BEFORE TIlE WYOMING PUBLIC SERVICE COMMISSION IN TI-IS MATTER OF TIlE APPLICATION OF MONTANA-DAKOTA UTILITIES CO,. A DIVISION OF MDU RESOURCES GROUP. INC., ) DOCKET NO. 300 13-297-GR-I4 FOR AUTHORITY TO ESTAI3]JSII A TOTAL ) (1UCORD NO. l39)2) ANNUAL INCREASE IN DISTRIBUTION REVENUES OF $788,160 OR 4.13 PERCENT ) DIRECT TESTIMONY OF I3rycc J. Freeman On behalf of the Wyoming 0111cc of Consumer Advocate Filed March 2, 2015 Hearing May 19, 2015 0CA66
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BEFORE TIlE WYOMING PUBLIC SERVICE COMMISSION
IN TI-IS MATTER OF TIlE APPLICATION OFMONTANA-DAKOTA UTILITIES CO,. ADIVISION OF MDU RESOURCES GROUP. INC., ) DOCKET NO. 300 13-297-GR-I4FOR AUTHORITY TO ESTAI3]JSII A TOTAL ) (1UCORD NO. l39)2)ANNUAL INCREASE IN DISTRIBUTIONREVENUES OF $788,160 OR 4.13 PERCENT )
DIRECT TESTIMONY OF
I3rycc J. Freeman
On behalf of the Wyoming 0111cc of Consumer Advocate
Filed March 2, 2015Hearing May 19, 2015
0CA66
i INTRODUCTION AND QUALIFICATIONS
2 Q. PLEASE STATE YOUR NAME, ADDRESS AND OCCUPATION.
3 A. My name is I3ryce J. Freeman. My business address is 2515 WalTen Avenue, Suite 304,
4 Cheyenne, WY, 82002. I am the Administrator of the Wyoming Office of Consumer
5 Advocate (OCA). The OCA is an independent consumer advocacy agency that was
6 created by an act of the legislature in the 2003 general session.
7 Q. WhAT IS TIlE FUNCTION OF TilE OCA?
.s A. Pursuant to W.S. § 37-2401,
9 The office of consumer advocate shall represent the interests of Wyoming
10 citizens and all classes of utility customers in matters involving public
ii utilities. In the exercise of its powers the office of the consumer advocate
12 shall consider all relevant factors, including, hut not limited to, the
13 provision of safe, efficient and reliable utility services at just and
14 reasonable prices.
:5 Q. ARE TIlE ANALYSES AND RECOMMENDATIONS OF TIlE OCA, IN THIS OR
16 ANY OTHER CASE BEFORE THE COMMISSION, INFLUENCED OR
17 DIRECTED BY TIlE COMMISSION?
is A. No. Although thc OCA is a division within the Commission according to W.S. § 37-2-
19 401, it is a separate division with no reporting or supervisory links to the Commission. The
20 OCA has the right under W.S. § 37—2—402(u) to appeal decisions of the Commission that it
21 does not find in the public interest. The only link between the OCA and the Public Service
22 Commission is the source of common funding provided by the assessment on gross utility
23 operating revenues; this assessment funds both the Conmiission and the OCA.
24 Additionally, as Administrator of the OCA, I report directly to the Governor of Wyoming.
llryce J. Freeman 1 Docket Number 30013-297-GR-14
0CA67
1 Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND
2 OCCUIATIONAL EXPERIENCE.
3 A. I received a Bachelor of Science degree in business administration from Uc University of
4 Wyoming in 1982. The arca of concentration in my undergraduate work was statistics.
5 After graduating from the University of Wyoming, I was employed for three years by the
6 Laramie County Treasurer as Deputy Treasurer, and then for six years by the Wyoming
7 Department of Revenue as a Principal Appraiser dealing primarily with utility valuation
8 and capital cost issues. I came to the Wyoming Public Service Commission in April of
9 1994, in the capacity of Senior Economist, serving in that position for approximately two
10 years. In 1996 I accepted a position as Lead Rate Analyst in the rates and pricing section
ii on the Commission Staff, and in May of 2003 I was appointed Administrator of the OCA.
12 In July of 2004, I was appointed to a two-year term of service on the board of the Wyoming
13 Infrastructure Authority (WIA). In July of 2006, I was reappointed to a four year term and
14 in 2010, 1 was appointed to a second four year term on the WIA Board. In March of 2014,
15 after ten years of service as Secretary of the WIA Board, I rotated off of the WIA Board.
16 Also in 2004, 1 was elected to the position of Secretary ofthc National Association of State
17 Utility Consumer Advocates (NASUCA), which isa national trade association composed
IS primarily of state chartered consumer advocate offices throughout the country. In
19 November of 2010, 1 stepped down as NASUCA Secretary and currently serve on the
20 NASUCA Executive Committee. My present and past participation in both of these
21 organizations provides me with unique knowledge and experience upon which I can draw
22 in lbrmulating advocacy positions on behalf of Wyoming utility consumers.
23 In 2010, 1 was appointed by the Board of Directors of the Western Electricity Coordinating
24 Council (WECC) to serve as a consumer representative on the Scenario Planning Steering
25 Group (SPSG). The SPSG was created to facilitate the development of a Regional
26 Transmission Expansion Plan (RTEP) pursuant to a contract that WECC entered into with
27 the U.S. Department of Energy (DOE). Funding for the RTEP project was provided by
28 DOE under the terms of the American Recovery and Reinvestment Act (ARL4).
29 Additionally, in Mvember of 2011, I was appointed by the WECC Board of Directors to
30 serve on the WECC Transmission Expansion Policy Planning Committee (TEP.PC), a
Biyce J. Freeman 2 Docket Number 30013-297-GR-14
0CA68
I WFCC i3oard committee, My participation in WECC and in the RTEP project is another
2 source of unique and valuable insight into regional electricity issues that assist me in
3 advocating for the interests of Wyoming consumers.
4 Finally, in December of 201 1, 1 was elected to serve on the Advisory Council of the Center
5 for Public Utilities at New Mexico State University. The Center for Public Utilities (CPU)
6 provides training programs and current policy issues conferences to meet the needs of
7 professionals employed at federal and state commissions, utility companies, and other
8 stakeholders in the electricity, natural gas distribution, interstate pipeline,
9 telecommunications and water utility industries.
10 Q. hAVE YOU TESTIFIED BEFORE TH IS COMMISSION IN PREVIOUS
I I PROCEEDINGS?
12 A. Yes. Ihave detailed the cases in which I have testified before this Commission in Appendix
13 A, attached to my testimony. I have also offered testimony before the Federal
14 Communications Commission, the Federal Energy Regulaton’ Commission and the United
15 States Congress.
lü Q. ON WhOSE BEHALF DO YOU APPEAR HERE TODAY?
17 A. I appear here today on behalf of the OCA. As I indicated previously, the OCA is an
18 independent party in this proceeding, separate and apart from the Commission or its
19 advisory staff.
20 Q. AS A MEMBER OF THE OCA, DO YOU ADVOCATE TIlE INTERESTS OF
21 CERTAIN GROUPS OF CONSUMERS OVER OTHERS?
22 A. No. As a member of the OCA, it is my statutory obligation to advocate the best interest
23 of all citizens in the state. Specifically, W.S. § 37-2-401 states that the OCA “shall
24 represent the interests of Wyoming citizens and all classes of utility customers in matters
25 involving public utilities.[emphasis added]” This public interest standard requires the
26 OCA to represent the broadest possible utility consumer constituency, even though some
27 of those consumers may also be represented independently as parties in this case. The
28 OCA is responsible for balancing the positions and recommendations of the Company,
Riyce J. Freeman 3 Docket Number 3001 3-297-GR-14
0CA69
and of other parties, to arrive at a set of recornnwndations that serve the overall long tern
public interest.
3 Q. ARK YOU SPONSORING ANY CXIIIBITS IN TillS PROCEEDING?
4 A. Yes, I am sponsorinu OCA Exhibits 202.1 through 202.5. 1 will idcntif and describe these
5 exhibits later in my testimony.
6 Q. IN TIlE COURSE OF YOUR REVIEW OF TIllS MATTER, DID YOU USE
7 INFORMATION ThAT TIlE COMPANY DEEMED CONFIDENTIAL?
a A. No.
9 Q. DOES YOUR TESTIMONY AND/OR EXHIBITS CONTAIN INFORMATION
10 TIE AT THE COMPANY tEAS DEEMED CONFIDENTIAL?
ii A. No.
12 PURPOSE
t: Q. WhAT IS TIlE PURPOSE OF YOUR TESTIMONY IN TillS PROCEEDING?
14 A. The puqiose of my testimony in this proceeding is to support the OCA’s overall
15 recommended revenue increase in this proceeding. More particularly, my testimony will
In address the appropriate rate of return to be allowed on Montana Dakota Utility Company’s
17 (MDU or Company) invested capitol, the OCA’s recommended proportion of debt and
IS equity capital to be included in MDU’s capital stmcWre, and the OCA’s recommended
19 overall weighted average cost of capital (WACC). OCA witness Anthony Ornelas wifl
20 address the balance of the issues in the case including revenue requirement, cost of service
21 and rate design. In my testimony I will provide a detailed description of the data and
22 methods that I used to derive my recommendations in this proceeding. I will discuss the
23 function of capital cost in setting rates for regulated public utilities such as MDU, general
24 factors that influence the cost of capital required by investors to finance utility investments
25 and market benchmarks that provide some insight into the range of returns currently being
26 demanded by investors in competitive capital markets. I will also provide a current cost of
27 equity analysis for MDU, which 1 have developed independently, that shows that the returnBryce J. Freeman 4 Docket Number 30013-297-GR-14
oCA7O
on equity (ROE) being requested by MDU in this proceeding is excessive and should be
2 reduced to a level more consistent with cunent capital market dynamics. I will combine
3 my ROE recommendation with recommendations on the apnropnate cost of debt and
4 capital structure to arrive at a recommended overall weighted average cost of capital
5 (WACC). Throughout lily testimony I will reference the testimony of Company witness 3.
6 Stephen Gaske who sponsors MDU’s recommended ROE, noting some areas where lie and
7 I agree and many areas where we disagree, and the reasons thcrefbre.
My testimony iii this proceeding is offered in conjunction with that of Mr. Omclas. The
9 analysis and recommendations of the OCA in this proceeding are offered as a package by
10 the OCA and are intended to provide the Commission with a basis upon which to make a
II determination consistent with the public interest in this case.
12 Q. AS A PRELIMINARY MATTER, WHAT RETRUN IS MDU SEEKING IN TillS
13 PROCEEDING?
14 A. MDU is seeking an overall WACC of 7.859% as noted in the testimony of Mr. Garret
15 Scngcr.’ MDU’s proposed capital structure consists of 42.435% long term debt, 4.564%
short term debt, l.4Q9% preFerred stock and 51.502% common equity.2 MDU requests
17 that the Commission approve a cost of long tenn debt of 6.092%, a cost ofshoft term debt
of 1.209%, a return on preflwred stock of 4.577%, and a return on common equity of
19 10.00%. Combining the relative proportions for each of the sources of capital with MDU’s
20 proposed cost, as described above, yields a proposed WACC of 7.659%.’
21 COST OF CAPITAL - BACKGROUND
22 Q. WHAT IS THE FUNCTION OF THE COST OF CAPITAL IN THE CONTEXT OF
23 RATEMAMNG?
Direci Testimony of Garret Scngcr, page 4.2 Direct Testimony of J. Stephen Ciaske. page 4.‘ibid.
Bryce J. Freeman 5 Docket Number 30013-297-GR-14
OCA71
1 A. For ratemaking purposes, the cost of capital is the amount of profit, or return that a
2 regulated utility is allowed to earn on the capital, both debt and equity, that it has invested
.3 in the utility enterprise. The utility must acquire this capital from private investors in
4 competitive securities markets. Those investors have a wide variety of choices regarding
5 where and when to invest their dollars, ranging from mutual hinds to investments in
6 individual stocks or bonds. Private investors are driven by a desire to maximize their
7 returns while minimizing their risks.
8 For private companies not subject to rate regulation, the amount ofreturn that can he earned
9 is limited only by the demand lbr a company’s product or service, the company’s ability to
10 supply that demand and the ability of management to acquire capital and manage costs.
11 For regulated utilities, on the other hand, the judgment of the regulator supplants the
12 operation of the competitive market in detennining what level of return is sufficient to
13 induce investors to provide scarce capital dollars. In either case, however, the investor
14 makes his decision based on the expected return relative to the perceived risk of the
15 investment.
IC, From this perspective setting the appropriate authorized return for regulated utilities is
17 exceedingLy important. It the regulator sets the rate of return too low in companson to
IN investors’ perceived risk, then investors will price shares of the utility lower, increasing
19 the yield to a level that reflects investors’ market return expectations. Under these
20 circumstances the utility will find it difficult to attract and maintain capital investments.
21 Conversely, if the return is set too high, investors will price the shares higher, reducing the
22 yield to a level consistent with investors’ perceived risk. In this way the market is self-
23 coneeting. hut in the latter situation ratepayers would be needlessly burdened with higher
24 rates that are not necessary to attract and maintain capital investment. This fundamental
25 risk return relationship applies to every market security as shown in the classic Security
26 Market Line (SML):
Bryce J. Freeman 6 Docket Number 300 13-297-GR-14
0CA72
The figure above graphically depicts the relationship between risk and return from a market
view point. Securities that have less perceived risk, such as U.S. Government debt
obligations also have a lower return and tend to cluster in thc lower left of the graph. As
the perception of risk increases so does the market return demanded by investors. Moving
up the XML we find the returns for the corporate debt of large investment grade companies
and fiwther up still are the returns lhr the common equity of those same eompames.
Although not shown in the figure, the returns for mid-size and smaller investment grade
companies would appear even further up the SML from large company stocks. Small cap
companies and non-investment grade securities would occupy the extreme upper right hand
eoiner of the graph. Theoretically, it one can accurately determine the difThrenee between
any two of the points on the XML, often releLTed to as the “Risk Premium,” then an estimate
of the market cost of capital can he made. The importance of this basic relationship
between risk and return will become even more apparent as I discuss the appropriate return
fbr MDU later in my testimony.
17 Q. HAS THIS RELATIONSHIP BETWEEN RISK AND RETRUN BEEN ADOPTED
is AS A LEGAL STANDARD IN RATEMAKING PROCEEDINGS?
Bryce J. Freeman 7 Docket Number 300 13-297-GR-14
Retain
SecLirily Market Line
I quny l{,k Prcininiii
Coiporile Bond Rik
I ‘rd iii ti iii
Stock Yield
Coipunile Bond Yield
Risk‘3
3
4
‘I
6
7
S
Jo
II
12
13
14
is
16
0CA73
I A. Yes, the critical importance of this relationship in determining an allowed rate of return
2 has been recognized by the U.S. Supreme Court when it established the capital attraction
3 and maintenance standard. This standard was established in two precedent setting cases;
4 Federal Power Commission v. I lope NaturLd Gas Co., 320 U.S. 59! (1944), and lllueficld
5 262 U.S. 679 (1923). These cases are often
6 referred to collectively as the “Hope and Bluetield” standard. In Bluelield the Court found
7 that:
8 A public utility is citlitled to such rates as will permit itto earn a return on the value of the
9 properly which it employs for the convenience of the public equal to that generally being
10 made at the same time and in the same general part of’ the country on investments in other
11 business umfcnakings which are attended by corresponding, risks and uncertainties
12 In flqpc the Court confirmed its finding in Bluefleld (hat utility shareholders must be
13 adequately compensated fbr the risk assumed in utility investments when it ibund that:
14 the return IC) the equity owner should be commensurate with returns on
15 investments in other enterprises having corresponding risks....
16 The return should be reasonably sufficient to assure confidence in the financial
17 soundness of the utility, and should he adequate, under etticient and econoin ical
IS management, to maintain and support its credit and enable it ID raise the money
19 necessary Thr the proper discharge of its public duties.
20 The Court also found, titter alto, that regulation is not a guarantee of profitability, that the
21 property being earned on must be devoted to public service, and that the appropriate return
22 to be granted depends on the Ihets and circumstances at the time the deteminaiion is made
23 and may change from time to time owing to changes “affecting opportunities for
24 investment, the immey market, and business conditions generally”.
25 MARKET RISK DYNAMICS
26 Q. WHAT ARE THE GENERAL FACTORS THAT INFLUENCE RISK IN
27 FINANCIAL SECURITIES?
28 A. There are a wide variety of factors that influence risk in financial securities as perceived
29 by investors. Risk that cannot be diversified away by holding a large portfolio of
Bmyce J. Freeman S Docket Number 30013-297-GR-14
0CA74
diversified securities is often referred to as systematic or market risk. Market risk includes
2 such factors as expected levels of interest rates and inflation, monetary and fiscal policies,
3 and the general level of economic growth and activity anticipated by investors when an
4 investment decision is made. To one degree or another systematic risk affects the value of
5 all market securities and cannot be diversified away by holding a large portfolio of
6 securities.
7 Non-systematic, or business risk embodies the risk of holding a particular security and
6 includes factors such as the characteristics of the particular market and industry in which
the company issuing the security operates, the ability of management to generate revenue
10 and control costs, and the ability ofIlw company to attract capital on reasonable terms. For
ii rcgmlated utilities, business risk also includes regulatory risk or the risk that the regulator
12 will set rates for utility services at a level that fails to produce the return expected by the
13 investor when the investment was made.
14 Investors consider all of these risk factors when making investment decisions. The essence
15 of risk relative to the financial markets is the probability that realized returns will he lower,
due to the risk factors cited above, than the return anticipated by the investor when the
17 investment was nmde, The higher the probability of lower realized returns the higher the
16 initial return demanded by the investor. Put another way, the higher the perceived risk that
19 actual Thture returns will be lower than anticipated, the lower the present value, orprice, of
20 the security.
21 Q. WHAT IS YOUR ASSESSMENT OF TIlE CURRENT MARKET RISKS FACING
22 MDU?
23 A. There arc certainly risks associated with holding the debt and equity securities of private
24 companies in today’s market place. The general level of expected economic activity is an
25 important driver in the growth, or decline as the case may be, in demand for utility services.
26 Economic activity can be measured broadly by examining the factors that drive economic
27 activity such as unemployment levels, wage and compensation levels, labor productivity,
28 interest rates, monetary policy, and economic output as measured by Gross Domestic
29 Product (GDP).
Bryce J. Freeman 9 Docket Number 30013-297-GR-14
OCA7S
As the Commission is ‘el1 aware the nation’s economy is continuing to slowly recover
2 from a severe recession that began in 2008 and lasted for about two years. Since the end
3 of the recession, national unemployment has declined horn a high of 1 O% in 2009 to its
4 present level of5.7%4. However, the labor force participation rate has remained stubbornly
5 low over that same period, declining from about 66% in 200% to around 63% currently5.
6 Year over year growth in wages for the year ending December 2014 was 2.l%6 while
7 inflation increased at •%%7 over that same period which indicates modest growth in
8 disposable income. It should be noted, however, that most of the decline in the overall rate
of inflation is due to the declining price of crude oil over the Last six months. The decline
10 in crude oil is partially offset by a sharp rise in the price of food. Excluding the two volatile
ii categories of food and energy, the inflation rate was 1.6% in 201 4. Generally, consumers
12 are hesitant to make long term spending commitments based on price reductions in these
13 two volatile commodity categories. Since consumer spending drives about 70% of
14 economic activity in the U.S. economy, the level of unemployment and the growth in wage
15 compensation are important factors contributing the consumption of goods and services
16 measured by GDP.
37 Growth in GDP has similarly been laclclustcr since the recovery began in 2010. During the
period 2010 to 2014 the annual average rate of growth in real GD? (not adjusted for
19 inflation) has been 2.l2% which compares to a long tenn average growth in real GDI of
20 3.3%. The Congi-essional Budget Office (CR0) expects the growth in real GDP over the
21 period to 2024 to average 2.3%10, consistent with projections of the U.S. Department of
U.S. Department of Labor. Bureau of Labor Statistics, littp:h data.bls.gov/rimeseries/LNS 14000000.U.S. Department of Labor, Bureau of Labor Statistics. http:tidata.bls.gov/timeseñes/LNSI 1300000.U.s. Department of Labor, Bureau of Labor Statistics. Iittp://www.bls.gov/web/eci/ecicois.pdfU.S. Department of Labor, Bureau of Labor Statistics, http://www.hls.gov/newsselease/pdf’cpi.pdf.
8 Ibid.U.S. Department of Agriculture. lit(p:J/www.ers.usd&gov/data-products/intemational-itiacroceonomic-dataset ,aspx.
Congressional I3udgct Office. THE BUDGET AN]) ECONOMIC OUTLOOK: 2014 TO 2024.http://w’ww.cho.gov/sitcs/deFaulUfi]es/cbofilcs/attachments/45010-OutIook2OI4Feb.pdf
I3ryce J. Freeman 10 Docket Number 30013-297-GR-14
0CA76
I Agriculture which projects real (IDP growth of 2.6%’ over the period to 2030. Both of
2 these projections are significantly lower than the historic rate of growth in real GDI.
3 According to the US. Bureau of Labor Statistics (IlLS), labor three productivity gains
4 since the end of the recession have been essentially in line with average productivity gains
5 realized over the period from 1987 through 2013. The 13LS reports that during the period
6 2010 through 2013 average annual growth in productivity was 2.95% while the average
7 over the period 1987 through 2013 was 2.9%.l2 Productivity gains in this range are
S consistent with the slow economic growth that has occurred since the end of the recession
9 and is expected to continue over the long term as cited above.
10 U.s. monetary and fiscal policy is equally uncertain. In response to the to the financial
11 crisis that developed in late 2008, and which precipitated the ensuing recession, the U.S.
12 Federal Reserve Bank (Fed) quickly reduced its short term lending rates to near zero in
13 order to stimulate economic growth. It also created a number of lending facilities and loan
14 purchase programs to increase the liquidity of the U.S. credit market. Further, it initiated
15 three rounds of “quantitative easing” or the purchase of long dated U.S. Treasury debt
designed to reduce the cost of long term borrowing and spur capital investment. At the
17 same time the U.S. Congress appropriated approximately $787 billion under the American
IS Recovery and Reinvestment Act (ARRA) iii order provide immediate economic stimulus
31) in the tbrm of funding for infrastructure investments as well as temporary relief fhr
20 dislocated workers.
21 As the economy has continued on its slow trajectory ofrecoveiy, many of the extraordinary
22 measures undertaken by the Fed to increase liquidity and provide shod term economic
23 stimulus by casing credit have ended. The grants and loans authorized under ARRA. have
24 long since been disbursed. But, the Fed is continuing to keep short term interest rates only
25 marginally ahove zero although it has indicated that it may begin raising interest rates
26 sometime later this year. Presumably these actions would precipitate an increase in long
U.S. Dcpaflrnen( of Agriculture. hItp:/!www.ers.usda.gov/data-producL.aspx.12 U.S. Department of Labor, Bureau of Labor Statistics, http:Hwww.bls.govhnfp/mprdload.htm.
Bryce J. Freeman 11 Docket Number 300 13-297-GR-14
0CA77
term interest rates, the interest that is paid on long dated bonds and other securities used by
2 utilities and industrial companies to finance large capital investments. However, no such
3 market effect has been observed. In hict, as the Fed has continued to prepare the market
4 for increasing interest rates, interest rates on corporate debt have actually declined
7 Q. PLEASE SUMMARIZE YOUR TESTIMONY IN THIS PROCEEDING.
8 A. Certainly. My testimony in this proceeding provides an independent analysis of the current
market cost of’ capital that I recommend he used in setting MDU’s rates fbr natural gas
10 distribution service in the Company’s Sheridan, Wyoming service teHtoiy. Anthony
ii Ornelas of the OCA incorporates my recommended WACC in deriving his recommended
12 revenue requirement in this proceeding. Mr. Ornelas also provides testimony and
13 recommendations regarding MDU’s cost of service and rate design proposals.
14 Tn my analysis I take no exception to MDU’s proposed capital structure, cost of debt or
Is cost of prefbrred stock. I am, however, recommending a return on equity of 9.0%, 100
16 basis points less than that recommended by Dr. Gaske on behalf of the Company. in
17 förnmlating my recommended ROE I have relied on several well vetted and widely used
18 equity cost estimation models incorporating multiple sources of financial and market data.
19 These are the standard tools and methods that I have presented to the Commission in many
20 previous cases. It is my belief that a 9.0% ROE will appropriately balance the interests of
Htyce J. Freeman 44 Docket Number 3001 3-297-GR-14
OCA1 10
customers in reasonable rates and the interests of the Company iii accessing capital on
reasonable terms, as required by the Hope and Bluetield standard.
In reviewing the testimony of Dr. (laske on behalf of the Company I have noted several
4 areas of disagreement between he and 1, as well as mistakes made by Dr. Ciaske in
5 lbrmulating his ROE recommendation. It is interesting to note that it one dismisses the
6 floatation cost adjustment erroneously applied by Dr. Gaske in his DCF analysis, his
7 median range of equity cost estimates for MDU is very similar to mine. Dr. Gaske,
s however, chooses to recommend an ROE at the very upper end of his nrngc, a range that
also includes his erroneous floatation cost adjustment. And, although Dr. Gaske’s presents
10 three risk premium analyses in his testimony, they are meaningless in the context of this
11 rate proceeding.
12 Q. DOES THAT CONCLUDE YOUR TESTIMONY IN TillS PROCEEDING?
13 A. Yes, it does.
Biyce J. Freeman 45 Docket Number 3001 3-297-GR- 14
OCAI 11
BEFORE TIlE PUBLIC SERVICE COMMISSION OF VYOMJNC
IN TITh MAilER OF THE APPLICATIONOF MONTANA-DAKOTA UTILITIES CO., ) DOCKET NO. 3001 3-297-GR-l4A DIVISION OF MDL RISOURCES ) (RECORD NO. 13992)GROUP. INC.. FOR AUTI TORITY TOLSTABLISI-I A TOTAL ANNUALINCRIASI3 IN DISTRIBUTIONREVLNUES OF $768.1 60 OR 4.13PERCENT
AFFIDAVIT, OATh AND VERIFICATION
liryce J. Freeman (Afliant) being of lawful age and being Iirst duly sworn, hereby deposes andsays Ihat:
Affiant is the Administrator of the Office of Consumer Advocate which is a partyintervenor in this matter pursuant to its Notice of Intervention fled on November 3, 2014.
Afliant prepared and caused to be filed the Ibregoing testimony. Afliant has, by allnecessary action, been duly authorized to file this testimony and make this Oath andVenlication,
Affiant hereby verifies that, based on Affiant’s knowledge, all statements and informationcontained within the testimony and all of its attached schedules are tme and complete andconstitute the recommendations of the Alliant in his official capacity as Administrator ofthe Wyoming Office of Consumer Advocate.
Further Affiant Sayeth Not.
Dated this 2nd day of Maith, 2015.
Bryce7 Frel4n, AdministratorWyoming ONice of Consumer Advocate2515 Warren Avenue, Suite 304Cheyemw, WY 82002(30?) 777-5742
STATE OF WYOMNO
) 55:COUNTY OF LARAMIE )
OCA 112
The foregoing was acknowledged before me by Bryce J. Freeman on this 2nd day ofMarch, 2015. Witness my hand and official seal.
‘CflAYBLICMy Commission Expires
& COUNTYOFLARAMIE WYOMING
LISSIOQ$JUN.24,flj
OCAI 13
Page o12
APPENDIX A
CASES IN WHICH BRYCE FREEMAN hAS PRESENTED TESTIMONY BEFORE THE
WYOMING PUBLIC SERVICE COMMISSION AS OF 312/2015
Subject
Ilcaring OfDocket N Limber Corn pa ny Date Testi inony
3001 6—U R—94—8 Pinedale Nan ni Gas Company 10/26/1994 ROR70006-’l’R-94-l4 Silver Star Telephone Company, Inc. 12/6/1994 ROR20002—ER—95—48 Black Hills Power & Light 8/14/1995 ROR, IRP, DSM, A14)R70000-TR-95-236 U S WEST Communications, Inc. 10/2/1995 TSLRIC
General Order No.73 Commission Rule Making 4/11/1996 TSLRIC20000-ER-95-99 PaciflCorp, Inc. 6/17/1996 ROR, AFOR, P11k7ooo7m-95-I 5 Dubois l’elephonc Company 8/5/1996 ROR, TSLRIC3001 2—GR—96—33 Wyin Industrial Gas Company 10/16/1996 ROR70007-TR-95-15 Pacific Telecommunications, Inc. 12/10/1996 TSLRIC
70000—fl’—96—301 U S West Communications, Inc. 1/10/1997 AFOR, Jurisdiction70007-TR-95-15 US West Communications, Inc. 1/28/1997 TSLRIC, RATE DESIGN
70000-TR-96-323 U S West Communications, Inc. 5/26/1997 h’SLRIC, Imputation30005-GR-97-51 Cheyenne Light, Fuel & Power, Inc. 8/25/1997 ROR70011 -TR-97-15 ‘Fri-County Telephone Association, Inc. 3/31/199% TSLRIC700I4-TR-97-7 TO’ West, Inc. 3/31/199% TSLRIC80007-WR-98-6 Vista West Water Company 8/31/1998 Cost of Service
20000-EA-9%-l41 l’acifiCorp, Inc. 7/6/1999 Merger3001 0-GR-99-47 Questar Gas Company 10128/1999 ROR, Revenue Requirement20003-I:R-99-54 Cheyenne Light, Fuel & Power, Inc. 1/18/2000 ROR, Rate Design30005-CR-99-53 Cheyenne Light, Fuel & Power, Inc. 1/18/2000 ROR, Rate Design20000-ER-99-145 PacitiCorp, Inc. 1/26/2000 ROR, Rate Design80007-WR-99-8 Vista West Water Company 3/22/2000 Rate Design
30010-GA-Ol-56 , . ‘
l00 I 2GA—0 I 43Questar (jas Company/Wyoming Industrial (jas 6/12/2001 Merger/Acquisition
70000-TA-0 1-700 Qwest Communications 3/I 5/2002 TELRIC70013-TR-02-17 All West Communications, Inc. 10/28/2002 TSLRIC
70006-yr-oo-43 Silver Star Telephone Company, Inc., Teton12/17/2002 TSLRIC
7001 6-TA-02-2 I Telecom20000-ER-02-I 84 I’acifiCorp, Inc. 1/7/2003 Power Cost
30022-G1-02-3 Kinder Morgan, Inc. 2/3/2003 Choice Gas20000-ER-02- 196 Paci tiCorp, Inc. 1/16/2004 Power Cost20000-EA-05-226 MEl fC/PaciflCorp 12/15/2005 Merger/Acquisition
30022-73-GR-06 Kinder Morgan, Inc. 9/16/2006 ROR20000-250-I3A-06 Rocky Mountain Power 1/10/2007 Avoided Costs