Capitalization study

              EXECUTIVE
SUMMARY
Executive Summary
The income approach to value converts projected future income or cash flow into an estimate of present value. The accuracy of this approach is
no greater than the validity of the assumptions used to estimate the key variables, particularly the capitalization rate variable. The mathematical
techniques used in the approach convert those assumptions into an estimate of current market value.
This booklet contains a study of each of the eight state assessed industry groups in Oklahoma. Industry data was gathered by group as identified
by Value Line Investment Survey published from the period of December 2010 through January 2011.
Generally accepted appraisal procedures were used to estimate the cost of capital for debt and equity. The long term debt cost is the cost for a
particular risk class of debt on the lien date. The equity rate reflects the rate of return or compensation that will satisfy the risk that a prospective
purchaser would assume by investing in the property.
Authority for Valuation
The Oklahoma Tax Commission, Ad Valorem Division, is charged with the responsibility of valuing all Railroad, Air Carrier, and Public Service
Corporation property in accordance with Title 68, Oklahoma Statutes, Section 2808. The term “public service” includes electric companies, fluid
or product pipeline companies, gas distribution and transmission companies, telecommunication companies, and water companies.
Band of Investment, Capital Structure
A representative capital structure is developed for each industry using the market value of equity and the book value of long term debt and any
preferred stock. Using Value Line Investment Survey the market value of equity can be calculated by multiplying the number of shares
outstanding by the listed stock price, or by utilizing the given market capitalization number already calculated. The debt components are book
amounts unless market amounts are readily available and predetermined to be significantly different. Preferred stock was excluded in the
calculations for all industry types.
The rates of debt and equity capital are weighted by the respective amounts of such capital deemed most likely to be employed by a prospective
buyer. The result is a representative or typical capital structure of an industry group of companies, not that of the present owner, striking an
optimum capital structure from the perspective of a potential investor.
Executive Summary
Cost of Debt
Cost of debt was calculated as the twelve month bond yield average from Mergent Bond Record for public utility and industrial bonds utilizing
that bond rating perceived as typical for each industry.
Cost of Capital
Equity rate calculations were derived upon review of Discounted Cash Flow, Capital Asset Pricing Model (CapM), and Earnings Price Ratios.
Discounted Cash Flow (Gordon Growth Model) Allows for the calculation of two rates within its model utilizing the dividend yield,
dividend growth rate estimates and earnings growth rate estimates as listed in Value Line Investment Survey. Cost of capital being
calculated for dividends by adding the dividend yield and the dividend estimate. Similarly the cost of capital for earnings is calculated
by adding the dividend yield and the earnings estimate. No calculation is utilized where yield or growth estimates for a given company
are not available as provided by our sources.
Capital Asset Pricing Model (CapM) In the application of the CapM, the most sensitive component affecting the outcome is the estimate
of the beta statistic. A choice of time frames and frequencies of measurement in the calculation of the beta can produce significantly
different results. Another factor in the use of beta is the choice of whether to use an unadjusted beta or a beta adjusted to reflect the fact
that betas revert to the mean over time. For this study from the selected industry groups as identified in The Value Line Investment
Survey, the levered betas, the effective tax rate, market capitalization and long term debt items are pulled. With this information the
betas are relevered to be more reflective of the selected industry and the individual companies risk exposure utilizing the respective
industry capital structure.
Earnings Price Ratios (E/P Ratio) Utilizing Value Line Investment Survey for the selected industry groups, the E/P Ratio was calculated
with the projected earnings divided by the recent price.
Flotation Costs
Flotation costs are those costs associated with the issuance of new securities and include both the underwriting spread and the costs incurred by
the issuing company from the offering. Financial theory suggests and evidence supports that firms do not typically issue new common equity as
Executive Summary
a matter of common practice. Therefore in determining a capitalization rate, no adjustment will be made in the capitalization rate or the income
stream for hypothetical flotation costs. Flotation costs actually incurred may be accounted for in the income stream.
Utilization of Other Studies and Data
Valuation staff has considered and where appropriate utilized data and capitalization studies submitted by assessed and interested parties in the
development of the derived rates.
The capitalization rates published in this study are intended to be applied to the unitary operations of those companies subject to central valuation
and assessment by the Oklahoma State Board of Equalization.
Industry Capitalization Rate Summary
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Airline
Cargo 12.80% 89.46% 10.54% 12.55%
Passenger 13.50% 51.28% 48.72% 12.02%
Electric 10.00% 52.57% 47.43% 8.08%
Fluid Pipeline (Petroleum Integrated) 11.25% 90.70% 9.30% 10.77%
Gas Distribution (Natural Gas Utility) 9.75% 57.33% 42.67% 8.13%
Gas Transmission (Natural Gas Diversified) 11.75% 83.76% 16.24% 10.83%
Oil/Gas Distribution 11.75% 58.83% 41.17% 9.43%
Pipeline MLPs 13.00% 67.74% 32.26% 10.78%
Railroad 13.25% 80.83% 19.17% 11.88%
Telecommunications Services 11.00% 71.58% 28.42% 9.61%
Telecommunications Utility 11.50% 59.80% 40.20% 9.27%
Water 10.80% 51.47% 48.53% 8.25%
Mergents 2010 Twelve Month Bond Yield Averages
Airline Industry
2011 Capitalization Rate Study
Airline Industry Notes
• Recognizing the different operational services as provided by this industry group, it was broken out into two segments, cargo and
passenger service.
• From the passenger service segment, Bristow Group, Inc. was excluded as their core business is the transport of personnel from
onshore bases to offshore drilling rigs, platforms, and other installations
• Staff considered capitalization studies gathered and submitted by:
Thomson Reuters
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Airline
Cargo 12.80% 89.46% 10.54% 12.55%
Passenger 13.50% 51.28% 48.72% 12.02%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Airline
Cargo
CapM Ex Post Equity Rate 11.63%
CapM Ex Ante Equity Rate 13.87%
DCF (Dividend) Equity Rate 6.60%
DCF (Earnings) Equity Rate 14.10%
Earnings Price Ratio 9.57%
Passenger
CapM Ex Post Equity Rate 12.69%
CapM Ex Ante Equity Rate 15.26%
DCF (Dividend) Equity Rate 5.55%
DCF (Earnings) Equity Rate 14.55%
Earnings Price Ratio 18.16%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Airline
Cargo 10.80% 12.80% 1.12 11.63% 13.87%
Passenger 10.80% 12.80% 1.28 12.69% 15.26%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Airline
Cargo Atlas Air Worldwide Holdings, Inc. B 1,500,000,000 347,600,000 40.00% 1.60 1.40 1.50
FedEx Corp. B++ 27,500,000,000 1,668,000,000 37.50% 1.00 0.96 1.03
United Parcel Service, Inc. A 68,000,000,000 8,648,000,000 35.00% 0.85 0.79 0.84
Median 27,500,000,000 1,668,000,000 37.50% 1.00 0.96 1.03
Arithmetic Mean 32,333,333,333 3,554,533,333 37.50% 1.15 1.05 1.12
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Airline
Passenger AirTran Holdings, Inc. C 1,000,000,000 902,100,000 38.00% 1.25 0.80 1.54
Alaska Air Group, Inc. C++ 2,000,000,000 1,390,100,000 38.00% 1.15 0.80 1.54
Allegiant Travel Company B+ 950,000,000 17,500,000 37.00% 0.80 0.79 1.52
AMR Corp. C+ 2,700,000,000 9,513,000,000 0.00% 1.65 0.36 0.70
Delta Air Lines, Inc. C++ 10,900,000,000 13,063,000,000 0.00% 1.50 0.68 1.31
JetBlue Airways Corp. C++ 2,000,000,000 2,880,000,000 40.00% 1.25 0.67 1.29
Skywest, Inc. B 875,000,000 1,787,400,000 36.00% 1.20 0.52 1.00
Southwest Airlines B+ 10,200,000,000 3,350,000,000 32.00% 0.95 0.78 1.49
United Continental Holdings, Inc. C++ 4,800,000,000 6,931,000,000 0.00% 1.80 0.74 1.41
US Airways Group, Inc. C+ 1,800,000,000 3,987,000,000 0.00% 1.75 0.54 1.04
Median 2,000,000,000 3,115,000,000 34.00% 1.25 0.71 1.36
Arithmetic Mean 3,722,500,000 4,382,110,000 22.10% 1.33 0.67 1.28
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Airline
Cargo Atlas Air Worldwide Holdings, Inc. B 1,500,000,000 0.00% 0.00% 11.00%
FedEx Corp. B++ 27,500,000,000 0.50% 6.00% 16.00% 6.50% 16.50%
United Parcel Service, Inc. A 68,000,000,000 2.70% 4.00% 9.00% 6.70% 11.70%
Median 27,500,000,000 6.60% 14.10%
Arithmetic Mean 32,333,333,333 6.60% 14.10%
Growth Estimate
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Airline
Passenger AirTran Holdings, Inc. C 1,000,000,000 0.00% 0.00% 56.00%
Alaska Air Group, Inc. C++ 2,000,000,000 0.00% 0.00% 30.00%
Allegiant Travel Company B+ 950,000,000 0.00% 0.00% 15.50%
AMR Corp. C+ 2,700,000,000 0.00% 0.00% 0.00%
Delta Air Lines, Inc. C++ 10,900,000,000 0.00% 0.00% 0.00%
JetBlue Airways Corp. C++ 2,000,000,000 0.00% 0.00% 0.00%
Skywest, Inc. B 875,000,000 1.00% 7.00% 2.00% 8.00% 3.00%
Southwest Airlines B+ 10,200,000,000 0.10% 3.00% 26.00% 3.10% 26.10%
United Continental Holdings, Inc. C++ 4,800,000,000 0.00% 0.00% 0.00%
US Airways Group, Inc. C+ 1,800,000,000 0.00% 0.00% 0.00%
Median 2,000,000,000 5.55% 14.55%
Arithmetic Mean 3,722,500,000 5.55% 14.55%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Airline
Cargo Atlas Air Worldwide Holdings, Inc. B 1,500,000,000 57.45 5.75 10.01%
FedEx Corp. B++ 27,500,000,000 87.34 9.35 10.71%
United Parcel Service, Inc. A 68,000,000,000 68.79 5.50 8.00%
Median 27,500,000,000 5.75 10.01%
Arithmetic Mean 32,333,333,333 6.87 9.57%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Airline
Passenger AirTran Holdings, Inc. C 1,000,000,000 7.47 1.00 13.39%
Alaska Air Group, Inc. C++ 2,000,000,000 55.45 8.00 14.43%
Allegiant Travel Company B+ 950,000,000 49.55 5.50 11.10%
AMR Corp. C+ 2,700,000,000 8.22 2.35 28.59%
Delta Air Lines, Inc. C++ 10,900,000,000 13.76 2.80 20.35%
JetBlue Airways Corp. C++ 2,000,000,000 6.79 1.25 18.41%
Skywest, Inc. B 875,000,000 16.07 2.20 13.69%
Southwest Airlines B+ 10,200,000,000 13.64 1.60 11.73%
United Continental Holdings, Inc. C++ 4,800,000,000 28.68 5.35 18.65%
US Airways Group, Inc. C+ 1,800,000,000 11.18 3.50 31.31%
Median 2,000,000,000 2.58 16.42%
Arithmetic Mean 3,722,500,000 3.36 18.16%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Airline
Cargo Atlas Air Worldwide Holdings, Inc. B 1,500,000,000 347,600,000 0.23 81.19% 18.81%
FedEx Corp. B++ 27,500,000,000 1,668,000,000 0.06 94.28% 5.72%
United Parcel Service, Inc. A 68,000,000,000 8,648,000,000 0.13 88.72% 11.28%
Median 27,500,000,000 1,668,000,000 0.13 88.72% 11.28%
Arithmetic Mean 32,333,333,333 3,554,533,333 0.14 88.06% 11.94%
Weighted Average 55,489,690,722 6,540,777,320 89.46% 10.54%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Airline
Passenger AirTran Holdings, Inc. C 1,000,000,000 902,100,000 0.90 52.57% 47.43%
Alaska Air Group, Inc. C++ 2,000,000,000 1,390,100,000 0.70 59.00% 41.00%
Allegiant Travel Company B+ 950,000,000 17,500,000 0.02 98.19% 1.81%
AMR Corp. C+ 2,700,000,000 9,513,000,000 3.52 22.11% 77.89%
Delta Air Lines, Inc. C++ 10,900,000,000 13,063,000,000 1.20 45.49% 54.51%
JetBlue Airways Corp. C++ 2,000,000,000 2,880,000,000 1.44 40.98% 59.02%
Skywest, Inc. B 875,000,000 1,787,400,000 2.04 32.87% 67.13%
Southwest Airlines B+ 10,200,000,000 3,350,000,000 0.33 75.28% 24.72%
United Continental Holdings, Inc. C++ 4,800,000,000 6,931,000,000 1.44 40.92% 59.08%
US Airways Group, Inc. C+ 1,800,000,000 3,987,000,000 2.22 31.10% 68.90%
Median 2,000,000,000 3,115,000,000 1.32 43.24% 56.76%
Arithmetic Mean 3,722,500,000 4,382,110,000 1.38 49.85% 50.15%
Weighted Average 7,174,966,420 6,815,583,613 51.28% 48.72%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Airline
Cargo Atlas Air Worldwide Holdings, Inc. 1.00 1.40 1.60 1.60
FedEx Corp. 1.05 1.05 0.95 0.95 1.00
United Parcel Service, Inc. 0.75 0.80 0.80 0.85 0.85
Median 0.90 1.00 0.95 0.95 1.00
Arithmetic Mean 0.90 0.95 1.05 1.13 1.15
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Airline
Passenger AirTran Holdings, Inc. 1.35 1.45 1.45 1.35 1.25
Alaska Air Group, Inc. 1.35 1.35 1.45 1.20 1.15
Allegiant Travel Co. 0.85 0.80
AMR Corp. 2.60 2.55 1.95 1.65 1.65
Delta Air Lines, Inc. 1.55 1.50
JetBlue Airways Corp. 1.05 0.95 1.20 1.25 1.25
Skywest, Inc. 1.25 1.20
Southwest Air 1.10 0.95 0.90 0.95 0.95
United Continental Holdings 1.80
US Airways Group 1.80 1.75
Median 1.35 1.35 1.45 1.25 1.25
Arithmetic Mean 1.49 1.45 1.39 1.32 1.33
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Airline
AirTran Holdings, Inc. 1.35 1.45 1.45 1.35 1.25
Alaska Air Group, Inc. 1.35 1.35 1.45 1.20 1.15
Allegiant Travel Co. 0.85 0.80
AMR Corp. 2.60 2.55 1.95 1.65 1.65
Atlas Air Worldwide 1.00 1.40 1.60 1.60
Bristow Group, Inc. 1.30 1.35 1.35
Continental Air 2.40 2.25 1.90 1.65
Delta Air Lines, Inc. 1.55 1.50
FEDEX Corporation 1.05 1.05 0.95 0.95 1.00
JetBlue Airways Corp. 1.05 0.95 1.20 1.25 1.25
Midwest Air Group 1.35 1.70
Skywest, Inc. 1.25 1.20
Southwest Airlines 1.10 0.95 0.90 0.95 0.95
UAL Corp. 1.95 1.85
United Continental Holdings 1.80
United Parcel Svc 0.75 0.80 0.80 0.85 0.85
US Airways Group 1.80 1.75
Median 1.35 1.20 1.40 1.35 1.25
Arithmetic Mean 1.44 1.41 1.39 1.34 1.29
Value Line Investment Survey, December 2007 through January 2011
Electric Industry
2011 Capitalization Rate Study
Electric Industry Notes
• From the Electric Industry segment, ITC Holdings excluded as they operate primarily as a conduit moving power from generation to
distribution through its own, or in conjunction with, neighboring transmission systems.
• Staff considered capitalization studies gathered and submitted by:
No Submissions
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Electric 10.00% 52.57% 47.43% 8.08%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Electric
CapM Ex Post Equity Rate 9.27%
CapM Ex Ante Equity Rate 10.81%
DCF (Dividend) Equity Rate 9.17%
DCF (Earnings) Equity Rate 10.38%
Earnings Price Ratio 8.79%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Electric 10.80% 12.80% 0.77 9.27% 10.81%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Electric
Allete, Inc. A 1,300,000,000 784,200,000 34.00% 0.70 0.50 0.78
Alliant Energy Corp. A 4,100,000,000 2,703,800,000 35.00% 0.70 0.49 0.77
Ameren Corp. B++ 6,900,000,000 7,259,000,000 35.00% 0.80 0.48 0.74
American Electric Power Co. B++ 17,000,000,000 15,995,000,000 32.50% 0.70 0.43 0.67
Centerpoint Energy, Inc. B 6,800,000,000 8,267,000,000 37.50% 0.80 0.45 0.71
Cleco Corporation B+ 1,900,000,000 1,187,800,000 38.00% 0.65 0.47 0.73
CMS Energy Corporation B 4,600,000,000 6,203,000,000 35.00% 0.75 0.40 0.63
DPL Inc. B++ 3,100,000,000 926,400,000 33.00% 0.60 0.50 0.78
DTE Energy Co. B+ 7,800,000,000 7,074,000,000 34.00% 0.75 0.47 0.73
Empire District Electric Company B+ 900,000,000 690,700,000 35.50% 0.70 0.47 0.73
Entergy Corporation A 13,000,000,000 11,445,000,000 35.00% 0.70 0.45 0.70
Great Plains Energy, Inc. B+ 2,600,000,000 3,101,300,000 33.00% 0.75 0.42 0.65
Integrys Energy Group, Inc. B+ 3,800,000,000 1,912,700,000 38.00% 0.90 0.69 1.07
MGE Energy Inc. A 975,000,000 319,700,000 35.50% 0.65 0.54 0.84
OGE Energy Corp. A 4,400,000,000 2,372,800,000 32.00% 0.75 0.55 0.86
Otter Tail Corporation B+ 800,000,000 435,600,000 30.00% 0.95 0.69 1.08
Vectren, Corp. A 2,100,000,000 1,590,300,000 35.00% 0.70 0.47 0.73
Westar Energy, Inc. B++ 2,800,000,000 2,778,500,000 30.00% 0.75 0.44 0.69
Wisconsin Energy Corporation B++ 6,900,000,000 3,935,700,000 35.50% 0.65 0.48 0.74
Median 3,800,000,000 2,703,800,000 35.00% 0.70 0.47 0.73
Arithmetic Mean 4,830,263,158 4,156,973,684 34.39% 0.73 0.49 0.77
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Electric
Allete, Inc. A 1,300,000,000 4.80% 1.50% 1.00% 6.30% 5.80%
Alliant Energy Corp. A 4,100,000,000 4.50% 5.50% 7.00% 10.00% 11.50%
Ameren Corp. B++ 6,900,000,000 5.30% -6.00% -2.50% 2.80%
American Electric Power Co. B++ 17,000,000,000 5.10% 3.50% 3.00% 8.60% 8.10%
Centerpoint Energy, Inc. B 6,800,000,000 5.00% 3.50% 3.00% 8.50% 8.00%
Cleco Corporation B+ 1,900,000,000 3.50% 8.50% 9.50% 12.00% 13.00%
CMS Energy Corporation B 4,600,000,000 4.40% 19.00% 10.00% 23.40% 14.40%
DPL Inc. B++ 3,100,000,000 5.00% 5.50% 7.00% 10.50% 12.00%
DTE Energy Co. B+ 7,800,000,000 5.00% 3.50% 6.50% 8.50% 11.50%
Empire District Electric Company B+ 900,000,000 5.90% 1.00% 7.50% 6.90% 13.40%
Entergy Corporation A 13,000,000,000 4.80% 4.00% 2.00% 8.80% 6.80%
Great Plains Energy, Inc. B+ 2,600,000,000 4.50% -3.00% 4.50% 1.50% 9.00%
Integrys Energy Group, Inc. B+ 3,800,000,000 5.50% 0.50% 11.00% 6.00% 16.50%
MGE Energy Inc. A 975,000,000 3.50% 2.00% 4.00% 5.50% 7.50%
OGE Energy Corp. A 4,400,000,000 3.30% 3.00% 6.50% 6.30% 9.80%
Otter Tail Corporation B+ 800,000,000 5.30% 1.50% 5.50% 6.80% 10.80%
Vectren, Corp. A 2,100,000,000 5.40% 2.50% 4.50% 7.90% 9.90%
Westar Energy, Inc. B++ 2,800,000,000 5.00% 3.50% 8.50% 8.50% 13.50%
Wisconsin Energy Corporation B++ 6,900,000,000 3.50% 15.50% 9.50% 19.00% 13.00%
Median 3,800,000,000 8.50% 10.80%
Arithmetic Mean 4,830,263,158 9.17% 10.38%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Electric
Allete, Inc. A 1,300,000,000 36.45 2.75 7.54%
Alliant Energy Corp. A 4,100,000,000 37.05 3.60 9.72%
Ameren Corp. B++ 6,900,000,000 28.83 2.50 8.67%
American Electric Power Co. B++ 17,000,000,000 36.08 3.50 9.70%
Centerpoint Energy, Inc. B 6,800,000,000 16.10 1.40 8.70%
Cleco Corporation B+ 1,900,000,000 30.90 2.75 8.90%
CMS Energy Corporation B 4,600,000,000 18.93 1.65 8.72%
DPL Inc. B++ 3,100,000,000 25.79 3.00 11.63%
DTE Energy Co. B+ 7,800,000,000 46.17 4.25 9.21%
Empire District Electric Company B+ 900,000,000 21.75 1.75 8.05%
Entergy Corporation A 13,000,000,000 70.71 6.75 9.55%
Great Plains Energy, Inc. B+ 2,600,000,000 19.37 1.75 9.03%
Integrys Energy Group, Inc. B+ 3,800,000,000 49.40 4.00 8.10%
MGE Energy Inc. A 975,000,000 42.33 2.90 6.85%
OGE Energy Corp. A 4,400,000,000 45.27 3.75 8.28%
Otter Tail Corporation B+ 800,000,000 22.53 1.65 7.32%
Vectren, Corp. A 2,100,000,000 25.64 2.25 8.78%
Westar Energy, Inc. B++ 2,800,000,000 25.26 2.40 9.50%
Wisconsin Energy Corporation B++ 6,900,000,000 59.24 5.25 8.86%
Median 3,800,000,000 2.75 8.78%
Arithmetic Mean 4,830,263,158 3.04 8.79%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Electric
Allete, Inc. A 1,300,000,000 784,200,000 0.60 62.37% 37.63%
Alliant Energy Corp. A 4,100,000,000 2,703,800,000 0.66 60.26% 39.74%
Ameren Corp. B++ 6,900,000,000 7,259,000,000 1.05 48.73% 51.27%
American Electric Power Co. B++ 17,000,000,000 15,995,000,000 0.94 51.52% 48.48%
Centerpoint Energy, Inc. B 6,800,000,000 8,267,000,000 1.22 45.13% 54.87%
Cleco Corporation B+ 1,900,000,000 1,187,800,000 0.63 61.53% 38.47%
CMS Energy Corporation B 4,600,000,000 6,203,000,000 1.35 42.58% 57.42%
DPL Inc. B++ 3,100,000,000 926,400,000 0.30 76.99% 23.01%
DTE Energy Co. B+ 7,800,000,000 7,074,000,000 0.91 52.44% 47.56%
Empire District Electric Company B+ 900,000,000 690,700,000 0.77 56.58% 43.42%
Entergy Corporation A 13,000,000,000 11,445,000,000 0.88 53.18% 46.82%
Great Plains Energy, Inc. B+ 2,600,000,000 3,101,300,000 1.19 45.60% 54.40%
Integrys Energy Group, Inc. B+ 3,800,000,000 1,912,700,000 0.50 66.52% 33.48%
MGE Energy Inc. A 975,000,000 319,700,000 0.33 75.31% 24.69%
OGE Energy Corp. A 4,400,000,000 2,372,800,000 0.54 64.97% 35.03%
Otter Tail Corporation B+ 800,000,000 435,600,000 0.54 64.75% 35.25%
Vectren, Corp. A 2,100,000,000 1,590,300,000 0.76 56.91% 43.09%
Westar Energy, Inc. B++ 2,800,000,000 2,778,500,000 0.99 50.19% 49.81%
Wisconsin Energy Corporation B++ 6,900,000,000 3,935,700,000 0.57 63.68% 36.32%
Median 3,800,000,000 2,703,800,000 0.76 56.91% 43.09%
Arithmetic Mean 4,830,263,158 4,156,973,684 0.78 57.85% 42.15%
Weighted Average 8,372,548,352 7,554,093,571 52.57% 47.43%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Electric
Allete, Inc. 0.90 0.95 0.75 0.70 0.70
Alliant Energy Corp. 0.95 0.80 0.70 0.70 0.70
Ameren Corp. 0.75 0.80 0.80 0.80 0.80
American Electric Power Co. 1.35 0.95 0.75 0.70 0.70
Centerpoint Energy, Inc. 0.65 0.95 0.90 0.80 0.80
Cleco Corporation 1.30 1.15 0.80 0.65 0.65
CMS Energy Corporation 1.65 1.35 0.95 0.80 0.75
DPL Inc. 0.95 0.85 0.65 0.60 0.60
DTE Energy Co. 0.75 0.80 0.70 0.75 0.75
Empire District Electric Co. 0.80 0.85 0.75 0.75 0.70
Entergy Corporation 0.85 0.85 0.75 0.70 0.70
Great Plains Energy, Inc. 0.95 0.80 0.65 0.75 0.75
Integrys Energy Group, Inc. 0.85 0.80 0.70 0.95 0.90
MGE Energy Inc. 0.75 0.95 0.70 0.65 0.65
OGE Energy Corp. 0.75 0.85 0.75 0.75 0.75
Otter Tail Corporation 0.65 0.95 0.90 0.95 0.95
Vectren, Corp. 0.90 0.90 0.85 0.75 0.70
Westar Energy, Inc. 0.90 0.85 0.80 0.75 0.75
Wisconsin Energy Corporation 0.80 0.85 0.65 0.65 0.65
Median 0.85 0.85 0.75 0.75 0.70
Arithmetic Mean 0.92 0.91 0.76 0.74 0.73
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Electric
Allete, Inc. 0.90 0.95 0.75 0.70 0.70
Alliant Energy Corp. 0.95 0.80 0.70 0.70 0.70
Ameren Corp. 0.75 0.80 0.80 0.80 0.80
American Electric Power, Inc. 1.35 0.95 0.75 0.70 0.70
Centerpoint Energy 0.65 0.95 0.90 0.80 0.80
Cleco Corporation 1.30 1.15 0.80 0.65 0.65
CMS Energy Corporation 1.65 1.35 0.95 0.80 0.75
DPL Inc. 0.95 0.85 0.65 0.60 0.60
DTE Energy Co. 0.75 0.80 0.70 0.75 0.75
Empire District Electric Co. 0.80 0.85 0.75 0.75 0.70
Entergy Corporation 0.85 0.85 0.75 0.70 0.70
Great Plains Energy 0.95 0.80 0.65 0.75 0.75
Integrys Energy Group, Inc. 0.85 0.80 0.70 0.95 0.90
ITC Holdings Corp. 0.95 0.85 0.80
MGE Energy Inc. 0.75 0.95 0.70 0.65 0.65
OGE Energy Corp. 0.75 0.85 0.75 0.75 0.75
Otter Tail Corporation 0.65 0.95 0.90 0.95 0.95
Vectren, Corp. 0.90 0.90 0.85 0.75 0.70
Westar Energy, Inc. 0.90 0.85 0.80 0.75 0.75
Wisconsin Energy Corporation 0.80 0.85 0.65 0.65 0.65
Median 0.85 0.85 0.75 0.75 0.73
Arithmetic Mean 0.92 0.91 0.77 0.75 0.74
Value Line Investment Survey, December 2007 through January 2011
Fluid Pipeline Industry
(Petroleum Integrated)
2011 Capitalization Rate Study
Fluid Pipeline (Petroleum Integrated) Industry Notes
• From the Fluid Pipeline (Petroleum Integrated) Industry segment, Petrobras (ADR) was excluded. While traded, the Brazilian
Government is a majority holder of the common (voting) stock for this company.
• Staff considered capitalization studies gathered and submitted by:
No Submissions
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Fluid Pipeline (Petroleum Integrated) 11.25% 90.70% 9.30% 10.77%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Fluid Pipeline (Petroleum Integrated)
CapM Ex Post Equity Rate 11.08%
CapM Ex Ante Equity Rate 13.16%
DCF (Dividend) Equity Rate 7.97%
DCF (Earnings) Equity Rate 10.01%
Earnings Price Ratio 15.93%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Fluid Pipeline (Petroleum Integrated) 10.80% 12.80% 1.04 11.08% 13.16%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Fluid Pipeline (Petroleum Integrated)
BP P.L.C. (ADR) B 125,000,000,000 26,000,000,000 34.00% 1.00 0.88 0.96
Chevron Corp. A++ 163,000,000,000 10,143,000,000 44.00% 0.90 0.87 0.95
ConocoPhillips A++ 88,400,000,000 23,200,000,000 40.00% 1.10 0.95 1.04
Exxon Mobil Corp. A++ 351,000,000,000 15,248,000,000 44.00% 0.75 0.73 0.80
Frontier Oil Corporation B+ 1,600,000,000 347,700,000 35.00% 1.40 1.23 1.34
Hess Corporation A 23,000,000,000 5,541,000,000 45.00% 1.20 1.06 1.16
Holly Corporation B++ 1,900,000,000 650,900,000 33.00% 1.20 0.98 1.07
Marathon Oil Corp. A+ 23,800,000,000 7,844,000,000 52.50% 1.25 1.08 1.18
Murphy Oil Corporation A+ 13,000,000,000 1,024,300,000 37.50% 1.20 1.14 1.25
Occidental Petroleum A+ 71,600,000,000 2,512,000,000 43.00% 1.15 1.13 1.23
Repsol-YPF S.A. (ADR) B+ 29,500,000,000 21,290,000,000 41.00% 1.15 0.81 0.88
Royal Dutch Shell P.L.C. (ADR) A++ 186,000,000,000 35,148,000,000 45.00% 1.05 0.95 1.04
Sunoco, Inc. B++ 4,800,000,000 2,254,000,000 30.00% 1.05 0.79 0.87
Tesoro Corporation B+ 2,300,000,000 1,844,000,000 23.00% 1.25 0.77 0.85
Total S.A. (ADR) A++ 109,000,000,000 29,433,000,000 55.00% 1.10 0.98 1.07
Valero Energy Corp. B++ 11,000,000,000 7,513,000,000 36.00% 1.25 0.87 0.95
Median 26,650,000,000 7,678,500,000 40.50% 1.15 0.95 1.04
Arithmetic Mean 75,306,250,000 11,874,556,250 39.88% 1.13 0.95 1.04
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Fluid Pipeline (Petroleum Integrated)
BP P.L.C. (ADR) B 125,000,000,000 0.00% 0.00% 3.50%
Chevron Corp. A++ 163,000,000,000 3.60% 4.00% 7.00% 7.60% 10.60%
ConocoPhillips A++ 88,400,000,000 3.70% 3.50% 6.00% 7.20% 9.70%
Exxon Mobil Corp. A++ 351,000,000,000 2.50% 5.00% 6.00% 7.50% 8.50%
Frontier Oil Corporation B+ 1,600,000,000 1.20% 9.00% 6.00% 10.20% 7.20%
Hess Corporation A 23,000,000,000 0.60% 2.00% 6.00% 2.60% 6.60%
Holly Corporation B++ 1,900,000,000 1.80% 6.50% 6.50% 8.30% 8.30%
Marathon Oil Corp. A+ 23,800,000,000 3.00% 4.00% 7.00% 7.00% 10.00%
Murphy Oil Corporation A+ 13,000,000,000 1.60% 6.50% 7.50% 8.10% 9.10%
Occidental Petroleum A+ 71,600,000,000 1.70% 9.50% 7.00% 11.20% 8.70%
Repsol-YPF S.A. (ADR) B+ 29,500,000,000 4.30% 1.50% 9.00% 5.80% 13.30%
Royal Dutch Shell P.L.C. (ADR) A++ 186,000,000,000 5.50% 3.50% 2.50% 9.00% 8.00%
Sunoco, Inc. B++ 4,800,000,000 1.50% 0.00% 0.00%
Tesoro Corporation B+ 2,300,000,000 0.00% -9.50% 16.00%
Total S.A. (ADR) A++ 109,000,000,000 6.60% 4.50% 3.00% 11.10% 9.60%
Valero Energy Corp. B++ 11,000,000,000 1.00% -5.00% 19.50% 20.50%
Median 26,650,000,000 7.85% 9.10%
Arithmetic Mean 75,306,250,000 7.97% 10.01%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Fluid Pipeline (Petroleum Integrated)
BP P.L.C. (ADR) B 125,000,000,000 40.00 7.50 18.75%
Chevron Corp A++ 163,000,000,000 80.97 13.00 16.06%
ConocoPhillips A++ 88,400,000,000 60.17 11.00 18.28%
Exxon Mobil Corp. A++ 351,000,000,000 69.56 9.35 13.44%
Frontier Oil Corporation B+ 1,600,000,000 15.53 2.10 13.52%
Hess Corporation A 23,000,000,000 70.05 7.40 10.56%
Holly Corporation B++ 1,900,000,000 35.94 4.30 11.96%
Marathon Oil Corp. A+ 23,800,000,000 33.47 6.05 18.08%
Murphy Oil Corporation A+ 13,000,000,000 67.52 8.75 12.96%
Occidental Petroleum A+ 71,600,000,000 88.17 9.00 10.21%
Repsol-YPF S.A. (ADR) B+ 29,500,000,000 24.17 5.00 20.69%
Royal Dutch Shell P.L.C. (ADR) A++ 186,000,000,000 60.67 9.10 15.00%
Sunoco, Inc. B++ 4,800,000,000 40.14 3.50 8.72%
Tesoro Corporation B+ 2,300,000,000 16.32 4.05 24.82%
Total S.A. (ADR) A++ 109,000,000,000 48.77 8.50 17.43%
Valero Energy Corp. B++ 11,000,000,000 19.48 4.75 24.38%
Median 26,650,000,000 7.45 15.53%
Arithmetic Mean 75,306,250,000 7.08 15.93%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Fluid Pipeline (Petroleum Integrated)
BP P.L.C. (ADR) B 125,000,000,000 26,000,000,000 0.21 82.78% 17.22%
Chevron Corp. A++ 163,000,000,000 10,143,000,000 0.06 94.14% 5.86%
ConocoPhillips A++ 88,400,000,000 23,200,000,000 0.26 79.21% 20.79%
Exxon Mobil Corp. A++ 351,000,000,000 15,248,000,000 0.04 95.84% 4.16%
Frontier Oil Corporation B+ 1,600,000,000 347,700,000 0.22 82.15% 17.85%
Hess Corporation A 23,000,000,000 5,541,000,000 0.24 80.59% 19.41%
Holly Corporation B++ 1,900,000,000 650,900,000 0.34 74.48% 25.52%
Marathon Oil Corp. A+ 23,800,000,000 7,844,000,000 0.33 75.21% 24.79%
Murphy Oil Corporation A+ 13,000,000,000 1,024,300,000 0.08 92.70% 7.30%
Occidental Petroleum A+ 71,600,000,000 2,512,000,000 0.04 96.61% 3.39%
Repsol-YPF S.A. (ADR) B+ 29,500,000,000 21,290,000,000 0.72 58.08% 41.92%
Royal Dutch Shell P.L.C. (ADR) A++ 186,000,000,000 35,148,000,000 0.19 84.11% 15.89%
Sunoco, Inc. B++ 4,800,000,000 2,254,000,000 0.47 68.05% 31.95%
Tesoro Corporation B+ 2,300,000,000 1,844,000,000 0.80 55.50% 44.50%
Total S.A. (ADR) A++ 109,000,000,000 29,433,000,000 0.27 78.74% 21.26%
Valero Energy Corp. B++ 11,000,000,000 7,513,000,000 0.68 59.42% 40.58%
Median 26,650,000,000 7,678,500,000 0.25 79.90% 20.10%
Arithmetic Mean 75,306,250,000 11,874,556,250 0.31 78.60% 21.40%
Weighted Average 188,483,118,931 19,326,764,653 90.70% 9.30%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Fluid Pipeline (Petroleum Integrated)
BP P.L.C. (ADR) 0.95 0.90 0.95 1.00 1.00
Chevron Corp. 0.90 0.90 0.90 0.90 0.90
ConocoPhillips 0.95 0.90 1.10 1.10 1.10
Exxon Mobil Corp. 0.90 0.90 0.80 0.75 0.75
Frontier Oil Corporation 1.00 1.05 1.60 1.45 1.40
Hess Corporation 0.95 0.95 1.30 1.20 1.20
Holly Corporation 0.90 1.00 1.45 1.25 1.20
Marathon Oil Corp. 1.00 1.05 1.35 1.30 1.25
Murphy Oil Corporation 1.00 0.90 1.20 1.20 1.20
Occidental Petroleum 1.00 1.05 1.25 1.20 1.15
Repsol-YPF S.A. (ADR) 0.95 1.00 1.15 1.15 1.15
Royal Dutch Shell P.L.C. (ADR) 1.00 1.00 1.00 1.05 1.05
Sunoco, Inc. 1.05 1.05 1.35 1.05 1.05
Tesoro Corporation 1.55 1.10 1.60 1.30 1.25
Total S.A. (ADR) 1.00 1.10 1.05 1.05 1.10
Valero Energy Corp. 1.25 1.00 1.50 1.30 1.25
Median 1.00 1.00 1.23 1.18 1.15
Arithmetic Mean 1.02 0.99 1.22 1.14 1.13
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Fluid Pipeline (Petroleum Integrated)
BP P.L.C. (ADR) 0.95 0.90 0.95 1.00 1.00
Chevron Corp 0.90 0.90 0.90 0.90 0.90
ConocoPhillips 0.95 0.90 1.10 1.10 1.10
Exxon Mobil Corp. 0.90 0.90 0.80 0.75 0.75
Frontier Oil Corporation 1.00 1.05 1.60 1.45 1.40
Hess Corporation 0.95 0.95 1.30 1.20 1.20
Holly Corporation 0.90 1.00 1.45 1.25 1.20
Marathon Oil Corp. 1.00 1.05 1.35 1.30 1.25
Murphy Oil Corporation 1.00 0.90 1.20 1.20 1.20
Occidental Petroleum 1.00 1.05 1.25 1.20 1.15
Petrobras (ADR) 1.10 1.45 1.75 1.65 1.60
Repsol-YPF S.A. (ADR) 0.95 1.00 1.15 1.15 1.15
Royal Dutch Shell (ADR) 1.00 1.00 1.00 1.05 1.05
Sunoco, Inc. 1.05 1.05 1.35 1.05 1.05
Tesoro Corporation 1.55 1.10 1.60 1.30 1.25
Total S.A. (ADR) 1.00 1.10 1.05 1.05 1.10
Valero Energy Corp. 1.25 1.00 1.50 1.30 1.25
Median 1.00 1.00 1.25 1.20 1.15
Arithmetic Mean 1.03 1.02 1.25 1.17 1.15
Value Line Investment Survey, December 2007 through January 2011
Pipeline MLP’s Industry
2011 Capitalization Rate Study
Pipeline MLPs Industry Notes
• From the Pipeline MLP Industry segment, Inergy, LP and Suburban Propane removed as primarily involved in the marketing and
distribution of propane gas.
• Staff considered capitalization studies gathered and submitted by:
Tegarden & Associates
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Pipeline MLPs 13.00% 67.74% 32.26% 10.78%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Pipeline MLPs
CapM Ex Post Equity Rate 9.84%
CapM Ex Ante Equity Rate 11.55%
DCF (Dividend) Equity Rate 14.13%
DCF (Earnings) Equity Rate 15.50%
Earnings Price Ratio 6.77%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Pipeline MLPs 10.80% 12.80% 0.86 9.84% 11.55%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Pipeline MLPs
Boardwalk Pipeline Partners, L.P. B+ 6,000,000,000 3,251,800,000 0.00% 0.85 0.55 0.81
Buckeye Partners, L.P. B+ 3,500,000,000 1,441,300,000 0.00% 0.85 0.60 0.88
El Paso Pipeline Partners B 4,600,000,000 2,137,200,000 10.00% 0.75 0.53 0.78
Energy Transfer Partners, L.P. B++ 9,700,000,000 6,004,600,000 1.50% 0.80 0.50 0.73
Enterprise Products Partners, L.P. B+ 26,800,000,000 12,704,800,000 2.00% 0.85 0.58 0.85
Kinder Morgan Energy Partners, L.P. B+ 22,000,000,000 10,278,600,000 3.00% 0.75 0.52 0.76
Magellan Midstream Partners, L.P. B+ 6,300,000,000 1,892,300,000 1.00% 0.90 0.69 1.02
Plains All American Pipeline, L.P. B+ 8,400,000,000 4,593,000,000 0.00% 0.85 0.55 0.81
Williams Partners, L.P. B+ 13,200,000,000 5,765,000,000 0.00% 1.05 0.73 1.07
Median 8,400,000,000 4,593,000,000 1.00% 0.85 0.55 0.81
Arithmetic Mean 11,166,666,667 5,340,955,556 1.94% 0.85 0.58 0.86
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Pipeline MLPs
Boardwalk Pipeline Partners, L.P. B+ 6,000,000,000 6.80% 6.00% 9.00% 12.80% 15.80%
Buckeye Partners, L.P. B+ 3,500,000,000 5.80% 4.00% 6.50% 9.80% 12.30%
El Paso Pipeline Partners B 4,600,000,000 5.00% 24.50% 27.50% 29.50% 32.50%
Energy Transfer Partners, L.P. B++ 9,700,000,000 7.10% 4.50% -2.50% 11.60% 4.60%
Enterprise Products Partners, L.P. B+ 26,800,000,000 5.80% 10.00% 12.50% 15.80% 18.30%
Kinder Morgan Energy Partners, L.P. B+ 22,000,000,000 6.50% 7.50% 9.50% 14.00% 16.00%
Magellan Midstream Partners, L.P. B+ 6,300,000,000 5.30% 4.00% 12.00% 9.30% 17.30%
Plains All American Pipeline, L.P. B+ 8,400,000,000 6.20% 4.00% 1.00% 10.20% 7.20%
Williams Partners, L.P. B+ 13,200,000,000 6.30% 0.00% 0.00%
Median 8,400,000,000 12.20% 15.90%
Arithmetic Mean 11,166,666,667 14.13% 15.50%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Pipeline MLPs
Boardwalk Pipeline Partners, L.P. B+ 6,000,000,000 31.00 2.40 7.74%
Buckeye Partners, L.P. B+ 3,500,000,000 68.07 4.25 6.24%
El Paso Pipeline Partners B 4,600,000,000 33.12 3.15 9.51%
Energy Transfer Partners, L.P. B++ 9,700,000,000 50.67 2.75 5.43%
Enterprise Products Partners, L.P. B+ 26,800,000,000 42.08 2.75 6.54%
Kinder Morgan Energy Partners, L.P. B+ 22,000,000,000 70.45 2.65 3.76%
Magellan Midstream Partners, L.P. B+ 6,300,000,000 56.00 3.65 6.52%
Plains All American Pipeline, L.P. B+ 8,400,000,000 61.50 3.45 5.61%
Williams Partners, L.P. B+ 13,200,000,000 47.05 4.50 9.56%
Median 8,400,000,000 3.15 6.52%
Arithmetic Mean 11,166,666,667 3.28 6.77%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Pipeline MLPs
Boardwalk Pipeline Partners, L.P. B+ 6,000,000,000 3,251,800,000 0.54 64.85% 35.15%
Buckeye Partners, L.P. B+ 3,500,000,000 1,441,300,000 0.41 70.83% 29.17%
El Paso Pipeline Partners B 4,600,000,000 2,137,200,000 0.46 68.28% 31.72%
Energy Transfer Partners, L.P. B++ 9,700,000,000 6,004,600,000 0.62 61.77% 38.23%
Enterprise Products Partners, L.P. B+ 26,800,000,000 12,704,800,000 0.47 67.84% 32.16%
Kinder Morgan Energy Partners, L.P. B+ 22,000,000,000 10,278,600,000 0.47 68.16% 31.84%
Magellan Midstream Partners, L.P. B+ 6,300,000,000 1,892,300,000 0.30 76.90% 23.10%
Plains All American Pipeline, L.P. B+ 8,400,000,000 4,593,000,000 0.55 64.65% 35.35%
Williams Partners, L.P. B+ 13,200,000,000 5,765,000,000 0.44 69.60% 30.40%
Median 8,400,000,000 4,593,000,000 0.47 68.16% 31.84%
Arithmetic Mean 11,166,666,667 5,340,955,556 0.47 68.10% 31.90%
Weighted Average 16,420,199,005 7,819,399,204 67.74% 32.26%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Pipeline MLPs
Boardwalk Pipeline Partners, L.P. 0.85
Buckeye Partners, L.P. 0.85
El Paso Pipeline Partners 0.75
Energy Transfer Partners, L.P. 0.80
Enterprise Products Partners, L.P. 0.85
Kinder Morgan Energy Partners, L.P. 0.75
Magellan Midstream Partners, L.P. 0.90
Plains All American Pipeline, L.P. 0.85
Williams Partners, L.P. 1.05
Median 0.85
Arithmetic Mean 0.85
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Pipeline MLPs
Boardwalk Pipeline Partners, L.P. 0.85
Buckeye Partners, L.P. 0.85
El Paso Pipeline Partners 0.75
Energy Transfer Partners, L.P. 0.80
Enterprise Products Partners, L.P. 0.85
Inergy, L.P. 1.00
Kinder Morgan Energy Partners, L.P. 0.75
Magellan Midstream Partners, L.P. 0.90
Plains All American Pipeline, L.P. 0.85
Suburban Propane Partners, L.P. 0.75
Williams Partners, L.P. 1.05
Median 0.85
Arithmetic Mean 0.85
Value Line Investment Survey, December 2007 through January 2011
Gas Distribution Industry
(Natural Gas Utility)
2011 Capitalization Rate Study
Gas Distribution (Natural Gas Utility) Industry Notes
• From the Natural Gas Utility Industry segment, UGI Corp. was excluded as their primary business is marketing propane gas.
• Staff considered capitalization studies gathered and submitted by:
No Submissions
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Gas Distribution (Natural Gas Utility) 9.75% 57.33% 42.67% 8.13%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Gas Distribution (Natural Gas Utility)
CapM Ex Post Equity Rate 8.99%
CapM Ex Ante Equity Rate 10.46%
DCF (Dividend) Equity Rate 7.72%
DCF (Earnings) Equity Rate 8.36%
Earnings Price Ratio 7.77%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Gas Distribution (Natural Gas Utility) 10.80% 12.80% 0.73 8.99% 10.46%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Gas Distribution (Natural Gas Utility)
AGL Resources, Inc. B++ 2,900,000,000 1,514,000,000 35.00% 0.75 0.56 0.78
Atmos Energy Corporation B+ 2,700,000,000 1,809,500,000 38.50% 0.65 0.46 0.64
Laclede Group, Inc. B+ 800,000,000 364,300,000 34.00% 0.60 0.46 0.64
New Jersey Resourses Corp. A 1,800,000,000 428,900,000 35.00% 0.65 0.56 0.78
Nicor, Inc. A 2,000,000,000 423,400,000 27.00% 0.75 0.65 0.90
Nisource, Inc. B 4,700,000,000 5,964,300,000 35.00% 0.85 0.47 0.65
Northwest Natural Gas Co. A 1,300,000,000 591,600,000 38.00% 0.60 0.47 0.65
Piedmont Natural Gas Co. B++ 2,100,000,000 732,000,000 30.00% 0.65 0.52 0.72
South Jersey Industries, Inc. B++ 1,500,000,000 285,000,000 35.00% 0.65 0.58 0.80
Southwest Gas Corp. B 1,600,000,000 1,075,500,000 35.00% 0.75 0.52 0.72
WGL Holdings, Inc. A 1,900,000,000 592,900,000 39.00% 0.65 0.55 0.76
Median 1,900,000,000 592,900,000 35.00% 0.65 0.52 0.72
Arithmetic Mean 2,118,181,818 1,252,854,545 34.68% 0.69 0.53 0.73
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Gas Distribution (Natural Gas Utility)
AGL Resources, Inc. B++ 2,900,000,000 4.80% 2.50% 4.50% 7.30% 9.30%
Atmos Energy Corporation B+ 2,700,000,000 4.50% 2.00% 5.50% 6.50% 10.00%
Laclede Group, Inc. B+ 800,000,000 4.60% 2.50% 2.50% 7.10% 7.10%
New Jersey Resourses Corp. A 1,800,000,000 3.30% 5.50% 5.00% 8.80% 8.30%
Nicor, Inc. A 2,000,000,000 4.30% 0.00% 1.00% 5.30%
Nisource, Inc. B 4,700,000,000 5.50% 0.50% 6.00% 6.00% 11.50%
Northwest Natural Gas Co. A 1,300,000,000 3.60% 4.00% 3.00% 7.60% 6.60%
Piedmont Natural Gas Co. B++ 2,100,000,000 3.80% 3.50% 3.50% 7.30% 7.30%
South Jersey Industries, Inc. B++ 1,500,000,000 2.90% 8.50% 7.00% 11.40% 9.90%
Southwest Gas Corp. B 1,600,000,000 3.00% 5.00% 8.00% 8.00% 11.00%
WGL Holdings, Inc. A 1,900,000,000 4.20% 3.00% 1.50% 7.20% 5.70%
Median 1,900,000,000 7.30% 8.30%
Arithmetic Mean 2,118,181,818 7.72% 8.36%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Gas Distribution (Natural Gas Utility)
AGL Resources, Inc. B++ 2,900,000,000 36.73 3.60 9.80%
Atmos Energy Corporation B+ 2,700,000,000 30.07 2.70 8.98%
Laclede Group, Inc. B+ 800,000,000 35.35 3.00 8.49%
New Jersey Resourses Corp. A 1,800,000,000 43.11 3.00 6.96%
Nicor, Inc. A 2,000,000,000 43.25 3.00 6.94%
Nisource Inc. B 4,700,000,000 16.73 1.60 9.56%
Northwest Natural Gas Co. A 1,300,000,000 48.82 3.25 6.66%
Piedmont Natural Gas Co. B++ 2,100,000,000 29.58 1.90 6.42%
South Jersey Industries, Inc. B++ 1,500,000,000 51.19 3.40 6.64%
Southwest Gas Corp. B 1,600,000,000 35.03 2.80 7.99%
WGL Holdings, Inc. A 1,900,000,000 36.26 2.55 7.03%
Median 1,900,000,000 3.00 7.03%
Arithmetic Mean 2,118,181,818 2.80 7.77%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Gas Distribution (Natural Gas Utility)
AGL Resources, Inc. B++ 2,900,000,000 1,514,000,000 0.52 65.70% 34.30%
Atmos Energy Corporation B+ 2,700,000,000 1,809,500,000 0.67 59.87% 40.13%
Laclede Group, Inc. B+ 800,000,000 364,300,000 0.46 68.71% 31.29%
New Jersey Resourses Corp. A 1,800,000,000 428,900,000 0.24 80.76% 19.24%
Nicor, Inc. A 2,000,000,000 423,400,000 0.21 82.53% 17.47%
Nisource, Inc. B 4,700,000,000 5,964,300,000 1.27 44.07% 55.93%
Northwest Natural Gas Co. A 1,300,000,000 591,600,000 0.46 68.72% 31.28%
Piedmont Natural Gas Co. B++ 2,100,000,000 732,000,000 0.35 74.15% 25.85%
South Jersey Industries, Inc. B++ 1,500,000,000 285,000,000 0.19 84.03% 15.97%
Southwest Gas Corp. B 1,600,000,000 1,075,500,000 0.67 59.80% 40.20%
WGL Holdings, Inc. A 1,900,000,000 592,900,000 0.31 76.22% 23.78%
Median 1,900,000,000 592,900,000 0.46 68.72% 31.28%
Arithmetic Mean 2,118,181,818 1,252,854,545 0.49 69.51% 30.49%
Weighted Average 2,583,261,803 1,922,738,627 57.33% 42.67%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Gas Distribution (Natural Gas Utility)
AGL Resources, Inc. 0.95 0.85 0.75 0.75 0.75
Atmos Energy Corporation 0.80 0.85 0.65 0.65 0.65
Laclede Group, Inc. 0.09 0.95 0.65 0.60 0.60
New Jersey Resourses Corp. 0.80 0.85 0.70 0.65 0.65
Nicor, Inc. 1.30 1.00 0.70 0.75 0.75
Nisource, Inc. 0.75 0.85 0.85
Northwest Natural Gas Co. 0.75 0.90 0.60 0.60 0.60
Piedmont Natural Gas Co. 0.80 0.85 0.70 0.65 0.65
South Jersey Industries, Inc. 0.70 0.85 0.75 0.65 0.65
Southwest Gas Corp. 0.85 0.90 0.75 0.75 0.75
WGL Holdings, Inc. 0.85 0.85 0.75 0.65 0.65
Median 0.80 0.85 0.70 0.65 0.65
Arithmetic Mean 0.79 0.89 0.70 0.69 0.69
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Gas Distribution (Natural Gas Utility)
AGL Resources, Inc. 0.95 0.85 0.75 0.75 0.75
Atmos Energy Corporation 0.80 0.85 0.65 0.65 0.65
Laclede Group, Inc. 0.09 0.95 0.65 0.60 0.60
New Jersey Resourses Corp. 0.80 0.85 0.70 0.65 0.65
Nicor, Inc. 1.30 1.00 0.70 0.75 0.75
Nisource, Inc. 0.75 0.85 0.85
Northwest Natural Gas Co. 0.75 0.90 0.60 0.60 0.60
Piedmont Natural Gas Co. 0.80 0.85 0.70 0.65 0.65
South Jersey Industries, Inc. 0.70 0.85 0.75 0.65 0.65
Southwest Gas Corp. 0.85 0.90 0.75 0.75 0.75
UGI Corp. 0.90 0.85 0.75 0.70 0.65
WGL Holdings, Inc. 0.85 0.85 0.75 0.65 0.65
Median 0.80 0.85 0.73 0.65 0.65
Arithmetic Mean 0.80 0.88 0.71 0.69 0.68
Value Line Investment Survey, December 2007 through January 2011
Gas Transmission Industry
(Natural Gas Diversified)
2011 Capitalization Rate Study
Gas Transmission (Natural Gas Diversified) Industry Notes
• From the Gas Transmission Industry segment, Chesapeake Energy Corp., Cimarex Energy Company, Devon Energy, Newfield
Exploration and Southwestern Energy Company were excluded as they are presented to be primarily engaged in the exploration
and production of oil and natural gas. Dynegy, Inc. being excluded as they are represented as a pure play power generator.
• Staff considered capitalization studies gathered and submitted by:
Tegarden & Associates
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Gas Transmission (Natural Gas Diversified) 11.75% 83.76% 16.24% 10.83%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Gas Transmission (Natural Gas Diversified)
CapM Ex Post Equity Rate 11.70%
CapM Ex Ante Equity Rate 13.97%
DCF (Dividend) Equity Rate 6.09%
DCF (Earnings) Equity Rate 10.43%
Earnings Price Ratio 8.05%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Gas Transmission (Natural Gas Diversified) 10.80% 12.80% 1.13 11.70% 13.97%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Gas Transmission (Natural Gas Diversified)
Cabot Oil & Gas B++ 3,600,000,000 1,020,000,000 37.00% 1.30 1.10 1.30
Crosstex Energy, Inc. C++ 450,000,000 711,000,000 0.00% 2.30 0.89 1.05
Energen Corporation A 3,100,000,000 405,200,000 37.00% 1.10 1.02 1.19
EOG Resources, Inc. A 22,600,000,000 3,768,600,000 40.00% 1.15 1.05 1.23
EQT Corporation, Inc. B++ 6,000,000,000 1,949,200,000 33.00% 1.15 0.94 1.11
MDU Resources Group, Inc. A+ 3,800,000,000 1,437,200,000 35.00% 1.05 0.84 0.99
National Fuel Gas Company B++ 5,200,000,000 1,049,000,000 38.00% 0.95 0.84 0.99
QEP Resources, Inc. B++ 6,200,000,000 1,297,100,000 36.00% 0.00
Questar Corp. B++ 2,900,000,000 649,100,000 36.00% 0.00
Quicksilver Resources, Inc. B 2,400,000,000 2,396,000,000 35.00% 1.70 1.03 1.21
Median 3,700,000,000 1,173,050,000 36.00% 1.13 0.98 1.15
Arithmetic Mean 5,625,000,000 1,468,240,000 32.70% 1.07 0.96 1.13
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Gas Transmission (Natural Gas Diversified)
Cabot Oil & Gas B++ 3,600,000,000 0.30% 0.50% 4.50% 0.80% 4.80%
Crosstex Energy, Inc. C++ 450,000,000 3.00% -0.50% 19.50% 2.50% 22.50%
Energen Corporation A 3,100,000,000 1.20% 4.50% 0.00% 5.70%
EOG Resources, Inc. A 22,600,000,000 0.70% 9.50% 3.50% 10.20% 4.20%
EQT Corporation, Inc. B++ 6,000,000,000 2.20% 4.00% 12.00% 6.20% 14.20%
MDU Resources Group, Inc. A+ 3,800,000,000 3.20% 2.00% 6.00% 5.20% 9.20%
National Fuel Gas Company B++ 5,200,000,000 2.20% 6.50% 5.50% 8.70% 7.70%
QEP Resources, Inc. B++ 6,200,000,000 0.20% 0.00% 0.00%
Questar Corp. B++ 2,900,000,000 3.40% 6.00% 0.00% 9.40%
Quicksilver Resources, Inc. B 2,400,000,000 0.00% 0.00% 11.50%
Median 3,700,000,000 5.95% 8.45%
Arithmetic Mean 5,625,000,000 6.09% 10.43%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Gas Transmission (Natural Gas Diversified)
Cabot Oil & Gas B++ 3,600,000,000 34.97 2.35 6.72%
Crosstex Energy, Inc. C++ 450,000,000 9.25 0.25 2.70%
Energen Corporation A 3,100,000,000 43.57 3.90 8.95%
EOG Resources, Inc. A 22,600,000,000 88.95 6.00 6.75%
EQT Corporation, Inc. B++ 6,000,000,000 40.47 3.05 7.54%
MDU Resources Group, Inc. A+ 3,800,000,000 20.44 2.50 12.23%
National Fuel Gas Company B++ 5,200,000,000 63.36 3.75 5.92%
QEP Resources, Inc. B++ 6,200,000,000 35.13 2.60 7.40%
Questar Corp. B++ 2,900,000,000 16.61 1.60 9.63%
Quicksilver Resources, Inc. B 2,400,000,000 14.22 1.80 12.66%
Median 3,700,000,000 2.55 7.47%
Arithmetic Mean 5,625,000,000 2.78 8.05%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Gas Transmission (Natural Gas Diversified)
Cabot Oil & Gas B++ 3,600,000,000 1,020,000,000 0.28 77.92% 22.08%
Crosstex Energy, Inc. C++ 450,000,000 711,000,000 1.58 38.76% 61.24%
Energen Corporation A 3,100,000,000 405,200,000 0.13 88.44% 11.56%
EOG Resources, Inc. A 22,600,000,000 3,768,600,000 0.17 85.71% 14.29%
EQT Corporation, Inc. B++ 6,000,000,000 1,949,200,000 0.32 75.48% 24.52%
MDU Resources Group, Inc. A+ 3,800,000,000 1,437,200,000 0.38 72.56% 27.44%
National Fuel Gas Company B++ 5,200,000,000 1,049,000,000 0.20 83.21% 16.79%
QEP Resources, Inc. B++ 6,200,000,000 1,297,100,000 0.21 82.70% 17.30%
Questar Corp. B++ 2,900,000,000 649,100,000 0.22 81.71% 18.29%
Quicksilver Resources, Inc. B 2,400,000,000 2,396,000,000 1.00 50.04% 49.96%
Median 3,700,000,000 1,173,050,000 0.25 79.82% 20.18%
Arithmetic Mean 5,625,000,000 1,468,240,000 0.45 73.65% 26.35%
Weighted Average 11,797,733,333 2,288,081,778 83.76% 16.24%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Gas Transmission (Natural Gas Diversified)
Cabot Oil & Gas 1.00 1.10 1.25 1.35 1.30
Crosstex Energy, Inc. 1.15 2.30 2.30
Energen Corporation 0.85 0.90 1.15 1.15 1.10
EOG Resources, Inc. 1.05 0.95 1.15 1.20 1.15
EQT Corporation, Inc. 1.15
MDU Resources Group, Inc. 1.05 1.05 1.05
National Fuel Gas Company 0.95 0.85 0.90 0.95 0.95
QEP Resources, Inc.
Questar Corp. 0.90 0.90 1.25 1.20
Quicksilver Resources, Inc. 1.60 1.70 1.70
Median 0.95 0.90 1.15 1.20 1.15
Arithmetic Mean 0.95 0.94 1.19 1.36 1.34
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Gas Transmission (Natural Gas Diversified)
Cabot Oil & Gas 1.00 1.10 1.25 1.35 1.30
Chesapeake Energy Corp. 0.95 1.05 1.40 1.40 1.35
Cimarex Energy Co. 1.25
Crosstex Energy 1.15 2.30 2.30
Devon Energy 1.05 0.95 1.15 1.25 1.20
Dynegy, Inc. 2.85 1.45 1.60 1.55 1.45
El Paso Corp. 2.35 1.80 1.35 1.40
Energen Corp 0.85 0.90 1.15 1.15 1.10
Enterprise Prod. 0.65 0.55 0.85
EOG Resources 1.05 0.95 1.15 1.20 1.15
EQT Corporation, Inc. 1.15
Equitable Res. 0.80 0.85 1.15 1.15
MDU Resources 1.05 1.05 1.05
National Fuel Gas 0.95 0.85 0.90 0.95 0.95
Newfield Explor. 1.00 1.00 1.35 1.35 1.35
ONEOK, Inc. 1.00 0.90 0.90 0.95
QEP Resources, Inc.
Questar Corp. 0.90 0.90 1.25 1.20
Quicksilver Resources 1.60 1.70 1.70
Southwestern E'gy 1.00 1.25 1.30 1.20 1.15
XTO Energy, Inc. 0.90 0.90 1.10 1.10
Median 1.00 0.95 1.15 1.20 1.23
Arithmetic Mean 1.15 1.03 1.20 1.31 1.32
Value Line Investment Survey, December 2007 through January 2011
Oil/Gas Distribution
Industry
2011 Capitalization Rate Study
Oil/Gas Distribution Industry Notes
• From the Oil/Gas Distribution Industry, Clean Energy Fuels a provider of natural gas for vehicle fleet, develops and operates fueling
stations, and supplies compressed natural gas and liquid natural gas was excluded from the sample.
• Staff considered capitalization studies gathered and submitted by:
Tegarden & Associates
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Oil/Gas Distribution 11.75% 58.83% 41.17% 9.43%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Oil/Gas Distribution
CapM Ex Post Equity Rate 10.95%
CapM Ex Ante Equity Rate 13.00%
DCF (Dividend) Equity Rate 11.28%
DCF (Earnings) Equity Rate 8.03%
Earnings Price Ratio 8.58%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Oil/Gas Distribution 10.80% 12.80% 1.02 10.95% 13.00%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Oil/Gas Distribution
El Paso Corp B 9,500,000,000 13,100,000,000 35.00% 1.40 0.74 1.13
Enbridge, Inc. (TSE) B+ 21,900,000,000 14,195,000,000 23.00% 0.65 0.43 0.66
ONEOK, Inc. B+ 5,400,000,000 3,692,000,000 30.00% 0.95 0.64 0.98
Southern Union Co. B+ 2,900,000,000 3,520,900,000 30.00% 1.05 0.57 0.87
Spectra Energy Corp. B 15,400,000,000 9,277,000,000 30.00% 1.00 0.70 1.07
Williams Companies, Inc. B+ 13,300,000,000 8,002,000,000 35.00% 1.30 0.93 1.43
Median 11,400,000,000 8,639,500,000 30.00% 1.03 0.67 1.03
Arithmetic Mean 11,400,000,000 8,631,150,000 30.50% 1.06 0.67 1.02
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Oil/Gas Distribution
El Paso Corp B 9,500,000,000 0.30% -11.50% 3.00% 3.30%
Enbridge, Inc. (TSE) B+ 21,900,000,000 3.40% 8.00% 8.00% 11.40% 11.40%
ONEOK, Inc. B+ 5,400,000,000 3.80% 12.00% 5.00% 15.80% 8.80%
Southern Union Co. B+ 2,900,000,000 2.50% 8.00% 4.50% 10.50% 7.00%
Spectra Energy Corp. B 15,400,000,000 4.50% 5.50% 3.50% 10.00% 8.00%
Williams Companies, Inc. B+ 13,300,000,000 2.20% 6.50% 7.50% 8.70% 9.70%
Median 11,400,000,000 10.50% 8.40%
Arithmetic Mean 11,400,000,000 11.28% 8.03%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Oil/Gas Distribution
El Paso Corp B 9,500,000,000 13.49 1.40 10.38%
Enbridge, Inc. (TSE) B+ 21,900,000,000 57.14 3.35 5.86%
ONEOK, Inc. B+ 5,400,000,000 51.11 3.80 7.43%
Southern Union Co. B+ 2,900,000,000 23.61 2.35 9.95%
Spectra Energy Corp. B 15,400,000,000 23.77 1.90 7.99%
Williams Companies, Inc. B+ 13,300,000,000 22.81 2.25 9.86%
Median 11,400,000,000 2.30 8.93%
Arithmetic Mean 11,400,000,000 2.51 8.58%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Oil/Gas Distribution
El Paso Corp B 9,500,000,000 13,100,000,000 1.38 42.04% 57.96%
Enbridge, Inc. (TSE) B+ 21,900,000,000 14,195,000,000 0.65 60.67% 39.33%
ONEOK, Inc. B+ 5,400,000,000 3,692,000,000 0.68 59.39% 40.61%
Southern Union Co. B+ 2,900,000,000 3,520,900,000 1.21 45.17% 54.83%
Spectra Energy Corp. B 15,400,000,000 9,277,000,000 0.60 62.41% 37.59%
Williams Companies, Inc. B+ 13,300,000,000 8,002,000,000 0.60 62.44% 37.56%
Median 11,400,000,000 8,639,500,000 0.67 60.03% 39.97%
Arithmetic Mean 11,400,000,000 8,631,150,000 0.85 55.35% 44.65%
Weighted Average 14,933,918,129 10,449,712,135 58.83% 41.17%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Oil/Gas Distribution
El Paso Corp 0.75 1.40
Enbridge, Inc. (TSE) 0.60 0.65 0.65 0.65
ONEOK, Inc. 0.95
Southern Union Co. 1.05 1.00 1.10 1.05 1.05
Spectra Energy Corp. 0.95 1.00 1.00
Williams Companies, Inc. 1.25 1.25 1.30 1.30
Median 1.05 1.00 1.03 1.00 1.03
Arithmetic Mean 1.05 0.95 0.99 0.95 1.06
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Oil/Gas Distribution
Boardwalk Pipeline 0.60 0.95 0.85
Buckeye Partners 0.70 0.90 0.85
Clean Energy Fuels Corp. 1.35 1.35
El Paso Corp. 0.75 1.40
Enbridge Inc. TSE 0.60 0.65 0.65 0.65
Energy Transfer Partners, LP 0.85
Enterprise Products Partners, LP 0.85
Inergy, LP 1.00
Kinder Morgan Energy Par. 0.60 0.75 0.75
Magellan Midstream Part. 0.60 0.85 0.90
ONEOK, Inc. 0.95
Plains All American Pipe. 0.70 0.95 0.90
Southern Union 1.05 1.00 1.10 1.05 1.05
Spectra Energy Corp. 0.95 1.00 1.00
Suburban Propane Partnrs. 0.65 0.80 0.75
Teppco Partners 0.65 0.85
Williams Cos. 1.25 1.25 1.30 1.30
Median 1.05 0.65 0.90 0.85 1.05
Arithmetic Mean 1.05 0.74 0.91 0.92 1.10
Value Line Investment Survey, December 2007 through January 2011
Railroad Industry
2011 Capitalization Rate Study
Railroad Industry Notes
• For the Railroad Industry segment, The Value Line Investment Survey list of companies was left intact.
• Staff considered capitalization studies gathered and submitted by:
Union Pacific Railroad
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Railroad 13.25% 80.83% 19.17% 11.88%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Railroad
CapM Ex Post Equity Rate 12.32%
CapM Ex Ante Equity Rate 14.78%
DCF (Dividend) Equity Rate 10.94%
DCF (Earnings) Equity Rate 13.64%
Earnings Price Ratio 9.07%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Railroad 10.80% 12.80% 1.23 12.32% 14.78%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Railroad
Canadian National Railway A 29,600,000,000 6,117,000,000 28.00% 1.15 1.00 1.17
Canadian Pacific Railway Limited B+ 11,000,000,000 4,389,000,000 26.00% 1.35 1.04 1.22
CSX Corp. B++ 23,100,000,000 7,297,000,000 37.50% 1.25 1.04 1.22
Genesee & Wyoming B+ 1,900,000,000 401,900,000 36.50% 1.30 1.15 1.34
Kansas City Southern, Inc. B 4,800,000,000 1,610,900,000 33.00% 1.35 1.10 1.29
Norfolk Southern Corp. B+ 22,200,000,000 6,574,000,000 38.00% 1.15 0.97 1.14
RailAmerica, Inc. B 675,000,000 573,400,000 35.00% 0.00
Union Pacific Corp A 44,500,000,000 9,060,000,000 38.00% 1.15 1.02 1.20
Median 16,600,000,000 5,253,000,000 35.75% 1.20 1.04 1.22
Arithmetic Mean 17,221,875,000 4,502,900,000 34.00% 1.09 1.05 1.23
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Railroad
Canadian National Railway A 29,600,000,000 1.70% 10.00% 12.50% 11.70% 14.20%
Canadian Pacific Railway Limited B+ 11,000,000,000 1.70% 7.50% 10.00% 9.20% 11.70%
CSX Corp. B++ 23,100,000,000 1.70% 12.50% 12.50% 14.20% 14.20%
Genesee & Wyoming B+ 1,900,000,000 0.00% 0.00% 8.50%
Kansas City Southern, Inc. B 4,800,000,000 0.00% 0.00% 17.50%
Norfolk Southern Corp. B+ 22,200,000,000 2.40% 4.00% 10.00% 6.40% 12.40%
RailAmerica, Inc. B 675,000,000 0.00% 0.00% 0.00%
Union Pacific Corp A 44,500,000,000 1.70% 11.50% 14.00% 13.20% 15.70%
Median 16,600,000,000 11.70% 14.20%
Arithmetic Mean 17,221,875,000 10.94% 13.64%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Railroad
Canadian National Railway A 29,600,000,000 64.08 6.45 10.07%
Canadian Pacific Railway Limited B+ 11,000,000,000 65.27 6.05 9.27%
CSX Corp. B++ 23,100,000,000 61.81 6.20 10.03%
Genesee & Wyoming B+ 1,900,000,000 46.18 2.70 5.85%
Kansas City Southern, Inc. B 4,800,000,000 46.76 3.60 7.70%
Norfolk Southern Corp. B+ 22,200,000,000 61.06 6.40 10.48%
RailAmerica, Inc. B 675,000,000 12.21 1.20 9.83%
Union Pacific Corp A 44,500,000,000 90.32 8.45 9.36%
Median 16,600,000,000 6.13 9.59%
Arithmetic Mean 17,221,875,000 5.13 9.07%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Railroad
Canadian National Railway A 29,600,000,000 6,117,000,000 0.21 82.87% 17.13%
Canadian Pacific Railway Limited B+ 11,000,000,000 4,389,000,000 0.40 71.48% 28.52%
CSX Corp. B++ 23,100,000,000 7,297,000,000 0.32 75.99% 24.01%
Genesee & Wyoming B+ 1,900,000,000 401,900,000 0.21 82.54% 17.46%
Kansas City Southern, Inc. B 4,800,000,000 1,610,900,000 0.34 74.87% 25.13%
Norfolk Southern Corp. B+ 22,200,000,000 6,574,000,000 0.30 77.15% 22.85%
RailAmerica, Inc. B 675,000,000 573,400,000 0.85 54.07% 45.93%
Union Pacific Corp A 44,500,000,000 9,060,000,000 0.20 83.08% 16.92%
Median 16,600,000,000 5,253,000,000 0.31 76.57% 23.43%
Arithmetic Mean 17,221,875,000 4,502,900,000 0.35 75.26% 24.74%
Weighted Average 29,257,598,439 6,938,114,135 80.83% 19.17%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Railroad
Canadian National Railway 0.90 1.05 1.10 1.20 1.15
Canadian Pacific Railway Limited 0.85 1.05 1.25 1.35 1.35
CSX Corp. 0.95 1.15 1.15 1.25 1.25
Genesee & Wyoming 1.20 1.35 1.35 1.35 1.30
Kansas City Southern, Inc. 1.10 1.25 1.40 1.40 1.35
Norfolk Southern Corp. 1.00 1.10 1.05 1.15 1.15
RailAmerica, Inc.
Union Pacific Corp 0.90 1.00 1.05 1.20 1.15
Median 0.95 1.10 1.15 1.25 1.25
Arithmetic Mean 0.99 1.14 1.19 1.27 1.24
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Railroad
Burlington Northern 0.95 1.05 1.00 1.05
Canadian National Railway 0.90 1.05 1.10 1.20 1.15
Canadian Pacific Railway Limited 0.85 1.05 1.25 1.35 1.35
CSX Corp. 0.95 1.15 1.15 1.25 1.25
Genesee & Wyoming 1.20 1.35 1.35 1.35 1.30
Kansas City Southern 1.10 1.25 1.40 1.40 1.35
Norfolk Southern 1.00 1.10 1.05 1.15 1.15
RailAmerica, Inc.
Union Pacific Corp 0.90 1.00 1.05 1.20 1.15
Median 0.95 1.08 1.13 1.23 1.25
Arithmetic Mean 0.98 1.13 1.17 1.24 1.24
Value Line Investment Survey, December 2007 through January 2011
Telecommunication Services
Industry
2011 Capitalization Rate Study
Telecommunication Services Industry Notes
• From the Telecommunication Services segment, America Movil, J2 Global Communications, NII Holdings, Tel New Zealand, Telus
Corporation, and Vodafone Group excluded as being principally and primarily involved in non-domestic operations. Neutral Tandem,
Inc. omitted as they principally offer tandem interconnection services to competitive carriers. Dycom, Inc. omitted as they are engaged
in the telecommunications and electrical services business providing engineering, construction, maintenance and installation to
telecommunication providers.
• Staff considered capitalization studies gathered and submitted by:
AUS Consultants for Level 3 Communications
Duff & Phelps for Verizon Wireless
Duff & Phelps – Small Wireline
Duff & Phelps for AT&T Communications
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Telecommunications Services 11.00% 71.58% 28.42% 9.61%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Telecommunications Services
CapM Ex Post Equity Rate 10.00%
CapM Ex Ante Equity Rate 11.76%
DCF (Dividend) Equity Rate 9.57%
DCF (Earnings) Equity Rate 10.48%
Earnings Price Ratio 17.55%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Telecommunications Services 10.80% 12.80% 0.88 10.00% 11.76%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Telecommunications Services
AT&T Inc. A+ 173,400,000,000 62,540,000,000 35.00% 0.75 0.61 0.82
Atlantic Tele-Network, Inc. B++ 550,000,000 250,800,000 45.00% 1.00 0.80 1.08
Cbeyound, Inc. B+ 435,000,000 0 40.00% 1.10 1.10 1.49
Clearwire Corp. C+ 1,400,000,000 2,801,200,000 0.00% 1.40 0.47 0.63
General Communication, Inc. C++ 600,000,000 859,300,000 40.00% 1.10 0.59 0.80
Leap Wireless International, Inc. C 900,000,000 2,726,900,000 0.00% 1.30 0.32 0.44
MetroPCS Communication, Inc B 4,400,000,000 4,314,100,000 34.00% 0.85 0.52 0.70
NTELOS Holdings Corp. B 800,000,000 741,400,000 40.00% 0.85 0.55 0.74
Qwest Comm. International, Inc. C+ 13,200,000,000 10,788,000,000 39.00% 1.00 0.67 0.90
Shenandoah Telecom. Company B++ 475,000,000 185,600,000 40.00% 0.80 0.65 0.87
Sprint Nextel Corp C++ 13,100,000,000 18,540,000,000 0.00% 1.30 0.54 0.73
Telephone & Data Systems, Inc. B 3,800,000,000 1,492,000,000 33.50% 0.85 0.67 0.91
U.S. Cellular B+ 4,100,000,000 867,800,000 40.00% 1.10 0.98 1.32
Verizon Communications A+ 98,000,000,000 47,360,000,000 35.00% 0.70 0.53 0.72
Vonage Holdings Corp C 500,000,000 195,300,000 0.00% 1.10 0.79 1.07
Median 1,400,000,000 1,492,000,000 35.00% 1.00 0.61 0.82
Arithmetic Mean 21,044,000,000 10,244,160,000 28.10% 1.01 0.65 0.88
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Telecommunications Services
AT&T Inc. A+ 173,400,000,000 5.90% 4.50% 5.50% 10.40% 11.40%
Atlantic Tele-Network, Inc. B++ 550,000,000 2.60% 9.50% 16.00% 12.10% 18.60%
Cbeyound, Inc. B+ 435,000,000 0.00% 0.00% 17.00%
Clearwire Corp. C+ 1,400,000,000 0.00% 0.00% 0.00%
General Communication, Inc. C++ 600,000,000 0.00% 0.00% 43.50%
Leap Wireless International, Inc. C 900,000,000 0.00% 0.00% 0.00%
MetroPCS Communication, Inc B 4,400,000,000 0.00% 0.00% 27.50%
NTELOS Holdings Corp. B 800,000,000 5.90% 8.50% 5.50% 14.40% 11.40%
Qwest Comm. International, Inc. C+ 13,200,000,000 4.20% 0.00% 0.00%
Shenandoah Telecom. Company B++ 475,000,000 1.70% 6.50% 7.00% 8.20% 8.70%
Sprint Nextel Corp C++ 13,100,000,000 0.00% 22.50% 0.00%
Telephone & Data Systems, Inc. B 3,800,000,000 1.20% 3.50% 3.00% 4.70% 4.20%
U.S. Cellular B+ 4,100,000,000 0.00% 0.00% 3.50%
Verizon Communications A+ 98,000,000,000 5.60% 2.00% 3.00% 7.60% 8.60%
Vonage Holdings Corp C 500,000,000 0.00% 0.00% 0.00%
Median 1,400,000,000 9.30% 10.05%
Arithmetic Mean 21,044,000,000 9.57% 10.48%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Telecommunications Services
AT&T Inc. A+ 173,400,000,000 29.34 3.25 11.08%
Atlantic Tele-Network, Inc. B++ 550,000,000 35.26 5.80 16.45%
Cbeyound, Inc. B+ 435,000,000 14.18 0.65 4.58%
Clearwire Corp. C+ 1,400,000,000 5.70 2.75 48.25%
General Communication, Inc. C++ 600,000,000 12.62 0.70 5.55%
Leap Wireless International, Inc. C 900,000,000 11.57 5.15 44.51%
MetroPCS Communication, Inc B 4,400,000,000 12.37 2.25 18.19%
NTELOS Holdings Corp. B 800,000,000 18.93 1.55 8.19%
Qwest Comm. International, Inc. C+ 13,200,000,000 7.57 0.39 5.15%
Shenandoah Telecom. Company B++ 475,000,000 19.64 1.50 7.64%
Sprint Nextel Corp C++ 13,100,000,000 4.38 1.35 30.82%
Telephone & Data Systems, Inc. B 3,800,000,000 36.21 2.10 5.80%
U.S. Cellular B+ 4,100,000,000 48.08 2.55 5.30%
Verizon Communications A+ 98,000,000,000 34.67 3.05 8.80%
Vonage Holdings Corp C 500,000,000 2.33 1.00 42.92%
Median 1,400,000,000 2.10 8.80%
Arithmetic Mean 21,044,000,000 2.27 17.55%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Telecommunications Services
AT&T Inc. A+ 173,400,000,000 62,540,000,000 0.36 73.49% 26.51%
Atlantic Tele-Network, Inc. B++ 550,000,000 250,800,000 0.46 68.68% 31.32%
Cbeyound, Inc. B+ 435,000,000 0 0.00 100.00% 0.00%
Clearwire Corp. C+ 1,400,000,000 2,801,200,000 33.32%
General Communication, Inc. C++ 600,000,000 859,300,000 1.43 41.12% 58.88%
Leap Wireless International, Inc. C 900,000,000 2,726,900,000 3.03 24.81% 75.19%
MetroPCS Communication, Inc B 4,400,000,000 4,314,100,000 0.98 50.49% 49.51%
NTELOS Holdings Corp. B 800,000,000 741,400,000 0.93 51.90% 48.10%
Qwest Comm. International, Inc. C+ 13,200,000,000 10,788,000,000 0.82 55.03% 44.97%
Shenandoah Telecom. Company B++ 475,000,000 185,600,000 0.39 71.90% 28.10%
Sprint Nextel Corp C++ 13,100,000,000 18,540,000,000 1.42 41.40% 58.60%
Telephone & Data Systems, Inc. B 3,800,000,000 1,492,000,000 0.39 71.81% 28.19%
U.S. Cellular B+ 4,100,000,000 867,800,000 0.21 82.53% 17.47%
Verizon Communications A+ 98,000,000,000 47,360,000,000 0.48 67.42% 32.58%
Vonage Holdings Corp C 500,000,000 195,300,000 0.39 71.91% 28.09%
Median 1,400,000,000 1,492,000,000 0.47 67.42% 31.95%
Arithmetic Mean 21,044,000,000 10,244,160,000 0.81 60.39% 37.68%
Weighted Average 126,949,114,078 50,392,858,012 71.58% 28.42%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Telecommunications Services
AT&T Inc. 1.20 1.00 0.80 0.75 0.75
Atlantic Tele-Network, Inc. 0.95 1.00
Cbeyound, Inc. 1.10 1.10
Clearwire Corp. 1.50 1.40
General Communication, Inc. 1.10
Leap Wireless International, Inc. 1.30 1.30 1.30
MetroPCS Communication, Inc 0.85 0.85
NTELOS Holdings Corp. 0.95 0.85 0.85
Qwest Comm. International, Inc. 1.95 1.30 1.20 1.05 1.00
Shenandoah Telecom. Company 0.80 0.80
Sprint Nextel Corp 1.25 1.10 1.45 1.35 1.30
Telephone & Data Systems, Inc. 1.05 1.05 0.95 0.80 0.85
U.S. Cellular 1.15 0.90 1.15 1.10 1.10
Verizon Communications 1.05 0.95 0.75 0.70 0.70
Vonage Holdings Corp 1.05 1.05 1.10
Median 1.18 1.03 1.05 1.00 1.00
Arithmetic Mean 1.28 1.05 1.07 1.01 1.01
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Telecommunications Services
Alaska Comm. Syst. Group, Inc. 0.85 0.85 0.80
America Movil (ADR) 1.30 1.25
AT&T Inc. 1.20 1.00 0.80 0.75 0.75
ATL Tele-Ntwork, Inc. 0.95 1.00
BCE INC 0.75 0.75 0.85 0.75
BT Group (ADR) 0.95 1.00 0.85 0.90
Cbeyond, Inc. 1.10 1.10
Centurytel, Inc. 1.00 0.85 0.75 0.75
Cincinnati Bell 1.80 1.40 1.10 1.05
Clearwire Corp. 1.50 1.40
Consolidated Communications 1.00 0.95
Deutsche Tele (ADR) 1.00 1.00 0.75 0.75
Dycom Inds. 1.20 1.30 1.25 1.35 1.35
Frontier Communications 0.90 0.95
General Communications, Inc. 1.10
Iowa Telecomm. Services, Inc. 0.85 0.80 0.75
J2 Global Communications 1.05 1.00
Leap Wireless 1.30 1.30 1.30
MetroPCS Comm 0.85 0.85
Neutral Tandem, Inc. 1.00
NTELOS Holdings Corp. 0.95 0.85 0.85
NII Holdings, Inc 1.30 1.70 1.80 1.75
Qwest Commun. Intl. 1.95 1.30 1.20 1.05 1.00
Shenandoah Telecom 0.80 0.80
Sprint Nextel. 1.25 1.10 1.45 1.35 1.30
Tel New Zeal'nd (ADS) 0.60 0.70 0.85 0.95 1.00
Tele. Mexico (ADR) 0.85 1.05
Telefonica, S.A. (ADR) 0.95 1.10 1.00 0.85
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Telephone & Data Systems 1.05 1.05 0.95 0.80 0.85
Telus Corp 0.85 0.80 0.65 0.60 0.60
TW Telecom, Inc 1.45
U.S. Cellular 1.15 0.90 1.15 1.10 1.10
Verizon 1.05 0.95 0.75 0.70 0.70
Vodafone GRP (ADR) 0.95 1.05 0.80 0.80 0.80
Vonage Holdings 1.05 1.05 1.10
Windstream Corp 1.00 0.95
Median 1.00 1.00 0.95 0.95 1.00
Arithmetic Mean 1.09 1.02 0.99 1.00 1.04
Value Line Investment Survey, December 2007 through January 2011
Telecommunications Utility
Industry
2011 Capitalization Rate Study
Telecommunications Utility Industry Notes
• From the Telecommunication Utility segment, BCE INC., BT Group, Deutsche Tele., Telefonica, S.A., Telefonos Mexico excluded as being
principally and primarily involved in non-domestic operations.
• Staff considered capitalization studies gathered and submitted by:
AUS Consultants for Level 3 Communications
Duff & Phelps for Verizon Wireless
Duff & Phelps – Small Wireline
Duff & Phelps for AT&T Communications
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Telecommunications Utility 11.50% 59.80% 40.20% 9.27%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Telecommunications Utility
CapM Ex Post Equity Rate 9.78%
CapM Ex Ante Equity Rate 11.47%
DCF (Dividend) Equity Rate 3.50%
DCF (Earnings) Equity Rate 14.18%
Earnings Price Ratio 8.74%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Telecommunications Utility 10.80% 12.80% 0.85 9.78% 11.47%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Telecommunications Utility
Alaska Comm. Systems Group, Inc. C+ 500,000,000 541,600,000 44.00% 0.80 0.50 0.75
CenturyLink, Inc. B++ 13,900,000,000 7,061,700,000 38.50% 0.70 0.53 0.80
Cincinnati Bell C+ 500,000,000 2,458,000,000 40.00% 1.10 0.28 0.42
Consolidated Comm. Holdings, Inc C++ 550,000,000 880,000,000 38.00% 0.95 0.48 0.71
Frontier Communications Corp. B 9,300,000,000 8,181,600,000 35.00% 0.90 0.57 0.86
TW Telecom Inc. B 2,500,000,000 1,335,500,000 25.00% 1.40 1.00 1.50
Windstream Corp B 6,900,000,000 6,555,800,000 39.00% 0.95 0.60 0.90
Median 2,500,000,000 2,458,000,000 38.50% 0.95 0.53 0.80
Arithmetic Mean 4,878,571,429 3,859,171,429 37.07% 0.97 0.57 0.85
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Telecommunications Utility
Alaska Comm. Systems Group, Inc. C+ 500,000,000 7.50% 0.00% 12.00% 19.50%
CenturyLink, Inc. B++ 13,900,000,000 6.30% 0.00% -2.00% 4.30%
Cincinnati Bell C+ 500,000,000 0.00% 0.00% 6.50%
Consolidated Comm. Holdings, Inc C++ 550,000,000 8.40% 0.00% 17.00% 25.40%
Frontier Communications Corp. B 9,300,000,000 8.00% -4.50% -0.50% 3.50% 7.50%
TW Telecom Inc. B 2,500,000,000 0.00% 0.00% 0.00%
Windstream Corp B 6,900,000,000 7.00% 0.00% 0.00%
Median 2,500,000,000 3.50% 13.50%
Arithmetic Mean 4,878,571,429 3.50% 14.18%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Telecommunications Utility
Alaska Comm. Systems Group, Inc. C+ 500,000,000 11.40 0.55 4.82%
CenturyLink, Inc. B++ 13,900,000,000 45.92 2.90 6.32%
Cincinnati Bell C+ 500,000,000 2.53 0.55 21.74%
Consolidated Comm. Holdings, Inc C++ 550,000,000 18.47 1.25 6.77%
Frontier Communications Corp. B 9,300,000,000 9.34 0.50 5.35%
TW Telecom Inc. B 2,500,000,000 16.49 1.10 6.67%
Windstream Corp B 6,900,000,000 14.20 1.35 9.51%
Median 2,500,000,000 1.10 6.67%
Arithmetic Mean 4,878,571,429 1.17 8.74%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Telecommunications Utility
Alaska Comm. Systems Group, Inc. C+ 500,000,000 541,600,000 1.08 48.00% 52.00%
CenturyLink, Inc. B++ 13,900,000,000 7,061,700,000 0.51 66.31% 33.69%
Cincinnati Bell C+ 500,000,000 2,458,000,000 4.92 16.90% 83.10%
Consolidated Comm. Holdings, Inc C++ 550,000,000 880,000,000 1.60 38.46% 61.54%
Frontier Communications Corp. B 9,300,000,000 8,181,600,000 0.88 53.20% 46.80%
TW Telecom Inc. B 2,500,000,000 1,335,500,000 0.53 65.18% 34.82%
Windstream Corp B 6,900,000,000 6,555,800,000 0.95 51.28% 48.72%
Median 2,500,000,000 2,458,000,000 0.95 51.28% 48.72%
Arithmetic Mean 4,878,571,429 3,859,171,429 1.50 48.48% 51.52%
Weighted Average 9,790,995,608 6,582,842,753 59.80% 40.20%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Telecommunications Utility
Alaska Comm. Systems Group, Inc. 0.80
CenturyLink, Inc. 0.70
Cincinnati Bell 1.10
Consolidated Comm. Holdings, Inc 0.95
Frontier Communications Corp. 0.90
TW Telecom Inc. 1.40
Windstream Corp 0.95
Median 0.95
Arithmetic Mean 0.97
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Telecommunications Utility
Alaska Comm. Systems Group, Inc. 0.80
BCE Inc 0.75
BT Group PLC 0.95
CenturyLink, Inc. 0.70
Cincinnati Bell 1.10
Consolidated Comm. Holdings, Inc 0.95
Deutsche Telekom 0.75
Frontier Communications Corp. 0.90
Telefonica, S.A. 0.90
Telefonos de Mexico 0.90
TW Telecom Inc. 1.40
Windstream Corp 0.95
Median 0.90
Arithmetic Mean 0.92
Value Line Investment Survey, December 2007 through January 2011
Water Industry
2011 Capitalization Rate Study
Water Industry Notes
• From the Water Industry segment, The Value Line Investment Survey list of companies was left intact. Value Line removed previous
year’s entry of Southwest Water Company due to its recent purchase by an investor group.
• Staff considered capitalization studies gathered and submitted by:
No Submissions
• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:
1. Discounted Cash Flow
2. Capital Asset Pricing Model, Ex-Post and Ex Ante
3. Earnings/Price Ratio
Industry Capitalization Rate
Equity Market Long Term Capitalization
Industry Rate Capitalization Debt Rate
Water 10.80% 51.47% 48.53% 8.25%
Mergents 2010 Twelve Month Bond Yield Averages
Industry Equity Rate Summary
Water
CapM Ex Post Equity Rate 9.26%
CapM Ex Ante Equity Rate 10.80%
DCF (Dividend) Equity Rate 9.98%
DCF (Earnings) Equity Rate 10.80%
Earnings Price Ratio 6.94%
CapM Equity Rates
Ex Post Ex Ante Relevered Ex Post Ex Ante
Risk Premium Risk Premium Beta CapM EquityRate CapM EquityRate
Industry b* c* d (((b-4.1%)*d)+4.1%) (((c-4.1%)*d)+4.1%)
Water 10.80% 12.80% 0.77 9.26% 10.80%
b* Risk Free Rate (4.1%) plus Risk Premium Rate (6.7%)
c* Risk Free Rate (4.1%) plus Risk Premium Rate (8.70%)
Value Line Investment Survey, December 2010 through January 2011
Morningstar 2011 Valuation Yearbook
Relevered Betas
Value Market Long Term Income Tax Value Line Unlevered Relevered
Line Capitalization Debt Rate Levered Beta Beta Beta
Industry Company Strength d e f g h* i*
Water
American States Water Co. B++ 650,000,000 299,900,000 40.00% 0.80 0.63 0.94
American Water Works Company, Inc. B 4,400,000,000 5,395,400,000 39.00% 0.65 0.37 0.56
Aqua America, Inc. B+ 3,200,000,000 1,450,300,000 40.00% 0.65 0.51 0.77
California Water Service Group B+ 775,000,000 380,300,000 39.00% 0.70 0.54 0.81
Median 1,987,500,000 915,300,000 39.50% 0.68 0.52 0.79
Arithmetic Mean 2,256,250,000 1,881,475,000 39.50% 0.70 0.51 0.77
h* Column formula = (g/(1+((1-f)*(e/d))))
i* Column formula = (h*(1+((e's mean/d's mean))*(1-f's mean)))
Value Line Investment Survey, December 2010 through January 2011
Discounted Cash Flow (Gordon Growth)
Value Market Dividend Equity Rate Equity Rate
Line Capitalization Yield Dividends Earnings Dividend Earnings
Industry Company Strength d e f g (e+f) (e+g)
Growth Estimate
Water
American States Water Co. B++ 650,000,000 3.00% 4.00% 9.00% 7.00% 12.00%
American Water Works Co., Inc. B 4,400,000,000 3.50% 16.00% 0.00% 19.50%
Aqua America, Inc. B+ 3,200,000,000 2.70% 6.50% 7.50% 9.20% 10.20%
California Water Service Group B+ 775,000,000 3.20% 1.00% 7.00% 4.20% 10.20%
Median 1,987,500,000 8.10% 10.20%
Arithmetic Mean 2,256,250,000 9.98% 10.80%
Value Line Investment Survey, December 2010 through January 2011
E/P Ratio
Value Market Recent Projected E/P
Line Capitalization Price Earnings Ratio
Industry Company Strength c d e (e/d)
Water
American States Water Co. B++ 650,000,000 34.90 2.70 7.74%
American Water Works Company, Inc. B 4,400,000,000 25.36 2.00 7.89%
Aqua America, Inc. B+ 3,200,000,000 22.96 1.15 5.01%
California Water Service Group B+ 775,000,000 37.25 2.65 7.11%
Median 1,987,500,000 2.33 7.43%
Arithmetic Mean 2,256,250,000 2.13 6.94%
Value Line Investment Survey, December 2010 through January 2011
Capital Structure
Value Market Long Term Debt/Equity Percentage Percentage
Line Capitalization Debt Ratio Equity Debt
Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))
Water
American States Water Co. B++ 650,000,000 299,900,000 0.46 68.43% 31.57%
American Water Works Company, Inc. B 4,400,000,000 5,395,400,000 1.23 44.92% 55.08%
Aqua America, Inc. B+ 3,200,000,000 1,450,300,000 0.45 68.81% 31.19%
California Water Service Group B+ 775,000,000 380,300,000 0.49 67.08% 32.92%
Median 1,987,500,000 915,300,000 0.48 67.76% 32.24%
Arithmetic Mean 2,256,250,000 1,881,475,000 0.66 62.31% 37.69%
Weighted Average 3,393,144,044 3,198,934,903 51.47% 48.53%
Value Line Investment Survey, December 2010 through January 2011
Mergents 2010 Corporate Bond Yield Averages
Month Public Utility Industrial Aa A Baa Aaa Aa A Baa
January 5.83% 5.69% 5.55% 5.77% 6.16% 5.26% 5.44% 5.73% 6.33%
February 5.94% 5.79% 5.69% 5.87% 6.25% 5.35% 5.55% 5.80% 6.43%
March 5.90% 5.71% 5.64% 5.84% 6.22% 5.27% 5.49% 5.75% 6.32%
April 5.87% 5.71% 5.62% 5.81% 6.19% 5.29% 5.50% 5.74% 6.32%
May 5.59% 5.44% 5.29% 5.50% 5.97% 4.96% 5.19% 5.47% 6.13%
June 5.62% 5.42% 5.22% 5.46% 6.18% 4.88% 5.11% 5.42% 6.28%
July 5.41% 5.23% 4.99% 5.26% 5.98% 4.72% 4.92% 5.23% 6.04%
August 5.10% 4.98% 4.75% 5.01% 5.55% 4.49% 4.68% 4.98% 5.77%
September 5.10% 5.00% 4.74% 5.01% 5.53% 4.53% 4.70% 5.00% 5.78%
October 5.20% 5.08% 4.89% 5.10% 5.62% 4.68% 4.77% 5.07% 5.81%
November 5.45% 5.29% 5.12% 5.37% 5.85% 4.87% 5.02% 5.29% 5.99%
December 5.64% 5.46% 5.32% 5.56% 6.04% 5.02% 5.19% 5.47% 6.15%
5.55% 5.40% 5.24% 5.46% 5.96% 4.94% 5.13% 5.41% 6.11%
Corporate by Groups Public Utility Bonds Industrial Bonds
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Water
American States Water Co. 0.80 1.00 0.95 0.80 0.80
American Water Works Co., Inc. 0.65
Aqua America, Inc. 0.90 0.90 0.90 0.65 0.65
California Water Service Group 0.90 1.15 1.05 0.75 0.70
Median 0.90 1.00 0.95 0.75 0.68
Arithmetic Mean 0.87 1.02 0.97 0.73 0.70
Value Line Investment Survey, December 2007 through January 2011
Five Year Historical Beta
2007 2008 2009 2010 2011
Value Line Value Line Value Line Value Line Value Line
Industry Company Levered Beta Levered Beta Levered Beta Levered Beta Levered Beta
Water
American States Water Co. 0.80 1.00 0.95 0.80 0.80
American Water Works Co., Inc. 0.65
Aqua America, Inc. 0.90 0.90 0.90 0.65 0.65
California Water Service Group 0.90 1.15 1.05 0.75 0.70
Southwest Water 0.90 1.00 1.10 1.10
Median 0.90 1.00 1.00 0.78 0.68
Arithmetic Mean 0.88 1.01 1.00 0.83 0.70
Value Line Investment Survey, December 2007 through January 2011