attachment F – Electric Barometer Group Calculation of a Current and 52 Week Average Dividend Yield20-21Electric barometer companies are used to calculate a current DCF in the first chart. The second chart demonstrates the companies 52 week average DCF. A final average of the two calculations is also shown at the bottom.Attachment F – Development of a Representative Dividend Growth Rate…………………………………………………...22Multiple sources of the gas barometer companies projected 5 year Earnings Per Share are used to calculate the Group Average Dividend Growth Estimate.Attachment G – Market Based Returns on Equity – Gas23The market indicated common equity cost rate range consists of data used from the gas barometer groups and is based on a series of calculations to average the DCF methods. Also, indicates Distribution System Improvement Charge Return.Attachment G – Historic DCF and CAPM – Gas24Historic barometer group DCF and CAPM average ROEs, including a linear trend line graph.Attachment G – Gas Barometer Group Calculation of a Current and 52 Week Average Dividend Yield25Gas barometer companies are used to calculate a current DCF in the first chart. The second chart demonstrates the companies 52 week average DCF. A final average of the two calculations is also shown at the bottom.Attachment G – Development of a Representative Dividend Growth Rate…………………………………………………...26Multiple sources of the gas barometer companies projected 5 year Earnings Per Share are used to calculate the Group Average Dividend Growth Estimate.Attachment H – Market Based Returns on Equity – Water27The market indicated common equity cost rate range consists of data used from the water barometer groups and is based on a series of calculations to average the DCF methods. Also, indicates Distribution System Improvement Charge Return.Attachment H – Historic DCF and CAPM – Water28Historic barometer group DCF and CAPM average ROEs, including a linear trend line graph.Attachment H – Water Barometer Group Calculation of a Current and 52 Week Average Dividend Yield29Water barometer companies are used to calculate a current DCF in the first chart. The second chart demonstrates the companies 52 week average DCF. A final average of the two calculations is also shown at the bottom.Attachment H – Development of a Representative Dividend Growth Rate…………………………………………………...30Multiple sources of the water barometer companies projected 5 year Earnings Per Share are used to calculate the Group Average Dividend Growth Estimate.Introduction:On September?20,?1991, the Commission initiated a rulemaking at L-00910061 pertaining to earnings disclosures by the public utilities subject to its jurisdiction. At that docket, the Commission stated that the submission of accurate, reliable and complete earnings disclosure reports, at regular intervals, is essential to the fulfillment of the broad regulatory oversight responsibilities entrusted to the Commission by the Legislature in the Public Utility Code. The earnings disclosure regulations promulgated by the Commission were adopted October?1,?1992, and published January?23,?1993, at 23 Pa.B. 463. Based upon those regulations, codified at 52 Pa. Code, Chapter 71, a reporting format was developed and distributed to the jurisdictional fixed utilities of Pennsylvania.All fixed utilities having jurisdictional revenues of $1,000,000 or more, for a calendar year, are required to file the report by March 31 of each year. Such reports are to be based upon the results of operations for the 12-month period ending December 31 of the prior year. Utilities having more than $10,000,000 in jurisdictional revenues are also required to file reports for the 12 months ending on March 31, June 30, and September 30 of each year. On November?30,?2004, however, the Pennsylvania General Assembly signed into law Act 183 concerning alternative telecommunications regulation and broadband deployment. As a result of Act 183, the reporting requirements for the PUC jurisdictional telecommunications companies of Pennsylvania have been streamlined at section 3015(e) of the Public Utility Code. A quarterly earnings report is not listed among those reports now required of PUC jurisdictional telecommunications utilities in Pennsylvania and, therefore, this report does not address telephone company earnings. The reports have been filed for the period ended December 31, 2018. The Finance Staff of the Bureau of Technical Utility Services has reviewed the reports and has prepared this summary report for public release. This report sets forth the achieved return on equity for each company, the last allowed return for that utility, a market return as determined through the analysis of the barometer group data and the most recent returns allowed, per industry, by the Pennsylvania Public Utility Commission and by other regulatory bodies. Where a utility has not filed a report, the reasons for not filing are indicated.Questions pertaining to the preparation and contents of this Report should be directed to Ms. Erin Laudenslager, Manager - Finance, Bureau of Technical Utility Services, at (717) 705-4364.The equity return summaries that follow in Attachment A are, for each quarter;ACTUALBased on actual results of operationsandADJUSTED2. Based on company proposed pro forma and ratemaking adjustmentsELECTRIC UTILITIESEQUITY RETURNS BY QUARTERQTRENDPECOPPLDuqW PennPaPwrUGIPenelecMetEdACTADJACTADJACTADJACTADJACTADJACTADJACTADJACTADJ2013111.9211.277.566.2410.129.749.239.238.898.7412.779.845.307.675.016.47211.4010.747.807.3712.3412.348.858.7011.5310.495.868.215.366.79311.0910.968.678.389.139.138.498.3410.7410.65-0.772.07-12.43-10.43411.9710.5210.019.7913.7313.7314.4914.3014.2511.994.852.99-6.06-7.87201419.9710.3410.0210.0411.589.4515.2815.0413.3610.255.173.34-6.40-8.13210.0510.089.5010.099.779.2912.649.2138.939.2510.079.999.979.488.769.2248.239.589.779.409.0110.002015110.089.6510.8810.3929.809.4213.579.49310.119.736.456.455.775.7715.937.572.942.943.693.69410.748.848.898.489.739.368.098.095.135.139.749.215.455.457.047.042016110.869.747.756.949.879.8910.418.69211.4610.159.158.519.579.478.298.10313.4211.4410.159.5910.129.4619.186.99412.5210.6510.4510.299.719.0126.077.302017113.0111.409.768.499.538.9922.866.81212.9811.4010.719.709.869.248.237.387.327.9721.966.749.239.209.749.35312.8410.5210.159.309.539.237.637.248.329.0816.135.229.619.5011.3710.97412.079.1111.0710.639.479.128.468.1911.7010.9312.5811.672018112.5311.3610.359.089.038.0811.849.9312.7711.38211.059.499.928.528.797.5711.569.3911.9010.26311.199.8311.416.7410.305.8013.978.4414.469.62410.887.6111.1010.1512.069.399.926.7810.647.4313.279.3113.057.40centercenter00 GAS UTILITIESEQUITY RETURNS BY QUARTERQTRColumbiaPeoples NaturalPECOUGISouthPeoples-EquitableNFGUGINorthPeoples Gas ENDACTADJACTADJACTADJACTADJACTADJACTADJACTADJACTADJ2013112.499.8914.6315.1314.6510.2712.428.4019.3310.2513.2810.58210.857.1516.598.3514.4314.4013.0210.2110.408.9220.1810.2510.9810.2739.369.8617.398.7214.1414.0112.609.389.849.4819.6110.7210.5910.76410.6010.7816.3310.0214.3513.9716.089.2010.529.7620.5110.0713.4110.497.2112.232014114.689.9415.2313.5216.818.3512.008.7323.119.7816.6710.0612.1911.87213.059.7815.3213.2416.718.3913.548.4922.9712.0015.3010.9014.0612.32313.439.1615.4513.2116.638.6414.419.1521.3611.0313.7710.1515.0712.6249.719.9711.857.8913.8612.5915.007.9314.5212.4620.4010.7915.649.8216.9111.832015114.227.9014.6013.0115.767.8715.3612.1420.1710.3115.579.5216.3611.23214.378.8813.8912.3214.077.6214.0811.2618.8210.3913.768.9016.1512.90313.558.1413.2911.7715.676.5111.3010.8716.4110.2713.168.3215.6912.5849.759.738.809.8312.5012.7010.6010.0015.0110.599.177.2512.7112.14201617.0110.0210.7313.588.9810.2012.6010.977.858.858.5410.4826.249.9911.5513.858.2910.4012.3111.089.418.379.2010.4336.939.3412.0914.4013.0510.8213.0010.346.478.819.0712.0248.909.2610.1111.0311.3912.3716.4211.0714.189.5812.4711.872017110.5210.179.969.2711.4512.5521.0810.0915.8510.5812.849.2611.8212.3429.159.819.419.7110.8712.1719.169.4415.6610.3013.3310.5311.8913.4738.158.776.696.4011.2610.9213.349.0312.599.8510.9210.0012.0413.3647.768.489.667.2711.489.8311.068.6211.289.2311.5810.5612.6511.792018111.427.0012.659.7712.827.9012.688.2214.4010.2016.957.8314.0210.17211.036.8012.669.0516.756.8011.819.5712.069.8917.688.0212.7810.15310.217.4312.548.3618.698.0410.999.4412.5210.1220.609.1613.0310.20411.399.8112.868.6812.2410.2113.9211.13centercenter00WATER UTILITIESEQUITY RETURNS BY QUARTERQTRPAWCAQUASUEZYorkSuperiorENDACTADJACTADJACTADJACTADJACTADJ2013113.2411.968.538.71214.2612.528.999.158.577.85315.4912.218.839.017.466.85413.7711.978.439.0510.210.810.7110.012014110.529.9813.2911.568.459.0210.210.213.129.97210.5110.0213.0111.428.819.3210.710.717.099.61311.1110.5712.8211.298.579.0610.910.934.689.88410.499.3812.6211.498.909.4412.311.616.747.962015110.339.1412.4611.119.119.8312.712.715.928.37210.519.3112.6611.628.369.2512.712.714.658.93310.068.8112.4111.958.399.3713.613.612.549.3749.808.4812.6112.168.548.7712.5011.1012.739.502016110.128.6812.3111.719.2710.1912.4010.9011.918.1729.998.4711.7111.2111.0012.3712.2010.8012.077.9039.828.4711.5510.328.239.9912.2011.0014.997.2549.378.5111.7010.579.139.9011.5010.408.245.042017111.3410.049.229.6011.619.5010.299.13210.999.229.039.0711.609.1010.748.61310.999.238.578.5711.608.708.828.25411.058.638.758.7311.308.408.568.69201819.558.9710.948.415.647.39210.279.65311.039.48410.089.0310.7010.30 centercenter00Attachment B includes:A. Overall Returns on rate base1. Actual2. Company proposed pro forma and ratemaking adjustmentsandB. Equity Returns1. Actual2. Company proposed pro forma and ratemaking adjustmentsSummary of ReturnsFor the Year Ended December 31, 2018?OVERALL RETURNEQUITY RETURNROEYEARCOMPANY NAMEACTUALADJ ACTUALADJAUTHAUTHELECTRIC??$10,000,000 RevenuesPECO Energy - Electric Operations 7.755.8810.887.61Settled2018PPL Electric Utilities Corp.8.127.6011.1010.15Settled2015Duquesne Light Company8.607.1312.069.39Settled2018West Penn Power Company7.275.519.926.78Settled2017Pennsylvania Power Company 7.996.3310.647.43Settled2017UGI Utilities, Inc. - Electric Division* 9.852018Pennsylvania Electric Company 9.487.2913.279.31Settled2017Metropolitan Edison Company 9.456.3613.057.40Settled2017$1,000,000 to $10,000,000RevenuesCitizens Electric Company7.097.097.677.67Settled2014Pike County Light & Power Co.6.484.959.076.27Settled2014Wellsboro Electric Company7.537.5316.0416.04Settled2014GAS$10,000,000 RevenuesColumbia Gas of PA, Inc.8.367.5611.399.81Settled2018Peoples Natural Gas Company LLC*Settled2012PECO Energy - Gas Operations8.736.3612.868.68Settled2010UGI Utilities, Inc. – South*Settled2016Peoples Nat’l - Equitable Division*Settled2008National Fuel Gas Distribution Co.8.377.2612.2410.21Settled2006UGI Utilities, Inc. – North*Settled2017Peoples Gas Company, LLC9.427.8913.9211.13Settled2013UGI Utilities, Inc. – Central*Settled2009$1,000,000 to $10,000,000RevenuesNorth East Heat & Light Co.15.8915.8916.3816.4011.002008Valley Energy11.7111.7116.6916.69Settled2007Pike County Light & Power Co.11.359.5820.2316.45Settled2014WATER $10,000,000 RevenuesPA American Water Company7.737.1510.089.03Settled2018Aqua Pennsylvania*Settled2012York Water Company8.908.6010.7010.30Settled2019SUEZ Water Pennsylvania, Inc.*Settled2018$1,000,000 to $10,000,000RevenuesSuperior Water Company, Inc.*Settled2011Newtown Artesian Water Co.*Settled2011Columbia Water Company7.127.128.578.57Settled2015* UGI Utilities, Inc. - Electric Division, SUEZ Water, Aqua Pennsylvania, Superior Water Company, Peoples Natural Gas Company, Peoples Nat’l – Equitable, UGI Utilities, Inc. – South, UGI Utilities, Inc. – North, UGI Utilities, Inc. – Central, and Newtown Artesian Water Co. have rate filings at Docket Nos. R20172640058, R-2018-3000834, R20183003558, R20183003561, R20183006818, R20183006818, R20183006814, R20183006814, R20183006814, and R20193006904 respectively, and filed a letter with the Secretary in place of a report in accordance with 52?Pa.?Code §?71.4.ALLOWED RATES OF RETURN ON COMMON EQUITY This is a historical chart that shows the most recent fully litigated rate cases for select companies in electric, gas, and water. A docket number followed by their final return on equity and year is also given. ELECTRICDocket NumberROE (%)Year Recent PA PUC AllowedDuquesne Light CompanyR20183000124Settled2018PECO Energy CompanyR-2018-3000164Settled2018UGI - ElectricR201726400589.852018Pennsylvania Electric CompanyR-2016-2537352Settled2017Metropolitan Edison CompanyR-2016-2537349Settled2017Pennsylvania Power CompanyR-2016-2537359Settled2017West Penn Power CompanyR-2016-2537355Settled2017 Current Market Indicated ROE as calculated by the 7.56-9.56Bureau of Technical Utility Services.GASRecent PA PUC AllowedColumbia Gas of Pa.R-2018-2647577Settled2018UGI Utilities, Inc. - SouthR?2015?2518438Settled2016Peoples Natural GasR-2012-2285985 Settled2012UGI Utilities, Inc. - NorthR20162580030 Settled2017UGI Utilities, Inc. - CentralR-2008-2079675Settled2009PECO EnergyR-2010-2161592 Settled 2010Peoples TWPR-2013-2355886Settled2013Current Market Indicated ROE as calculated by the 7.39-9.26 Bureau of Technical Utility Services.WATERRecent PA PUC AllowedAqua Pennsylvania R-2011-2267958Settled2012PA American Water R20172595853Settled2017Columbia Water R-2017-2598203Settled2015York Water R20183000019Settled2019SUEZ Water R-2018-3000834Settled2018 Current Market Indicated ROE as calculated by the 8.14-10.25Bureau of Technical Utility Services.Distribution System Improvement Charge (DSIC) Eligible UtilitiesReturn on Equity (ROE) SummaryUtility AdjustedROE (%)Commission Approved ROE (%)ELECTRICPECO Energy – Electric Operations7.619.65PPL Electric Utilities Corp.10.159.65Duquesne Light Company9.399.65West Penn Power Company6.789.65Pennsylvania Power Company7.439.65Pennsylvania Electric Company9.319.65Metropolitan Edison Company7.409.65GASColumbia Gas of PA, Inc.9.8110.10Peoples Natural Gas Company LLC*10.10PECO Energy – Gas Operations8.6810.10UGI Utilities, Inc. – South*10.10Peoples-Equitable Division*10.10UGI Utilities, Inc. – North*10.10Peoples Gas Company, LLC11.1310.10UGI Utilities, Inc. – Central*10.10WATER PA American Water Company9.039.95PA American – Wastewater9.039.95AQUA Pennsylvania*9.95AQUA Pennsylvania – Wastewater*9.95York Water Company10.309.95SUEZ Water Pennsylvania Inc.*9.95Columbia Water Company8.579.95Newtown Artesian Water*9.95Superior Water*9.95* UGI Utilities, Inc. - Electric Division, SUEZ Water, Aqua Pennsylvania, Superior Water Company, Peoples Natural Gas Company, Peoples Nat’l – Equitable, UGI Utilities, Inc. – South, UGI Utilities, Inc. – North, UGI Utilities, Inc. – Central, and Newtown Artesian Water Co. have rate filings at Docket Nos. R20172640058, R-2018-3000834, R20183003558, R20183003561, R20183006818, R20183006818, R20183006814, R20183006814, R20183006814, and R20193006904 respectively, and filed a letter with the Secretary in place of a report in accordance with 52?Pa.?Code §?71.4.Explanation of Discounted Cash Flow (DCF) and Capital Asset Pricing Model (CAPM) Barometer Group CriteriaThe criteria used for determining the industry barometer groups used to calculate ROEs in this report are as follows:50% or more of the company’s assets must be related to the jurisdictional utility industry;The company’s stock must be publicly traded;Companies involved in merger & acquisition activity will be excluded;Investment information for the company must be available to the Commission from more than one source; andGeographic Regions:EDCs: Value Line East, Central, and West Group Electric Utility companies;NGDCs: Value Line Investment Survey’s Natural Gas Utility industry group companies;Water/Waste water: Value Line Investment Survey’s Water Utility industry group companies.The barometer group companies are reviewed by staff on a quarterly basis and make any changes to these companies based upon the criteria above. ROE Calculations The Commission consistently uses the DCF model to determine the appropriate cost of equity for utilities. In this report, the DSIC ROE is calculated using two DCF models. TUS uses the following formula to calculate the current dividend DCF: K = D1/P0 + G TUS uses the following formula to calculate the 52-week average dividend DCF: K = D0/Pa + GDefinitions:K= Cost of equityD1= Dividend expected during the year =D0 + ?gD0= Latest indicated dividend, obtained from Yahoo! Financeg=Expected 5-year dividend growth rate of barometer groupobtained from Value Line Investment Survey.P0= Current price of the stock, obtained from Yahoo! FinancePa=Average of high and low stock price over the latest 52-week period, obtained from Yahoo! FinanceG=Average of 5-year expected earnings growth rate forecasts obtained from Value Line Investment Survey, Zacks Investment Survey, Yahoo! Finance, Morningstar and/or Reuters.The CAPM uses the yield of a risk-free interest bearing obligation plus a rate of return premium that is proportional to the systematic risk of an investment. TUS uses the following formula to calculate CAPM: K = β(Rm-Rf)Three components are necessary to calculate the CAPM cost of equity: β = Beta, a measure of systematic risk for each stockRf= The risk-free rate of return, 10-year U.S. Treasury yields are used for Rf . Yields are taken from the previous two quarters and forecasted next four quarters. Rm=Total return of the equity market as determined by the SBBI Yearbook The Commission determines the ROE used for DSIC purposes based on the range of reasonableness from the DCF barometer group data, CAPM data, recent ROEs adjudicated by the Commission, and informed judgment.The market indicated common equity cost rate range consists of data used from the barometer groups and is based on a series of calculations to average the DCF methods.Historic Electric Industry Barometer Group DCF and CAPM Average ROEsChart of Historic Electric Industry DCF and CAPM Average ROEsBarometer electric companies are used to calculate a current DCF in the first chart. The second chart demonstrates the companies 52 week average DCF. A final average of the two calculations is also shown at the bottom.Multiple sources of the Barometer companies projected 5 year Earnings Per Share are used to calculate the Group Average Dividend Growth Estimate.The market indicated common equity cost rate range consists of data used from the barometer groups and is based on a series of calculations to average the DCF methods. Historic Gas Industry DCF and CAPM Average ROEsGraph of Historic Gas Industry DCF and CAPM Average ROEs Barometer gas companies are used to calculate a current DCF in the first chart. The second chart demonstrates the companies 52 week average DCF. A final average of the two calculations is also shown at the bottom.Multiple sources of the Barometer companies projected 5 year Earnings Per Share are used to calculate the Group Average Dividend Growth Estimate.The market indicated common equity cost rate range consists of data used from the barometer groups and is based on a series of calculations to average the DCF methods.Historic Water Industry DCF and CAPM Average ROEsChart of Historic Water Industry DCF and CAPM Average ROEsBarometer water companies are used to calculate a current DCF in the first chart. The second chart demonstrates the companies 52 week average DCF. A final average of the two calculations is also shown at the bottom.Multiple sources of the Barometer companies projected 5 year Earnings Per Share are used to calculate the Group Average Dividend Growth Estimate. ................
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