Hanley Reb Ex 19 Sch5 - p1.xls

Sheet3
Sheet2
Sheet1
United Water Idaho, Inc.
Analysis of the Reasonableness of the Implicit Equity Risk Premium Based upon
United Water Idaho, Inc.'s Requested Return on Common Equity of 11.30%
Line No.
1.
Avista Utilities' Authorized Return on
Common Equity (1)
$10.75
%
2.
July 1999 Moody's Yield on A Rated
Public Utility Bonds (2)
$7.71
3.
Implicit Equity Risk Premium
$3.04
% (3)
4.
Prospective Yield on Aaa Rated
Corporate Bonds (4)
$7.80
%
5.
Adjustment to Reflect Yield Spread
Between Aaa Rated Corporate
Bonds and A Rated Public
Utility Bonds
$0.75
(5)
6.
Prospective Yield on A Rated
Public Utility Bonds
$8.55
% (6)
7.
Implicit UWID Authorized Return on Common
Equity Based upon Prospective Average
Yield on A Rated Public Utility Bonds
and a 3.04% Equity Risk Premium
$11.59
% (7)
8.
United Water Idaho, Inc.'s
requested ROE
$11.30
% (8)
9.
Less:
Adjusted Prospective Yield on A Rated
Public Utility Bonds
$8.55
(9)
10.
Implicit Equity Risk Premium over
the Prospective Yield on A Rated
Public Utility Bonds
$2.75
% (10)
See page 2 for notes.
Notes:
(1)
Average forecast based upon six quarterly estimates of Aaa rated corporate bonds per the consensus of nearly 50 economists reported in Blue Chip Financial Forecasts dated December 1, 1999 (see page 7 of this Schedule). The estimates are detailed below.
Second Quarter 1000
7.80
Third Quarter 2000
7.90
Fourth Quarter 2000
7.90
First Quarter 2001
7.80
Third Quarter 2001
7.70
Fourth Quarter 2001
7.70
Average
7.80
1.00
%
(2)
The yield spread of A rated public utility bonds over Aaa rated corporate bonds of 0.75%, rounded to 0.8% on June 9, 2000. Calculated as the difference between the June 9, 2000 Moody's A rated public utility bond yield of 8.33% less the June 9, 2000 Mood
(3)
Line No. 1 - Line No. 2.
(4)
From page 1 of Schedule 1 of Exhibit No. ___(FJH-1).
(5)
From Line No. 3 above.
(6)
Line No. 4 - Line No. 5.
(7)
From Line No. 3, page 6 of Schedule 14 of Exhibit No. ___(FJH-1).
(8)
See page 16, line 7 of Ms. Carlock's direct testimony.
(9)
Line No 7 * Line No. 8.
(10)
From Line No. 5, page 8 of Schedule 14 of Exhibit No. ___(FJH-1).