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



PENNSYLVANIA PUBLIC UTILITY COMMISSIONPublic Meeting held January 18, 2018 Docket Number: M-2018-2641241BUREAU OF TECHNICAL UTILITY SERVICESREPORT ON THE QUARTERLY EARNINGSOF JURISDICTIONAL UTILITIESFOR THE YEAR ENDEDSeptember 30, 2017Gladys M. Brown, ChairmanAndrew G. Place, Vice Chairman, Statement, dissentingNorman J. Kennard, CommissionerDavid W. Sweet, CommissionerJohn F. Coleman, Jr., CommissionerTABLE OF CONTENTS Page No.Introduction..................................................................................................... 4* UGI Penn Natural Gas, Inc., and Pennsylvania American Water Company have pending rate filings at Docket Nos. R20162580030, and R20172595853, 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, including a linear trend line graph.Attachment F – Electric Barometer Group Calculation of a Current and 52 Week Average Dividend Yield20Electric 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…………………………………………………...21Multiple 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 – Gas22The 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 – Gas23Historic 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 Yield24Gas 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…………………………………………………...25Multiple 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 – Water26The 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 – Water27Historic 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 Yield28Water 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…………………………………………………...29Multiple 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 September 30, 2017. 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 PennPaPwrUGIPenelecMetEdACTADJACTADJACTADJACTADJACTADJACTADJACTADJACTADJ2011413.4111.3810.219.9713.3311.585.917.6014.609.796.458.434.245.232012112.8911.2610.9510.7111.6613.165.787.0215.048.425.767.543.904.64212.6312.0110.8110.4210.619.158.958.9514.618.536.488.083.444.01313.1412.6610.339.9210.6310.459.699.5415.859.487.348.585.726.28411.5511.566.024.8810.279.249.549.548.418.2714.608.985.417.745.396.812013111.9211.277.566.2410.129.749.239.238.898.7412.779.845.307.675.016.47211.4010.747.807.3712.3412.348.858.7011.5310.495.868.215.366.79311.0910.968.678.389.139.138.498.3410.7410.65-0.772.07-12.43-10.43411.9710.5210.019.7913.7313.7314.4914.3014.2511.994.852.99-6.06-7.87201419.9710.3410.0210.0411.589.4515.2815.0413.3610.255.173.34-6.40-8.13210.0510.089.5010.099.779.2912.649.2138.939.2510.079.999.979.488.769.2248.239.589.779.409.0110.002015110.089.6510.8810.3929.809.4213.579.49310.119.736.456.455.775.7715.937.572.942.943.693.69410.748.848.898.489.739.368.098.095.135.139.749.215.455.457.047.042016110.869.747.756.949.879.8910.418.69211.4610.159.158.519.579.478.298.10313.4211.4410.159.5910.129.4619.186.99412.5210.6510.4510.299.719.0126.077.302017113.0111.409.768.499.538.9922.866.81212.9811.4010.719.709.869.248.237.387.327.9721.966.749.239.209.749.35312.8410.5210.159.309.539.237.637.248.329.0816.135.229.619.5011.3710.97centercenter00 GAS UTILITIESEQUITY RETURNS BY QUARTERQTRColumbiaPeoples NaturalPECOUGIPeoples-EquitableNFGUGI PennPeoples Gas ENDACTADJACTADJACTADJACTADJACTADJACTADJACTADJACTADJ2011411.6912.0616.559.187.998.8919.6212.3414.019.356.755.56201218.6511.248.9812.0915.718.952.298.0515.7610.5113.229.635.243.3929.0010.178.7212.0313.609.905.517.5114.1010.0613.6310.404.576.4339.278.886.219.359.9813.4813.7910.055.847.7913.8810.3913.1610.667.027.41411.249.5712.4215.1013.689.447.278.0515.1110.1713.3110.635.056.942013112.499.8914.6315.1314.6510.2712.428.4019.3310.2513.2810.58210.857.1516.598.3514.4314.4013.0210.2110.408.9220.1810.2510.9810.2739.369.8617.398.7214.1414.0112.609.389.849.4819.6110.7210.5910.76410.6010.7816.3310.0214.3513.9716.089.2010.529.7620.5110.0713.4110.497.2112.232014114.689.9415.2313.5216.818.3512.008.7323.119.7816.6710.0612.1911.87213.059.7815.3213.2416.718.3913.548.4922.9712.0015.3010.9014.0612.32313.439.1615.4513.2116.638.6414.419.1521.3611.0313.7710.1515.0712.6249.719.9711.857.8913.8612.5915.007.9314.5212.4620.4010.7915.649.8216.9111.832015114.227.9014.6013.0115.767.8715.3612.1420.1710.3115.579.5216.3611.23214.378.8813.8912.3214.077.6214.0811.2618.8210.3913.768.9016.1512.90313.558.1413.2911.7715.676.5111.3010.8716.4110.2713.168.3215.6912.5849.759.738.809.8312.5012.7010.6010.0015.0110.599.177.2512.7112.14201617.0110.0210.7313.588.9810.2012.6010.977.858.858.5410.4826.249.9911.5513.858.2910.4012.3111.089.418.379.2010.4336.939.3412.0914.4013.0510.8213.0010.346.478.819.0712.0248.909.2610.1111.0311.3912.3716.4211.0714.189.5812.4711.872017110.5210.179.969.2711.4512.5521.0810.0915.8510.5812.849.2611.8212.3429.159.819.419.7110.8712.1719.169.4415.6610.3013.3310.5311.8913.4738.158.776.696.4011.2610.9213.349.0312.599.8510.9210.0012.0413.36centercenter00WATER UTILITIESEQUITY RETURNS BY QUARTERQTRPAWCAQUASUEZYorkSuperiorENDACTADJACTADJACTADJACTADJACTADJ201147.698.0010.810.0201218.988.987.387.8410.79.529.069.067.307.6510.49.439.179.179.507.777.968.3810.59.149.549.0412.4112.568.338.4910.49.12013113.2411.968.538.71214.2612.528.999.158.577.85315.4912.218.839.017.466.85413.7711.978.439.0510.210.810.7110.012014110.529.9813.2911.568.459.0210.210.213.129.97210.5110.0213.0111.428.819.3210.710.717.099.61311.1110.5712.8211.298.579.0610.910.934.689.88410.499.3812.6211.498.909.4412.311.616.747.962015110.339.1412.4611.119.119.8312.712.715.928.37210.519.3112.6611.628.369.2512.712.714.658.93310.068.8112.4111.958.399.3713.613.612.549.3749.808.4812.6112.168.548.7712.5011.1012.739.502016110.128.6812.3111.719.2710.1912.4010.9011.918.1729.998.4711.7111.2111.0012.3712.2010.8012.077.9039.828.4711.5510.328.239.9912.2011.0014.997.2549.378.5111.7010.579.139.9011.5010.408.245.042017111.3410.049.229.6011.619.5010.299.13210.999.229.039.0711.609.1010.748.61310.999.238.578.5711.608.708.828.25 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 September 30, 2017?OVERALL RETURNEQUITY RETURNROEYEARCOMPANY NAMEACTUALADJ ACTUALADJAUTHAUTHELECTRIC??$10,000,000 RevenuesPECO Energy - Electric Operations 8.887.5612.8410.52Settled2015PPL Electric Utilities Corp.7.627.1610.159.30Settled2015Duquesne Light Company7.407.199.539.23Settled2014West Penn Power Company6.246.047.637.24Settled2017Pennsylvania Power Company 7.127.548.329.08Settled2017UGI Utilities, Inc. - Electric Division 10.614.9416.135.22Settled1996Pennsylvania Electric Company 7.447.379.619.50Settled2017Metropolitan Edison Company 8.428.2111.3710.97Settled2017GAS$10,000,000 RevenuesColumbia Gas of PA, Inc.6.546.948.158.77Settled2016Peoples Natural Gas Company LLC6.696.409.429.18Settled2012PECO Energy - Gas Operations7.977.6711.2610.92Settled2010UGI Utilities, Inc. - Gas Division9.147.0013.349.03Settled2016Peoples Nat’l - Equitable Division8.176.7012.599.85Settled2008National Fuel Gas Distribution Co.7.957.4010.9210.00Settled2006UGI Penn Natural Gas, Inc.*Settled2009Peoples Gas Company, LLC7.648.2512.0413.36Settled2013UGI Central Penn Gas, Inc.9.746.7513.918.57Settled2009WATER $10,000,000 RevenuesPA American Water Company*Settled2013AQUA Pennsylvania7.996.8910.999.23Settled2012York Water Company9.407.6011.608.70Settled2014SUEZ Water Pennsylvania, Inc.7.067.068.578.57Settled2015* UGI Penn Natural Gas, Inc., and Pennsylvania American Water Company have pending rate filings at Docket Nos. R20162580030, and R20172595853, 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 AllowedPPL Electric Utilities Corp.R-2015-2469275Settled2015PECO Energy CompanyR-2015-2468981Settled2015UGI - ElectricR-00953524Settled1996Pennsylvania Electric CompanyR20142428743Settled2015Metropolitan Edison CompanyR20142428745Settled2015Pennsylvania Power CompanyR20142428744Settled2015West Penn Power CompanyR20142428742Settled2015 Current Market Indicated ROE as calculated by the 6.52-9.24Bureau of Technical Utility Services.GASRecent PA PUC AllowedColumbia Gas of Pa.R-2016-2529660Settled2016UGI Utilities, Inc. – GasR-00953297 Settled1995Peoples Natural GasR-2012-2285985 Settled2012UGI Penn Natural GasR-2008-2079660 Settled2009UGI Central Penn GasR-2008-2079675Settled2009PECO EnergyR-2010-2161592 Settled 2010Peoples TWPR-2013-2355886Settled2013Current Market Indicated ROE as calculated by the 8.86-9.67 Bureau of Technical Utility Services.WATERRecent PA PUC AllowedAqua Pennsylvania R-2011-2267958Settled2012PA American Water R-2013-2355276Settled2013Columbia Water R-2014-2445660Settled2015York Water R-2012-2336379Settled2014 Current Market Indicated ROE as calculated by the 7.61-9.73Bureau of Technical Utility Services.Distribution System Improvement Charge (DSIC) Eligible UtilitiesReturn on Equity (ROE) SummaryUtility AdjustedROE (%)Commission Approved ROE (%)ELECTRICPECO Energy – Electric Operations10.529.55PPL Electric Utilities Corp.9.309.55Duquesne Light Company9.239.55West Penn Power Company7.249.55Pennsylvania Power Company9.089.55Pennsylvania Electric Company9.509.55Metropolitan Edison Company10.979.55GASColumbia Gas of PA, Inc.8.779.85Peoples Natural Gas Company LLC9.189.85PECO Energy – Gas Operations10.929.85UGI Utilities, Inc. – Gas Division9.039.85Peoples-Equitable Division9.859.85UGI Penn Natural Gas, Inc.*9.85Peoples Gas Company, LLC13.369.85UGI Central Penn Gas, Inc.8.579.85WATER PA American Water Company*9.70PA American – Wastewater*9.70AQUA Pennsylvania9.239.70AQUA Pennsylvania - Wastewater0.139.70York Water Company8.709.70SUEZ Water Pennsylvania Inc.8.579.70Columbia Water Company*9.70Newtown Artesian Water9.269.70Superior Water8.259.70* UGI Penn Natural Gas, Inc., Pennsylvania American Water Company, and Columbia Water Company have pending rate filings at Docket Nos. R20162580030, R20172595853, and R-2017-2598203, 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 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 = D1/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 ROEsLinear Trend Line Chart 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 ROEsLinear Trend Line Graph 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 ROEsLinear Trend Line Chart 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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