20190610McKenzie Exhibit 3 Schedule 9.pdf

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ELECTRIC UTILITY RISK PREMIUM
CURRENT BOND YIELD
Current Equitv Risk Premium
(a) Avg. Yield over Study Period
(b) Average Utility Bond Yield
Change in Bond Yield
(c) Risk Premium/Interest Rate Relationship
Adjustment to Average Risk Premium
(a) Average Risk Premium over Study Period
Adjusted Risk Premium
Implied Cost of Equitv
(b) Baa Utility Bond Yield
Adjusted Equity Risk Premium
Risk Premium Cost of Equity
(a)
(b)
(c)
Schedule 9
Page I of4
8.19%
4.41%
-3.78%
-0.4304
1.63%
3.7s%
5.38"
4.81%
5.38%
l0.l9o/o
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Schedule 9, page 3.
Average bond yield on all utility bonds and Baa subset for the six-months ending Apr. 2019 based on data from
Moody's Investors Service at www.credittrends.com.
Schedule 9,page4.
Exhibit No. 3
Case No. AVU-E-19-04
A. McKenzie, Avista
Schedule 9, Page 1 of4
ELECTRIC UTILITY RISK PREMIUM
PROJECTED BOND YIELD
Current Equitv Risk Premium
(a) Avg. Yield over Study Period
(b) Average Utility Bond Yield 2019-2020
Change in Bond Yield
(c) Risk Premium/Interest Rate Relationship
Adjustment to Average Risk Premium
(a) Average Risk Premium over Study Period
Adjusted Risk Premium
Implied Cost of Equitv
(b) Projected Baa Bond Yield2019-2023
Adjusted Equity Risk Premium
Risk Premium Cost of Equity
(a)
(b)
(c)
Schedule 9
Page2 of 4
8.t9%
5.22%
-2.97%
-0.4304
t.28%
3.7s%
5.03Yo
5.62%
s.03%
10.650/0
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Schedule 9, page 3.
Yields on all utility bonds and Baa subset based on data from IHS Global Insight, Long-Term Macro Forecast -
Baseline (Apr. 30, 2019); Energy Information Administration, Annual Energy Outlook 2019 (Jan. 24,2019); &
Moody's Investors Service at www.credittrends.com.
Schedule 9,page 4.
Exhibit No. 3
Case No. AVU-E-19-04
A. McKenzie, Avista
Schedule 9, Page 2 of 4
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ELECTRIC UTILITY RJSK PREMIUM
AUTHORIZED RETURNS
(a)
Allowed
Year ROE
Schedule 9
Page 3 of4
(b)
Average Utility
Bond Yield
Risk
Premium
1974
1975
1976
1977
1 978
1979
1 980
I 981
t982
l 983
I 984
I 985
I 986
I 987
I 988
I 989
1 990
1991
1992
1993
1994
1 995
1996
1997
1 998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
201 8
Average
13.10%
13.20%
13.10%
13.30%
13.20o/o
13.50%
14.23%
15.22%
15.78%
15.36%
15.32%
15.20%
13.93%
12.99%
12.79%
12.970/o
12.700/o
12.54%
12.09%
11.46%
11.21%
11.58%
11.40%
11.33o/o
11.77o/o
10.72%
11.58%
11.07%
11.21o/o
10.960/o
10.81%
10.51%
10.32%
10.30%
10.41o/o
10.52%
10.37%
10.29%
10.17%
10.03%
9.91%
9.85%
9.77%
9.74o/o
9.59o/o
9.27o/o
9.88%
9.17%
8.58%
9.22%
10.39%
13.15o/o
15.62%
15.33%
13.31%
t4.03%
12.29%
9.46%
9.98%
10.45%
9.66%
9.76%
9.21%
8.57%
7.56%
8.30%
7.91%
7.74%
7.63%
7.00%
7.55%
8.09%
7.72%
7.53%
6.61%
6.20%
5.67%
6.08%
6.11%
6.65%
6.28%
556%
5.13%
4.26%
4.55%
4At%
4.37%
4.11%
4.07%
4.34%
3.83%
3.32%
3.930/,
4.72%
3.98%
3.n%
1.08%
-0.40%
0.45%
2.05%
1.29%
2.91%
4.47%
3.01%
2.34o/o
3.31%
2.94%
3.33%
3.52%
3.90o/o
2.91%
3.67%
3.66%
3.70%
4.77o/o
3.17%
3.49%
3.35%
3.68%
4.35%
4.6tyo
4.84%
4.24%
4.19%
3.76%
4.24%
4.81%
5.16%
5.91%
5.48%
5.50%
5.48%
5.66%
5.67%
5.25%
11.94%8.19%3.75%
(a) Major Ratc Case Dccisions, Xegnlatory Focus , Rcgulatory Research Associatcs; Utilityscope Regulotory
seruice' Argus' case No. ^?Xi.lir:;l(b) Moody's Investors Scrvice' A. McKenzie, Avista
Schedule 9, Page 3 of4
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ELECTRIC UTILITY RISK PREMIUM
REGRESSION RESULTS
SUMMARY OUTPUT
Regression Slalislics
Schedule 9
Page 4 of 4 o
Authorized Equity Risk Premiums vs. Utility Interest Rates
(1974-201 8)
E.=
E
,
'=oD
'1*
6t
s8
4*
3t
2*
1t
0t
-18
a aa.a
a .l
oo a a
a a a
a a
y = 4.4304x+O.072'l
R' = 0.8726
a
a
st '7*9Z r.1t 13t 15t
Average Utility Interest Rates
oMultiple R
R Square
Adjusted R Square
Standard Enor
Obseruations
0.9341 r 169
0.87256465
0.86960 l 04
0.00494092
45
ANOVA
df SS MS F Sisnilicance F
Regression
Residual
Total
t
43
44
0.0071 87719
0.001049744
0.008237463
0.007187719
2.44127E-05
294.4259957 7.49233E-2t
Coelficients Standard Eror I Stat P-value Lower 95ok Upper 9596 Lower 95.002 Upper 95.0o1
Intercept
X Variable I
0.07274209
-0.4303596
0.002183289 33.3t766219
0.025080917 -17. 15884599
2.40029E-32
7.49233E-2t
0.068339068 0.077t45tt2 0.068339068 0.0771451t2
-0.480940089 -0.379779108 -0.480940089 -0.379779108
Exhibit No. 3
Case No. AVU-E-19-04
A. McKenzie, Avista
Schedule 9, Page 4 of4
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