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

Sent: Friday, November 11, 2011 9:57 PM 

To: Roy, Robin 

Cc: Saint, Robert D.; Robert Berman; 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; 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.schneiderelectric.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 

Rates of return are always nominal. I'm a bit surprised to hear that NRECA members' nominal 

cost of money is more than a full percentage point above what ValuLine reports for the average 

of the IOUs. I'm also not sure what NRECA means by its return on total capitalization. My 

understanding was that public power was primarily debt financed. On a debt basis, NRECA 

members' nominal cost is 2 percentage points over average IOU debt costs, and over 3% higher 

than what RUS publicly states it is currently offering for distribution system loans. Ken said his 

case on not borrowing from RUS was unique: as part of a settlement of some sort they weren't 

eligible. 

Regards,

Robert A. Berman, Principal

Berman Economics

www.BermanEconomics.com

1915 Grand Court

Vienna, VA 22182

703‐281‐0490

703‐655‐8398 (cell)

BermanEconomics@gmail.com

On Nov 11, 2011, at 7:26 PM, Roy, Robin wrote: 

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.schneiderelectric.com Kennedy; eduardorobles@eaton.com Robles; vijay.tendulkar@onyxpower.com Tendulkar; 

Kenneth Winder; thomas.patzner@us.schneiderelectric.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.schneiderelectric.com Kennedy; eduardorobles@eaton.com Robles; vijay.tendulkar@onyxpower.com Tendulkar; 

Kenneth Winder; thomas.patzner@us.schneiderelectric.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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