From: Bob Smith [mailto:bsmith@federalpacific.com] 

Sent: Monday, November 14, 2011 7:42 PM 

To: 'Roy, Robin' 

Cc: 'Corkran, Jerry L'; 'Bolduc Christopher'; 'Anderson Richard'; 'Ballo Timothy'; 'Beck Scott R.'; 'Caskey 

John. F'; 'Cymbalsky John'; adelaski@standardsasap.org; 'Tom'; 'Fernstrom Gary'; 'Gaytan Carlos'; 

'Greeson Robert'; bruce.r.hirsch@bge.com; 'Hodge Gerald R.'; 'Hyland Michael J.'; 'Millure David'; 'Nadel 

Steven'; 'Patterson Wesley F.'; 'Petersen Eric'; 'Polinski Raymond'; artrosenfeld@gmail.com; 'Rosenstock 

Steven J.'; 'Simmons Charles E.'; 'Cohen Dan'; 'Coulter Greg'; 'Creevy Jim'; ahofmann@publicpower.org; 

'Kumar Puesh'; 'Mauer Joanna'; 'Aaron Meyers'; jrossetti@mlgw.org; 'Ryan Paul'; 'Schoen Jerry W.'; 

'Waltner, Meg'; Brian Coffey; 'Coughlin Katie'; brenda.edwards@ee.doe.gov; 

jeremiah.freeman@ee.doe.gov; Caitlin Johnson; Zhimei Luo; emily.marchetti@ee.doe.gov; Michael 

Rivest; 'Rosenquist Gregory'; 'Drexler Charles R.'; 'Phil Hopkinson'; James.Lass@cleco.com; 'Sampat 

Mahesh P.'; DYoung@energy-solution.com; chad.kennedy@us.schneider-electric.com; 

eduardorobles@eaton.com; vijay.tendulkar@onyxpower.com; 'Kenneth Winder'; 

thomas.patzner@us.schneider-electric.com; carlosgsiqueiros@eaton.com; 'Raba Jim'; 'Parker Richard'; 

'Robert Berman'; 'Saint, Robert D.' 

Subject: RE: Cost of Capital to Electric Utilities 

Fellow Negotiated Rule Making Members:

We seem to be adding unnecessary confusion to our analyses.

Banks don’t care about Inflation or CPI.  Banks measure their success on the cost to borrow money

versus the interest rate they can charge on loans of this money.   

The discount factor that we assume in our present worth calculations is simply an algebraic term for

discounting future revenues and expenditures which have nothing to do with CPI.  CPI is an indicator of

what a given quantity of tangible goods cost when referenced to some base period.  

We could, if we wanted to,  express our analysis in “easy‐to‐understand” terms that are meaningful such

as “barrels of oil” or “tons of coal”  that are saved, as we move toward higher efficiencies .

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: Roy, Robin [mailto:rroy@nrdc.org] 

Sent: Friday, November 11, 2011 7:26 PM 

To: Saint, Robert D.; Robert Berman 

Cc: Corkran, Jerry L; Bolduc Christopher; Anderson Richard; Ballo Timothy; Beck Scott R.; Caskey John. 

F; Cymbalsky John; adelaski@standardsasap.org; Tom; Fernstrom Gary; Gaytan Carlos; Greeson Robert; 

bruce.r.hirsch@bge.com; Hodge Gerald R.; Hyland Michael J.; Millure David; Nadel Steven; Patterson 

Wesley F.; Petersen Eric; Polinski Raymond; artrosenfeld@gmail.com; Rosenstock Steven J.; Simmons 

Charles E.; Cohen Dan; Coulter Greg; Creevy Jim; ahofmann@publicpower.org; Kumar Puesh; Mauer 

Joanna; Aaron Meyers; jrossetti@mlgw.org; Ryan Paul; Schoen Jerry W.; bsmith@federalpacific.com; 

Waltner, Meg; brian.coffey@navigant.com; Coughlin Katie; brenda.edwards@ee.doe.gov; 

jeremiah.freeman@ee.doe.gov; Johnson Caitlin; zhimei.luo@navigant.com; emily.marchetti@ee.doe.gov; 

mrivest@navigant.com; Rosenquist Gregory; Drexler Charles R.; Phil Hopkinson; James.Lass@cleco.com; 

Sampat Mahesh P.; DYoung@energy-solution.com; chad.kennedy@us.schneider-electric.com; 

eduardorobles@eaton.com; vijay.tendulkar@onyxpower.com; Kenneth Winder; 

thomas.patzner@us.schneider-electric.com; carlosgsiqueiros@eaton.com; Raba Jim; Parker Richard 

Subject: RE: Cost of Capital to Electric Utilities 

Thanks Bob,

Is the 6.22% rate of return real or nominal?   

If it’s 6.22% nominal, then with cpi currently at ~3.9% the real rate is around 2.2%, which suggests 7% is

high.   

Cheers, Robin

From: Saint, Robert D. [mailto:robert.saint@nreca.coop] 

Sent: Friday, November 11, 2011 4:03 PM 

To: Robert Berman 

Cc: 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; 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; Parker Richard 

Subject: RE: Cost of Capital to Electric Utilities 

Robert—

After much discussion within NRECA and consultation with a major supplemental lender for

distribution cooperatives, we have come up with median Rate of Return on Total Capitalization

of  6.22% for electric cooperatives.  So, the 7% figure being used is well within the ball park.   

Bob Saint  

Principal Distribution Engineer, Energy and Power Division  

National Rural Electric Cooperative Association (NRECA)  

4301 Wilson Blvd  

Arlington, VA 22203  

Phone: (703) 907-5863  

Cell: (703) 283-5078  

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 D.; 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
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