Cost of Capital

Filed Expert Witness Testimony on Behalf of the North Dakota Public Service Commission

Provides Testimony on the fair and reasonable overall cost of capital that the North Dakota Public Service Commission should adopt in Montana-Dakota Utilities Co.’s application for an increase in its gas distribution service rates –  Case No. PU-15-90

An important issue in the case: should Montana-Dakota Utilities Co. receive a higher cost of equity because of its relatively small size.

Ibbotson Associates states “… Small stocks tend to outperform large stocks in general, but not for the most-liquid stocks. For the most-liquid stocks… the pattern is reversed”. In Aaron Rothschid’s testimony he shows that Montana-Dakota Utilities Co.’s parent MDU Resources is more liquid than the proxy group (9 publicly traded U.S. national gas distribution companies) used to calculate the cost of equity by the Company’s expert witness.

Mr. Rothschild recommends that the cost of equity for Montana-Dakota Utilities Co. should be 8.62% with based on the proxy group with no upward adjustment for the Company’s relatively small size.

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Filed Expert Witness Testimony on Behalf of the Pennsylvania Office of Consumer Advocate

Provides Testimony on the fair and reasonable overall cost of capital that the Pennsylvania Public Utility Commission should adopt in Columbia Gas’s application for an increase in its gas distribution service rates –  Docket No. R-2015-2468056

An important issue in the case: What is the appropriate capital structure to use for rate making purposes? In his direct testimony Aaron Rothschild recommends that if the Company charges consumers 0.50% to account for “… the lower credit quality of CPA’s parent company (NiSource)” it should not be allowed to charge consumers for an amount of equity found in a lower risk capital structure.

Mr. Rothschild recommends a cost of equity for Columbia Gas of 8.88%.

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The Pennsylvania Public Utility Commission (PUC) voted 4-1 to approve a rate of return on common equity (ROE) under 10% for Columbia Water Co.

This decision makes Aaron Rothschild the first Pennsylvania Office of Consumer Advocate rate of return consultant to provide testimony leading to a Return on Equity (ROE) below 10%.

The ROE is based on a determination of the utility company’s cost of equity based on expert filed testimony.

Please see the following link for the January 9, 2014 press release regarding the Pennsylvania Public Utility Commission’s Final Order regarding Columbia Water Co.’s 2013 rate case:

http://www.puc.pa.gov/about_puc/press_releases.aspx?ShowPR=3289

 

 

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Mathematical Simulation & Attendance of the 45th Annual Society for Mathematical Psychology Meeting

We recently attended the 45th annual meeting of the Society for Mathematical Psychology in Columbus, Ohio to explore simulation techniques that could be applied to market-based procurement mechanisms in the electricity industry.We seek collaboration with experts from diverse fields to maintain a broad perspective and incorporate evolving research and analytical methods.

Mathematical psychology is broadly defined to include work of a theoretical character that uses mathematical methods, formal logic, or computer simulation to research decision theory and motivational dynamics.

We had the opportunity to speak with many scientists, including a professor of cognitive and decision sciences from Michigan State University. His research includes developing formal cognitive theories of judgment and decision-making. We discussed building a simulation of energy procurement mechanisms to test the implications of various contract structures on the cost of electricity, project queues and effective coordination of transmission and generation investment decisions. Contract structures that reduce risks to investors can reduce their cost of capital and consumer’s electric bills.

Check our website frequently or follow Rothschild Financial on Twitter here for updates on progress and descriptions of our findings.

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DE Testimony, Cost of Capital

April 5, 2012

Provides Testimony on the fair and reasonable overall cost of capital that the Delaware Public Service Commission should adopt in Tidewater Utilities, Inc.’s application for an increase in its electricity rates – PSC Docket No. 11-397

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MD Testimony, Cost of Capital

March 23, 2012

Provides Testimony on the fair and reasonable overall cost of capital that the Maryland Public Service Commission should adopt in Potomac Electric Power Company’s application for an increase in its electricity rates – Case No. 9286

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MD Testimony, Cost of Capital

March 19, 2012

Provides Testimony on the fair and reasonable overall cost of capital that the Maryland Public Service Commission should adopt in Delmarva Power & Light’s application for an increase in its electricity rates – Case No. 9285

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CO Testimony, Cost of Capital

March 2, 2012

Provides Testimony on the fair and reasonable overall cost of capital that the Colorado Public Utility Commission should adopt in the Public Service Company of Colorado’s General Rate Case – Docket No. 11AL-947E

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