20230201McKenzie Exhibit 3 Schedule 1-13.pdf

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
[e-mail]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. AVU-E-23-01
CASE NO. AVU-G-23-01
EXHIBIT NO. 3
OF ADRIEN M. MCKENZIE, CFA
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
1
SCHEDULE 1
QUALIFICATIONS OF ADRIEN M. MCKENZIE
Q.PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
A.My name is Adrien M. McKenzie. My business address is 3907 Red River Street, Austin,
Texas 78751.
Q.PLEASE STATE YOUR OCCUPATION.
A.I am a principal in FINCAP, Inc., a firm engaged primarily in financial, economic, and
policy consulting in the field of public utility regulation.
Q.PLEASE DESCRIBE YOUR QUALIFICATIONS AND EXPERIENCE.
A.I received B.A. and M.B.A. degrees with a major in finance from The University of Texas
at Austin and hold the Chartered Financial Analyst (CFA®) designation. Since joining
FINCAP in 1984, I have participated in consulting assignments involving a broad range
of economic and financial issues, including cost of capital, cost of service, rate design,
economic damages, and business valuation. I have extensive experience in economic and
financial analysis for regulated industries, and in preparing and supporting expert witness
testimony before courts, regulatory agencies, and legislative committees throughout the
U.S. and Canada. I have personally sponsored direct and rebuttal testimony in over 150
proceedings filed with the Federal Energy Regulatory Commission (“FERC”) and
regulatory agencies in Alaska, Arkansas, Colorado, Hawaii, Idaho, Indiana, Iowa, Kansas,
Kentucky, Maryland, Michigan, Montana, Nebraska, New Mexico, Ohio, Oklahoma,
Oregon, South Dakota, Texas, Virginia, Washington, West Virginia, and Wyoming. My
testimony addressed the establishment of risk-comparable proxy groups, the application
of alternative quantitative methods, and the consideration of regulatory standards and
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 1, Page 1 of 5
2
policy objectives in establishing a fair rate of return on equity for regulated electric, gas,
and water utility operations. In connection with these assignments, my responsibilities
have included critically evaluating the positions of other parties and preparation of
rebuttal testimony, representing clients in settlement negotiations and hearings, and
assisting in the preparation of legal briefs.
FINCAP was formed in 1979 as an economic and financial consulting firm
serving clients in both the regulated and competitive sectors. FINCAP conducts
assignments ranging from broad qualitative analyses and policy consulting to technical
analyses and research. The firm’s experience is in the areas of public utilities, valuation
of closely-held businesses, and economic evaluations (e.g., damage and cost/benefit
analyses). Prior to joining FINCAP, I was employed by an oil and gas firm and was
responsible for operations and accounting. I am a member of the CFA Institute. A
resume containing the details of my qualifications and experience is attached below.

Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 1, Page 2 of 5
3

ADRIEN M. McKENZIE

FINCAP, INC. 3907 Red River Street
Financial Concepts and Applications Austin, Texas 78751
Economic and Financial Counsel [phone]
FAX [phone]
[e-mail]

Summary of Qualifications
Adrien McKenzie has an MBA in finance from the University of Texas at Austin and holds the
Chartered Financial Analyst (CFA®) designation. He has over 30 years of experience in economic
and financial analysis for regulated industries, and in preparing and supporting expert witness
testimony before courts, regulatory agencies, and legislative committees throughout the U.S. and
Canada. Assignments have included a broad range of economic and financial issues, including cost
of capital, cost of service, rate design, economic damages, and business valuation.

Employment
President
FINCAP, Inc.
(June 1984 to June 1987)
(April 1988 to present)
Economic consulting firm specializing in regulated
industries and valuation of closely-held businesses.
Assignments have involved electric, gas,
telecommunication, and water/sewer utilities, with
clients including utilities, consumer groups,
Areas of participation have included rate of return,
revenue requirements, rate design, tariff analysis,
avoided cost, forecasting, and negotiations. Develop
cost of capital analyses using alternative market models
for electric, gas, and telephone utilities. Prepare pre-
filed direct and rebuttal testimony, participate in
settlement negotiations, respond to interrogatories,
evaluate opposition testimony, and assist in the areas of
cross-examination and the preparations of legal briefs.
Other assignments have involved preparation of
technical reports, valuations, estimation of damages,
industry studies, and various economic analyses in
Manager,
McKenzie Energy Company
Responsible for operations and accounting for firm
engaged in the management of working interests in oil

Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 1, Page 3 of 5
4
Education

M.B.A., Finance,
University of Texas at Austin
(Sep. 1982 to May. 1984)
Program included coursework in corporate finance,
accounting, financial modeling, and statistics. Received
Dean's Award for Academic Excellence and Good
Neighbor Scholarship.
Professional Report: The Impact of Construction
Expenditures on Investor-Owned Electric Utilities

B.B.A., Finance,
University of Texas at Austin
(Jan. 1981 to May 1982)
Electives included capital market theory, portfolio
management, and international economics and finance.
Elected to Beta Gamma Sigma business honor society.
Dean's List 1981-1982.
Simon Fraser University,
Vancouver, Canada and University
of Hawaii at Manoa, Honolulu,
Hawaii
(Jan. 1979 to Dec 1980)

Coursework in accounting, finance, economics, and
liberal arts.

Professional Associations
Received Chartered Financial Analyst (CFA®) designation in 1990.
Member – CFA Institute.

Bibliography
“A Profile of State Regulatory Commissions,” A Special Report by the Electricity Consumers
Resource Council (ELCON), Summer 1991.
“The Impact of Regulatory Climate on Utility Capital Costs: An Alternative Test,” with Bruce H.
Fairchild, Public Utilities Fortnightly (May 25, 1989).

Presentations
“ROE at FERC: Issues and Methods,” Expert Briefing on Parallels in ROE Issues between AER,
ERA, and FERC, Jones Day (Sydney, Melbourne, and Perth, Australia) (April 15, 2014).
Cost of Capital Working Group eforum, Edison Electric Institute (April 24, 2012).
“Cost-of-Service Studies and Rate Design,” General Management of Electric Utilities (A Training
Program for Electric Utility Managers from Developing Countries), Austin, Texas (October
1989 and November 1990 and 1991).

Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 1, Page 4 of 5
5

Representative Assignments
Mr. McKenzie has prepared and sponsored prefiled testimony submitted in over 150 regulatory
proceedings. In addition to filings before regulatory agencies in Alaska, Arkansas, Colorado,
Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Montana, Nebraska, New
Mexico, Ohio, Oklahoma, Oregon, South Dakota, Texas, Virginia, Washington, West Virginia,
and Wyoming, Mr. McKenzie has considerable expertise in preparing expert analyses and
testimony before the Federal Energy Regulatory Commission (“FERC”) on the issue of rate of
return on equity (“ROE”), and has broad experience in applying and evaluating the results of
quantitative methods to estimate a fair ROE. Other representative assignments have included
developing cost of service and cost allocation studies, the application of econometric models to
analyze the impact of anti-competitive behavior and estimate lost profits; development of
explanatory models for nuclear plant capital costs in connection with prudency reviews; and the
analysis of avoided cost pricing for cogenerated power.

Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 1, Page 5 of 5
Schedule 2
Page 1 of 32
I.DESCRIPTION OF QUANTITATIVE ANALYSES
Q.What is the purpose of this exhibit?1
A.Schedule 2 presents capital market estimates of the cost of equity for the2
jurisdictional electric and natural gas utility operations of Avista Corp. (“Avista” or “the 3
Company”). First, I will briefly summarize the concept of the cost of equity, along with the 4
risk-return tradeoff principle fundamental to capital markets. Next, I describe my 5
applications of the Discounted Cash Flow (“DCF”), the Capital Asset Pricing Model 6
(“CAPM”), the empirical form of the CAPM (“ECAPM”), a risk premium analyses based on 7
allowed equity returns for electric utilities, and reference to expected rates of return for 8
electric utilities. This exhibit also presents a market-based test to my utility quantitative 9
analyses by applying the DCF model to a group of low risk non-utility firms. 10
A.Overview
Q.What fundamental economic principle underlies any evaluation of11
investors’ required return on equity (“ROE”)? 12
A.The fundamental economic principle underlying the cost of equity concept is13
the notion that investors are risk averse. In capital markets where relatively risk-free assets 14
are available (e.g., U.S. Treasury securities), investors can be induced to hold riskier assets 15
only if they are offered a premium, or additional return, above the rate of return on a 16
risk-free asset. Because all assets compete with each other for investor funds, riskier assets 17
must yield a higher expected rate of return than safer assets to induce investors to hold them. 18
Given this risk-return tradeoff, the required rate of return (k) from an asset (i) can be 19
generally expressed as: 20
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 1 of 32
Schedule 2
Page 2 of 32

ki = Rf +RPi 1
where: Rf = Risk-free rate of return, and 2
RPi = Risk premium required to hold riskier asset i. 3
Thus, the required rate of return for a particular asset at any point in time is a function of: 1) 4
the yield on risk-free assets, and 2) its relative risk, with investors demanding 5
correspondingly larger risk premiums for assets bearing greater risk. 6
Q. Is there evidence that the risk-return tradeoff principle actually operates 7
in the capital markets? 8
A. Yes. The risk-return tradeoff can be readily documented in segments of the 9
capital markets where required rates of return can be directly inferred from market data and 10
where generally accepted measures of risk exist. Bond yields, for example, reflect investors’ 11
expected rates of return, and bond ratings measure the risk of individual bond issues. 12
Comparing the observed yields on government securities, which are considered free of 13
default risk, to the yields on bonds of various rating categories demonstrates that the risk-14
return tradeoff does, in fact, exist. 15
Q. Does the risk-return tradeoff observed with fixed income securities 16
extend to common stocks and other assets? 17
A. Yes. It is widely accepted that the risk-return tradeoff evidenced with long-18
term debt extends to all assets. Documenting the risk-return tradeoff for assets other than 19
fixed income securities, however, is complicated by two factors. First, there is no standard 20
measure of risk applicable to all assets. Second, for most assets—including common 21
stock—required rates of return cannot be directly observed. Yet there is every reason to 22
believe that investors exhibit risk aversion in deciding whether or not to hold common 23
stocks and other assets, just as when choosing among fixed-income securities. 24
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 2 of 32
Schedule 2
Page 3 of 32

Q. Is this risk-return tradeoff limited to differences between firms? 1
A. No. The risk-return tradeoff principle applies not only to investments in 2
different firms, but also to different securities issued by the same firm. The securities issued 3
by a utility vary considerably in risk because they have different characteristics and 4
priorities. As noted earlier, long-term debt is senior among all capital in its claim on a 5
utility’s net revenues and is, therefore, the least risky. The last investors in line are common 6
shareholders. They receive only the net revenues, if any, remaining after all other claimants 7
have been paid. As a result, the rate of return that investors require from a utility’s common 8
stock, the most junior and riskiest of its securities, must be considerably higher than the 9
yield offered by the utility’s senior, long-term debt. 10
Q. What are the challenges in determining a just and reasonable ROE for a 11
regulated enterprise? 12
A. The actual return investors require is unobservable. Different methodologies 13
have been developed to estimate investors’ expected and required return on capital, but all 14
such methodologies are merely theoretical tools and generally produce a range of estimates, 15
based on different assumptions and inputs. The DCF method, which is frequently 16
referenced and relied on by regulators, is only one theoretical approach to gain insight into 17
the return investors require; there are numerous other methodologies for estimating the cost 18
of capital and the ranges produced by the different approaches can vary widely. 19
Q. Is it customary to consider the results of multiple approaches when 20
evaluating a just and reasonable ROE? 21
A. Yes. In my experience, financial analysts and regulators routinely consider 22
the results of alternative approaches in determining allowed ROEs. It is widely recognized 23
that no single method can be regarded as failsafe; with all approaches having advantages and 24
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 3 of 32
Schedule 2
Page 4 of 32

shortcomings. As the Federal Energy Regulatory Commission (“FERC”) has noted, “The 1
determination of rate of return on equity starts from the premise that there is no single 2
approach or methodology for determining the correct rate of return.”1 More recently, FERC 3
recognized the potential for any application of the DCF model to produce unreliable results.2 4
Similarly, a publication of the Society of Utility and Regulatory Financial Analysts 5
concluded that: 6
Each model requires the exercise of judgment as to the reasonableness of the 7
underlying assumptions of the methodology and on the reasonableness of the 8
proxies used to validate the theory. Each model has its own way of 9
examining investor behavior, its own premises, and its own set of 10
simplifications of reality. Each method proceeds from different fundamental 11
premises, most of which cannot be validated empirically. Investors clearly do 12
not subscribe to any singular method, nor does the stock price reflect the 13
application of any one single method by investors.3 14
As this treatise succinctly observed, “no single model is so inherently precise that it can be 15
relied on solely to the exclusion of other theoretically sound models.”4 Similarly, New 16
Regulatory Finance concluded that: 17
There is no single model that conclusively determines or estimates the 18
expected return for an individual firm. Each methodology possesses its own 19
way of examining investor behavior, its own premises, and its own set of 20
simplifications of reality. Each method proceeds from different fundamental 21
premises that cannot be validated empirically. Investors do not necessarily 22
subscribe to any one method, nor does the stock price reflect the application 23
of any one single method by the price-setting investor. There is no monopoly 24
as to which method is used by investors. In the absence of any hard evidence 25
as to which method outdoes the other, all relevant evidence should be used 26
and weighted equally, in order to minimize judgmental error, measurement 27
error, and conceptual infirmities.5 28

1 Northwest Pipeline Co., Opinion No. 396-C, 81 FERC ¶ 61,036 at 4 (1997).
2 Opinion No. 531, 147 FERC ¶ 61,234 at P 41 (2014).
3 David C. Parcell, The Cost of Capital – A Practitioner’s Guide, Society of Utility and Regulatory Financial
Analysts (2010) at 84.
4 Id.
5 Roger A. Morin, New Regulatory Finance, Pub. Util. Reports, Inc. (2006) at 429.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 4 of 32
Schedule 2
Page 5 of 32

Thus, while the DCF model is a recognized approach to estimating the ROE, it is not 1
without shortcomings and does not otherwise eliminate the need to ensure that the “end 2
result” is fair. The Indiana Utility Regulatory Commission has recognized this principle: 3
There are three principal reasons for our unwillingness to place a great deal 4
of weight on the results of any DCF analysis. One is. . . the failure of the 5
DCF model to conform to reality. The second is the undeniable fact that 6
rarely if ever do two expert witnesses agree on the terms of a DCF equation 7
for the same utility – for example, as we shall see in more detail below, 8
projections of future dividend cash flow and anticipated price appreciation of 9
the stock can vary widely. And, the third reason is that the unadjusted DCF 10
result is almost always well below what any informed financial analysis 11
would regard as defensible, and therefore require an upward adjustment 12
based largely on the expert witness’s judgment. In these circumstances, we 13
find it difficult to regard the results of a DCF computation as any more than 14
suggestive.6 15
As this discussion indicates, consideration of the results of alternative approaches 16
reduces the potential for error associated with any single quantitative method. Just as 17
investors inform their decisions through the use of a variety of methodologies, my 18
evaluation of a fair ROE for the Company considers the results of multiple financial models. 19
Q. What does the above discussion imply with respect to estimating the 20
ROE for a utility? 21
A. Although the ROE cannot be observed directly, it is a function of the returns 22
available from other investment alternatives and the risks to which the equity capital is 23
exposed. Because it is not readily observable, the ROE for a particular utility must be 24
estimated by analyzing information about capital market conditions generally, assessing the 25
relative risks of the company specifically, and employing various quantitative methods that 26
focus on investors’ required rates of return. These various quantitative methods typically 27
attempt to infer investors’ required rates of return from stock prices, interest rates, or other 28

6 Ind. Michigan Power Co., Cause No. 38728, 116 PUR4th, 1, 17-18 (IURC 8/24/1990).
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 5 of 32
Schedule 2
Page 6 of 32

capital market data. Consistent with FERC’s conclusion that “[t]here is significant evidence 1
indicating that combining estimates from different models is more accurate than relying on a 2
single model,”7 my evaluation of a fair ROE for the Company considers the results of 3
multiple financial models, including the DCF, CAPM (and the related ECAPM), risk 4
premium, and expected earnings approaches. 5
B. Comparable Risk Proxy Group
Q. How do you implement quantitative methods to estimate the cost of 6
common equity for Avista? 7
A. Application of quantitative methods to estimate the cost of common equity 8
requires observable capital market data, such as stock prices and beta values. Moreover, 9
even for a firm with publicly traded stock, the cost of common equity can only be estimated. 10
As a result, applying quantitative models using observable market data only produces an 11
estimate that inherently includes some degree of observation error. Thus, the accepted 12
approach to increase confidence in the results is to apply alternative quantitative methods to 13
a proxy group of publicly traded companies that investors regard as risk-comparable. The 14
results of the analysis for the sample of companies are relied upon to establish a range of 15
reasonableness for the cost of equity for the specific company at issue. 16
Q. What specific proxy group of utilities do you rely on for your analyses? 17
A. My analyses relied on a proxy group composed of twenty-two companies, 18
which I refer to as the “Utility Group.” In order to develop this group, I began with the 19
following criteria: 20
1. Included in the Electric Utility Industry groups compiled by The Value Line 21
Investment Survey (“Value Line”). 22

7 Coakley v. Bangor Hydro-Elec. Co., 165 FERC ¶ 61,030 at P 38 (2018); Ass’n of Bus. Advocating Tariff
Equity v. Midcontinent Indep. Sys. Operator, Inc., 165 FERC ¶ 61,118 at P 40 (2018).
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 6 of 32
Schedule 2
Page 7 of 32

2. Corporate credit ratings from S&P Global Ratings (“S&P”) and Moody’s 1
Investors Service (“Moody’s”) corresponding to one notch above and below 2
the Company’s current ratings. For S&P, this results in a ratings range of 3
BBB-, BBB, and BBB+; for Moody’s the range is Baa3, Baa2, or Baa1.8 4
3. No ongoing involvement in a major merger or acquisition that would distort 5
quantitative results. 6
4. No cuts in dividend payments during the past six months and no 7
announcement of a dividend cut since that time. 8
Q. Is there any other publicly traded utility that is relevant in establishing a 9
proxy group? 10
A. Yes. Emera Inc.’s electric and gas utility operations are comparable to those 11
of the other utilities in the proxy group.9 Although Value Line currently includes Emera Inc. 12
in its power industry group, rather than its utility groups, Emera Inc.’s regulated electric and 13
gas utility operations are its dominant businesses and account for approximately 95% of 14
consolidated net income.10 Emera Inc.’s Florida and New Mexico electric and gas utility 15
operations account for 64% of consolidated net income11 and its credit ratings fall within the 16
criteria indicated above. Thus, investors would regard Emera Inc. as a comparable 17
investment alternative and it is relevant to an evaluation of the required rate of return for 18
Avista. 19
Q. How do you evaluate the risks of the Utility Group relative to Avista? 20
A. My evaluation of relative risk considers four objectivebenchmarks that are 21
widely relied on in the investment community. Credit ratings are assigned by independent 22

8 While Hawaiian Electric Industries, Inc. (“HEI”) does not have a published Moody’s rating, it was included
in my proxy group. HEI’s S&P rating falls within the comparable range for Avista, as does the Baa2 Moody’s
rating assigned to HEI’s primary subsidiary, Hawaiian Electric Company, Inc.
9 In addition to Emera, Inc., I also considered Algonquin Power & Utilities Company. While this company
would be regarded as a comparable utility investment opportunity by investors, it did not meet my required
screening criteria due to a major acquisition, which is ongoing.
10 Emera Inc., Investors Presentation (March 2022).
https://s25.q4cdn.com/978989322/files/doc_presentations/2022/11/November-December-2022-Marketing-
Deck-Final.pdf (last visited Dec. 13, 2022).
11 Id.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 7 of 32
Schedule 2
Page 8 of 32

rating agencies for the purpose of providing investors with a broad assessment of the 1
creditworthiness of a firm. Ratings generally extend from triple-A (the highest) to D (in 2
default). Other symbols (e.g., “BBB+”) are used to show relative standing within a 3
category. Because the rating agencies’ evaluation includes virtually all of the factors 4
normally considered important in assessing a firm’s relative credit standing, corporate credit 5
ratings provide a broad, objective measure of overall investment risk that is readily available 6
to investors. Although the credit rating agencies are not immune to criticism, their rankings 7
and analyses are widely cited in the investment community and referenced by investors. 8
Investment restrictions tied to credit ratings continue to influence capital flows, and credit 9
ratings are also frequently used as a primary risk indicator in establishing proxy groups to 10
estimate the cost of common equity. 11
While credit ratings provide the most widely referenced benchmark for investment 12
risks, other quality rankings published by investment advisory services also provide relative 13
assessments of risks that are considered by investors in forming their expectations for 14
common stocks. Value Line’s primary risk indicator is its Safety Rank, which ranges from 15
“1” (Safest) to “5” (Riskiest). This overall risk measure is intended to capture the total risk 16
of a stock, and incorporates elements of stock price stability and financial strength. Given 17
that Value Line is perhaps the most widely available source of investment advisory 18
information, its Safety Rank provides useful guidance regarding the risk perceptions of 19
investors. 20
The Financial Strength Rating is designed as a guide to overall financial strength and 21
creditworthiness, with the key inputs including financial leverage, business volatility 22
measures, and company size. Value Line’s Financial Strength Ratings range from “A++” 23
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 8 of 32
Schedule 2
Page 9 of 32

(strongest) down to “C” (weakest) in nine steps. Finally, Value Line’s beta measures a 1
utility’s stock price volatility relative to the market as a whole. A stock that tends to respond 2
less to market movements has a beta less than 1.00, while stocks that tend to move more 3
than the market have betas greater than 1.00. Beta is the only relevant measure of 4
investment risk under modern capital market theory and is widely cited in academics and in 5
the investment industry as a guide to investors’ risk perceptions. Moreover, in my 6
experience Value Line is the most widely referenced source for beta in regulatory 7
proceedings. As noted in New Regulatory Finance: 8
Value Line is the largest and most widely circulated independent investment 9
advisory service, and influences the expectations of a large number of 10
institutional and individual investors. … Value Line betas are computed on a 11
theoretically sound basis using a broadly based market index, and they are 12
adjusted for the regression tendency of betas to converge to 1.00.12 13
Q. How do the overall risks of your proxy group compare with Avista? 14
A. Table 1 compares the Utility Group with Avista across five key indicators of 15
investment risk: 16
TABLE 1 17
COMPARISON OF RISK INDICATORS 18

Q. What does this comparison indicate regarding investors’ assessment of 19
the relative risk associated with your Utility Group? 20
A. As shown above, Avista’s S&P credit rating is one notch below the average 21
for the Utility Group, while the Company’s Moody’s credit rating is identical to that of the 22

12 Roger A. Morin, New Regulatory Finance, Pub. Util. Reports (2006) at 71.
Safety Financial
S&P Moody's Rank Strength Beta
Utility Group BBB+Baa2 2 A 0.90
Avista BBB Baa2 2 B++0.90
Value Line
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 9 of 32
Schedule 2
Page 10 of 32

Utility Group. Likewise, the average Value Line Safety Rank and Financial Strength 1
measures for the Utility Group are very similar to those assigned to the Company. The 2
average of Value Line’s betas for the Utility Group is equal to Avista’s beta. Considered 3
together, this comparison of objective measures, which consider a broad spectrum of risks, 4
including financial and business position, and exposure to firm-specific factors, indicates 5
that investors would likely conclude that the overall investment risks for Avista are 6
comparable to those of the firms in the Utility Group. 7
C. Discounted Cash Flow Analyses
Q. Please describe the underlying premise of the DCF. 8
A. DCF models assume that the price of a share of common stock is equal to the 9
present value of the expected cash flows (i.e., future dividends and stock price) that will be 10
received while holding the stock, discounted at investors’ required rate of return. Rather 11
than developing annual estimates of cash flows into perpetuity, the DCF model can be 12
simplified to a “constant growth” form:13 13
14
where: P0 = Current price per share; 15
D1 = Expected dividend per share in the coming year; 16
ke = Cost of equity; and, 17
g = Investors’ long-term growth expectations. 18
The cost of common equity (ke) can be isolated by rearranging terms within the 19
equation: 20

13 The constant growth DCF model is dependent on a number of strict assumptions, which in practice are never
met. These include a constant growth rate for both dividends and earnings; a stable dividend payout ratio; the
discount rate exceeds the growth rate; a constant growth rate for book value and price; a constant earned rate of
return on book value; no sales of stock at a price above or below book value; a constant price-earnings ratio; a
constant discount rate (i.e., no changes in risk or interest rate levels and a flat yield curve); and all the above
extend to infinity. Nevertheless, the DCF method provides a workable and practical approach to estimate
investors’ required return that is widely referenced in utility ratemaking.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 10 of 32
Schedule 2
Page 11 of 32

1
This constant growth form of the DCF model recognizes that the rate of return to 2
stockholders consists of two parts: 1) dividend yield (D1/P0); and 2) growth (g). In other 3
words, investors expect to receive a portion of their total return in the form of current 4
dividends and the remainder through price appreciation. 5
Q. What steps are required to apply the constant growth DCF model? 6
A. The first step in implementing the constant growth DCF model is to 7
determine the expected dividend yield (D1/P0) for the firm in question. This is usually 8
calculated based on an estimate of dividends to be paid in the coming year divided by the 9
current price of the stock. The second, more controversial, step is to estimate investors’ 10
long-term growth expectations (g) for the firm. The final step is to add the firm’s dividend 11
yield and estimated growth rate to arrive at an estimate of its cost of common equity. 12
Q. How do you determine the dividend yields for the Utility Group? 13
A. I rely on Value Line’s estimates of dividends to be paid by each of these 14
utilities over the next twelve months as D1. This annual dividend was then divided by a 30-15
day average stock price for each utility to arrive at the expected dividend yield. The 16
expected dividends, stock prices, and resulting dividend yields for the firms in the Utility 17
Group are presented on page 1 of Exhibit No. 3, Schedule 5. As shown there, dividend 18
yields for the firms in the Utility Group ranged from 2.6% to 5.3% and averaged 4.0%. 19
Q. What is the next step in applying the constant growth DCF model? 20
A. The next step is to evaluate long-term growth expectations, or “g”, for the 21
firm in question. In constant growth DCF theory, earnings, dividends, book value, and 22
market price are all assumed to grow in lockstep, and the growth horizon of the DCF model 23
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 11 of 32
Schedule 2
Page 12 of 32

is infinite. But implementation of the DCF model is more than just a theoretical exercise; it 1
is an attempt to replicate the mechanism investors used to arrive at observable stock prices. 2
A wide variety of techniques can be used to derive growth rates, but the only “g” that 3
matters in applying the DCF model is the value that investors expect. 4
Q. What are investors most likely to consider in developing their long-term 5
growth expectations? 6
A. Implementation of the DCF model is solely concerned with replicating the 7
forward-looking evaluation of real-world investors. In the case of utilities, dividend growth 8
rates are not likely to provide a meaningful guide to investors’ current growth expectations. 9
Utility dividend policies reflect the need to accommodate business risks and investment 10
requirements in the industry, as well as potential uncertainties in the capital markets. As a 11
result, dividend growth in the utility industry has lagged growth in earnings as utilities 12
conserve financial resources. 13
A measure that plays a pivotal role in determining investors’ long-term growth 14
expectations is future trends in earnings per share (“EPS”), which provide the source for 15
future dividends and ultimately support share prices. The importance of earnings in 16
evaluating investors’ expectations and requirements is well accepted in the investment 17
community, and surveys of analytical techniques relied on by professional analysts indicate 18
that growth in earnings is far more influential than trends in dividends per share (“DPS”). 19
The availability of projected EPS growth rates also is key to investors relying on this 20
measure as compared to future trends in DPS. Apart from Value Line, investment advisory 21
services do not generally publish comprehensive DPS growth projections, and this scarcity 22
of dividend growth rates relative to the abundance of earnings forecasts attests to their 23
relative influence. The fact that securities analysts focus on EPS growth, and that DPS 24
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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growth rates are not routinely published, indicates that projected EPS growth rates are likely 1
to provide a superior indicator of the future long-term growth expected by investors. 2
Q. What are security analysts currently projecting in the way of growth for 3
the firms in the Utility Proxy Group? 4
A. The projected EPS growth rates for each of the firms in the Utility Group 5
reported by Value Line, IBES,14 and Zacks Investment Research (“Zacks”) are displayed on 6
page 2 of Exhibit No. 3, Schedule 5. 7
Q. How else are investors’ expectations of future long-term growth 8
prospects often estimated for use in the constant growth DCF model? 9
A. In constant growth theory, growth in book equity will be equal to the product 10
of the earnings retention ratio (one minus the dividend payout ratio) and the earned rate of 11
return on book equity. Furthermore, if the earned rate of return and the payout ratio are 12
constant over time, growth in earnings and dividends will be equal to growth in book value. 13
Despite the fact that these conditions are seldom, if ever, met in practice, this “sustainable 14
growth” approach may provide a rough guide for evaluating a firm’s growth prospects and is 15
frequently proposed in regulatory proceedings. 16
The sustainable growth rate is calculated by the formula, g = br+sv, where “b” is the 17
expected retention ratio, “r” is the expected earned return on equity, “s” is the percent of 18
common equity expected to be issued annually as new common stock, and “v” is the equity 19
accretion rate. Under DCF theory, the “sv” factor is a component of the growth rate 20
designed to capture the impact of issuing new common stock at a price above, or below, 21
book value. The sustainable, “br+sv” growth rates for each firm in the Utility Group are 22

14 Formerly I/B/E/S International, Inc., IBES growth rates are now compiled and published by Refinitiv.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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summarized on page 2 of Exhibit No. 3, Schedule 5, with the underlying details being 1
presented on Exhibit No. 3, Schedule 6. 2
The sustainable growth rate analysis shown in Exhibit No. 3, Schedule 6 3
incorporates an “adjustment factor” because Value Line’s reported returns are based on year-4
end book values. Since earnings is a flow over the year while book value is determined at a 5
given point in time, the measurement of earnings and book value are distinct concepts. It is 6
this fundamental difference between a flow (earnings) and point estimate (book value) that 7
makes it necessary to adjust to mid-year in calculating the ROE. Given that book value will 8
increase or decrease over the year, using year-end book value (as Value Line does) 9
understates or overstates the average investment that corresponds to the flow of earnings. 10
To address this concern, earnings must be matched with a corresponding representative 11
measure of book value, or the resulting ROE will be distorted. The adjustment factor 12
determined in Exhibit No. 3, Schedule 6 is solely a means of converting Value Line’s end-13
of-period values to an average return over the year, and the formula for this adjustment is 14
supported in recognized textbooks and has been adopted by other regulators.15 15
Q. Are there significant shortcomings associated with the “br+sv” growth 16
rate? 17
A. Yes. First, in order to calculate the sustainable growth rate, it is necessary to 18
develop estimates of investors’ expectations for four separate variables; namely, “b”, “r”, 19
“s”, and “v.” Given the inherent difficulty in forecasting each parameter and the difficulty of 20
estimating the expectations of investors, the potential for measurement error is significantly 21
increased when using four variables, as opposed to referencing a direct projection for EPS 22

15 See, Roger A. Morin, New Regulatory Finance, Pub. Utils. Reports, Inc. (2006) at 305-306; Bangor Hydro-
Electric Co. et al., 122 FERC ¶ 61,265 at n.12 (2008).
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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growth. Second, empirical research in the finance literature indicates that sustainable 1
growth rates are not as significantly correlated to measures of value, such as share prices, as 2
are analysts’ EPS growth forecasts.16 The “sustainable growth” approach is included for 3
completeness, but evidence indicates that analysts’ forecasts provide a superior and more 4
direct guide to investors’ growth expectations. Accordingly, I give less weight to cost of 5
equity estimates based on br+sv growth rates in evaluating the results of the DCF model. 6
Q. What DCF cost of equity estimates are implied for the Utility Group? 7
A. After combining the dividend yields and respective growth projections for 8
each utility, the resulting cost of equity estimates are shown on page 3 of Exhibit No. 3, 9
Schedule 5. 10
Q. In evaluating the results of the constant growth DCF model, is it 11
appropriate to eliminate illogical estimates? 12
A. Yes. When applying quantitative methods to estimate the cost of equity, it is 13
essential that the resulting values pass fundamental tests of reasonableness and economic 14
logic. Accordingly, DCF estimates that are implausibly low or high should be eliminated 15
when evaluating the results of this method. 16
Q. How do you evaluate DCF estimates at the low end of the range? 17
A. I base my evaluation of DCF estimates at the low end of the range on the 18
fundamental risk-return tradeoff, which holds that investors will only take on more risk if 19
they expect to earn a higher rate of return to compensate them for the greater uncertainly. 20
Because common stocks lack the protections associated with an investment in long-term 21
bonds, a utility’s common stock imposes far greater risks on investors. As a result, the rate 22
of return that investors require from a utility’s common stock is considerably higher than the 23

16 Roger A. Morin, New Regulatory Finance, Pub. Util. Reports, Inc. (2006) at 307.
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yield offered by senior, long-term debt. Consistent with this principle, DCF results that are 1
not sufficiently higher than the yield available on less risky utility bonds must be eliminated. 2
Q. Have other regulators employed such tests? 3
A. Yes. FERC has noted that adjustments are justified where applications of the DCF 4
approach and other methods produce illogical results. FERC evaluates low-end DCF results 5
against observable yields on long-term public utility debt and has recognized that it is 6
appropriate to eliminate estimates that do not sufficiently exceed this threshold,17 and also 7
excludes estimates that are “irrationally or anomalously high.”18 Similarly, the Staff of the 8
Maryland Public Service Commission has also eliminated DCF values where they do not 9
offer a sufficient premium above the cost of debt to be attractive to an equity investor.19 10
Q. Do you exclude any estimates at the low or high end of the range of DCF 11
results? 12
A. Yes. As highlighted on page 3 of Exhibit No. 3, Schedule 5, I remove DCF 13
cost of equity estimates ranging from -1.9% to 7.2%. Based on my professional experience 14
and the risk-return tradeoff principle that is fundamental to finance, it is inconceivable that 15
investors are not requiring a substantially higher rate of return for holding common stock. 16
As a result, these values provide little guidance as to the returns investors require from 17
utility common stocks and should be excluded. 18
Also highlighted on page 3 of Exhibit No. 3, Schedule 5, I eliminate a high-end DCF 19
estimate of 20.8%. The upper end of the remaining DCF results for the Utility Group is set 20
by a cost of equity estimate of 13.6%. While a 13.6% cost of equity estimate may exceed 21

17 See, Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, Inc., 169 FERC ¶ 61,129
at PP 387, 388 (2019).
18 Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, Inc., 171 FERC ¶ 61,154 at
P 152 (2020).
19 See, e.g., Maryland Public Service Commission, Case No. 9670, Direct Testimony and Exhibits of Drew M.
McAuliffe (Dec. 2, 2021) at 15-16.
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the majority of the remaining values, low-end DCF estimates in the 7.4% to 7.6% range are 1
assuredly far below investors’ required rate of return. Taken together and considered along 2
with the balance of the results, the remaining values provide a reasonable basis on which to 3
frame the range of plausible DCF estimates and evaluate investors’ required rate of return. 4
Q. What ROE estimates are implied by your DCF results for the Utility 5
Group? 6
A. As shown on page 3 of Exhibit No. 3, Schedule 5 and summarized in Table 2, 7
application of the constant growth DCF model results in the following ROE estimates: 8
TABLE 2 9
DCF RESULTS – UTILITY GROUP 10

D. Capital Asset Pricing Model
Q. Please describe the CAPM. 11
A. The CAPM is a theory of market equilibrium that measures risk using the 12
beta coefficient. Assuming investors are fully diversified, the relevant risk of an individual 13
asset (e.g., common stock) is its volatility relative to the market as a whole, with beta 14
reflecting the tendency of a stock’s price to follow changes in the market. A stock that tends 15
to respond less to market movements has a beta less than 1.00, while stocks that tend to 16
move more than the market have betas greater than 1.00. The CAPM is mathematically 17
expressed as: 18
Growth Rate Average Midpoint
Value Line 9.4% 9.6%
IBES 10.4% 11.4%
Zacks 9.7% 10.2%
br + sv 9.1% 9.4%
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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Rj = Rf +βj(Rm - Rf) 1
where: Rj = required rate of return for stock j; 2
Rf = risk-free rate; 3
Rm = expected return on the market portfolio; and, 4
βj = beta, or systematic risk, for stock j. 5
Under the CAPM formula above, a stock’s required return is a function of the risk-6
free rate (Rf), plus a risk premium that is scaled to reflect the relative volatility of a firm’s 7
stock price, as measured by beta (β). Like the DCF model, the CAPM is an ex-ante, or 8
forward-looking model based on expectations of the future. As a result, in order to produce 9
a meaningful estimate of investors’ required rate of return, the CAPM must be applied using 10
estimates that reflect the expectations of actual investors in the market, not with backward-11
looking, historical data. 12
Q. Why is the CAPM approach a relevant component when evaluating the 13
cost of equity for Avista? 14
A. The CAPM approach (which also forms the foundation of the ECAPM) 15
generally is considered to be the most widely referenced method for estimating the cost of 16
equity among academicians and professional practitioners, with the pioneering researchers 17
of this method receiving the Nobel Prize in 1990. Because this is the dominant model for 18
estimating the cost of equity outside the regulatory sphere, the CAPM (and ECAPM) 19
provides important insight into investors’ required rate of return for utility stocks, including 20
Avista. 21
Q. How do you apply the CAPM to estimate the ROE? 22
A. Application of the CAPM to the Utility Group based on a forward-looking 23
estimate for investors’ required rate of return from common stocks is presented on Exhibit 24
No. 3, Schedule 7. To capture the expectations of today’s investors in current capital 25
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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markets, the expected market rate of return is estimated by conducting a DCF analysis on 1
the dividend paying firms in the S&P 500. 2
The dividend yield for each firm is obtained from Value Line, and the growth rate is 3
equal to the average of the earnings growth projections from IBES, Value Line, and Zacks 4
for each firm, with each firm’s dividend yield and growth rate being weighted by its 5
proportionate share of total market value. After removing companies with growth rates that 6
are negative or greater than 20%, the weighted average of the projections for the individual 7
firms implies an average growth rate over the next five years of 9.7%. Combining this 8
average growth rate with a year-ahead dividend yield of 2.0% results in a current cost of 9
common equity estimate for the market as a whole (Rm) of 11.7%. Subtracting a 3.5% risk-10
free rate based on the average yield on 30-year Treasury bonds for the six-months ending 11
November 2022 produced a market equity risk premium of 8.2%. 12
Q. What is the source of the beta values you used to apply the CAPM? 13
A. As indicated earlier in my discussion of risk measures for the proxy group, I 14
relied on the beta values reported by Value Line, which in my experience is the most widely 15
referenced source for beta in regulatory proceedings. 16
Q. What else should be considered in applying the CAPM? 17
A. Financial research indicates that the CAPM does not fully account for 18
observed differences in rates of return attributable to firm size. Accordingly, a modification 19
is required to account for this size effect. As explained by Morningstar: 20
One of the most remarkable discoveries of modern finance is the 21
finding of a relationship between firm size and return. On average, 22
small companies have higher returns than large ones. . . . The 23
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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relationship between firm size and return cuts across the entire size 1
spectrum; it is not restricted to the smallest stocks.20 2
According to the CAPM, the expected return on a security should consist of the 3
riskless rate, plus a premium to compensate for the systematic risk of the particular security. 4
The degree of systematic risk is represented by the beta coefficient. The need for the size 5
adjustment arises because differences in investors’ required rates of return that are related to 6
firm size are not fully captured by beta. To account for this, researchers have developed size 7
premiums that need to be added to account for the level of a firm’s market capitalization in 8
determining the CAPM cost of equity.21 Accordingly, my CAPM analysis also incorporates 9
an adjustment to recognize the impact of size distinctions, as measured by the market 10
capitalization for the firms in the Utility Group. 11
Q. Is this size adjustment related to the relative size of Avista as compared 12
with the proxy group? 13
A. No. I am not proposing to apply a general size risk premium in evaluating a 14
fair and reasonable ROE for the Company and my recommendation does not include any 15
adjustment related to the relative size of Avista. Rather, this size adjustment is specific to 16
the CAPM and merely corrects for an observed inability of the beta measure to fully reflect 17
the risks perceived by investors for the firms in the proxy groups. As FERC has recognized, 18
“This type of size adjustment is a generally accepted approach to CAPM analyses.”22 19

20 Morningstar, 2015 Ibbotson SBBI Classic Yearbook, at 99.
21 Originally compiled by Ibbotson Associates and published in their annual yearbook entitled, Stocks, Bonds,
Bills and Inflation, these size premia are now developed by Kroll and presented in its Cost of Capital
Navigator.
22 Opinion No. 531-B, 150 FERC ¶ 61,165 at P 117 (2015).
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Q. What is the implied ROE for the Utility Group using the CAPM 1
approach? 2
A. As shown on Exhibit No. 3, Schedule 7, after adjusting for the impact of firm 3
size, the CAPM approach implies an average ROE for the Utility Group of 11.4%. 4
E. Empirical Capital Asset Pricing Model
Q. How does the ECAPM approach differ from traditional applications of 5
the CAPM? 6
A. Empirical tests of the CAPM have shown that low-beta securities earn returns 7
somewhat higher than the CAPM would predict, and high-beta securities earn less than 8
predicted. In other words, the CAPM tends to overstate the actual sensitivity of the cost of 9
capital to beta, with low-beta stocks tending to have higher returns and high-beta stocks 10
tending to have lower risk returns than predicted by the CAPM. This is illustrated 11
graphically in Figure 1: 12
FIGURE 1 13
CAPM – PREDICTED VS. OBSERVED RETURNS 14

Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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Because the betas of utility stocks, including those in the proxy group, are generally 1
less than 1.0, this implies that cost of equity estimates based on the traditional CAPM would 2
understate the cost of equity. This empirical finding is widely reported in the finance 3
literature, as summarized in New Regulatory Finance: 4
As discussed in the previous section, several finance scholars have 5
developed refined and expanded versions of the standard CAPM by 6
relaxing the constraints imposed on the CAPM, such as dividend 7
yield, size, and skewness effects. These enhanced CAPMs typically 8
produce a risk-return relationship that is flatter than the CAPM 9
prediction in keeping with the actual observed risk-return relationship. 10
The ECAPM makes use of these empirical relationships.23 11
As discussed in New Regulatory Finance, based on a review of the empirical evidence, the 12
expected return on a security is related to its risk by the ECAPM, which is represented by 13
the following formula: 14
Rj = Rf + 0.25(Rm - Rf) + 0.75[βj(Rm - Rf)] 15
Like the CAPM formula presented earlier, the ECAPM represents a stock’s required 16
return as a function of the risk-free rate (Rf), plus a risk premium. In the formula above, this 17
risk premium is composed of two parts: (1) the market risk premium (Rm - Rf) weighted by a 18
factor of 25%, and (2) a company-specific risk premium based on the stock’s relative 19
volatility [βj(Rm - Rf)] weighted by 75%. This ECAPM equation, and its associated 20
weighting factors, recognizes the observed relationship between standard CAPM estimates 21
and the cost of capital documented in the financial research, and corrects for the understated 22
returns that would otherwise be produced for low beta stocks. 23
Q. What cost of equity is indicated by the ECAPM? 24
A. My application of the ECAPM is based on the same forward-looking market 25
rate of return, risk-free rates, and beta values discussed earlier in connections with the 26

23 Roger A. Morin, New Regulatory Finance, Pub. Util. Reports (2006) at 189.
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CAPM. As shown on Exhibit No. 3, Schedule 8, applying the forward-looking ECAPM 1
approach to the firms in the Utility Group results in an average cost of equity estimate of 2
11.6%. 3
F. Utility Risk Premium
Q. Please briefly describe the risk premium method. 4
A. The risk premium method of estimating investors’ required rate of return 5
extends to common stocks the risk-return tradeoff observed with bonds. The cost of equity 6
is estimated by first determining the additional return investors require to forgo the relative 7
safety of bonds and to bear the greater risks associated with common stock, and by then 8
adding this equity risk premium to the current yield on bonds. Like the DCF model, the risk 9
premium method is capital market oriented. However, unlike DCF models, which indirectly 10
impute the cost of equity, risk premium methods directly estimate investors’ required rate of 11
return by adding an equity risk premium to observable bond yields. 12
Q. Is the risk premium approach a widely accepted method for estimating 13
the cost of equity? 14
A. Yes. The risk premium approach is based on the fundamental risk-return 15
principle that is central to finance, which holds that investors will require a premium in the 16
form of a higher return in order to assume additional risk. This method is routinely 17
referenced by the investment community and in academia and regulatory proceedings, and 18
provides an important tool in estimating a fair ROE for Avista. 19
Q. How do you implement the risk premium method? 20
A. Estimates of equity risk premiums for utilities are based on surveys of 21
previously authorized ROEs. Authorized ROEs presumably reflect regulatory commissions’ 22
best estimates of the cost of equity, however determined, at the time they issued their final 23
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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order. Such ROEs should represent a balanced and impartial outcome that considers the 1
need to maintain a utility’s financial integrity and ability to attract capital. Moreover, 2
allowed returns are an important consideration for investors and have the potential to 3
influence other observable investment parameters, including credit ratings and borrowing 4
costs. Thus, when considered in the context of a complete and rigorous analysis, this data 5
provides a logical and frequently referenced basis for estimating equity risk premiums for 6
regulated utilities. 7
Q. How do you calculate the equity risk premiums based on allowed 8
returns? 9
A. The ROEs authorized for electric utilities by regulatory commissions across 10
the U.S. are compiled by S&P Global Market Intelligence and published in its RRA 11
Regulatory Focus report. On page 2 of Exhibit No. 3, Schedule 9, the average yield on 12
public utility bonds is subtracted from the average allowed ROE for electric utilities to 13
calculate equity risk premiums for each year between 1974 and 2021.24 As shown there, 14
over this period these equity risk premiums for electric utilities average 3.87%, and the 15
yields on public utility bonds average 7.89%. 16
Q. Is there any capital market relationship that must be considered when 17
implementing the risk premium method? 18
A. Yes. The magnitude of equity risk premiums is not constant and equity risk 19
premiums tend to move inversely with interest rates. In other words, when interest rate 20
levels are relatively high, equity risk premiums narrow, and when interest rates are relatively 21
low, equity risk premiums widen. The implication of this inverse relationship is that the cost 22
of equity does not move as much as, or in lockstep with, interest rates. Accordingly, for a 23

24 My analysis encompasses the entire period for which published data is available.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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1% increase or decrease in interest rates, the cost of equity may only rise or fall some 1
fraction of 1%. Therefore, when implementing the risk premium method, adjustments may 2
be required to incorporate this inverse relationship if current interest rate levels have 3
diverged from the average interest rate level represented in the data set. 4
Current bond yields are lower than those prevailing over the risk premium study 5
periods. Given that equity risk premiums move inversely with interest rates, these lower 6
bond yields also imply an increase in the equity risk premium that investors require to accept 7
the higher uncertainties associated with an investment in utility common stocks versus 8
bonds. In other words, higher required equity risk premiums offset the impact of declining 9
interest rates on the ROE. 10
Q. Has this inverse relationship been documented in the financial research? 11
A. Yes. There is considerable empirical evidence that when interest rates are 12
relatively high, equity risk premiums narrow, and when interest rates are relatively low, 13
equity risk premiums are greater. This inverse relationship between equity risk premiums 14
and interest rates has been widely reported in the financial literature. As summarized by 15
New Regulatory Finance: 16
Published studies by Brigham, Shome, and Vinson (1985), Harris (1986), 17
Harris and Marston (1992, 1993), Carelton, Chambers, and Lakonishok 18
(1983), Morin (2005), and McShane (2005), and others demonstrate that, 19
beginning in 1980, risk premiums varied inversely with the level of interest 20
rates – rising when rates fell and declining when rates rose.25 21

25 Roger A. Morin, New Regulatory Finance, Pub. Util. Reports (2006) at 128.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
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Other regulators have also recognized that, while the cost of equity trends in the 1
same direction as interest rates, these variables do not move in lock-step.26 This relationship 2
is illustrated in the figure on page 3 of Exhibit No. 3, Schedule 9. 3
Q. What ROE is implied by the risk premium method using surveys of 4
allowed returns? 5
A. Based on the regression output between the interest rates and equity risk 6
premiums displayed on page 3 of Exhibit No. 3, Schedule 9, the equity risk premium for 7
electric utilities increases by approximately 43 basis points for each percentage point drop in 8
the yield on average public utility bonds. As illustrated on page 1 of Exhibit No. 3, 9
Schedule 9 with an average yield on public utility bonds for the six months ending 10
November 2022 of 5.26%, this implies a current equity risk premium of 5.00% for electric 11
utilities. Adding this equity risk premium to the six-month average yield on Baa utility 12
bonds of 5.55% implies a current ROE of 10.55%. 13
G. Expected Earnings Approach
Q. What other analyses do you conduct to estimate the ROE? 14
A. I also evaluate the cost of common equity using the expected earnings 15
method. Reference to rates of return available from alternative investments of comparable 16
risk can provide an important benchmark in assessing the return necessary to assure 17
confidence in the financial integrity of a firm and its ability to attract capital. This expected 18
earnings approach is consistent with the economic underpinnings for a fair rate of return 19

26 See, e.g., Texas Public Utility Commission, PUC Docket No. 51415, Direct Testimony of Mark Filarowicz
(Apr. 7, 2021) at 22-23 (noting, “several studies have identified an inverse relationship between the level of
interest rates and the size of equity risk premiums.”); California Public Utilities Commission, Decision 08-05-
035 (May 29, 2008); Entergy Mississippi Formula Rate Plan FRP-7, https://cdn.entergy-
mississippi.com/userfiles/content/price/tariffs/eml_frp.pdf (last visited Dec 13, 2022); Opinion No. 531, 147
FERC ¶ 61,234 at P 147 (2014).
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established by the U.S. Supreme Court in Bluefield27 and Hope.28 Moreover, it avoids the 1
complexities and limitations of capital market methods and instead focuses on the returns 2
earned on book equity, which are readily available to investors. 3
Q. What economic premise underlies the expected earnings approach? 4
A. The simple, but powerful concept underlying the expected earnings approach 5
is that investors compare each investment alternative with the next best opportunity. If the 6
utility is unable to offer a return similar to that available from other opportunities of 7
comparable risk, investors will become unwilling to supply the capital on reasonable terms. 8
For existing investors, denying the utility an opportunity to earn what is available from other 9
similar risk alternatives prevents them from earning their opportunity cost of capital. Such 10
an outcome would violate the Hope and Bluefield standards and undermine the utility’s 11
access to capital on reasonable terms. 12
Q. How is the expected earnings approach typically implemented? 13
A. The traditional comparable earnings test identifies a group of companies that 14
are believed to be comparable in risk to the utility. The actual earnings of those companies 15
on the book value of their investment are then compared to the allowed return of the utility. 16
While the traditional comparable earnings test is implemented using historical data taken 17
from the accounting records, it is also common to use projections of returns on book 18
investment, such as those published by recognized investment advisory publications (e.g., 19
Value Line). Because these returns on book value equity are analogous to the allowed return 20
on a utility’s rate base, this measure of opportunity costs results in a direct, “apples to 21
apples” comparison. 22

27 Bluefield Water Works & Improvement Co. v. Pub. Serv. Comm’n, 262 U.S. 679 (1923) (“Bluefield”).
28 Federal Power Comm’n v. Hope Natural Gas Co., 320 U.S. 391 (1944) (“Hope”).
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Moreover, regulators do not set the returns that investors earn in the capital markets, 1
which are a function of dividend payments and fluctuations in common stock prices, both of 2
which are outside their control. Regulators can only establish the allowed ROE, which is 3
applied to the book value of a utility’s investment in rate base, as determined from its 4
accounting records. This is directly analogous to the expected earnings approach, which 5
measures the return that investors expect the utility to earn on book value. As a result, the 6
expected earnings approach provides a meaningful guide to ensure that the allowed ROE is 7
similar to what other utilities of comparable risk will earn on invested capital. This expected 8
earnings test does not require theoretical models to indirectly infer investors’ perceptions 9
from stock prices or other market data. As long as the proxy companies are similar in risk, 10
their expected earned returns on invested capital provide a direct benchmark for investors’ 11
opportunity costs that is independent of fluctuating stock prices, market-to-book ratios, 12
debates over DCF growth rates, or the limitations inherent in any theoretical model of 13
investor behavior. 14
Q. What ROE is indicated for the Utility Group based on the expected 15
earnings approach? 16
A. For the firms in the Utility Group, the year-end returns on common equity 17
projected by Value Line over its forecast horizon are shown on Exhibit No. 3, Schedule 10. 18
As I explained earlier in my discussion of the br+sv growth rates used in applying the DCF 19
model, Value Line’s returns on common equity are calculated using year-end equity 20
balances, which understates the average return earned over the year.29 Accordingly, these 21
year-end values were converted to average returns using the same adjustment factor 22

29 For example, to compute the annual return on a passbook savings account with a beginning balance of
$1,000 and an ending balance of $5,000, the interest income would be divided by the average balance of
$3,000. Using the $5,000 balance at the end of the year would understate the actual return.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 28 of 32
Schedule 2
Page 29 of 32

discussed earlier and developed on Exhibit No. 3, Schedule 6. As shown on Exhibit No. 3, 1
Schedule 10, Value Line’s projections suggest an average ROE of 11.0% for the Utility 2
Group. 3
II. NON-UTILITY BENCHMARK
Q. What is the purpose of this section of your testimony? 4
A. This section presents the results of my DCF analysis applied to a group of 5
low-risk firms in the competitive sector, which I refer to as the “Non-Utility Group.” This 6
analysis is not relied on to arrive at my recommended ROE range of reasonableness; 7
however, it is my opinion that this is a relevant consideration in evaluating a just and 8
reasonable ROE for the Company’s electric utility operations. 9
Q. Do utilities have to compete with non-regulated firms for capital? 10
A. Yes. The cost of capital is an opportunity cost based on the returns that 11
investors could realize by putting their money in other alternatives. Clearly, the total capital 12
invested in utility stocks is only the tip of the iceberg of total common stock investment, and 13
there are a plethora of other enterprises available to investors beyond those in the utility 14
industry. Utilities must compete for capital, not just against firms in their own industry, but 15
with other investment opportunities of comparable risk. Indeed, modern portfolio theory is 16
built on the assumption that rational investors will hold a diverse portfolio of stocks, not just 17
companies in a single industry. 18
Q. Is it consistent with the Bluefield and Hope cases to consider investors’ 19
required ROE for non-utility companies? 20
A. Yes. The cost of equity capital in the competitive sector of the economy form 21
the very underpinning for utility ROEs because regulation purports to serve as a substitute 22
for the actions of competitive markets. The Supreme Court has recognized that it is the 23
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 29 of 32
Schedule 2
Page 30 of 32

degree of risk, not the nature of the business, which is relevant in evaluating an allowed 1
ROE for a utility. The Bluefield case refers to “business undertakings attended with 2
comparable risks and uncertainties.” It does not restrict consideration to other utilities. 3
Similarly, the Hope case states: 4
By that standard, the return to the equity owner should be commensurate with 5
returns on investments in other enterprises having corresponding risks.30 6
As in the Bluefield decision, there is nothing to restrict “other enterprises” solely to the 7
utility industry. 8
Q. Does consideration of the results for the Non-Utility Group improve the 9
reliability of DCF results? 10
A. Yes. The estimates of growth from the DCF model depend on analysts’ 11
forecasts. It is possible for utility growth rates to be distorted by short-term trends in the 12
industry, or by the industry falling into favor or disfavor by analysts. Such distortions could 13
result in biased DCF estimates for utilities. Because the Non-Utility Group includes low 14
risk companies from many industries, it helps to insulate against any possible distortion that 15
may be present in the results for a particular sector. 16
Q. What criteria do you apply to develop the Non-Utility Group? 17
A. My comparable risk proxy group is composed of those United States 18
companies followed by Value Line that: 19
1) pay common dividends; 20
2) have a Safety Rank of “1”; 21
3) have a Financial Strength Rating of “A” or greater; 22
4) have a beta of 1.00 or less; and 23
5) have investment grade credit ratings from S&P and Moody’s. 24

30 Federal Power Comm’n v. Hope Natural Gas Co., 320 U.S. 391 (1944) (“Hope”).
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 30 of 32
Schedule 2
Page 31 of 32

Q. How do the overall risks of this Non-Utility Group compare with the 1
Utility Group and Avista? 2
A. Table 3 compares the Non-Utility Group with the Utility Group and Avista 3
across the measures of investment risk discussed earlier: 4
TABLE 3 5
COMPARISON OF RISK INDICATORS 6

As shown above, the risk indicators for the Non-Utility Group uniformly suggest less risk 7
than for the Utility Group and Avista. 8
The companies that make up the Non-Utility Group are representative of the 9
pinnacle of corporate America. These firms, which include household names such as 10
McDonald’s, Cisco, Procter & Gamble, and Walmart, have long corporate histories, well-11
established track records, and exceedingly conservative risk profiles. Many of these 12
companies pay dividends on a par with utilities, with the dividend yield for the group 13
averaging 2.3 percent. Moreover, because of their significance and name recognition, these 14
companies receive intense scrutiny by the investment community, which increases 15
confidence that published growth estimates are representative of the consensus expectations 16
reflected in common stock prices. 17
Q. What are the results of your DCF analysis for the Non-Utility Group? 18
A. I apply the DCF model to the Non-Utility Group using the same analysts’ 19
EPS growth projections described earlier for the Utility Group. The results of my DCF 20
Safety Financial
S&P Moody's Rank Strength Beta
Non-Utility Group A- A3 1 A+0.79
Utility Group BBB+Baa2 2 A 0.90
Avista BBB Baa2 2 B++0.90
Value Line
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 31 of 32
Schedule 2
Page 32 of 32

analysis for the Non-Utility Group are presented on page 3 of Exhibit No. 3, Schedule 13. 1
As summarized in Table 4, after eliminating illogical values, application of the constant 2
growth DCF model results in the following cost of equity estimates: 3
TABLE 4 4
DCF RESULTS – NON-UTILITY GROUP 5

As discussed earlier, reference to the Non-Utility Group is consistent with established 6
regulatory principles. Required returns for utilities should be in line with those of 7
non-utility firms of comparable risk operating under the constraints of free competition. 8
Because the actual cost of equity is unobservable, and DCF results inherently incorporate a 9
degree of error, cost of equity estimates for the Non-Utility Group provide an important 10
benchmark in evaluating a fair and reasonable ROE for Avista. 11
Growth Rate Average Midpoint
Value Line 10.7% 11.1%
IBES 10.5% 11.4%
Zacks 10.5% 10.7%
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 2, Page 32 of 32
ROE ANALYSIS Schedule 3
Page 1 of 1
SUMMARY OF RESULTS
Method Average
DCF
Value Line 9.4%
IBES 10.4%
Zacks 9.7%
Internal br + sv 9.1%
CAPM 11.4%
ECAPM 11.6%
Utility Risk Premium 10.6%
Expected Earnings 11.0%
Cost of Equity
Range 9.9% --
Flotation Cost Adjustment 0.07%
Recommended ROE Range
Range 9.97% --
Midpoint 10.67%
ROE Recommendation
11.3%
11.37%
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 3, Page 1 of 1
REGULATORY MECHANISMS Schedule 4
Page 1 of 4
UTILITY GROUP
(b) (c)
Conserv.Future Formula
Program Trad. Renewables/ Delivery Environ. Trans. Test Rates /
Company Fuel/PPA Expense Full Partial Generation Non-Trad. Infra. Compliance Costs Year MRP
1 ALLETE ✓ ✓ -- -- -- -- -- ✓ ✓C ✓
2 Ameren Corp.✓ ✓ ✓ ✓-- ✓ ✓ ✓ ✓O,P ✓
3 Avista Corp.✓ ✓ ✓-- -- -- -- -- -- P ✓
4 Black Hills Corp.✓ ✓--✓ ✓ ✓--✓ ✓O ✓
5 CenterPoint Energy ✓ ✓ -- ✓* -- -- ✓*✓*✓ --✓
6 CMS Energy Corp.✓ ✓ -- -- --✓-- --✓C --
7 Dominion Energy ✓ ✓ -- --✓ ✓ ✓ ✓ ✓--✓
8 DTE Energy Co.✓ ✓ -- -- --✓-- --✓C --
9 Duke Energy Corp.✓ ✓ --✓ ✓ ✓ ✓ ✓ ✓C,O,P ✓
10 Edison International ✓ -- ✓ -- -- -- -- -- -- C ✓
11 Emera Inc.✓ ✓ -- -- ✓*✓* -- *✓ -- C ✓
12 Entergy Corp.✓ ✓ -- ✓ ✓ ✓ ✓ ✓ ✓O,P ✓
13 Exelon Corp. D ✓ ✓ ✓ ✓ ✓ ✓ ✓O,P ✓
14 Hawaiian Elec.✓ ✓ -- -- -- ✓-- -- -- C ✓
15 IDACORP, Inc.✓ ✓ ✓-- -- -- -- -- -- C,P --
16 NorthWestern Corp.✓ ✓-- -- -- -- -- -- -- -- --
17 OGE Energy Corp.✓ ✓--✓ ✓ ✓ ✓ ✓ ✓P ✓
18 Otter Tail Corp.✓ ✓-- --✓ ✓ ✓ ✓ ✓C,O ✓
19 Pinnacle West Capital ✓ ✓--✓--✓--✓ ✓--✓
20 Pub Sv Enterprise Grp. D ✓--✓-- --✓ ✓-- P --
21 Sempra Energy ✓ ✓ ✓-- -- --✓--✓C ✓
22 Southern Company ✓-- --✓ ✓ ✓--✓-- C,O ✓
NotesD - Delivery-only utility.
C - Fully-forecasted test years commonly used in the state listed for this operating company.
O - Fully-forecasted test years occasionally used in the state listed for this operating company.P - Partially-forecasted test years commonly or occasionally used in the state listed for this operating company.
Source: Schedule 4, pages 2-5, contain operating company data that are aggregated into the parent company data on this page.
Type of Adjustment Clause (a)
New Capital
Decoupling
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 4, Page 1 of 4
Schedule 4
Page 2 of 4
REGULATORY MECHANISMS
ELECTRIC GROUP OPERATING COS.
(b) (c)
Conserv.Future Formula
Program Trad. Renewables/ Delivery Environ. Trans. Test Rates /
Company State Fuel/PPA Expense Full Partial Generation Non-Trad.Infra. Compliance Costs Year MRP
1 ALLETE
Minnesota Power Enterprises Inc. MN ✓ ✓ -- -- -- ✓ -- -- ✓ C ✓
2 AMEREN CORP.
Ameren Illinois Co. IL D *✓ -- ✓* -- ✓ -- ✓*✓ O ✓
Union Electric Co. MO ✓ ✓* -- ✓* -- ✓*✓* -- *✓* P --
3 AVISTA CORP.
Alaska Electric Light & Power Co. AK ✓ -- -- -- -- -- -- -- -- -- --
Avista Corp. ID ✓*✓ ✓* -- -- -- -- -- -- P --
Avista Corp. WA ✓*✓ ✓-- * -- -- -- -- -- --✓
4 BLACK HILLS CORP.
Black Hills Colorado Electric Inc. CO ✓ ✓ -- -- ✓*✓ -- --✓--✓
Black Hills Power Inc.SD ✓-- -- -- -- -- -- ✓*✓* -- --
Cheyenne Light Fuel & Power Co. WY ✓ ✓ -- ✓* -- -- -- -- -- O --
5 CENTERPOINT ENERGY
Southern Indiana Gas & Electric Co. IN ✓ ✓ -- ✓* -- -- ✓*✓*✓ --✓
CenterPoint Energy Houston Electric LLC TX -- *✓-- -- -- -- ✓-- ✓--✓
6 CMS ENERGY
Consumers Energy Co. MI ✓ ✓ -- * -- -- ✓ -- -- ✓* C --
7 DOMINION ENERGY
Virginia Electric & Power Co. NC ✓ ✓* -- -- * -- ✓* -- ✓-- -- --
Dominion Energy South Carolina SC ✓ ✓ -- -- ✓* -- -- ✓-- --✓
Virginia Electric & Power Co. VA ✓ ✓-- -- ✓ ✓ ✓ ✓ ✓--✓
8 DTE ENERGY CO.
DTE Electric Co. MI ✓ ✓ -- * -- -- ✓ -- -- ✓* C --
9 DUKE ENERGY
Duke Energy Florida LLC FL ✓ ✓ -- -- ✓*✓* -- *✓ -- C ✓
Duke Energy Indiana LLC IN ✓ ✓ -- ✓* --✓ ✓*✓*✓ --✓
Duke Energy Kentucky Inc. KY ✓ ✓ -- ✓* -- -- --✓-- O --
Duke Energy Carolinas LLC NC ✓ ✓* -- -- * -- ✓* -- ✓-- -- --
Duke Energy Progress LLC NC ✓ ✓* -- -- * -- ✓* -- ✓-- -- --
Duke Energy Ohio Inc.OH D *✓* -- ✓* -- ✓ ✓* -- ✓ P ✓
Duke Energy Progress LLC SC ✓ ✓ -- -- -- * -- -- ✓-- --✓
Duke Energy Carolinas LLC SC ✓ ✓ -- -- -- * -- -- ✓-- --✓
Type of Adjustment Clause (a)
New Capital
Decoupling
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 4, Page 2 of 4
Schedule 4
Page 3 of 4
REGULATORY MECHANISMS
ELECTRIC GROUP OPERATING COS.
(b) (c)
Conserv.Future Formula
Program Trad. Renewables/ Delivery Environ. Trans. Test Rates /
Company State Fuel/PPA Expense Full Partial Generation Non-Trad.Infra. Compliance Costs Year MRP
Type of Adjustment Clause (a)
New Capital
Decoupling
10 EDISON INTERNATIONAL
Southern California Edison Co. CA ✓ -- ✓ -- -- -- -- -- -- C ✓
11 EMERA INC.
Tampa Electric Co. FL ✓ ✓ -- -- ✓*✓* -- *✓ -- C ✓
12 ENTERGY CORP.
Entergy Arkansas LLC AR ✓ ✓ -- ✓*✓*✓*✓* -- ✓ P ✓
Entergy New Orleans LLC LA ✓ ✓ -- -- -- ✓ -- ✓*✓* O ✓
Entergy Louisiana LLC LA ✓ ✓* -- ✓* -- -- --✓ -- O ✓
Entergy Mississippi LLC MS ✓ -- -- ✓* -- -- -- --✓ O ✓
Entergy Texas Inc. TX ✓*✓-- -- ✓* -- ✓-- ✓--✓
13 EXELON CORP.
Delmarva Power & Light Co. DE D *✓ -- -- -- -- ✓* -- ✓P --
Potomac Electric Power Co. DC D * -- -- ✓* -- ✓*✓* -- -- P --
Commonwealth Edison Co. IL D *✓ -- -- -- ✓ ✓*✓*✓ O ✓
Baltimore Gas & Electric Co.MD D *✓ ✓ -- -- -- -- -- -- P --
Delmarva Power & Light Co.MD D *✓ ✓ -- -- -- -- -- -- P --
Potomac Electric Power Co.MD D *✓ ✓ -- -- -- ✓* -- -- P --
Atlantic City Electric Co.NJ D *✓* -- ✓* -- -- ✓*✓* -- P --
PECO Energy Co.PA D *✓ -- -- -- --✓* -- ✓ O --
14 HAWAIIAN ELEC.
Hawaiian Electric Co.HI ✓ ✓ -- -- -- ✓* -- -- -- C ✓
Hawaii Electric Light Co.HI ✓ ✓ -- -- -- -- -- -- -- C ✓
Maui Electric Co.HI ✓ ✓ -- -- -- ✓* -- -- -- C ✓
15 IDACORP, INC.
Idaho Power Co.ID ✓*✓ ✓* -- -- -- -- -- -- P --
Idaho Power Co.OR ✓ ✓ -- -- -- -- -- -- -- C --
16 NORTHWESTERN CORP.
NorthWestern Corp.MT ✓*✓ -- -- -- -- -- -- -- -- --
NorthWestern Corp.SD ✓ ✓ -- -- -- -- -- -- -- -- --
17 OGE ENERGY CORP.
Oklahoma Gas & Electric Co.AR ✓ ✓ -- ✓*✓ ✓ ✓ ✓ ✓ P --
Oklahoma Gas & Electric Co.OK ✓ ✓* -- ✓* -- --✓*✓*✓* --✓
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 4, Page 3 of 4
Schedule 4
Page 4 of 4
REGULATORY MECHANISMS
ELECTRIC GROUP OPERATING COS.
(b) (c)
Conserv.Future Formula
Program Trad. Renewables/ Delivery Environ. Trans. Test Rates /
Company State Fuel/PPA Expense Full Partial Generation Non-Trad.Infra. Compliance Costs Year MRP
Type of Adjustment Clause (a)
New Capital
Decoupling
18 OTTER TAIL CORP.
Otter Tail Power Co.MN ✓ ✓ -- -- --✓--✓ ✓C --
Otter Tail Power Co.ND ✓ -- -- --✓*✓*✓*✓*✓* O ✓
Otter Tail Power Corp.SD ✓ ✓-- --✓* --✓ ✓-- -- --
19 PINNACLE WEST CAPITAL
Arizona Public Service Co.AZ ✓ ✓--✓* --✓--✓ ✓--✓
20 PUB SV ENTERPRISE GRP
Public Service Electric & Gas Co.NJ D *✓* --✓* -- --✓*✓* -- P --
21 SEMPRA ENERGY
San Diego Gas & Electric Co.CA ✓ -- ✓-- -- -- -- -- -- C ✓
Oncor Electric Delivery Co.TX D *✓-- -- -- --✓--✓--✓
22 SOUTHERN CO.
Alabama Power Co.AL ✓* -- -- --✓*✓ --✓* -- C ✓
Georgia Power Co.GA ✓ -- -- --✓* -- --✓* -- C ✓
Mississippi Power Co.MS ✓ -- --✓* -- -- --✓* -- O ✓
(a) S&P Global Market Intelligence, Adjustment clauses: A state by state overview, Regulatory Focus Topical Special Report (Jul. 18, 2022).(b) Edison Electric Institute, Alternative Regulation for Emerging Utility Challenges: 2015 Update (Nov. 11, 2015).
(c)
Notes
D - Delivery-only utility.
C - Fully-forecasted test years commonly used in the state listed for this operating company.
O - Fully-forecasted test years occasionally used in the state listed for this operating company.
P - Partially-forecasted test years commonly or occasionally used in the state listed for this operating company.
* For additional context around the specific recovery mechanisms available to the particular operating companies in each state, see the source document.
Formula rates and Multiyear Rate plans approved in the state listed for this operating company. See, U.S. Department of Energy, State Performance-Based Regulation Using Multiyear Rate Plans for U.S.
Electric Utilities,GRID Modernization Laboratory Consortium (Jul. 2017); The Brattle Group, Exploring the Use of Alternative Regulatory Mechanisms to Establish New Base Rates , Joint Utilities of Maryland
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 4, Page 4 of 4
CAPITAL STRUCTURE Schedule 5
Page 1 of 3
UTILITY GROUP
Common Common
Company Debt Preferred Equity Debt Preferred Equity
1 ALLETE 40.2% 0.0% 59.8% 40.5% 0.0% 59.5%
2 Ameren Corp.57.1% 0.0% 42.9% 51.0% 0.5% 48.5%
3 Avista Corp.49.9% 0.0% 50.1% 48.5% 0.0% 51.5%
4 Black Hills Corp.58.8% 0.0% 41.2% 50.0% 0.0% 50.0%
5 CenterPoint Energy 63.1% 3.1% 33.8% 60.0% 2.5% 37.5%
6 CMS Energy Corp.63.4% 1.1% 35.5% 61.0% 1.0% 38.0%
7 Dominion Energy 58.4% 2.7% 38.9% 56.5% 2.0% 41.5%
8 DTE Energy Co.66.6% 0.0% 33.4% 61.0% 0.0% 39.0%
9 Duke Energy Corp.55.5% 0.0% 44.5% 61.0% 1.5% 37.5%
10 Edison International 58.7% 0.0% 41.3% 61.5% 6.5% 32.0%
11 Emera Inc.59.1% 5.7% 35.2% 56.2% 0.0% 43.8%
12 Entergy Corp.68.5% 0.6% 31.0% 66.0% 0.5% 33.5%
13 Exelon Corp.52.9% 0.0% 47.1% 64.5% 0.0% 35.5%
14 Hawaiian Elec.49.8% 0.7% 49.4% 50.0% 0.5% 49.5%
15 IDACORP, Inc.42.8% 0.0% 57.2% 50.0% 0.0% 50.0%
16 NorthWestern Corp.52.2% 0.0% 47.8% 49.0% 0.0% 51.0%
17 OGE Energy Corp.52.6% 0.0% 47.4% 50.0% 0.0% 50.0%
18 Otter Tail Corp.43.5% 0.0% 56.5% 42.5% 0.0% 57.5%
19 Pinnacle West Capital 54.0% 0.0% 46.0% 55.0% 0.0% 45.0%
20 Pub Sv Enterprise Grp. 52.4% 0.0% 47.6% 57.5% 0.0% 42.5%
21 Sempra Energy 43.6% 0.0% 56.4% 46.5% 1.5% 52.0%
22 Southern Company 61.6% 0.3% 38.0% 63.0% 0.0% 37.0%
Minimum 40.2% 0.0% 31.0% 40.5% 0.0% 32.0%
Maximum 68.5% 5.7% 59.8% 66.0% 6.5% 59.5%
Average 54.8% 0.7% 44.6% 54.6% 0.8% 44.7%
(a) 2021 SEC Form 10-K reports.
(b)The Value Line Investment Survey (Sep. 9, Oct. 21 and Nov. 11, 2022).
At Year-end 2021 (a)Value Line Projected (b)
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 5, Page 1 of 3
CAPITAL STRUCTURE Schedule 5
Page 2 of 3
UTILITY GROUP OPERATING SUBSIDIARIES
Operating Company Debt Preferred
Common
Equity
1 ALLETE
ALLETE, Inc. (Minnesota Power) 43.9% 0.0% 56.1%
2 AMEREN CORP.
Ameren Illinois Co. 43.8% 0.5% 55.7%
Union Electric Co. 48.7% 0.7% 50.6%
3 AVISTA CORP.
Avista Corp. 52.8% 0.0% 47.2%
Alaska Electric Light & Power 39.5% 0.0% 60.5%
4 BLACK HILLS CORP.
Black Hills Power 52.0% 0.0% 48.0%
Cheyenne Light Fuel & Power 53.6% 0.0% 46.4%
Black Hills/Colorado Electric Utility Co 53.4% 0.0% 46.6%
5 CENTERPOINT ENERGY
Centerpoint Energy Houston Electric 60.3% 0.0% 39.7%
6 CMS ENERGY
Consumers Energy Co. 47.7% 0.2% 52.1%
7 DOMINION ENERGY
Virginia Electric & Power 47.2% 0.0% 52.8%
Dominion Energy South Carolina 48.7% 1.2% 50.1%
8 DTE ENERGY CO.
DTE Electric Co. 50.0% 0.0% 50.0%
9 DUKE ENERGY
Duke Energy Carolinas 48.9% 0.0% 51.1%
Duke Energy Florida 50.6% 0.0% 49.4%
Duke Energy Indiana 46.3% 0.0% 53.7%
Duke Energy Ohio 41.7% 0.0% 58.3%
Duke Energy Progress 51.8% 0.0% 48.2%
Duke Energy Kentucky 50.4% 0.0% 49.6%
10 EDISON INTERNATIONAL
Southern California Edison Co. 52.9% 4.6% 42.4%
11 EMERA INC.
Tampa Electric Co. 46.3% 0.0% 53.7%
12 ENTERGY CORP.
Entergy Arkansas Inc. 52.5% 0.0% 47.5%
Entergy Louisiana LLC 57.2% 0.0% 42.8%
Entergy Mississippi Inc. 54.2% 0.0% 45.8%
Entergy New Orleans Inc. 55.2% 0.0% 44.8%
Entergy Texas Inc. 48.7% 0.8% 50.5%
At Year-End 2021 (a)
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 5, Page 2 of 3
CAPITAL STRUCTURE Schedule 5
Page 3 of 3
UTILITY GROUP OPERATING SUBSIDIARIES
Operating Company Debt Preferred
Common
Equity
13 EXELON CORP.
Delmarva Power and Light 50.5% 0.0% 49.5%
Baltimore Gas & Electric Co. 46.4% 0.0% 53.6%
Commonweath Edison Co. 44.7% 0.0% 55.3%
PECO Energy Co. 46.1% 0.0% 53.9%
Potomac Electric Power Co. 49.8% 0.0% 50.2%
Atlantic City Electric Co. 50.2% 0.0% 49.8%
14 HAWAIIAN ELEC.
Hawaiian Electric Co. 42.2% 0.9% 56.9%
15 IDACORP
Idaho Power Co. 44.8% 0.0% 55.2%
16 NORTHWESTERN CORP.
NorthWestern Corporation 52.2% 0.0% 47.8%
17 OGE ENERGY CORP.
Oklahoma G&E 46.5% 0.0% 53.5%
18 OTTER TAIL CORP.
Otter Tail Power Co. 47.6% 0.0% 52.4%
19 PINNACLE WEST CAPITAL
Arizona Public Service Co. 48.1% 0.0% 51.9%
20 PUB SV ENTERPRISE GRP
Pub Service Electric & Gas Co. 44.7% 0.0% 55.3%
21 SEMPRA ENERGY
San Diego Gas & Electric 48.1% 0.0% 51.9%
Oncor Electric Delivery 42.5% 0.0% 57.5%
22 SOUTHERN CO.
Alabama Power Co. 46.8% 1.4% 51.8%
Georgia Power Co. 44.4% 0.0% 55.6%
Mississippi Power Co. 44.7% 0.0% 55.3%
`Minimum 39.5% 0.0% 39.7%
Maximum 60.3% 4.6% 60.5%
Average 48.6% 0.2% 51.2%
(a) Data from 2021 Company Form 10-K and FERC Form 1 reports.
At Year-End 2021 (a)
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 5, Page 3 of 3
DCF MODEL - UTILITY GROUP Schedule 6
Page 1 of 3
DIVIDEND YIELD
(a)(b)
Company Price Dividends Yield
1 ALLETE 53.07$ 2.60$ 4.9%
2 Ameren Corp. 79.93$ 2.44$ 3.1%
3 Avista Corp. 38.23$ 1.76$ 4.6%
4 Black Hills Corp. 64.57$ 2.50$ 3.9%
5 CenterPoint Energy 27.65$ 0.73$ 2.6%
6 CMS Energy Corp. 56.44$ 1.89$ 3.3%
7 Dominion Energy 66.09$ 2.79$ 4.2%
8 DTE Energy Co.110.22$ 3.54$ 3.2%
9 Duke Energy Corp.91.44$ 4.02$ 4.4%
10 Edison International 58.01$ 2.80$ 4.8%
11 Emera Inc.52.10$ 2.76$ 5.3%
12 Entergy Corp.104.75$ 4.28$ 4.1%
13 Exelon Corp.37.64$ 1.40$ 3.7%
14 Hawaiian Elec.36.33$ 1.40$ 3.9%
15 IDACORP, Inc.99.80$ 3.16$ 3.2%
16 NorthWestern Corp.51.59$ 2.55$ 4.9%
17 OGE Energy Corp.36.06$ 1.66$ 4.6%
18 Otter Tail Corp.62.00$ 1.65$ 2.7%
19 Pinnacle West Capital 65.62$ 3.50$ 5.3%
20 Pub Sv Enterprise Grp.56.29$ 2.25$ 4.0%
21 Sempra Energy 148.69$ 4.75$ 3.2%
22 Southern Company 65.09$ 2.72$ 4.2%
Average 4.0%
(a) Average of closing prices for 30 trading days ended Nov. 11, 2022.
(b) The Value Line Investment Survey, Summary & Index (Nov. 11, 2022).
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 6, Page 1 of 3
DCF MODEL - UTILITY GROUP Schedule 6
Page 2 of 3
GROWTH RATES
(a)(b)(c) (d)
br+sv
Company V Line IBES Zacks Growth
1 ALLETE 6.0% 8.7% 8.2% 4.8%
2 Ameren Corp. 6.5% 6.3% 7.2% 5.6%
3 Avista Corp. 3.0% 5.2% 5.2% 3.9%
4 Black Hills Corp. 6.0% 5.4% 5.4% 5.7%
5 CenterPoint Energy 6.5% -0.4% 3.5% 5.0%
6 CMS Energy Corp. 6.5% 8.4% 8.0% 6.0%
7 Dominion Energy 5.5% 6.2% 5.7% 6.5%
8 DTE Energy Co. 4.5% 4.0% 6.0% 6.4%
9 Duke Energy Corp. 5.0% 5.5% 5.5% 3.2%
10 Edison International 16.0% 4.4% 2.6% 6.4%
11 Emera Inc. 6.5% 5.1% n/a 4.0%
12 Entergy Corp. 4.0% 6.2% 6.8% 5.7%
13 Exelon Corp. n/a 6.2% 7.1% 4.3%
14 Hawaiian Elec. 4.0% 1.3% 2.6% 4.2%
15 IDACORP, Inc. 4.0% 3.4% 3.4% 3.7%
16 NorthWestern Corp. 2.5% 4.5% 1.7% 3.5%
17 OGE Energy Corp. 6.5% 1.9% 5.0% 5.5%
18 Otter Tail Corp. 4.5% 9.0% n/a 5.1%
19 Pinnacle West Capital 0.5% -7.2% n/a 4.6%
20 Pub Sv Enterprise Grp. 4.5% 3.2% 3.2% 5.5%
21 Sempra Energy 7.0% 3.9% 5.7% 0.0%
22 Southern Company 6.5% 6.5% 4.0% 0.0%
(a) The Value Line Investment Survey (Sep. 9, Oct. 21 and Nov. 11, 2022).
(b) www.finance.yahoo.com (retreived Nov. 11, 2022).
(c) www.zacks.com (retrieved Nov. 11, 2022).
(d) See Schedule 7.
Earnings Growth
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 6, Page 2 of 3
DCF MODEL - UTILITY GROUP Schedule 6
Page 3 of 3
COST OF EQUITY ESTIMATES
(a) (a) (a) (a)
br+sv
Company V Line IBES Zacks Growth
1 ALLETE 10.9% 13.6% 13.0% 9.7%
2 Ameren Corp. 9.6% 9.3% 10.3% 8.7%
3 Avista Corp. 7.6% 9.8% 9.8% 8.5%
4 Black Hills Corp. 9.9% 9.3% 9.2% 9.6%
5 CenterPoint Energy 9.1% 2.2% 6.2% 7.6%
6 CMS Energy Corp. 9.8% 11.8% 11.4% 9.3%
7 Dominion Energy 9.7% 10.4% 9.9% 10.7%
8 DTE Energy Co. 7.7% 7.2% 9.2% 9.6%
9 Duke Energy Corp. 9.4% 9.9% 9.9% 7.6%
10 Edison International 20.8% 9.2% 7.4% 11.2%
11 Emera Inc. 11.8% 10.4% n/a 9.3%
12 Entergy Corp. 8.1% 10.3% 10.8% 9.8%
13 Exelon Corp. n/a 9.9% 10.8% 8.0%
14 Hawaiian Elec. 7.9% 5.2% 6.4% 8.1%
15 IDACORP, Inc. 7.2% 6.6% 6.5% 6.8%
16 NorthWestern Corp. 7.4% 9.4% 6.7% 8.5%
17 OGE Energy Corp. 11.1% 6.5% 9.6% 10.1%
18 Otter Tail Corp. 7.2% 11.7% n/a 7.8%
19 Pinnacle West Capital 5.8% -1.9% n/a 10.0%
20 Pub Sv Enterprise Grp. 8.5% 7.2% 7.2% 9.5%
21 Sempra Energy 10.2% 7.1% 8.9% 3.2%
22 Southern Company 10.7% 10.7% 8.2% 4.2%
Average (b) 9.4% 10.4% 9.7% 9.1%
(a) Sum of dividend yield (Schedule 6, p. 1) and respective growth rate (Schedule 6, p. 2).
(b) Excludes highlighted values.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 6, Page 3 of 3
BR+SV GROWTH RATE Schedule 7
Page 1 of 2
UTILITY GROUP
(a) (a) (a) (b) (c) (d) (e)(f) (g)
Adjustment
Company EPS DPS BVPS b r Factor Adjusted r br s v sv br + sv
1 ALLETE $4.75 $3.00 $54.00 36.8% 8.8% 1.0313 9.1% 3.3% 0.0424 0.3455 1.46% 4.8%
2 Ameren Corp.$5.25 $3.10 $51.25 41.0% 10.2% 1.0389 10.6% 4.4% 0.0294 0.4306 1.27% 5.6%
3 Avista Corp.$2.80 $2.05 $35.00 26.8% 8.0% 1.0296 8.2% 2.2% 0.0476 0.3636 1.73% 3.9%
4 Black Hills Corp. $5.20 $2.95 $52.55 43.3% 9.9% 1.0294 10.2% 4.4% 0.0319 0.4161 1.33% 5.7%
5 CenterPoint Energy $1.80 $0.95 $18.00 47.2% 10.0% 1.0280 10.3% 4.9% 0.0027 0.4000 0.11% 5.0%
6 CMS Energy Corp. $3.75 $2.30 $29.25 38.7% 12.8% 1.0322 13.2% 5.1% 0.0155 0.5500 0.85% 6.0%
7 Dominion Energy $5.30 $3.40 $42.00 35.8% 12.6% 1.0359 13.1% 4.7% 0.0323 0.5579 1.80% 6.5%
8 DTE Energy Co. $7.50 $4.65 $60.75 38.0% 12.3% 1.0365 12.8% 4.9% 0.0274 0.5500 1.51% 6.4%
9 Duke Energy Corp. $6.50 $4.30 $70.00 33.8% 9.3% 1.0133 9.4% 3.2% 0.0004 0.3778 0.02% 3.2%
10 Edison International $6.25 $3.55 $47.85 43.2% 13.1% 1.0329 13.5% 5.8% 0.0105 0.5215 0.55% 6.4%
11 Emera Inc.$4.20 $2.98 $42.10 29.0% 10.0% 1.0152 10.1% 2.9% 0.0249 0.4387 1.09% 4.0%
12 Entergy Corp.$8.50 $5.10 $74.00 40.0% 11.5% 1.0308 11.8% 4.7% 0.0204 0.4618 0.94% 5.7%
13 Exelon Corp.$2.90 $1.75 $28.75 39.7% 10.1% 0.9820 9.9% 3.9% 0.0078 0.4524 0.35% 4.3%
14 Hawaiian Elec. $2.55 $1.60 $25.60 37.3% 10.0% 1.0192 10.2% 3.8% 0.0111 0.3976 0.44% 4.2%
15 IDACORP, Inc. $6.00 $4.00 $63.95 33.3% 9.4% 1.0223 9.6% 3.2% 0.0106 0.4557 0.48% 3.7%
16 NorthWestern Corp. $4.00 $2.68 $50.00 33.0% 8.0% 1.0277 8.2% 2.7% 0.0361 0.2308 0.83% 3.5%
17 OGE Energy Corp. $3.25 $1.85 $26.00 43.1% 12.5% 1.0249 12.8% 5.5% 0.0002 0.4526 0.01% 5.5%
18 Otter Tail Corp. $3.75 $2.20 $34.25 41.3% 10.9% 1.0383 11.4% 4.7% 0.0086 0.4731 0.41% 5.1%
19 Pinnacle West Capital $5.25 $3.76 $58.50 28.4% 9.0% 1.0154 9.1% 2.6% 0.0141 0.3842 0.54% 3.1%
20 Pub Sv Enterprise Grp. $4.35 $2.72 $33.75 37.5% 12.9% 1.0150 13.1%4.9% (0.0073) 0.5645 -0.41% 4.5%
21 Sempra Energy $11.00 $5.70 $102.10 48.2% 10.8% 1.0213 11.0% 5.3% (0.0144) 0.4696 -0.68% 4.6%
22 Southern Company $4.75 $3.10 $32.25 34.7% 14.7% 1.0216 15.0% 5.2% 0.0045 0.5839 0.26% 5.5%
2026 "sv" Factor
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 7, Page 1 of 2
BR+SV GROWTH RATE Schedule 7
Page 2 of 2
UTILITY GROUP
(a) (a) (h) (a) (a) (h) (i) (a) (a)(j) (a) (a) (i)
Chg
Company Eq Ratio Tot Cap Com Eq Eq Ratio Tot Cap Com Eq Equity High Low Avg.M/B 2021 2026 Growth
1 ALLETE 57.8% $4,176 $2,414 59.5% $5,550 $3,302 6.5% $95.0 $70.0 $82.5 1.528 53.20 61.00 2.77%
2 Ameren Corp.43.3% $22,391 $9,695 48.5% $29,500 $14,308 8.1% $100.0 $80.0 $90.0 1.756 257.70 280.00 1.67%
3 Avista Corp.52.5% $4,105 $2,155 51.5% $5,625 $2,897 6.1% $65.0 $45.0 $55.0 1.571 71.50 83.00 3.03%
4 Black Hills Corp. 40.3% $6,914 $2,786 50.0% $7,475 $3,738 6.0% $105.0 $75.0 $90.0 1.713 64.74 71.00 1.86%
5 CenterPoint Energy 34.5% $24,973 $8,616 37.5% $30,400 $11,400 5.8% $35.0 $25.0 $30.0 1.667 628.92 634.00 0.16%
6 CMS Energy Corp. 34.2% $18,760 $6,416 38.0% $23,300 $8,854 6.7% $75.0 $55.0 $65.0 2.222 289.76 300.00 0.70%
7 Dominion Energy 38.5% $66,344 $25,542 41.5% $88,100 $36,562 7.4% $110.0 $80.0 $95.0 2.262 810.40 870.00 1.43%
8 DTE Energy Co. 37.5% $23,236 $8,714 39.0% $32,200 $12,558 7.6% $155.0 $115.0 $135.0 2.222 193.75 206.00 1.23%
9 Duke Energy Corp. 43.1% $109,744 $47,300 37.5% $144,100 $54,038 2.7% $130.0 $95.0 $112.5 1.607 769.00 770.00 0.03%
10 Edison International 33.2% $41,959 $13,930 32.0% $60,500 $19,360 6.8% $120.0 $80.0 $100.0 2.090 380.38 390.00 0.50%
11 Emera Inc.41.6% $24,312 $10,116 43.8% $26,880 $11,780 3.1% $85.0 $65.0 $75.0 1.781 261.07 279.80 1.40%
12 Entergy Corp.31.7% $36,733 $11,644 33.5% $47,300 $15,846 6.4% $160.0 $115.0 $137.5 1.858 202.65 214.00 1.10%
13 Exelon Corp.49.1% $70,107 $34,423 35.5% $81,000 $28,755 -3.5% $60.0 $45.0 $52.5 1.826 979.00 1000.00 0.43%
14 Hawaiian Elec. 52.8% $4,524 $2,389 49.5% $5,850 $2,896 3.9% $50.0 $35.0 $42.5 1.660 109.31 113.00 0.67%
15 IDACORP, Inc. 57.2% $4,669 $2,671 50.0% $6,675 $3,338 4.6% $130.0 $105.0 $117.5 1.837 50.52 52.00 0.58%
16 NorthWestern Corp. 47.8% $4,893 $2,339 51.0% $6,050 $3,086 5.7% $75.0 $55.0 $65.0 1.300 54.06 62.00 2.78%
17 OGE Energy Corp. 47.4% $8,553 $4,054 50.0% $10,400 $5,200 5.1% $55.0 $40.0 $47.5 1.827 200.10 200.20 0.01%
18 Otter Tail Corp. 57.4% $1,725 $990 57.5% $2,525 $1,452 8.0% $75.0 $55.0 $65.0 1.898 41.55 42.50 0.45%
19 Pinnacle West Capital 46.1% $12,820 $5,910 45.0% $15,325 $6,896 3.1% $110.0 $80.0 $95.0 1.624 113.01 118.00 0.87%
20 Pub Sv Enterprise Grp. 48.7% $29,657 $14,443 42.5% $39,500 $16,788 3.1% $85.0 $70.0 $77.5 2.296 504.00 496.00 -0.32%
21 Sempra Energy 53.3% $47,069 $25,088 52.0% $59,700 $31,044 4.4% $220.0 $165.0 $192.5 1.885 316.92 305.00 -0.76%
22 Southern Company 35.6% $78,285 $27,869 37.0% $93,500 $34,595 4.4% $90.0 $65.0 $77.5 2.403 1060.00 1070.00 0.19%
(a) The Value Line Investment Survey (Sep. 9, Oct. 21 and Nov. 11, 2022).
(b) "b" is the retention ratio, computed as (EPS-DPS)/EPS.
(c) "r" is the rate of return on book equity, computed as EPS/BVPS.(d) Computed using the formula 2*(1+5-Yr. Change in Equity)/(2+5 Yr. Change in Equity).
(e) Product of average year-end "r" for 2026 and Adjustment Factor.
(f) Product of change in common shares outstanding and M/B Ratio.
(g) Computed as 1 - B/M Ratio.
(h) Product of total capital and equity ratio.
(i) Five-year rate of change.
(j) Average of High and Low expected market prices divided by 2026 BVPS.
Common Shares2021 2026 2026
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 7, Page 2 of 2
CAPM Schedule 8
Page 1 of 1
UTILITY GROUP
(a) (b)(c)(d)(e) (f)
Div Proj. Cost of Risk-Free Risk Unadjusted Market Size CAPM
Company Yield Growth Equity Rate Premium Beta Ke Cap Adjustment Result
1 ALLETE 2.0% 9.7% 11.7% 3.5% 8.2% 0.90 10.9% $3,400 0.91% 11.8%
2 Ameren Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 0.85 10.5% $25,000 0.44% 10.9%
3 Avista Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 0.90 10.9% $2,700 1.20% 12.1%
4 Black Hills Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 0.95 11.3% $4,200 0.91% 12.2%
5 CenterPoint Energy 2.0% 9.7% 11.7% 3.5% 8.2% 1.10 12.5% $20,000 0.44% 13.0%
6 CMS Energy Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 0.80 10.1% $20,200 0.44% 10.5%
7 Dominion Energy 2.0% 9.7% 11.7% 3.5% 8.2% 0.85 10.5% $58,300 -0.17% 10.3%
8 DTE Energy Co. 2.0% 9.7% 11.7% 3.5% 8.2% 0.95 11.3% $26,000 0.44% 11.7%
9 Duke Energy Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 0.85 10.5% $84,600 -0.17% 10.3%
10 Edison International 2.0% 9.7% 11.7% 3.5% 8.2% 0.95 11.3% $22,100 0.44% 11.7%
11 Emera Inc. 2.0% 9.7% 11.7% 3.5% 8.2% 0.70 9.2% $16,200 0.57% 9.8%
12 Entergy Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 0.95 11.3% $24,300 0.44% 11.7%
13 Exelon Corp. 2.0% 9.7% 11.7% 3.5% 8.2% n/a n/a $37,800 -0.17% n/a
14 Hawaiian Elec. 2.0% 9.7% 11.7% 3.5% 8.2% 0.85 10.5% $3,700 0.91% 11.4%
15 IDACORP, Inc. 2.0% 9.7% 11.7% 3.5% 8.2% 0.80 10.1% $4,900 0.91% 11.0%
16 NorthWestern Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 0.90 10.9% $2,800 1.20% 12.1%
17 OGE Energy Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 1.00 11.7% $8,300 0.57% 12.3%
18 Otter Tail Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 0.85 10.5% $3,200 1.20% 11.7%
19 Pinnacle West Capital 2.0% 9.7% 11.7% 3.5% 8.2% 0.90 10.9% $6,900 0.56% 11.4%
20 Pub Sv Enterprise Grp. 2.0% 9.7% 11.7% 3.5% 8.2% 0.90 10.9% $28,000 0.44% 11.3%
21 Sempra Energy 2.0% 9.7% 11.7% 3.5% 8.2% 0.95 11.3% $46,400 -0.17% 11.1%
22 Southern Company 2.0% 9.7% 11.7% 3.5% 8.2% 0.90 10.9% $71,300 -0.17% 10.7%
Average 10.8% 11.4%
(a Weighted average for dividend-paying stocks in the S&P 500 based on data from www.valueline.com (retrieved Dec. 7, 2022)..
(b)
(c) Average yield on 30-year Treasury bonds for six-months ending Nov. 2022 based on data from Moody's Investors Service.
(d) The Value Line Investment Survey, Summary & Index (Nov. 11, 2022).
(e) The Value Line Investment Survey (Sep. 9, Oct. 21 and Nov. 11, 2022).
(f) Kroll, 2022 Supplementary CRSP Decile Size Study Data Exhibits.
Market Return (Rm)
Average of weighted average earnings growth rates from IBES, Value Line, and Zacks for dividend-paying stocks in the S&P 500 based on data from Refinitiv, as
provided by fidelity.com (retrieved Dec. 7, 2022), www.valueline.com (retrieved Dec. 7, 2022)., and www.zacks.com (retrieved Dec. 7, 2022). Eliminated growth
rates that were greater than 20%, as well as all negative values.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 8, Page 1 of 1
ECAPM Schedule 9
Page 1 of 1
UTILITY GROUP
(a) (b)(c)(d) (e) (d)(f) (g)
Div Proj. Cost of Risk-Free Risk Unadjusted Market Size ECAPM
Company Yield Growth Equity Rate Premium Weight RP Beta Weight RP Total RP Ke Cap Adjustment Result
1 ALLETE 2.0% 9.7% 11.7% 3.5% 8.2% 25%2.1% 0.90 75% 5.5% 7.6% 11.1% $3,400 0.91% 12.0%
2 Ameren Corp. 2.0% 9.7% 11.7% 3.5%8.2% 25% 2.1% 0.85 75% 5.2% 7.3% 10.8% $25,000 0.44% 11.2%
3 Avista Corp.2.0% 9.7% 11.7% 3.5%8.2% 25% 2.1% 0.90 75% 5.5% 7.6% 11.1% $2,700 1.20% 12.3%
4 Black Hills Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.95 75% 5.8% 7.9% 11.4% $4,200 0.91% 12.3%
5 CenterPoint Energy 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 1.10 75% 6.8% 8.8% 12.3% $20,000 0.44% 12.8%
6 CMS Energy Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.80 75% 4.9% 7.0% 10.5% $20,200 0.44% 10.9%
7 Dominion Energy 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.85 75% 5.2% 7.3% 10.8% $58,300 -0.17% 10.6%
8 DTE Energy Co. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.95 75% 5.8% 7.9% 11.4% $26,000 0.44% 11.8%
9 Duke Energy Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.85 75% 5.2% 7.3% 10.8% $84,600 -0.17% 10.6%
10 Edison International 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.95 75% 5.8% 7.9% 11.4% $22,100 0.44% 11.8%
11 Emera Inc.2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.70 75% 4.3% 6.4% 9.9% $16,200 0.57% 10.4%
12 Entergy Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.95 75% 5.8% 7.9% 11.4% $24,300 0.44% 11.8%
13 Exelon Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% n/a 75% n/a n/a n/a $37,800 -0.17% n/a
14 Hawaiian Elec. 2.0% 9.7% 11.7% 3.5%8.2% 25% 2.1% 0.85 75% 5.2% 7.3% 10.8% $3,700 0.91% 11.7%
15 IDACORP, Inc. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.80 75% 4.9% 7.0% 10.5% $4,900 0.91% 11.4%
16 NorthWestern Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.90 75% 5.5% 7.6% 11.1% $2,800 1.20% 12.3%
17 OGE Energy Corp. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 1.00 75% 6.2% 8.2% 11.7% $8,300 0.57% 12.3%
18 Otter Tail Corp. 2.0% 9.7% 11.7%3.5% 8.2% 25% 2.1% 0.85 75% 5.2% 7.3% 10.8% $3,200 1.20% 12.0%
19 Pinnacle West Capital 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.90 75% 5.5% 7.6% 11.1% $6,900 0.56% 11.6%
20 Pub Sv Enterprise Grp. 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.90 75% 5.5%7.6% 11.1% $28,000 0.44% 11.5%
21 Sempra Energy 2.0% 9.7% 11.7% 3.5% 8.2% 25% 2.1% 0.95 75% 5.8% 7.9% 11.4% $46,400 -0.17% 11.2%
22 Southern Company 2.0% 9.7% 11.7%3.5% 8.2% 25% 2.1% 0.90 75% 5.5% 7.6% 11.1% $71,300 -0.17% 10.9%
Average 11.1%11.6%
(a) Weighted average for dividend-paying stocks in the S&P 500 based on data from www.valueline.com (retrieved Dec. 7, 2022)..
(b)
(c)Average yield on 30-year Treasury bonds for six-months ending Nov. 2022 based on data from Moody's Investors Service.
(d) Roger A. Morin, New Regulatory Finance , Pub. Util. Reports, Inc. (2006) at 190.(e) The Value Line Investment Survey, Summary & Index (Nov. 11, 2022).(f) The Value Line Investment Survey (Sep. 9, Oct. 21 and Nov. 11, 2022).
(g)Kroll, 2022 Supplementary CRSP Decile Size Study Data Exhibits.
Market Return (Rm)
Unadjusted R Beta Adjusted RP
Average of weighted average earnings growth rates from IBES, Value Line, and Zacks for dividend-paying stocks in the S&P 500 based on data from Refinitiv, as provided by fidelity.com (retrieved Dec.
7, 2022), www.valueline.com (retrieved Dec. 7, 2022)., and www.zacks.com (retrieved Dec. 7, 2022). Eliminated growth rates that were greater than 20%, as well as all negative values.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 9, Page 1 of 1
UTILITY RISK PREMIUM Schedule 10
Page 1 of 3
COST OF EQUITY ESTIMATE
Current Equity Risk Premium
(a) Avg. Yield over Study Period 7.89%
(b) Average Utility Bond Yield 5.26%
Change in Bond Yield -2.63%
(c) Risk Premium/Interest Rate Relationship -0.4303
Adjustment to Average Risk Premium 1.13%
(a) Average Risk Premium over Study Period 3.87%
Adjusted Risk Premium 5.00%
Implied Cost of Equity
(b) Baa Utility Bond Yield 5.55%
Adjusted Equity Risk Premium 5.00%
Risk Premium Cost of Equity 10.55%
(a) Schedule 10, page 2.
(b)
(c) Schedule 10, page 3.
Average bond yield on all utility bonds and 'Baa' subset for six-months ending Nov. 2022 based
on data from Moody's Investors Service at www.credittrends.com.
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 10, Page 1 of 3
UTILITY RISK PREMIUM Schedule 10
Page 2 of 3
AUTHORIZED RETURNS
(a)(b)(a)(b)
Allowed Average Utility Risk Allowed Average Utility Risk
Year ROE Bond Yield Premium Year ROE Bond Yield Premium
1974 13.10% 9.27% 3.83%1998 11.77% 7.00% 4.77%
1975 13.20% 9.88% 3.32%1999 10.72% 7.55% 3.17%
1976 13.10% 9.17% 3.93%2000 11.58% 8.09% 3.49%
1977 13.30% 8.58% 4.72%2001 11.07% 7.72% 3.35%
1978 13.20% 9.22% 3.98%2002 11.21% 7.53% 3.68%
1979 13.50% 10.39% 3.11%2003 10.96% 6.61% 4.35%
1980 14.23% 13.15% 1.08%2004 10.81% 6.20% 4.61%
1981 15.22% 15.62% -0.40%2005 10.51% 5.67% 4.84%
1982 15.78% 15.33% 0.45%2006 10.34% 6.08% 4.26%
1983 15.36% 13.31% 2.05%2007 10.32% 6.11% 4.21%
1984 15.32% 14.03% 1.29%2008 10.37% 6.65% 3.72%
1985 15.20% 12.29% 2.91%2009 10.52% 6.28% 4.24%
1986 13.93% 9.46% 4.47%2010 10.29% 5.56% 4.73%
1987 12.99% 9.98% 3.01%2011 10.19% 5.13% 5.06%
1988 12.79% 10.45% 2.34%2012 10.02% 4.26% 5.76%
1989 12.97% 9.66% 3.31%2013 9.82% 4.55% 5.27%
1990 12.70% 9.76% 2.94%2014 9.76% 4.41% 5.35%
1991 12.54% 9.21% 3.33%2015 9.60% 4.37% 5.23%
1992 12.09% 8.57% 3.52%2016 9.60% 4.11% 5.49%
1993 11.46% 7.56% 3.90%2017 9.68% 4.07% 5.61%
1994 11.21% 8.30% 2.91%2018 9.56% 4.34% 5.22%
1995 11.58% 7.91% 3.67%2019 9.65% 3.86% 5.79%
1996 11.40% 7.74% 3.66%2020 9.39% 3.07% 6.32%
1997 11.33% 7.63% 3.70%2021 9.39%3.14%6.25%
Average 11.76% 7.89% 3.87%
(a)
b Mood 's Investors Service.
S&P Global Market Intelligence, Major Rate Case Decisions , RRA Regulatory Focus; UtilityScope Regulatory Service, Argus. Data for "general" rate cases
(excluding limited-issue rider cases) beginning in 2006 (the first year such data presented by RRA).Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 10, Page 2 of 3
UTILITY RISK PREMIUM Schedule 10
Page 3 of 3
REGRESSION RESULTS
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.942226
R Square 0.887791
Adjusted R Square 0.885351
Standard Error 0.004807
Observations 48
ANOVA
df SS MS F Significance F
Regression 1 0.008411 0.008411 363.948371 0.000000
Residual 46 0.001063 0.000023
Total 47 0.009474
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 0.072668 0.001911 38.034901 0.000000 0.068822 0.076514 0.068822 0.076514
X Variable 1 -0.430291 0.022555 -19.077431 0.000000 -0.475692 -0.384890 -0.475692 -0.384890
y = ‐0.4303x + 0.0727
R² = 0.8878
-1%
0%
1%
2%
3%
4%
5%
6%
7%
3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16%
Eq
u
i
t
y

R
i
s
k

P
r
e
m
i
u
m
s
Average Utility Interest Rates
Authorized Equity Risk Premiums vs. Utility Interest Rates
(1974-2021)
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 10, Page 3 of 3
EXPECTED EARNINGS APPROACH Schedule 11
Page 1 of 1
UTILITY GROUP
(a)(b)(c)
Expected Return Adjustment Adjusted Return
Company on Common Equity Factor on Common Equity
1 ALLETE 9.0%1.0313 9.3%
2 Ameren Corp.10.0%1.0389 10.4%
3 Avista Corp.8.0%1.0296 8.2%
4 Black Hills Corp.9.0%1.0294 9.3%
5 CenterPoint Energy 10.0%1.0280 10.3%
6 CMS Energy Corp.13.0%1.0322 13.4%
7 Dominion Energy 13.0%1.0359 13.5%
8 DTE Energy Co.12.5%1.0365 13.0%
9 Duke Energy Corp.9.0%1.0133 9.1%
10 Edison International 13.0%1.0329 13.4%
11 Emera Inc.10.0%1.0152 10.2%
12 Entergy Corp.11.5%1.0308 11.9%
13 Exelon Corp.10.0%0.9820 9.8%
14 Hawaiian Elec.9.0%1.0192 9.2%
15 IDACORP, Inc.9.0%1.0223 9.2%
16 NorthWestern Corp.8.0%1.0277 8.2%
17 OGE Energy Corp.13.0%1.0249 13.3%
18 Otter Tail Corp.11.5%1.0383 11.9%
19 Pinnacle West Capital 9.0%1.0154 9.1%
20 Pub Sv Enterprise Grp.13.0%1.0150 13.2%
21 Sempra Energy 11.0%1.0213 11.2%
22 Southern Company 14.5%1.0216 14.8%
Average 10.7%11.0%
(a)The Value Line Investment Survey (Sep. 9, Oct. 21 and Nov. 11, 2022).
(b) Adjustment to convert year-end return to an average rate of return from Schedule 7.
(c) (a) x (b).
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 11, Page 1 of 1
FLOTATION COST ADJUSTMENT Schedule 12
Page 1 of 1
AVISTA CORP. EQUITY ISSUANCES
Expenses
Amount of as % of
Common Stock Gross
Issued Expenses Proceeds
2010 Beginning Balance $759,124,250 $13,859,828 1.826%
Dividend Reinvestment Plan
2022 $140,775,461 $1,847,393 1.312%
2021 $91,323,501 $1,325,573 1.452%
2020 $73,189,230 $1,041,036 1.422%
2019 $65,627,509 $1,055,064 1.608%
2018 $1,227,846 $21,112 1.719%
2017 $57,065,164 $684,740 1.200%
2016 $67,974,613 $1,029,592 1.515%
2015 $1,669,374 $27,449 1.644%
2014 $113,591,642 -$103,787 -0.091%
2013 $6,026,604 $14,798 0.246%
2012 $30,902,292 $602,816 1.951%
2011 $26,651,589 $300,124 1.126%
2010 $46,638,090 $26,505 0.057%
$1,481,787,164 $21,732,243 1.467%
Flotation Cost Adjustment based on Avista data
Avista Dividend Yield (Exhibit AMM-6, page 1)4.6%
Avista Issuance Expense Factor 1.467%
Flotation Cost Adjustment (basis points)7
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 12, Page 1 of 1
DCF MODEL - NON-UTILITY GROUP Schedule 13
Page 1 of 3
DIVIDEND YIELD
(a)(b)
Company Industry Group Price Dividends Yield
1 Abbott Labs.Med Supp Non-Invasive $100.08 1.88$ 1.9%
2 Amdocs Ltd.IT Services $82.20 1.58$ 1.9%
3 Archer Daniels Midl'd Food Processing $90.48 1.60$ 1.8%
4 Baxter Int'l Inc. Med Supp Invasive $54.77 1.16$ 2.1%
5 Becton, Dickinson Med Supp Invasive $226.90 3.64$ 1.6%
6 Church & Dwight Household Products $73.29 1.05$ 1.4%
7 Cisco Systems Telecom. Equipment $42.85 1.53$ 3.6%
8 Colgate-Palmolive Household Products $72.08 1.88$ 2.6%
9 Costco Wholesale Retail Store $484.48 3.60$ 0.7%
10 Gen'l Mills Food Processing $78.38 2.16$ 2.8%
11 Hershey Co.Food Processing $228.50 4.21$ 1.8%
12 Home Depot Retail Building Supply $287.48 8.20$ 2.9%
13 Hormel Foods Food Processing $46.01 1.04$ 2.3%
14 Hunt (J.B.)Trucking $168.50 1.65$ 1.0%
15 Intel Corp.Semiconductor $27.20 1.46$ 5.4%
16 Johnson & Johnson Med Supp Non-Invasive $168.21 4.52$ 2.7%
17 Kimberly-Clark Household Products $118.15 4.64$ 3.9%
18 Marsh & McLennan Financial Svcs. (Div.)$157.75 2.42$ 1.5%
19 McCormick & Co. Food Processing $76.32 1.51$ 2.0%
20 McDonald's Corp. Restaurant $256.04 6.08$ 2.4%
21 McKesson Corp. Med Supp Non-Invasive $369.86 2.16$ 0.6%
22 Mondelez Int'l Food Processing $59.54 1.54$ 2.6%
23 Procter & Gamble Household Products $130.77 3.65$ 2.8%
24 Progressive Corp. Insurance (Prop/Cas.)$124.05 0.40$ 0.3%
25 Public Storage R.E.I.T.$291.83 8.15$ 2.8%
26 Republic Services Environmental $132.84 1.98$ 1.5%
27 Sherwin-Williams Retail Building Supply $215.88 2.55$ 1.2%
28 Smucker (J.M.) Food Processing $144.52 4.08$ 2.8%
29 Texas Instruments Semiconductor $160.19 4.96$ 3.1%
30 Thermo Fisher Sci. Precision Instrument $509.61 1.20$ 0.2%
31 Travelers Cos.Insurance (Prop/Cas.)$172.51 3.72$ 2.2%
32 Verizon Communic. Telecom. Services $37.21 2.61$ 7.0%
33 Walmart Inc.Retail Store $136.86 2.24$ 1.6%
34 Waste Management Environmental $159.13 2.60$ 1.6%
Average 2.3%
(a)Average of closing prices for 30 trading days ended Nov. 11, 2022.
(b) The Value Line Investment Survey, Summary & Index (Nov. 11, 2022).Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 13, Page 1 of 3
DCF MODEL - NON-UTILITY GROUP Schedule 13
Page 2 of 3
GROWTH RATES
(a)(b)(c)
Company V Line IBES Zacks
1 Abbott Labs. 7.00% 8.30% 5.09%
2 Amdocs Ltd. 8.00% 12.97% 11.50%
3 Archer Daniels Midl'd 13.00% 8.90% 7.24%
4 Baxter Int'l Inc. 8.00% 5.61% 6.99%
5 Becton, Dickinson 4.50% 4.80% 7.69%
6 Church & Dwight 6.00% 3.73% 6.74%
7 Cisco Systems 8.00% 6.69% 6.50%
8 Colgate-Palmolive 6.50% 2.13% 3.62%
9 Costco Wholesale 10.50% 11.31% 10.26%
10 Gen'l Mills 4.00% 5.43% 7.50%
11 Hershey Co. 9.00% 10.60% 7.67%
12 Home Depot 9.00% 15.70% 11.24%
13 Hormel Foods 6.50% 8.75% 7.29%
14 Hunt (J.B.) 11.50% 14.60% 15.00%
15 Intel Corp. n/a -20.92% 7.50%
16 Johnson & Johnson 8.00% 3.90% 5.02%
17 Kimberly-Clark 5.50% 5.60% 4.61%
18 Marsh & McLennan 11.00% 8.30% 8.31%
19 McCormick & Co. 5.00% 5.10% 5.33%
20 McDonald's Corp. 10.50% 6.67% 8.62%
21 McKesson Corp. 10.00% 10.48% 10.05%
22 Mondelez Int'l 9.50% 4.70% 6.77%
23 Procter & Gamble 6.50% 4.79% 5.99%
24 Progressive Corp. 6.50% 29.47% 18.90%
25 Public Storage n/a 17.00% 7.47%
26 Republic Services 12.50% 10.55% 11.34%
27 Sherwin-Williams 11.50% 11.46% 12.81%
28 Smucker (J.M.) 4.00% 5.14% 2.77%
29 Texas Instruments 9.00% 10.00% 9.33%
30 Thermo Fisher Sci. 10.50% 4.49% 12.50%
31 Travelers Cos. 6.50% 5.85% 5.49%
32 Verizon Communic. 2.50% 2.19% 4.15%
33 Walmart Inc. 6.50% 6.00% 5.50%
34 Waste Management 7.50% 11.66% 12.55%
(a)The Value Line Investment Survey (various editions as of Nov. 11, 2022).
(b)www.finance.yahoo.com (retrieved Nov. 11, 2022).
(c)www.zacks.com (retrieved Nov. 11, 2022).
Earnings Growth
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 13, Page 2 of 3
DCF MODEL - NON-UTILITY GROUP Schedule 13
Page 3 of 3
DCF COST OF EQUITY ESTIMATES
(a)(b)(c)
Company V Line IBES Zacks
1 Abbott Labs.8.9% 10.2% 7.0%
2 Amdocs Ltd.9.9% 14.9% 13.4%
3 Archer Daniels Midl'd 14.8% 10.7% 9.0%
4 Baxter Int'l Inc.10.1% 7.7% 9.1%
5 Becton, Dickinson 6.1% 6.4% 9.3%
6 Church & Dwight 7.4% 5.2% 8.2%
7 Cisco Systems 11.6% 10.3% 10.1%
8 Colgate-Palmolive 9.1% 4.7% 6.2%
9 Costco Wholesale 11.2% 12.1% 11.0%
10 Gen'l Mills 6.8% 8.2% 10.3%
11 Hershey Co.10.8% 12.4% 9.5%
12 Home Depot 11.9% 18.6% 14.1%
13 Hormel Foods 8.8% 11.0% 9.6%
14 Hunt (J.B.)12.5% 15.6% 16.0%
15 Intel Corp.n/a -15.6% 12.9%
16 Johnson & Johnson 10.7% 6.6% 7.7%
17 Kimberly-Clark 9.4% 9.5% 8.5%
18 Marsh & McLennan 12.5% 9.8% 9.8%
19 McCormick & Co.7.0% 7.1% 7.3%
20 McDonald's Corp.12.9% 9.0% 11.0%
21 McKesson Corp.10.6% 11.1% 10.6%
22 Mondelez Int'l 12.1% 7.3% 9.4%
23 Procter & Gamble 9.3% 7.6% 8.8%
24 Progressive Corp.6.8% 29.8% 19.2%
25 Public Storage n/a 19.8% 10.3%
26 Republic Services 14.0% 12.0% 12.8%
27 Sherwin-Williams 12.7% 12.6% 14.0%
28 Smucker (J.M.)6.8% 8.0% 5.6%
29 Texas Instruments 12.1% 13.1% 12.4%
30 Thermo Fisher Sci.10.7% 4.7% 12.7%
31 Travelers Cos.8.7% 8.0% 7.6%
32 Verizon Communic.9.5% 9.2% 11.2%
33 Walmart Inc.8.1% 7.6% 7.1%
34 Waste Management 9.1% 13.3% 14.2%
Average (b)10.7% 10.5% 10.5%
(a Sum of dividend yield (p. 1) and respective growth rate (p. 2).
(b)Excludes highlighted figures.
Earnings Growth
Exhibit No. 3 Case Nos. AVU-E-23-01/AVU-G-23-01 A. McKenzie, Avista
Schedule 13, Page 3 of 3