From: Steve Nadel [mailto:snadel@aceee.org] 

Sent: Monday, November 07, 2011 11:25 AM 

To: Bob Smith; 'Robert Berman'; 'Parker Richard' 

Cc: 'Petersen Eric'; 'Schoen Jerry W.'; 'Hyland Michael J.'; 'Polinski Raymond'; 'Sampat Mahesh P.'; 

bruce.r.hirsch@bge.com; James.Lass@cleco.com; 'Aaron Meyers'; Jerry L' 'Corkran; 'Ballo Timothy'; 

carlosgsiqueiros@eaton.com; eduardorobles@eaton.com; brenda.edwards@ee.doe.gov; 

emily.marchetti@ee.doe.gov; jeremiah.freeman@ee.doe.gov; 'Raba Jim'; 'Cymbalsky John'; 'Rosenstock 

Steven J.'; DYoung@energy-solution.com; 'Anderson Richard'; 'Greeson Robert'; 'Gaytan Carlos'; 

artrosenfeld@gmail.com; 'Coulter Greg'; 'Ryan Paul'; 'Hodge Gerald R.'; 'Cohen Dan'; 'Phil Hopkinson'; 

'Bolduc Christopher'; 'Rosenquist Gregory'; 'Coughlin Katie'; 'Beck Scott R.'; 'Millure David'; 'Kenneth 

Winder'; jrossetti@mlgw.org; Brian Coffey; Caitlin Johnson; Michael Rivest; Zhimei Luo; 'Creevy Jim'; 

'Caskey John. F'; 'Waltner Meg'; 'Roy Robin'; 'Saint Robert'; 'Tom'; vijay.tendulkar@onyxpower.com; 

'Fernstrom Gary'; 'Simmons Charles E.'; ahofmann@publicpower.org; 'Kumar Puesh'; 

adelaski@standardsasap.org; 'Mauer Joanna'; 'Patterson Wesley F.'; chad.kennedy@us.schneiderelectric.com; thomas.patzner@us.schneider-electric.com; 'Drexler Charles R.' 

Subject: RE: Cost of Capital to Electric Utilities 

Folks, 

 

OMB rules require DOE to use two rates in their national economic analysis -- 3% and 7%. These are 

"real" rates, meaning they don't include inflation. So if inflation is 3%, the nominal rates are roughly 3% 

and 10% (I say roughly since the formula for integrating inflation is more complicated than simple 

addition). 

 

Steve 

>>> "Bob Smith" <bsmith@federalpacific.com> 11/7/2011 9:52 AM >>> 

Robert:

While the cost of bonds for issuers is depressed currently, I think you would get a better answer by

polling at least 1⁄2 dozen large utilities with good S&P ratings for their answers based on the timing like:  

                Year 1990:

Year 2000:

                Year 2005:

                Year 2010:

                Year 2020: (expected range)

I’ve left my trusty calculator in my car this morning but according to my Excel formula the PWF

(payments in arrears) for 30 years at 7% is equal to 12.4.  For 3% it is 19.6.   So if we use 3% that makes

the LCC savings for lower losses look a lot better doesn’t it?   

Regarding the discount rate,  you seem extremely in favor toward using a lower rate.  Can you explain

why you have not examined and considered some of the historically higher rates and have been

unwilling to accept the possibility of even higher rates than 7% between now and 2020?

Why don’t you support the general feeling that 7% is the correct rate?  A discount rate of 10% would not

be an unreasonable value to use for calculation
I look forward to your reply.

Regards,

Bob Smith, PE 

Product Manager 

Federal Pacific

601 Old Airport Road

Bristol, VA 24201 

  

TEL: (276) 645-8836

FAX: (276) 645-8956

CELL: (276) 591-6143

Email: bsmith@federalpacific.com

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From: Robert Berman [mailto:bermaneconomics@gmail.com] 

Sent: Monday, November 07, 2011 5:47 AM 

To: Parker Richard 

Cc: Robert Berman; Corkran, Jerry L; Bolduc Christopher; Anderson Richard; Ballo Timothy; Beck Scott 

R.; Caskey John. F; Cymbalsky John; adelaski@standardsasap.org Delaski; Tom; Fernstrom Gary; Gaytan 

Carlos; Greeson Robert; bruce.r.hirsch@bge.com Hirsch R; Hodge Gerald R.; Hyland Michael J.; Millure 

David; Nadel Steven; Patterson Wesley F.; Petersen Eric; Polinski Raymond; artrosenfeld@gmail.com

Rosenfeld; Rosenstock Steven J.; Roy Robin; Saint Robert; Simmons Charles E.; Cohen Dan; Coulter 

Greg; Creevy Jim; ahofmann@publicpower.org Hofmann; Kumar Puesh; Mauer Joanna; Aaron Meyers; 

jrossetti@mlgw.org Rossetti; Ryan Paul; Schoen Jerry W.; bsmith@federalpacific.com Smith; Waltner 

Meg; brian.coffey@navigant.com Coffey; Coughlin Katie; brenda.edwards@ee.doe.gov Edwards; 

jeremiah.freeman@ee.doe.gov Freeman; Johnson Caitlin; zhimei.luo@navigant.com Luo; 

emily.marchetti@ee.doe.gov; mrivest@navigant.com Rivest; Rosenquist Gregory; Drexler Charles R.; Phil 

Hopkinson; James.Lass@cleco.com Lass; Sampat Mahesh P.; DYoung@energy-solution.com Young; 

chad.kennedy@us.schneider-electric.com Kennedy; eduardorobles@eaton.com Robles; 

vijay.tendulkar@onyxpower.com Tendulkar; Kenneth Winder; thomas.patzner@us.schneider-electric.com

Patzner; carlosgsiqueiros@eaton.com Siquieros; Raba Jim 

Subject: Cost of Capital to Electric Utilities 

Richard and All, 
For those interested in the current cost of money to investor owned electric utilities, the weighted 

average cost of capital appears to be a little over 5%. This is composed of about 7% equity and 

4% debt. See attached for full list of sector costs. As noted in my earlier email to Ken, rural 

electric coops and municipals typically borrow from RUS at rates pegged to long-term treasuries 

-- currently about 3%. Links also included her for convenience. 

 http://www.rurdev.usda.gov/UEP_Rates.html 

and http://www.rurdev.usda.gov/UEP_Loans_Grants.html