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

Sent: Monday, November 07, 2011 9:53 AM

To: 'Robert Berman'; 'Parker Richard'

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

John. F'; 'Cymbalsky John'; adelas ki@standardsasap.org; 'Tom'; 'Fer nstrom 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'; 'P olinski Raymond'; artrosenfeld@gmail.com; 'Rosenstock

Steven J.'; 'Roy Robin'; 'Saint Robert'; 'Simmons Char les 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 Co ffey; 'Coughlin Katie'; brenda.edwards@ee.doe.gov;

jeremiah.freeman@ee.doe.gov; Caitlin Johnson; Zh imei 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.tendulka r@onyxpower.com; 'Kenneth Winder';

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

Subject: RE: Cost of Capital to Electric Utilities

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: (e xpected 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 doe sn’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% be tween 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 24201TEL: (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 Christop her; 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; Sain t 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 curren t cost of money to investor owne d electric utilities, the weighted

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

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

electric coops and municipals typically borrow fr om 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