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 Wesl ey F.; Petersen Eric; Polinski Raymond; artrosenfeld@gmail.com; Rosenstock Steven J.; Si mmons Charles E.; Cohen Dan; Coulter Greg; Creevy Jim; ahofmann@publicpower.org; Kumar Puesh; Maue r 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@e e.doe.gov; Caitlin Johnson; Zhimei Luo; emily.marchetti@ee.doe.gov; Michael Rivest; Rosenqui st 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 su rprised to hear that NRECA members' nominal cost of money is more than a full percentage poi nt above what ValuLine reports for the average

of the IOUs. I'm also not sure what NRECA means by its return on to tal capitaliz ation. 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 o ffering for distribution system loans. Ken said his case on not borrowing from RUS was uni que: 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 Ri chard; 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 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 Wesl ey 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 JerryW.; 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 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

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