montana department of revenue · to determine a cash flow stream. the yield capitalization rate for...

Montana Department of Revenue

Gene Walborn Steve Bullock Director Governor

1

2019 Capitalization Rate Study Business Tax & Valuation Bureau

Centrally Assessed Properties

METHODOLOGY

The Business Tax and Valuation Bureau develops a capitalization rate for each centrally assessed utility industry group using the band-of-investment technique. The typical industry rate for each source of capital (common equity and debt) is weighted according to its proportion in the typical market capital structure for each industry to derive a weighted average direct capitalization rate for the specific industry. The rate for each of the sources of capital is taken from directly observed information in the market.

For a company in a given industry, the capitalization rate for its industry is applied directly to an estimate of the company’s typical net utility operating income to derive an income indicator of value for the company.

COMPARABLE COMPANIES The comparable or "Guideline Companies" are taken from the appropriate industry group in the Value Line Investment Survey.

THE RATE FOR COMMON EQUITY

Under direct capitalization, the measure of the rate for common equity is the Earnings/Price (E/P) ratio. The E/P ratio is the annual earnings (net income) per share of common stock divided by the average market price per share of common stock.



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For each of the companies included in the equity portion of the industry capitalization rate data set, the Bureau calculates two different measures of the E/P ratio, and then calculates an industry (simple) average and median for each of these measures:

E/P (VL) Historic The historic earning per share reported in the Value Line Investment Survey is divided by the 4th quarter stock price calculated from data reported by Yahoo Finance.

E/P (VL) Projected The projected next quarter and last three historic previous earnings per share reported in the Value Line Investment Survey is divided by the 4th quarter average calculated from data reported by Yahoo Finance.

THE RATE FOR PREFERRED STOCK

The measure of the rate for preferred stock is percent dividend yield.

The Business Tax and Valuation Bureau does not calculate an annual (simple) average of the monthly percent yields for all preferred stock issues as a separate rate used in the band of investment. Instead, the preferred stock is included in the debt portion of the capital structure.



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THE RATE FOR DEBT The measure of the rate for debt used in the direct capitalization rate is the current yield. Current yield is equal to the annual coupon rate divided by price (expressed as a percent). While the measure of the rate of debt for the yield rate is yield to maturity. The yield to maturity is the interest rate that equates the present value of a bond’s cash flow to its current price (expressed as a percent). Yield to maturity assumes that the bond will be held to maturity. If the bond is not held until maturity, or if the interim cash flows are reinvested at a rate that differs from the yield to maturity, an investor’s actual yield will differ from the yield to maturity. The yield to maturity calculation equates a bond’s cash flows to its current price; this yield calculation considers both coupon and income and any capital gain or loss the investor will realize by holding the bond to maturity.

Valuation theory typically requires the use of current yields (the annual coupon rate divided by price) for direct capitalization and the use of yield to maturity for yield capitalization, the two rates will generally not vary significantly for seasoned issues (except under certain circumstances) and they will be the same for new issues.

The debt rates used in yield capitalization are those reported by Mergent, Inc. Corporate bond yields are grouped according to credit rating and matched appropriately to the corresponding industries' average credit rating. In certain instances, an equivalent rating from Standard & Poor's Financial Services LLC is used in place of the Mergent, Inc. rating.



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DIRECT CAPITALIZATION of “GROSS” CASH FLOW The Business Tax and Valuation Bureau develops another direct capitalization rate for each centrally assessed utility industry group. This direct capitalization rate is calculated like the rate for capitalizing net operating income. The only difference is that the rate for common equity is “gross” cash flow per share divided by the average 4th quarter price per share.

“Gross” cash flow is defined as net utility operating income plus depreciation and amortization expense minus preferred stock

For a company in a given industry, the capitalization rate for its industry is applied directly to an estimate of the company’s typical “gross” cash flow to derive an income indicator of value for the company.

The use of the “gross” cash flow capitalization model is less common than the traditional net operating income capitalization model. The “gross” cash flow model can be valuable in developing an income indicator of value for industries or companies that have been experiencing net operating losses, or in cases where book depreciation does not reflect economic depreciation.



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YIELD CAPITALIZATION of PROJECTED FUTURE (NET) CASH FLOWS

The Business Tax and Valuation Bureau also develops a yield capitalization rate for each centrally assessed utility industry group.

The rate for each source of capital is the “cost of capital” for each industry group. The cost of debt is the yield to maturity for debt derived from the set of comparable companies for each industry group. The cost of equity capital is calculated using several methods, including the DCF (discounted cash flow) model, the ERP (equity risk premium model), the CAPM (capital asset pricing model) or a combination there of depending on the quantity and quality of available data.

The correct application of a yield capitalization rate is to use the rate for the industry to discount a stream of estimated future (net) cash flows for a company to present value.

It is important to note that the cash flow used in yield capitalization is “true”, “net” or “free” cash flow and not the ”gross” cash flow used in the Department’s direct ”gross” cash flow indicator.

The development of a valid future cash flow stream requires considerable time and effort. Most companies choose not to spend the time and effort to develop this future cash flow stream. Therefore, in the event a company does not provide a future cash flow stream as requested in the Annual Reporting Forms, the Department normalizes “net” historical cash flows to determine a cash flow stream. The yield capitalization rate for specific industries is applied directly to this derived cash flow stream.

Properly developed and applied, yield capitalization and direct capitalization usually result in similar indicators of value.



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The Centrally Assessed Property Appraisers, of the Business Tax & Valuation Bureau of the Montana Department of Revenue, produced this study. The team members include:

Grace Gilmore Angie Haller Doug Roehm

Tanner Lambert Jonathan Rosling

Scheduled Airlines - Freight

Completed: April 22, 2019

2019 Capitalization Rate Study

FINAL

Capital StructureEquity 65.00% Page AF-4Debt 35.00% Page AF-4

Equity Cost of CapitalCapital Asset Pricing Model 9.77% Page AF-5Dividend Growth Model (g = Earnings Growth) 9.60% Page AF-9Dividend Growth Model (g = Dividends Growth) 11.90% Page AF-9

10.06%

Debt Cost of CapitalMTDOR Cost of Debt Study:

A - Mergent's - Avg. YTM of A Rated Corporate Bonds 4.37%Baa - Mergent's - Avg. YTM of Baa Rated Corporate Bonds 5.13%Ba - Mergent's - Avg. YTM of Ba Rated Corporate Bonds 7.16%

5.13%

Source of Capital

Capital Structure Cost of Capital

Marginal Tax Rate

After-tax Cost of Capital Weighted Cost

Equity 65.00% 10.06% 10.06% 6.54%Debt 35.00% 5.13% 24.00% 3.90% 1.36%WACC 100.00% 7.90%WACC (Rounded) 8.00%

Freight Airlines - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: Scheduled Freight Airlines

Yield Capitalization Rate Study

MONTANA DEPARTMENT OF REVENUE

AF-2

Capital StructureEquity 65.00% Page AF-4Debt 35.00% Page AF-4

Equity Cost of CapitalNOI After-tax 9.00% Page AF-13GCF 16.60% Page AF-13

Debt Cost of CapitalCalculated Current Yield 3.50% Page AF-14

Source of Capital


Marginal Tax Rate


Equity 65.00% 9.00% 9.00% 5.85%Debt 35.00% 3.50% 24.00% 2.66% 0.93%Total 100.00% 6.78%

Total (Rounded) 6.80%

Source of Capital


Marginal Tax Rate


Equity 65.00% 16.60% 16.60% 10.79%Debt 35.00% 3.50% 24.00% 2.66% 0.93%WACC 100.00% 11.72%


Freight Airlines - GCF Direct Capitalization Rate

2019 Assessment YearIndustry: Scheduled Freight Airlines

Direct Capitalization Rate Study


Freight Airlines - NOI After-tax Direct Capitalization Rate

AF-3

A B C D E F G H I J K L M N

CompanyTicker

SymbolIndustry Group

Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common Stock

MV Preferred Stock*

MV Long Term Debt

PV of Operating

Leases

Total Common, Preferred, LT Debt, & OpLeases % Common

% Preferred

% Debt & OpLeases

Value Line Value Line 10-K Yahoo ExF 10-K 10-K 10-K G+H+I+J G/K H/K (I+J)/K(000) ($000) ($000) ($000) ($000) ($000)

Atlas Air Worldwide AAWW AIRTRANS B+ 25,590 42.19 1,079,654 0 2,466,443 627,803 4,173,901Air T Inc AIRT AIRTRANS C+ 2,044 24.50 50,068 0 48,084,950 11,467 48,146,485Air Transport Services Grp. ATSG AIRTRANS B 59,134 22.81 1,348,850 0 1,395,300 59,892 2,804,042 48% 0% 52%FedEx Corp. FDX AIRTRANS A++ 318,000 161.33 51,302,940 0 16,671,000 14,285,722 82,259,662 62% 0% 38%United Parcel Serv. UPS AIRTRANS A 860,229 97.53 83,898,132 0 23,633,000 2,463,999 109,995,131 76% 0% 24%All Companies 137,679,645 0 92,250,693 17,448,883 247,379,221 56% 0% 44%

Average 62% 0% 38%Median 62% 0% 38%Trimmed Average 62% 0% 38%High 76% 0% 52%Low 48% 0% 24%

Say 65% 35%

*Market value of preferred stock assumed to equal book value. Market value of long term debt is fair value. YE 2018 62% 0% 38%

Notes/Rational for Changes to Guideline Companies YE 2017 71% 0% 29%2019 - No changes to Guideline Companies YE 2016 67% 0% 33%

3YR AVG 67% 33%

MONTANA DEPARTMENT OF REVENUESupport for Capital Structure

Industry: Scheduled Freight Airlines2019 Assessment Year

AF-4

k e = Cost of Equity 9.77%R f = Risk Free Rate 2.87%β = Beta 1.15ERP = Equity Risk Premium (Rm - Rf) 6.00%R m = Market Rate of Return 8.87%

Risk Free Rate Measures (Rf):

The Value Line Investment Survey: Selection & Opinion1

January 4, 2019 Page 1949Selected Yields on Taxable U.S. Treasury Securities as of 12/26/18

10-year 2.81%30-year 3.06%

Federal Reserve Statistical Release2 and U.S. Department of the Treasury, Daily Treasury Yield Curve Rates3

U.S. government securities, Treasury constant maturities, Nominal, December 31, 201810-year 2.69%20-year 2.87%30-year 3.02%

Risk Free Rate Selected 2.87%

1

2 https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H.153 https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2018

MONTANA DEPARTMENT OF REVENUECapital Asset Pricing Model (CAPM)Industry: Scheduled Freight Airlines

2019 Assessment Year

k e = R f + β x ERP

"Value Line Selection & Opinion", Value Line (January 4, 2019)

AF-5



k e = R f + β x ERPEquity Risk Premium Measures (ERP = Rm - Rf)

DOR 3 Stage Dividend Growth Model, S & P 500, See ExhibitRm

4 Rm Rf ERPERP - Ex Ante 8.84% 8.84% 2.87% 5.97%

Duff & Phelps, 2019 Cost of Capital NavigatorRm

4 Rm Rf ERPERP "Historical" - Ex Post Arithmetic Avg. 9.78% 9.49% 2.58% 6.91%ERP "Supply-side" - Ex Post Arithmetic Avg. 9.01% 8.72% 2.58% 6.14%ERP "Conditional" - Ex Ante 9.00% 3.50% 5.50%

Damodaran Implied ERP (Jan 5, 2019)Rm

4 Rm Rf ERPImplied Premium (FCFE) - Ex Ante 8.83% 8.18% 2.22% 5.96%Implied Premium (FCFE with sustainable payout) - Ex Ante 8.42% 7.77% 2.22% 5.55%

Rm4 Rm Rf ERP

Average 8.98% 8.67% 6.01%Median 8.84% 8.78% 5.97%High 9.78% 9.49% 6.91%Low 8.42% 7.77% 5.50%

Equity Risk Premium Selected 8.87% 2.87% 6.00%

4 R m estimated using selected Risk Free Rate (R f )

AF-6



k e = R f + β x ERPInflation and Growth Estimates

Inflation (CPI)

Real Growth (GDP)

Nominal Growth Low High

Livingston Survey5 2.25% 2.13% 4.38%Survey of Professional Forecasters6 (Information not available at study date)Congressional Budget Office7 2.30% 2.40% 4.70%OASDI Trustee Report8 2.60% 2.40% 5.00%


Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000

5 Federal Reserve Bank of Philadelphia The Livingston Survey December 21, 2018 Table 3 Inflation Rate and Real GDP mean https://www.philadelphiafed.org/research-and-data/real-time-center/livingston-survey

6 Information not available at study date.

7 Congressional Budget Office Real GDP Economic Projections Table 1-1 pg 10 The Budget and Economic Outlook 2018-2022 2.0% Average Percentage Change Fhttps://www.cbo.gov/publication/53651

8 Social Security AdministrationOASDI Trustee Report", Board of Trustees of the Federal Old-Age Survivors Insurance and Federal Disability Insurance Trust Fundshttps://www.ssa.gov/oact/TR/2018/tr2018.pdf

9 Bureau of Economic Analysis, U.S. Department of Commerce. Table 1.1.9 Implicit Price Deflators for Gross Domestic Productttps://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&1921=survey&1903=13#reqid=19&step=3&isuri=1&1921=survey&1903=13

105.935107.948110.389

98.118100

101.755103.68

104.789

95.00496.111

Nominal Growth

Annual Percent Change

Conversion FactorGDP Annual Implicit Price Deflator9Year

AF-7

A B C D E

CompanyTicker


Financial Strength Beta

Value Line Value Line Value LineAtlas Air Worldwide AAWW AIRTRANS B+ 1.45Air T Inc AIRT AIRTRANS C+ 0.70Air Transport Services Grp. ATSG AIRTRANS B 1.15FedEx Corp. FDX AIRTRANS A++ 1.20United Parcel Serv. UPS AIRTRANS A 0.95

Average 1.09Median 1.15Trimmed Average 1.10High 1.45Low 0.70

Say 1.15

MONTANA DEPARTMENT OF REVENUESupport for Beta Selection in CAPMIndustry: Scheduled Freight Airlines


AF-8

Ke = Cost of Equity g = Sustainable GrowthD1 = Expected Dividend b = Retention Ratio (1 - Payout Ratio)P0 = Current Price Per Share ROE = Return on Equity

A B C D E F G H I J K L M N O

Company Name Ticker

End of Year

Closing Stock Price

2019 Estimated Dividend

Dividend Yield

2019 Est Earnings Per Share

2019 Est Payout Ratio Retention Ratio

2019 Est Return on

Equity

Multistage Long Term Earnings Growth

Estimate

Multistage Long Term Dividends

Growth Estimate

Sustainable Growth*

Cost of Equity

Cost of Equity

Cost of Equity

P 0 D 1 D 1 /P 0 EPS D 1 /EPSb =

1-Payout Ratio ROEg =

Earnings gg =

Dividends gg =

b x ROEK e

g = Earnings gK e

g = Dividends gK e

g = b x ROE

Yahoo Value Line D/C Value Line D/F 1-G Value LineMulti Stg g

WrkshtMulti Stg g

Wrksht H*I E+J E+K E+LAtlas Air Worldwide AAWW 42.19 0.00 7.25 9.50% 23.45% 1.74%Air T Inc AIRT 24.50 0.00 0.00 0.00% 3.19% 3.19%Air Transport Services Grp. ATSG 22.81 0.00 1.83 0.00% 3.19% 3.19%FedEx Corp. FDX 161.33 2.60 1.61% 16.00 16.25% 83.75% 20.50% 6.46% 11.81% 17.17% 8.07% 13.42% 18.78%United Parcel Serv. UPS 97.53 3.90 4.00% 7.50 52.00% 48.00% 0.00% 7.09% 6.46% 11.09% 10.46%

Average 2.81% 34.13% 65.88% 6.00% 8.68% 5.28% 17.17% 9.58% 11.94% 18.78%Median 2.81% 34.13% 65.88% 0.00% 6.46% 3.19% 17.17% 9.58% 11.94% 18.78%Trimmed Average 3.17% 5.58% 4.28%High 4.00% 52.00% 83.75% 20.50% 23.45% 11.81% 17.17% 11.09% 13.42% 18.78%Low 1.61% 16.25% 48.00% 0.00% 3.19% 1.74% 17.17% 8.07% 10.46% 18.78%

Say 9.60% 11.90% nmf


Support for Yield Capitalization Cost of Equity Component - Based on Dividend Growth ModelIndustry: Scheduled Freight Airlines


Ke = (D1 / P0) + g

AF-9

4.70% AAWW AIRT ATSG FDX UPS2.30%

34.50% 2.30% 2.30% 7.50% 8.50%23.45% 3.19% 3.19% 6.46% 7.09%

Year Weight1 30 0.3450 0.0230 0.0230 0.0750 0.0850 2 29 0.3450 0.0230 0.0230 0.0750 0.0850 3 28 0.3450 0.0230 0.0230 0.0750 0.0850 4 27 0.3450 0.0230 0.0230 0.0750 0.0850 5 26 0.3450 0.0230 0.0230 0.0750 0.0850 6 25 0.3264 0.0245 0.0245 0.0733 0.0826 7 24 0.3078 0.0260 0.0260 0.0715 0.0803 8 23 0.2891 0.0275 0.0275 0.0698 0.0779 9 22 0.2705 0.0290 0.0290 0.0680 0.0755

10 21 0.2519 0.0305 0.0305 0.0663 0.0731 11 20 0.2333 0.0320 0.0320 0.0645 0.0708 12 19 0.2146 0.0335 0.0335 0.0628 0.0684 13 18 0.1960 0.0350 0.0350 0.0610 0.0660 14 17 0.1774 0.0365 0.0365 0.0593 0.0636 15 16 0.1588 0.0380 0.0380 0.0575 0.0613 16 15 0.1401 0.0395 0.0395 0.0558 0.0589 17 14 0.1215 0.0410 0.0410 0.0540 0.0565 18 13 0.1029 0.0425 0.0425 0.0523 0.0541 19 12 0.0843 0.0440 0.0440 0.0505 0.0518 20 11 0.0656 0.0455 0.0455 0.0488 0.0494 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470

ValueLine 5 Year Earnings Growth ForecastWeighted Average Long-Term Growth Rate

Long-Term Nominal Growth

Indi

cate

d G

row

th R

ate


Support for Yield Capitalization Cost of Equity Component - Multi-Stage Earnings Growth ModelIndustry: Scheduled Freight Airlines


Inflation (If Forecast N/A )

AF-10

4.70% AAWW AIRT ATSG FDX UPS2.30%

0.00% 2.30% 2.30% 16.00% 7.50%1.74% 3.19% 3.19% 11.81% 6.46%

Year Weight1 30 - 0.0230 0.0230 0.1600 0.0750 2 29 - 0.0230 0.0230 0.1600 0.0750 3 28 - 0.0230 0.0230 0.1600 0.0750 4 27 - 0.0230 0.0230 0.1600 0.0750 5 26 - 0.0230 0.0230 0.1600 0.0750 6 25 0.0029 0.0245 0.0245 0.1529 0.0733 7 24 0.0059 0.0260 0.0260 0.1459 0.0715 8 23 0.0088 0.0275 0.0275 0.1388 0.0698 9 22 0.0118 0.0290 0.0290 0.1318 0.0680

10 21 0.0147 0.0305 0.0305 0.1247 0.0663 11 20 0.0176 0.0320 0.0320 0.1176 0.0645 12 19 0.0206 0.0335 0.0335 0.1106 0.0628 13 18 0.0235 0.0350 0.0350 0.1035 0.0610 14 17 0.0264 0.0365 0.0365 0.0964 0.0593 15 16 0.0294 0.0380 0.0380 0.0894 0.0575 16 15 0.0323 0.0395 0.0395 0.0823 0.0558 17 14 0.0353 0.0410 0.0410 0.0753 0.0540 18 13 0.0382 0.0425 0.0425 0.0682 0.0523 19 12 0.0411 0.0440 0.0440 0.0611 0.0505 20 11 0.0441 0.0455 0.0455 0.0541 0.0488 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470

ValueLine 5 Year Dividend Growth ForecastWeighted Average Long-Term Growth Rate

Indi

cate

d G

row

th R

ate


Support for Yield Capitalization Cost of Equity Component - Multi-Stage Dividend Growth ModelIndustry: Scheduled Freight Airlines


Long-Term Nominal GrowthInflation (If Forecast N/A )

AF-11

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term

RatingNumeric Rating

Value Line Value Line Moodys.com

Atlas Air Worldwide AAWW AIRTRANS B+Air T Inc AIRT AIRTRANS C+Air Transport Services Grp. ATSG AIRTRANS BFedEx Corp. FDX AIRTRANS A++ Baa2 9United Parcel Serv. UPS AIRTRANS A A1 5All Companies

Average 7Median 7Trimmed AverageHigh 9Low 5

Say Baa1 8

MONTANA DEPARTMENT OF REVENUESupport for Cost of Debt Component - Yield to Maturity


AF-12


CompanyTicker

Symbol

End of Year

Closing Stock Price

VL Historic EPS VL Est EPS

VL Historic P/E Ratio

VL Est P/E Ratio

Ke Estimate - Earnings (Hist. P/E)

Ke Estimate - Earnings (Est. P/E)

VL Historic Cash Flow Per Share

VL Est Cash Flow Per Share

VL Historic P/CF Ratio

VL Est P/CF Ratio

Ke Estimate - Cash Flow (Hist. P/CF)

Ke Estimate - Cash Flow (Est. P/CF)

Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/MAtlas Air Worldwide AAWW 42.19 7.27 7.25 5.80 5.82 17.23% 17.18% 8.57 15.70 4.92 2.69 20.31% 37.21%Air T Inc AIRT 24.50 0.15 0.00 163.33 2.42 0.00 10.12 9.88%Air Transport Services Grp. ATSG 22.81 0.62 1.83 36.79 12.46 2.72% 8.02% 3.32 0.00 6.87 14.56%FedEx Corp. FDX 161.33 17.12 16.00 9.42 10.08 10.61% 9.92% 27.32 28.95 5.91 5.57 16.93% 17.94%United Parcel Serv. UPS 97.53 7.25 7.50 13.45 13.00 7.43% 7.69% 8.78 10.25 11.11 9.52 9.00% 10.51%

Average 45.76 10.34 9.50% 10.70% 7.79 5.93 14.14% 21.89%Median 13.45 11.27 9.02% 8.97% 6.87 5.57 14.56% 17.94%Trimmed Average 19.89 11.27 9.02% 8.97% 7.63 5.57 13.79% 17.94%High 163.33 13.00 17.23% 17.18% 11.11 9.52 20.31% 37.21%Low 5.80 5.82 2.72% 7.69% 4.92 2.69 9.00% 10.51%

Say

MONTANA DEPARTMENT OF REVENUESupport for Direct Capitalization Cost of Equity (ke)


9.00% 16.60%

AF-13

A B C D E F G H I J K2018 YE 2018 YE 2017 YE 2017 YE 2018 YE 2018 2018 Avg 2018 2018 Avg

Company Ticker Interest Exp. MV LT Debt BV LT Debt MV LT Debt BV LT Debt MV LT Debt Current Yield BV LT Debt MTBRSource 10‐K 10‐K 10‐K 10‐K 10‐K (D+F)/2 (C/H) (E+G)/2 (H/J)

($000) ($000) ($000) ($000) ($000) ($000) ($000)Air T Inc AIRT 1,724,771 18,437,521 18,437,521 48,084,950 48,084,950 33,261,236 5.19% 33,261,236 1.00 Air Transport Services Grp. ATSG 28,799 524,900 515,800 1,395,300 1,401,300 960,100 3.00% 958,550 1.00 Atlas Air Worldwide AAWW 119,378 2,447,291 2,195,462 2,466,443 2,469,840 2,456,867 4.86% 2,332,651 1.05 FedEx Corp. FDX 558,000 15,544,000 14,931,000 16,671,000 16,585,000 16,107,500 3.46% 15,758,000 1.02 United Parcel Serv. UPS 605,000 24,761,000 24,289,000 23,633,000 22,736,000 24,197,000 2.50% 23,512,500 1.03 All Companies 3,035,948 76,982,703 3.94% 75,822,937 1.02 Average 3.80% 1.02 Median 3.46% 1.02 Trimmed Average 3.77% 1.02 High 5.19% 1.05 Low 2.50% 1.00

Say 3.50% 1.02


MONTANA DEPARTMENT OF REVENUESupport for Direct Capitalization Cost of Debt Component - Current Yield Calculations

Industry: Scheduled Freight Airlines

AF-14

Ticker Company Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18End of Year

Closing4th Qtr

AverageAnnual Average

AAWW Atlas Air Worldwide high 62.90$ 66.90$ 64.75$ 65.45$ 70.85$ 75.29$ 73.15$ 69.80$ 65.15$ 64.47$ 57.70$ 54.89$ 42.19$ 51.63$ 60.89$ low 55.70$ 50.65$ 58.35$ 58.35$ 62.15$ 68.00$ 65.55$ 58.30$ 60.25$ 48.10$ 49.02$ 35.59$

AIRT Air T Inc high 34.83$ 30.17$ 27.30$ 27.46$ 33.80$ 35.08$ 34.78$ 35.74$ 34.90$ 44.29$ 39.50$ 31.27$ 24.50$ 33.33$ 30.84$ low 24.00$ 24.95$ 24.00$ 24.75$ 25.70$ 31.72$ 30.21$ 30.00$ 30.90$ 32.85$ 28.04$ 24.03$

ATSG Air Transport Services Grp. high 27.67$ 26.91$ 26.48$ 23.96$ 22.92$ 24.39$ 24.17$ 22.97$ 22.60$ 23.60$ 20.70$ 22.81$ 22.81$ 20.06$ 22.19$ low 23.17$ 22.88$ 22.17$ 20.04$ 19.17$ 21.10$ 21.98$ 19.63$ 20.02$ 18.52$ 17.67$ 17.06$

FDX FedEx Corp. high 274.66$ 265.67$ 258.00$ 257.47$ 256.30$ 266.67$ 248.62$ 252.29$ 259.25$ 243.55$ 231.85$ 234.49$ 161.33$ 214.51$ 238.48$ low 250.00$ 226.20$ 228.90$ 231.71$ 236.61$ 222.44$ 225.26$ 238.78$ 237.51$ 207.90$ 218.35$ 150.94$

UPS United Parcel Serv. high 135.53$ 121.00$ 111.20$ 114.46$ 118.77$ 119.17$ 121.36$ 124.44$ 125.09$ 119.22$ 115.44$ 117.29$ 97.53$ 108.53$ 113.38$ low 119.61$ 103.81$ 101.45$ 102.40$ 108.16$ 105.10$ 104.94$ 117.72$ 115.73$ 103.83$ 105.48$ 89.89$

MONTANA DEPARTMENT OF REVENUESupport of Stock Price - From YAHOO Finance


AF-15

Scheduled Airlines - Passenger


FINAL


Capital StructureEquity 60.00% Page AP-4Debt 40.00% Page AP-4

Equity Cost of CapitalCapital Asset Pricing Model 10.07% Page AP-5Dividend Growth Model (g = Earnings Growth) 9.60% Page AP-9Dividend Growth Model (g = Dividends Growth) 11.00% Page AP-9

10.14%



7.16%

Source of Capital


Marginal Tax Rate


Equity 60.00% 10.14% 10.14% 6.08%Debt 40.00% 7.16% 24.00% 5.44% 2.18%WACC 100.00% 8.26%

WACC (Rounded) 8.30%

Passenger Airlines - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: Scheduled Passenger Airlines



AP-2

Capital StructureEquity 60.00% Page AP-4Debt 40.00% Page AP-4

Equity Cost of CapitalNOI After-tax 11.60% Page AP-13GCF 18.90% Page AP-13

Debt Cost of CapitalCalculated Current Yield 4.35% Page AP-14

Source of Capital


Marginal Tax Rate




Source of Capital


Marginal Tax Rate


Equity 60.00% 18.90% 18.90% 11.34%Debt 40.00% 4.35% 24.00% 3.31% 1.32%WACC 100.00% 12.66%


Passenger Airlines - GCF Direct Capitalization Rate




Passenger Airlines - NOI After-tax Direct Capitalization Rate

AP-3


CompanyTicker


Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common Stock

MV Preferred Stock*

MV Long Term Debt

PV of Operating

Leases

Total Common, Preferred, LT

Debt, & OpLeases % Common

% Preferred

% Debt & OpLeases


Amer. Airlines AAL AIRTRANS B+ 460,611 32.11 14,790,215 0 23,775,000 8,948,940 47,514,155 31% 0% 69%Allegiant Travel ALGT AIRTRANS B++ 16,183 100.22 1,621,888 0 1,070,405 323,525 3,015,818 54% 0% 46%Alaska Air Group ALK AIRTRANS B+ 123,194 60.85 7,496,381 0 2,102,000 2,195,311 11,793,692 64% 0% 36%Delta Air Lines DAL AIRTRANS B+ 688,136 49.90 34,338,002 0 9,400,000 6,044,640 49,782,642 69% 0% 31%JetBlue Airways JBLU AIRTRANS B++ 306,533 16.06 4,922,923 0 1,577,000 807,445 7,307,367 67% 0% 33%Southwest Airlines LUV AIRTRANS A 807,612 46.48 37,537,789 0 3,362,000 1,370,248 42,270,037 89% 0% 11%Spirit Airlines SAVE AIRTRANS B++ 68,270 57.92 3,954,173 0 2,169,600 1,052,570 7,176,343 55% 0% 45%SkyWest SKYW AIRTRANS B+ 81,239 44.47 3,612,711 0 3,157,300 384,888 7,154,899 50% 0% 50%United Cont'l Hldgs. UAL AIRTRANS B 269,915 83.73 22,599,964 0 13,450,000 11,892,318 47,942,281 47% 0% 53%All Companies 130,874,045 0 60,063,305 33,019,885 223,957,235 58% 0% 42%


Say 60% 40%


Notes/Rational for Changes to Guideline Companies YE 2017 65% 0% 35%2019 - No changes to guideline companies YE 2016 64% 0% 36%

3YR AVG 61% 39%


Industry: Scheduled Passenger Airlines2019 Assessment Year

AP-4





10-year 2.81%30-year 3.06%




1



MONTANA DEPARTMENT OF REVENUECapital Asset Pricing Model (CAPM)



AP-5










Rm4 Rm Rf ERP




AP-6




Inflation (CPI)

Real Growth (GDP)




Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000






105.935107.948110.389

Year

98.118100

101.755103.68

104.789

95.00496.111

Nominal Growth


Conversion FactorGDP Annual Implicit Price Deflator9

AP-7

A B C D E

CompanyTicker



Value Line Value Line Value LineAmer. Airlines AAL AIRTRANS B+ 1.35Allegiant Travel ALGT AIRTRANS B++ 0.90Alaska Air Group ALK AIRTRANS B+ 1.05Delta Air Lines DAL AIRTRANS B+ 1.15JetBlue Airways JBLU AIRTRANS B++ 1.20Southwest Airlines LUV AIRTRANS A 1.15Spirit Airlines SAVE AIRTRANS B++ 1.20SkyWest SKYW AIRTRANS B+ 1.40United Cont'l Hldgs. UAL AIRTRANS B 1.20


Say 1.20


Support for Beta Selection in CAPM


AP-8



Company Name Ticker

End of Year

Closing Stock Price

2019 Estimated Dividend

Dividend Yield


2019 Est Payout Ratio Retention Ratio

2019 Est Return on

Equity


Estimate


Growth Estimate

Sustainable Growth*

Cost of Equity

Cost of Equity

Cost of Equity

P 0 D 1 D 1 /P 0 EPS D 1 /EPSb =


Earnings gg =

Dividends gg =

b x ROEK e

g = Earnings gK e

g = Dividends gK e

g = b x ROE


WrkshtMulti Stg g

Wrksht H*I E+J E+K E+LAmer. Airlines AAL 32.11 0.40 1.25% 6.00 6.67% 93.33% 2.37% 8.35% 3.62% 9.59%Allegiant Travel ALGT 100.22 2.80 2.79% 13.50 20.74% 79.26% 30.00% 5.83% 5.83% 23.78% 8.63% 8.63% 26.57%Alaska Air Group ALK 60.85 1.40 2.30% 6.60 21.21% 78.79% 15.00% 3.95% 7.40% 11.82% 6.25% 9.71% 14.12%Delta Air Lines DAL 49.90 1.50 3.01% 6.60 22.73% 77.27% 26.50% 7.72% 13.70% 20.48% 10.73% 16.70% 23.48%JetBlue Airways JBLU 16.06 - 0.00% 2.00 0.00% 100.00% 10.50% 4.89% 1.74%Southwest Airlines LUV 46.48 0.76 1.64% 5.10 14.90% 85.10% 24.50% 8.98% 14.01% 20.85% 10.61% 15.64% 22.48%Spirit Airlines SAVE 57.92 - 0.00% 6.35 0.00% 100.00% 15.50% 9.61% 1.74%SkyWest SKYW 44.47 0.48 1.08% 5.65 8.50% 91.50% 14.00% 11.81% 11.18% 12.81% 12.89% 12.26% 13.89%United Cont'l Hldgs. UAL 83.73 - 0.00% 11.50 0.00% 100.00% 26.50% 7.09% 1.74%

Average 1.34% 10.53% 89.47% 20.31% 6.92% 7.30% 17.95% 8.79% 12.09% 20.11%Median 1.25% 8.50% 91.50% 20.00% 7.09% 7.40% 20.48% 9.62% 10.98% 22.48%Trimmed Average 1.29% 10.29% 89.71% 20.33% 6.87% 7.14% 18.05% 9.05% 11.80% 20.03%High 3.01% 22.73% 100.00% 30.00% 11.81% 14.01% 23.78% 12.89% 16.70% 26.57%Low 0.00% 0.00% 77.27% 10.50% 2.37% 1.74% 11.82% 3.62% 8.63% 13.89%

Say 9.60% 11.00% nmf


Support for Yield Capitalization Cost of Equity Component - Based on Dividend Growth ModelIndustry: Scheduled Passenger Airlines


Ke = (D1 / P0) + g

AP-9

4.70% AAL ALGT ALK DAL JBLU LUV SAVE SKYW UAL2.30%

1.00% 6.50% 3.50% 9.50% 5.00% 11.50% 12.50% 16.00% 8.50%2.37% 5.83% 3.95% 7.72% 4.89% 8.98% 9.61% 11.81% 7.09%

Year Weight1 30 0.0100 0.0650 0.0350 0.0950 0.0500 0.1150 0.1250 0.1600 0.0850 2 29 0.0100 0.0650 0.0350 0.0950 0.0500 0.1150 0.1250 0.1600 0.0850 3 28 0.0100 0.0650 0.0350 0.0950 0.0500 0.1150 0.1250 0.1600 0.0850 4 27 0.0100 0.0650 0.0350 0.0950 0.0500 0.1150 0.1250 0.1600 0.0850 5 26 0.0100 0.0650 0.0350 0.0950 0.0500 0.1150 0.1250 0.1600 0.0850 6 25 0.0123 0.0639 0.0358 0.0920 0.0498 0.1108 0.1201 0.1529 0.0826 7 24 0.0146 0.0628 0.0365 0.0890 0.0496 0.1065 0.1153 0.1459 0.0803 8 23 0.0169 0.0616 0.0373 0.0860 0.0494 0.1023 0.1104 0.1388 0.0779 9 22 0.0193 0.0605 0.0380 0.0830 0.0493 0.0980 0.1055 0.1318 0.0755

10 21 0.0216 0.0594 0.0388 0.0800 0.0491 0.0938 0.1006 0.1247 0.0731 11 20 0.0239 0.0583 0.0395 0.0770 0.0489 0.0895 0.0958 0.1176 0.0708 12 19 0.0262 0.0571 0.0403 0.0740 0.0487 0.0853 0.0909 0.1106 0.0684 13 18 0.0285 0.0560 0.0410 0.0710 0.0485 0.0810 0.0860 0.1035 0.0660 14 17 0.0308 0.0549 0.0418 0.0680 0.0483 0.0768 0.0811 0.0964 0.0636 15 16 0.0331 0.0538 0.0425 0.0650 0.0481 0.0725 0.0763 0.0894 0.0613 16 15 0.0354 0.0526 0.0433 0.0620 0.0479 0.0683 0.0714 0.0823 0.0589 17 14 0.0378 0.0515 0.0440 0.0590 0.0478 0.0640 0.0665 0.0753 0.0565 18 13 0.0401 0.0504 0.0448 0.0560 0.0476 0.0598 0.0616 0.0682 0.0541 19 12 0.0424 0.0493 0.0455 0.0530 0.0474 0.0555 0.0568 0.0611 0.0518 20 11 0.0447 0.0481 0.0463 0.0500 0.0472 0.0513 0.0519 0.0541 0.0494 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470


Indi

cate

d G

row

th R

ate


Support for Yield Capitalization Cost of Equity Component - Multi-Stage Earnings Growth ModelIndustry: Scheduled Passenger Airlines



AP-10

4.70% AAL ALGT ALK DAL JBLU LUV SAVE SKYW UAL2.30%

10.50% 6.50% 9.00% 19.00% 0.00% 19.50% 0.00% 15.00% 0.00%8.35% 5.83% 7.40% 13.70% 1.74% 14.01% 1.74% 11.18% 1.74%

Year Weight1 30 0.1050 0.0650 0.0900 0.1900 - 0.1950 - 0.1500 - 2 29 0.1050 0.0650 0.0900 0.1900 - 0.1950 - 0.1500 - 3 28 0.1050 0.0650 0.0900 0.1900 - 0.1950 - 0.1500 - 4 27 0.1050 0.0650 0.0900 0.1900 - 0.1950 - 0.1500 - 5 26 0.1050 0.0650 0.0900 0.1900 - 0.1950 - 0.1500 - 6 25 0.1014 0.0639 0.0873 0.1811 0.0029 0.1858 0.0029 0.1436 0.0029 7 24 0.0978 0.0628 0.0846 0.1721 0.0059 0.1765 0.0059 0.1371 0.0059 8 23 0.0941 0.0616 0.0819 0.1632 0.0088 0.1673 0.0088 0.1307 0.0088 9 22 0.0905 0.0605 0.0793 0.1543 0.0118 0.1580 0.0118 0.1243 0.0118

10 21 0.0869 0.0594 0.0766 0.1453 0.0147 0.1488 0.0147 0.1178 0.0147 11 20 0.0833 0.0583 0.0739 0.1364 0.0176 0.1395 0.0176 0.1114 0.0176 12 19 0.0796 0.0571 0.0712 0.1274 0.0206 0.1303 0.0206 0.1049 0.0206 13 18 0.0760 0.0560 0.0685 0.1185 0.0235 0.1210 0.0235 0.0985 0.0235 14 17 0.0724 0.0549 0.0658 0.1096 0.0264 0.1118 0.0264 0.0921 0.0264 15 16 0.0688 0.0538 0.0631 0.1006 0.0294 0.1025 0.0294 0.0856 0.0294 16 15 0.0651 0.0526 0.0604 0.0917 0.0323 0.0933 0.0323 0.0792 0.0323 17 14 0.0615 0.0515 0.0578 0.0828 0.0353 0.0840 0.0353 0.0728 0.0353 18 13 0.0579 0.0504 0.0551 0.0738 0.0382 0.0748 0.0382 0.0663 0.0382 19 12 0.0543 0.0493 0.0524 0.0649 0.0411 0.0655 0.0411 0.0599 0.0411 20 11 0.0506 0.0481 0.0497 0.0559 0.0441 0.0563 0.0441 0.0534 0.0441 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470


Indi

cate

d G

row

th R

ate


Support for Yield Capitalization Cost of Equity Component - Multi-Stage Dividend Growth ModelIndustry: Scheduled Passenger Airlines



AP-11

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term



Amer. Airlines AAL AIRTRANS B+ Baa2 9Allegiant Travel ALGT AIRTRANS B++ Ba3 13Alaska Air Group ALK AIRTRANS B+Delta Air Lines DAL AIRTRANS B+ Baa3 10JetBlue Airways JBLU AIRTRANS B++ Ba1 11Southwest Airlines LUV AIRTRANS A A3 7Spirit Airlines SAVE AIRTRANS B++SkyWest SKYW AIRTRANS B+United Cont'l Hldgs. UAL AIRTRANS B Ba2 12All Companies

Average 10Median 11Trimmed Average 11High 13Low 7

Say Ba1 11



AP-12


CompanyTicker

Symbol

End of Year

Closing Stock Price



VL Est P/E Ratio






VL Est P/CF Ratio



Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/MAmer. Airlines AAL 32.11 4.55 6.00 7.06 5.35 14.17% 18.69% 7.61 8.80 4.22 3.65 23.70% 27.41%Allegiant Travel ALGT 100.22 10.02 13.50 10.00 7.42 10.00% 13.47% 17.32 18.10 5.79 5.54 17.28% 18.06%Alaska Air Group ALK 60.85 4.46 6.60 13.64 9.22 7.33% 10.85% 9.70 10.05 6.27 6.05 15.94% 16.52%Delta Air Lines DAL 49.90 5.61 6.60 8.89 7.56 11.24% 13.23% 8.21 10.30 6.08 4.84 16.45% 20.64%JetBlue Airways JBLU 16.06 1.58 2.00 10.16 8.03 9.84% 12.45% 3.19 3.20 5.03 5.02 19.86% 19.93%Southwest Airlines LUV 46.48 4.31 5.10 10.78 9.11 9.27% 10.97% 5.60 6.55 8.30 7.10 12.05% 14.09%Spirit Airlines SAVE 57.92 4.40 6.35 13.16 9.12 7.60% 10.96% 5.29 7.00 10.95 8.27 9.13% 12.09%SkyWest SKYW 44.47 5.31 5.65 8.37 7.87 11.94% 12.71% 9.09 11.95 4.89 3.72 20.44% 26.87%United Cont'l Hldgs. UAL 83.73 9.20 11.50 9.10 7.28 10.99% 13.73% 14.64 20.60 5.72 4.06 17.48% 24.60%


Say



11.60% 18.90%

AP-13



($000) ($000) ($000) ($000) ($000) ($000) ($000)Alaska Air Group ALK 91,000 2,262,000 2,262,000 2,102,000 2,103,000 2,182,000 4.17% 2,182,500 1.00 Allegiant Travel ALGT 53,762 1,122,669 1,171,002 1,070,405 1,153,835 1,096,537 4.90% 1,162,419 0.94 Amer. Airlines AAL 1,056,000 24,985,000 24,294,000 23,775,000 23,779,000 24,380,000 4.33% 24,036,500 1.01 Delta Air Lines DAL 311,000 8,700,000 8,440,000 9,400,000 9,368,000 9,050,000 3.44% 8,904,000 1.02 JetBlue Airways JBLU 92,000 1,154,000 1,075,000 1,577,000 1,563,000 1,365,500 6.74% 1,319,000 1.04 SkyWest SKYW 120,409 2,698,400 2,712,400 3,157,300 3,185,400 2,927,850 4.11% 2,948,900 0.99 Southwest Airlines LUV 131,000 3,719,000 3,668,000 3,362,000 3,377,000 3,540,500 3.70% 3,522,500 1.01 Spirit Airlines SAVE 83,777 1,583,200 1,539,600 2,169,600 2,234,500 1,876,400 4.46% 1,887,050 0.99 United Cont'l Hldgs. UAL 729,000 13,787,000 13,268,000 13,450,000 13,445,000 13,618,500 5.35% 13,356,500 1.02 All Companies 2,667,948 60,037,287 4.44% 59,319,369 1.01 Average 4.58% 1.00 Median 4.33% 1.01 Trimmed Average 4.43% 1.01 High 6.74% 1.04 Low 3.44% 0.94

Say 4.35% 1.01



Support for Direct Capitalization Cost of Debt Component - Calculated Current YieldIndustry: Scheduled Passenger Airlines

AP-14

Ticker Company Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18End of Year

Closing4th Qtr


AAL Amer. Airlines high 59.08$ 55.60$ 57.44$ 53.08$ 45.82$ 45.02$ 40.86$ 41.04$ 43.89$ 41.75$ 40.20$ 40.58$ 32.11$ 36.20$ 43.20$ low 51.90$ 46.33$ 50.05$ 40.65$ 41.47$ 37.06$ 35.64$ 36.42$ 38.15$ 30.24$ 34.84$ 29.59$

ALGT Allegiant Travel high 172.00$ 173.80$ 181.45$ 177.00$ 165.00$ 156.13$ 147.00$ 139.45$ 136.25$ 129.98$ 134.50$ 135.48$ 100.22$ 119.45$ 141.95$ low 147.50$ 152.60$ 160.70$ 141.05$ 149.85$ 135.75$ 117.95$ 119.20$ 117.30$ 105.21$ 113.35$ 98.21$

ALK Alaska Air Group high 75.46$ 67.50$ 69.16$ 70.25$ 65.71$ 64.86$ 65.76$ 68.09$ 70.75$ 69.14$ 74.83$ 74.57$ 60.85$ 66.20$ 64.79$ low 59.25$ 61.08$ 61.20$ 57.60$ 57.53$ 59.53$ 57.97$ 60.04$ 66.07$ 59.55$ 61.72$ 57.42$

DAL Delta Air Lines high 60.79$ 57.18$ 57.31$ 56.02$ 56.12$ 55.84$ 55.05$ 58.87$ 60.23$ 58.14$ 61.32$ 61.07$ 49.90$ 55.48$ 54.70$ low 53.88$ 48.52$ 51.81$ 50.95$ 51.09$ 49.05$ 48.52$ 52.94$ 55.69$ 49.68$ 54.75$ 47.90$

JBLU JetBlue Airways high 23.08$ 22.06$ 22.80$ 20.82$ 19.93$ 19.48$ 20.11$ 19.46$ 20.14$ 19.49$ 19.58$ 19.72$ 16.06$ 17.74$ 19.26$ low 20.11$ 19.23$ 19.80$ 18.57$ 18.53$ 18.56$ 17.10$ 17.37$ 18.75$ 15.76$ 16.70$ 15.19$

LUV Southwest Airlines high 66.52$ 61.12$ 61.38$ 57.19$ 53.61$ 53.54$ 59.33$ 62.20$ 64.02$ 63.20$ 54.66$ 55.68$ 46.48$ 52.37$ 55.84$ low 59.25$ 54.01$ 55.87$ 51.00$ 50.20$ 49.93$ 50.50$ 55.61$ 60.66$ 47.10$ 49.30$ 44.28$

SAVE Spirit Airlines high 48.81$ 42.40$ 45.82$ 39.47$ 38.52$ 39.74$ 44.40$ 47.89$ 49.63$ 53.72$ 64.23$ 65.35$ 57.92$ 54.79$ 44.44$ low 39.53$ 37.80$ 36.77$ 34.64$ 34.70$ 34.36$ 35.66$ 41.98$ 45.58$ 42.83$ 49.07$ 53.55$

SKYW SkyWest high 57.35$ 58.55$ 60.65$ 58.60$ 58.95$ 58.05$ 62.45$ 65.80$ 65.80$ 61.74$ 58.80$ 58.39$ 44.47$ 53.45$ 55.92$ low 49.05$ 50.25$ 53.50$ 52.01$ 53.50$ 50.35$ 51.31$ 58.50$ 56.70$ 46.99$ 52.39$ 42.38$

UAL United Cont'l Hldgs. high 79.00$ 69.48$ 73.41$ 72.60$ 72.74$ 75.53$ 82.04$ 87.67$ 91.39$ 89.61$ 96.80$ 97.85$ 83.73$ 87.97$ 77.27$ low 65.44$ 60.44$ 65.67$ 64.80$ 65.57$ 67.93$ 67.94$ 78.70$ 86.26$ 78.87$ 85.62$ 79.05$


Support of Stock Price - From YAHOO Finance


AP-15

Gas Pipelines2019 Capitalization Rate Study


FINAL

Capital StructureEquity 55.00% Page GP-4Debt 45.00% Page GP-4

Equity Cost of CapitalCapital Asset Pricing Model 10.97% Page GP-5Dividend Growth Model (g = Earnings Growth) 14.50% Page GP-9Dividend Growth Model (g = Dividend Growth) 12.30% Page GP-9

11.70%



7.16%

Source of Capital


Marginal Tax Rate


Equity 55.00% 11.70% 11.70% 6.44%Debt 45.00% 7.16% 24.00% 5.44% 2.45%WACC 100.00% 8.88%


Gas Pipelines - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: Gas Pipelines



GP-2


Equity Cost of CapitalNOI After-tax 8.10% Page GP-13GCF 14.75% Page GP-13

Debt Cost of CapitalCalculated Current Yield 4.90% Page GP-14

Source of Capital


Marginal Tax Rate




Source of Capital


Marginal Tax Rate


Equity 55.00% 14.75% 14.75% 8.11%Debt 45.00% 4.90% 24.00% 3.72% 1.68%WACC 100.00% 9.79%


Gas Pipelines - GCF Direct Capitalization Rate




Gas Pipelines - NOI After-tax Direct Capitalization Rate

GP-3


CompanyTicker


Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common Stock

MV Preferred Stock*

MV Long Term Debt

PV of Operating

Leases


% Preferred

% Debt & OpLeases


DCP Midstream LP DCP PIPEMLP B+ 143,317 26.49 3,796,476 751,000 5,170,000 62,568 9,780,044 39% 8% 54%Enterprise Products EPD PIPEMLP B++ 2,184,869 24.59 53,725,929 0 25,970,000 239,013 79,934,942 67% 0% 33%EQT Midstream Part. EQM PIPEMLP B++ 120,458 43.25 5,209,793 0 4,050,132 2,367 9,262,292 56% 0% 44%Martin Midstream Ptnrs L.P. MMLP PIPEMLP C++ 39,049 10.28 401,426 0 360,138 22,320 783,884 51% 0% 49%Summit Midstream Partners LP SMLP PIPEMLP C++ 73,391 10.05 737,578 293,616 741,833 0 1,773,027 42% 17% 42%TC PipeLines LP TCP PIPEMLP B 71,306 32.12 2,290,361 0 2,101,000 3,630 4,394,991 52% 0% 48%All Companies 66,161,563 1,044,616 38,393,103 329,898 105,929,180 62% 1% 37%


Say 55% 45%


Notes/Rationale for Changes to Guideline Companies YE 2017 66% 0% 34%2019 Guideline Company Changes YE 2016 59% 0% 34%BWP removed. No longer publicly traded. 3YR AVG 59% 38%EEP removed. Acquired by ENB.ETP removed. Merged with ETE. Prior 2YR AVG 63% 0% 34%SEP removed. Acquired by ENB.WPZ removed. No longer publicly traded. ENLK removed. Acquired by ENLC.Added DCP, MMLP, SMLP, TCP


Industry: Gas Pipelines2019 Assessment Year

GP-4





10-year 2.81%30-year 3.06%




1






GP-5










Rm4 Rm Rf ERP




GP-6




Inflation (CPI)

Real Growth (GDP)




Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000






110.389

Nominal Growth



95.00496.11198.118

100101.755103.68

104.789105.935107.948

GP-7

A B C D E

CompanyTicker



Value Line Value Line Value LineDCP Midstream LP DCP PIPEMLP B+ 1.65 Enterprise Products EPD PIPEMLP B++ 1.30 EQT Midstream Part. EQM PIPEMLP B++ 1.25 Martin Midstream Ptnrs L.P. MMLP PIPEMLP C++ 1.40 Summit Midstream Partners LP SMLP PIPEMLP C++ 1.50 TC PipeLines LP TCP PIPEMLP B 1.25

Average 1.39 Median 1.35 Trimmed Average 1.36High 1.65 Low 1.25

Say 1.35




GP-8

Ke = Cost of Equity g = Expected Long Term GrowthD1 = Expected Dividend P0 = Current Price Per Share

A B C D E F G H I J K

Company Name TickerEnd of Year

Closing Stock Price

2019 Expected Dividend

Taxable Entity?


Adj for Tax

Dividend Yield


Estimate


Growth Estimate

Cost of Equity

Cost of Equity

P 0 D 1 If taxable = "No"

D 1 x (1-.24)

D 1 /P 0 g =Earnings g

g =Dividends g

K e

g = Earnings gKe

g = Dividend g

Yahoo Value Line F/CMulti Stg g

WrkshtMulti Stg g

Wrksht G+H G+IDCP Midstream LP DCP 26.49 3.12 No 2.37 8.95% 7.72% 2.69% 16.67% 11.64%Enterprise Products EPD 24.59 1.79 No 1.36 5.53% 8.98% 6.78% 14.51% 12.31%EQT Midstream Part. EQM 43.25 4.60 No 3.50 8.08% 2.06% 6.78% 10.14% 14.86%Martin Midstream Ptnrs L.P. MMLP 10.28 0.00 No 0.00 0.00% 3.00% 3.19%Summit Midstream Partners LP SMLP 10.05 0.00 No 0.00 0.00% 3.19% 3.19%TC PipeLines LP TCP 32.12 0.00 No 0.00 0.00% 3.19% 3.19%

Average 3.76% 4.69% 4.30% 13.77% 12.94%Median 2.77% 3.19% 3.19% 14.51% 12.31%Trimmed Average 3.40% 4.28% 4.09% 14.51% 12.31%High 8.95% 8.98% 6.78% 16.67% 14.86%Low 0.00% 2.06% 2.69% 10.14% 11.64%

Say 14.50% 12.30%


Ke = (D1 / P0) + g


Support for Yield Capitalization Cost of Equity Component - Based on Dividend Growth Model

GP-9

4.70% DCP EPD EQM MMLP SMLP TCP2.30%

9.50% 11.50% 0.50% 2.00% 2.30% 2.30%7.72% 8.98% 2.06% 3.00% 3.19% 3.19%

Year Weight1 30 0.0950 0.1150 0.0050 0.0200 0.0230 0.0230 2 29 0.0950 0.1150 0.0050 0.0200 0.0230 0.0230 3 28 0.0950 0.1150 0.0050 0.0200 0.0230 0.0230 4 27 0.0950 0.1150 0.0050 0.0200 0.0230 0.0230 5 26 0.0950 0.1150 0.0050 0.0200 0.0230 0.0230 6 25 0.0920 0.1108 0.0076 0.0217 0.0245 0.0245 7 24 0.0890 0.1065 0.0103 0.0234 0.0260 0.0260 8 23 0.0860 0.1023 0.0129 0.0251 0.0275 0.0275 9 22 0.0830 0.0980 0.0155 0.0268 0.0290 0.0290

10 21 0.0800 0.0938 0.0181 0.0284 0.0305 0.0305 11 20 0.0770 0.0895 0.0208 0.0301 0.0320 0.0320 12 19 0.0740 0.0853 0.0234 0.0318 0.0335 0.0335 13 18 0.0710 0.0810 0.0260 0.0335 0.0350 0.0350 14 17 0.0680 0.0768 0.0286 0.0352 0.0365 0.0365 15 16 0.0650 0.0725 0.0313 0.0369 0.0380 0.0380 16 15 0.0620 0.0683 0.0339 0.0386 0.0395 0.0395 17 14 0.0590 0.0640 0.0365 0.0403 0.0410 0.0410 18 13 0.0560 0.0598 0.0391 0.0419 0.0425 0.0425 19 12 0.0530 0.0555 0.0418 0.0436 0.0440 0.0440 20 11 0.0500 0.0513 0.0444 0.0453 0.0455 0.0455 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470


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Support for Yield Capitalization Cost of Equity Component - Multi-Stage Earnings Growth ModelIndustry: Gas Pipelines2019 Assessment Year


GP-10

4.70% DCP EPD EQM MMLP SMLP TCP2.30%

1.50% 8.00% 8.00% 2.30% 2.30% 2.30%2.69% 6.78% 6.78% 3.19% 3.19% 3.19%

Year Weight1 30 0.0150 0.0800 0.0800 0.0230 0.0230 0.0230 2 29 0.0150 0.0800 0.0800 0.0230 0.0230 0.0230 3 28 0.0150 0.0800 0.0800 0.0230 0.0230 0.0230 4 27 0.0150 0.0800 0.0800 0.0230 0.0230 0.0230 5 26 0.0150 0.0800 0.0800 0.0230 0.0230 0.0230 6 25 0.0170 0.0779 0.0779 0.0245 0.0245 0.0245 7 24 0.0190 0.0759 0.0759 0.0260 0.0260 0.0260 8 23 0.0210 0.0738 0.0738 0.0275 0.0275 0.0275 9 22 0.0230 0.0718 0.0718 0.0290 0.0290 0.0290

10 21 0.0250 0.0697 0.0697 0.0305 0.0305 0.0305 11 20 0.0270 0.0676 0.0676 0.0320 0.0320 0.0320 12 19 0.0290 0.0656 0.0656 0.0335 0.0335 0.0335 13 18 0.0310 0.0635 0.0635 0.0350 0.0350 0.0350 14 17 0.0330 0.0614 0.0614 0.0365 0.0365 0.0365 15 16 0.0350 0.0594 0.0594 0.0380 0.0380 0.0380 16 15 0.0370 0.0573 0.0573 0.0395 0.0395 0.0395 17 14 0.0390 0.0553 0.0553 0.0410 0.0410 0.0410 18 13 0.0410 0.0532 0.0532 0.0425 0.0425 0.0425 19 12 0.0430 0.0511 0.0511 0.0440 0.0440 0.0440 20 11 0.0450 0.0491 0.0491 0.0455 0.0455 0.0455 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470


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GP-11

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term



DCP Midstream LP DCP PIPEMLP B+ Ba2 12Enterprise Products EPD PIPEMLP B++EQT Midstream Part. EQM PIPEMLP B++ Ba1 11Martin Midstream Ptnrs L.P. MMLP PIPEMLP C++ B2 15Summit Midstream Partners LP SMLP PIPEMLP C++ Ba3 13TC PipeLines LP TCP PIPEMLP B Baa2 9All Companies


Say Ba2 12



GP-12


CompanyTicker

Symbol

End of Year

Closing Stock Price

VL Historic EPS

VL Est EPS


VL Est P/E Ratio






VL Est P/CF Ratio



Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/MDCP Midstream LP DCP 26.49 0.61 0.90 43.43 29.43 2.30% 3.40% 3.07 3.30 8.63 8.03 11.59% 12.46%Enterprise Products EPD 24.59 1.91 2.05 12.87 12.00 7.77% 8.34% 2.06 2.70 11.94 9.11 8.38% 10.98%EQT Midstream Part. EQM 43.25 5.12 4.75 8.45 9.11 11.84% 10.98% 9.15 5.90 4.73 7.33 21.16% 13.64%Martin Midstream Ptnrs L.P. MMLP 10.28 (0.14) 0.00 2.66 0.00 3.86 25.88%Summit Midstream Partners LP SMLP 10.05 0.06 0.00 167.50 2.69 0.00 3.74 26.77%TC PipeLines LP TCP 32.12 (2.68) 0.00 4.89 0.00 6.57 15.22%


Say



8.10% 14.75%

GP-13



($000) ($000) ($000) ($000) ($000) ($000) ($000)DCP Midstream LP DCP 269,000 4,885,000 4,736,000 5,170,000 5,337,000 5,027,500 5.35% 5,036,500 1.00 Enterprise Products EPD 1,096,700 23,470,000 21,480,000 25,970,000 26,150,000 24,720,000 4.44% 23,815,000 1.04 EQT Midstream Part. EQM 122,094 1,472,100 1,453,352 4,050,132 4,081,639 2,761,116 4.42% 2,767,496 1.00 Martin Midstream Ptnrs L.P. MMLP 52,037 681,657 372,618 360,138 372,996 520,898 9.99% 372,807 1.40 Summit Midstream Partners LP SMLP 60,535 803,417 790,192 741,833 791,731 772,625 7.83% 790,962 0.98 TC PipeLines LP TCP 95,000 2,475,000 2,403,000 2,101,000 2,108,000 2,288,000 4.15% 2,255,500 1.01 All Companies 1,695,366 36,090,139 4.70% 35,038,264 1.03 Average 6.03% 1.07 Median 4.89% 1.01 Trimmed Average 5.51% 1.01 High 9.99% 1.40 Low 4.15% 0.98

Say 4.90% 1.01



Support for Direct Capitalization Cost of Debt Component - Calculated Current YieldIndustry: Gas Pipelines

GP-14

Ticker Company Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

End of Year

Closing4th Qtr


DCP DCP Midstream LP high 42.79$ 42.73$ 37.60$ 38.10$ 42.05$ 42.45$ 44.65$ 46.67$ 42.15$ 43.84$ 43.72$ 35.55$ 26.49$ 35.76$ 38.32$ low 36.36$ 34.62$ 32.87$ 34.02$ 33.87$ 37.84$ 38.65$ 39.52$ 38.21$ 35.77$ 31.50$ 24.18$

EPD Enterprise Products high 29.51$ 28.25$ 26.39$ 27.45$ 28.99$ 29.65$ 30.05$ 29.79$ 29.56$ 29.44$ 27.85$ 27.19$ 24.59$ 26.53$ 27.27$ low 26.36$ 25.30$ 23.10$ 23.78$ 26.19$ 26.96$ 27.20$ 28.39$ 28.42$ 25.85$ 25.52$ 23.33$

EQM EQT Midstream Part. high 77.97$ 74.91$ 63.71$ 63.73$ 57.47$ 59.62$ 57.47$ 57.73$ 58.00$ 53.66$ 51.15$ 48.90$ 43.25$ 46.65$ 56.09$ low 72.91$ 60.59$ 55.40$ 55.40$ 50.89$ 49.95$ 50.40$ 48.91$ 51.25$ 44.01$ 42.87$ 39.32$

MMLP Martin Midstream Ptnrs L.P. high 16.90$ 16.95$ 14.10$ 16.20$ 16.00$ 15.40$ 14.20$ 13.50$ 11.65$ 13.75$ 13.77$ 11.96$ 10.28$ 11.70$ 13.38$ low 14.00$ 13.80$ 12.90$ 13.10$ 14.20$ 13.40$ 13.05$ 10.99$ 10.65$ 11.35$ 10.25$ 9.13$

SMLP Summit Midstream Partners LP high 22.95$ 22.80$ 17.10$ 15.80$ 16.40$ 16.65$ 17.40$ 17.73$ 16.55$ 16.88$ 16.52$ 13.40$ 10.05$ 13.85$ 16.01$ low 20.54$ 16.70$ 13.30$ 13.10$ 13.50$ 15.05$ 15.40$ 15.95$ 14.30$ 14.50$ 11.75$ 10.04$

TCP TC PipeLines LP high 57.08$ 54.43$ 50.50$ 35.22$ 36.24$ 26.80$ 37.00$ 34.54$ 35.71$ 33.29$ 32.70$ 32.31$ 32.12$ 30.44$ 35.26$ low 52.84$ 48.49$ 33.38$ 30.34$ 22.64$ 24.13$ 25.19$ 29.41$ 29.69$ 28.48$ 29.00$ 26.88$



GP-15

Incorporated Pipelines2019 Capitalization Rate Study


FINAL


Equity Cost of CapitalCapital Asset Pricing Model 11.75% Page GP-5Dividend Growth Model (g = Earnings Growth) 25.10% Page GP-9Dividend Growth Model (g = Dividend Growth) 13.10% Page GP-9

12.15%



5.13%

Source of Capital


Marginal Tax Rate


Equity 50.00% 12.15% 12.15% 6.08%Debt 50.00% 5.13% 24.00% 3.90% 1.95%WACC 100.00% 8.02%


Incorporated Pipelines - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: Incorporated PipelinesYield Capitalization Rate Study


GP-2


Equity Cost of CapitalNOI After-tax 5.30% Page GP-13GCF 11.00% Page GP-13

Debt Cost of CapitalCalculated Current Yield 5.00% Page GP-14

Source of Capital


Marginal Tax Rate




Source of Capital


Marginal Tax Rate


Equity 50.00% 11.00% 11.00% 5.50%Debt 50.00% 5.00% 24.00% 3.80% 1.90%WACC 100.00% 7.40%


Incorporated Pipelines - GCF Direct Capitalization Rate

2019 Assessment YearIndustry: Incorporated PipelinesDirect Capitalization Rate Study


Incorporated Pipelines - NOI After-tax Direct Capitalization Rate

GP-3


CompanyTicker


Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common Stock

MV Preferred Stock*

MV Long Term Debt

PV of Operating

Leases


% Preferred

% Debt & OpLeases


Kinder Morgan Inc. KMI OILGAS B 2,263,656 15.38 34,815,036 0 37,469,000 692,041 72,976,077 48% 0% 52%ONEOK Inc. OKE OILGAS B+ 411,533 53.95 22,202,185 0 9,600,000 0 31,802,185 70% 0% 30%TransCanada Corp. TRP OILGAS B++ 918,000 35.70 32,772,600 2,917,340 35,879,617 427,859 71,997,416 46% 4% 50%Williams Cos. WMB OILGAS B+ 1,245,000 22.05 27,452,250 35,000 23,330,000 174,555 50,991,805 54% 0% 46%All Companies 117,242,070 2,952,340 106,278,617 1,294,455 227,767,482 51% 1% 47%


Say 50% 50%

*Market value of preferred stock assumed to equal book value. Market value of long term debt is fair value.

Notes/Rationale for Changes to Guideline CompaniesFirst year of study.


Industry: Incorporated Pipelines2019 Assessment Year

GP-4





10-year 2.81%30-year 3.06%




1






GP-5










Rm4 Rm Rf ERP




GP-6




Inflation (CPI)

Real Growth (GDP)




Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000






110.389

Nominal Growth



95.00496.11198.118

100101.755103.68

104.789105.935107.948

GP-7

A B C D E

CompanyTicker



Value Line Value Line Value LineKinder Morgan Inc. KMI OILGAS B 1.40 ONEOK Inc. OKE OILGAS B+ 1.55 TransCanada Corp. TRP OILGAS B++ 1.10 Williams Cos. WMB OILGAS B+ 1.90


Say 1.48

2019 Assessment YearIndustry: Incorporated Pipelines



GP-8



Company Name TickerEnd of Year

Closing Stock Price


Taxable Entity?


Adj for Tax

Dividend Yield


Estimate


Growth Estimate

Cost of Equity

Cost of Equity

P 0 D 1 If taxable = "No"

D 1 x (1-.24)

D 1 /P 0 g =Earnings g

g =Dividends g

K e

g = Earnings gKe

g = Dividend g

Yahoo Value Line F/CMulti Stg g

WrkshtMulti Stg g

Wrksht G+H G+IKinder Morgan Inc. KMI 15.38 0.95 Yes 0.95 6.18% 23.45% 12.75% 29.62% 18.93%ONEOK Inc. OKE 53.95 3.60 Yes 3.60 6.67% 13.38% 8.03% 20.05% 14.71%TransCanada Corp. TRP 35.70 2.16 Yes 2.16 6.05% 31.62% 5.52% 37.67% 11.57%Williams Cos. WMB 22.05 1.52 Yes 1.52 6.89% 13.70% 2.69% 20.59% 9.58%

Average 6.45% 20.54% 7.25% 26.98% 13.70%Median 6.42% 18.57% 6.78% 25.11% 13.14%Trimmed Average 6.42% 18.57% 6.78% 25.11% 13.14%High 6.89% 31.62% 12.75% 37.67% 18.93%Low 6.05% 13.38% 2.69% 20.05% 9.58%

Say 25.10% 13.10%


Ke = (D1 / P0) + g


Support for Yield Capitalization Cost of Equity Component - Based on Dividend Growth Model

GP-9

4.70% KMI OKE TRP WMB2.30%

34.50% 18.50% 47.50% 19.00%23.45% 13.38% 31.62% 13.70%

Year Weight1 30 0.3450 0.1850 0.4750 0.1900 2 29 0.3450 0.1850 0.4750 0.1900 3 28 0.3450 0.1850 0.4750 0.1900 4 27 0.3450 0.1850 0.4750 0.1900 5 26 0.3450 0.1850 0.4750 0.1900 6 25 0.3264 0.1764 0.4483 0.1811 7 24 0.3078 0.1678 0.4215 0.1721 8 23 0.2891 0.1591 0.3948 0.1632 9 22 0.2705 0.1505 0.3680 0.1543

10 21 0.2519 0.1419 0.3413 0.1453 11 20 0.2333 0.1333 0.3145 0.1364 12 19 0.2146 0.1246 0.2878 0.1274 13 18 0.1960 0.1160 0.2610 0.1185 14 17 0.1774 0.1074 0.2343 0.1096 15 16 0.1588 0.0988 0.2075 0.1006 16 15 0.1401 0.0901 0.1808 0.0917 17 14 0.1215 0.0815 0.1540 0.0828 18 13 0.1029 0.0729 0.1273 0.0738 19 12 0.0843 0.0643 0.1005 0.0649 20 11 0.0656 0.0556 0.0738 0.0559 21 10 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470

Weighted Average Long-Term Growth Rate

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ValueLine 5 Year Earnings Growth Forecast

GP-10

4.70% KMI OKE TRP WMB2.30%

17.50% 10.00% 6.00% 1.50%12.75% 8.03% 5.52% 2.69%

Year Weight1 30 0.1750 0.1000 0.0600 0.0150 2 29 0.1750 0.1000 0.0600 0.0150 3 28 0.1750 0.1000 0.0600 0.0150 4 27 0.1750 0.1000 0.0600 0.0150 5 26 0.1750 0.1000 0.0600 0.0150 6 25 0.1670 0.0967 0.0592 0.0170 7 24 0.1590 0.0934 0.0584 0.0190 8 23 0.1510 0.0901 0.0576 0.0210 9 22 0.1430 0.0868 0.0568 0.0230

10 21 0.1350 0.0834 0.0559 0.0250 11 20 0.1270 0.0801 0.0551 0.0270 12 19 0.1190 0.0768 0.0543 0.0290 13 18 0.1110 0.0735 0.0535 0.0310 14 17 0.1030 0.0702 0.0527 0.0330 15 16 0.0950 0.0669 0.0519 0.0350 16 15 0.0870 0.0636 0.0511 0.0370 17 14 0.0790 0.0603 0.0503 0.0390 18 13 0.0710 0.0569 0.0494 0.0410 19 12 0.0630 0.0536 0.0486 0.0430 20 11 0.0550 0.0503 0.0478 0.0450 21 10 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470


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ValueLine 5 Year Dividend Growth Forecast

GP-11

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term



Kinder Morgan Inc. KMI OILGAS B Baa2 9ONEOK Inc. OKE OILGAS B+ Baa3 10TransCanada Corp. TRP OILGAS B++ Baa1 8Williams Cos. WMB OILGAS B+ Baa3 10All Companies


Say Baa3 10



GP-12


CompanyTicker

Symbol

End of Year

Closing Stock Price

VL Historic EPS

VL Est EPS


VL Est P/E Ratio






VL Est P/CF Ratio



Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/MKinder Morgan Inc. KMI 15.38 0.66 0.90 23.30 17.09 4.29% 5.85% 1.66 2.05 9.27 7.50 10.79% 13.33%ONEOK Inc. OKE 53.95 2.77 3.05 19.48 17.69 5.13% 5.65% 2.41 3.80 22.39 14.20 4.47% 7.04%TransCanada Corp. TRP 35.70 2.81 3.05 12.70 11.70 7.87% 8.54% 3.84 4.85 9.30 7.36 10.76% 13.59%Williams Cos. WMB 22.05 0.79 0.90 27.91 24.50 3.58% 4.08% 2.73 2.00 8.08 11.03 12.38% 9.07%


Say


2019 Assessment YearIndustry: Incorporated Pipelines

5.30% 11.00%

GP-13



($000) ($000) ($000) ($000) ($000) ($000) ($000)Kinder Morgan Inc. KMI 1,917,000 40,050,000 37,843,000 37,469,000 37,324,000 38,759,500 4.95% 37,583,500 1.03 ONEOK Inc. OKE 469,620 9,300,000 8,500,000 9,600,000 9,400,000 9,450,000 4.97% 8,950,000 1.06 TransCanada Corp. TRP 1,660,245 34,753,729 30,601,284 35,879,617 34,802,107 35,316,673 4.70% 32,701,696 1.08 Williams Cos. WMB 1,160,000 23,005,000 20,935,000 23,330,000 22,414,000 23,167,500 5.01% 21,674,500 1.07 All Companies 5,206,865 106,693,673 4.88% 100,909,696 1.06 Average 4.91% 1.06 Median 4.96% 1.06 Trimmed Average 4.96% 1.06 High 5.01% 1.08 Low 4.70% 1.03

Say 5.00% 1.06



Support for Direct Capitalization Cost of Debt Component - Calculated Current YieldIndustry: Incorporated Pipelines

GP-14


End of Year

Closing4th Qtr


KMI Kinder Morgan Inc. high 19.83$ 18.08$ 16.61$ 16.98$ 16.74$ 17.86$ 18.45$ 18.33$ 18.40$ 18.67$ 17.79$ 17.44$ 15.38$ 16.85$ 17.09$ low 17.95$ 16.19$ 14.76$ 14.69$ 15.58$ 16.66$ 17.32$ 17.35$ 17.29$ 16.24$ 16.32$ 14.62$

OKE ONEOK Inc. high 61.36$ 60.04$ 58.85$ 60.63$ 68.88$ 70.99$ 71.99$ 71.04$ 70.01$ 69.17$ 65.92$ 63.11$ 53.95$ 61.56$ 62.70$ low 53.56$ 52.39$ 54.45$ 55.15$ 59.92$ 67.41$ 68.72$ 65.61$ 64.34$ 62.20$ 58.71$ 50.26$

TRP TransCanada Corp. high 49.89$ 46.19$ 44.65$ 44.73$ 44.05$ 43.80$ 45.09$ 45.63$ 42.92$ 42.29$ 41.15$ 42.08$ 35.70$ 39.25$ 42.29$ low 45.14$ 41.24$ 40.02$ 39.16$ 41.18$ 41.14$ 42.25$ 42.48$ 39.86$ 37.24$ 38.15$ 34.58$

WMB Williams Cos. high 33.67$ 31.79$ 28.38$ 26.17$ 28.23$ 28.21$ 29.91$ 32.22$ 29.66$ 28.19$ 26.54$ 25.98$ 22.05$ 24.81$ 27.42$ low 30.54$ 27.56$ 24.59$ 24.00$ 25.55$ 25.93$ 26.51$ 29.34$ 27.03$ 23.54$ 24.27$ 20.36$



GP-15

Liquid Pipelines2019 Capitalization Rate Study

Completed: March 18, 2019

FINAL

Capital StructureEquity 60.00% Page LP-4Debt 40.00% Page LP-4

Equity Cost of CapitalCapital Asset Pricing Model 10.67% Page LP-5

Dividend Growth Model (g = Earnings Growth) 16.80% Page LP-9

Dividend Growth Model (g = Dividend Growth) 12.70% Page LP-911.50%



6.15%

Source of Capital


Marginal Tax Rate


Equity 60.00% 11.50% 11.50% 6.90%Debt 40.00% 6.15% 24.00% 4.67% 1.87%WACC 100.00% 8.77%


Liquid Pipelines - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: Liquid Pipelines



LP-2

Capital StructureEquity 60.00% Page LP-4Debt 40.00% Page LP-4

Equity Cost of CapitalNOI After-tax 9.25% Page LP-13GCF 12.80% Page LP-13

Debt Cost of CapitalCalculated Current Yield 4.90% Page LP-14

Source of Capital


Marginal Tax Rate




Source of Capital


Marginal Tax Rate


Equity 60.00% 12.80% 12.80% 7.68%Debt 40.00% 4.90% 24.00% 3.72% 1.49%WACC 100.00% 9.17%


Liquid Pipelines - GCF Direct Capitalization Rate




Liquid Pipelines - NOI After-tax Direct Capitalization Rate

LP-3


CompanyTicker


Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common Stock

MV Preferred Stock*

MV Long Term Debt

PV of Operating

Leases


% Preferred

% Debt & OpLease

sValue Line Value Line 10-K Yahoo ExF 10-K 10-K 10-K G+H+I+J G/K H/K (I+J)/K

(000) ($000) ($000) ($000) ($000) ($000)Andeavor Logistics LP ANDX PIPEMLP B+ 245,493 32.49 7,976,074 604,000 4,900,000 125,330 13,605,404 59% 4% 37%Buckeye Partners L.P. BPL PIPEMLP B+ 153,755 28.99 4,457,358 - 4,536,877 185,561 9,179,796 49% 0% 51%Enterprise Products EPD PIPEMLP B++ 2,184,869 24.59 53,725,929 - 25,970,000 248,756 79,944,686 67% 0% 33%Magellan Midstream MMP PIPEMLP B++ 228,403 57.06 13,032,700 - 4,224,373 211,832 17,468,905 75% 0% 25%NuStar Energy L.P. NS PIPEMLP B 107,225 20.93 2,244,223 1,320,293 3,056,704 95,573 6,716,793 33% 20% 47%Plains All Amer. Pipe. PAA PIPEMLP B+ 726,362 20.04 14,556,293 2,292,000 8,600,000 715,013 26,163,306 56% 9% 36%Phillips 66 Partners PSXP PIPEMLP B++ 124,104 42.11 5,226,022 746,000 2,860,000 43,075 8,875,097 59% 8% 33%All Companies 101,218,599 4,962,293 54,147,954 1,625,141 161,953,986 62% 3% 34%


Say 60% 40%


Notes/Rational for Changes to Guideline Companies YE 2017 58% 0% 39%2019 Guideline Company Changes YE 2016 61% 0% 36%Removed Enbridge Energy Partners (EEP), acquired by Enbridge, Inc. 3YR AVG 59% 37%Removed Valero Energy Partners, LP (VLO), acquired by Valero Energy Corporation

Prior 2YR AVG 60% 0% 38%


Industry: Liquid Pipelines2019 Assessment Year

LP-4





10-year 2.81%30-year 3.06%




1






LP-5










Rm4 Rm Rf ERP




LP-6




Inflation (CPI)

Real Growth (GDP)




Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000






105.935107.948110.389

98.118100

101.755103.68

104.789

95.00496.111

Nominal Growth



LP-7

A B C D E

CompanyTicker



Value Line Value Line Value LineAndeavor Logistics LP ANDX PIPEMLP B+ 1.40Buckeye Partners L.P. BPL PIPEMLP B+ 1.30Enterprise Products EPD PIPEMLP B++ 1.30Magellan Midstream MMP PIPEMLP B++ 1.20NuStar Energy L.P. NS PIPEMLP B 1.50Plains All Amer. Pipe. PAA PIPEMLP B+ 1.50Phillips 66 Partners PSXP PIPEMLP B++ 1.05


Say 1.30




LP-8



Company Name Ticker

End of Year

Closing Stock Price

2019 Expected Dividend Taxable

Entity?

2019 Expected Dividend Adj

for Tax

Dividend Yield

Multistage Long Term Earnings

Growth Estimate

Multistage Long Term Dividends Growth Estimate

Cost of Equity

Cost of Equity

P 0 D 1If taxable = "No"

D 1 x (1-.24) D 1 /P 0g =

Earnings gg =

Dividends gK e

g = Earnings gKe

g = Dividend g

Yahoo Value Line F/C Multi Stg g Wrksht Multi Stg g Wrksht G+H G+IAndeavor Logistics LP ANDX 32.49 4.12 No 3.13 9.64% 9.92% 5.20% 19.56% 14.84%Buckeye Partners L.P. BPL 28.99 3.00 No 2.28 7.86% 3.32% -0.14% 11.18%Enterprise Products EPD 24.59 1.79 No 1.36 5.53% 8.98% 6.78% 14.51% 12.31%Magellan Midstream MMP 57.06 3.98 No 3.02 5.30% 6.78% 7.40% 12.08% 12.71%NuStar Energy L.P. NS 20.93 0.00 No 0.00 0.00% 3.19% 3.19%Plains All Amer. Pipe. PAA 20.04 1.30 No 0.99 4.93% 14.95% 2.69% 19.88% 7.62%Phillips 66 Partners PSXP 42.11 3.50 No 2.66 6.32% 12.75% 13.38% 19.07% 19.70%

Average 5.65% 8.56% 5.50% 16.05% 13.43%Median 5.53% 8.98% 5.20% 16.79% 12.71%Trimmed Average 5.99% 8.35% 5.05% 16.30% 13.28%High 9.64% 14.95% 13.38% 19.88% 19.70%Low 0.00% 3.19% -0.14% 11.18% 7.62%

Say 16.80% 12.70%


Support for Yield Capitalization Cost of Equity Component - Based on Dividend Growth ModelIndustry: Liquid Pipelines


Ke = (D1 / P0) + g

LP-9

4.70% ANDX BPL EPD MMP NS PAA PSXP2.30%

13.00% 2.50% 11.50% 8.00% 2.30% 21.00% 17.50%9.92% 3.32% 8.98% 6.78% 3.19% 14.95% 12.75%

Year Weight1 30 0.1300 0.0250 0.1150 0.0800 0.0230 0.2100 0.1750 2 29 0.1300 0.0250 0.1150 0.0800 0.0230 0.2100 0.1750 3 28 0.1300 0.0250 0.1150 0.0800 0.0230 0.2100 0.1750 4 27 0.1300 0.0250 0.1150 0.0800 0.0230 0.2100 0.1750 5 26 0.1300 0.0250 0.1150 0.0800 0.0230 0.2100 0.1750 6 25 0.1248 0.0264 0.1108 0.0779 0.0245 0.1998 0.1670 7 24 0.1196 0.0278 0.1065 0.0759 0.0260 0.1896 0.1590 8 23 0.1144 0.0291 0.1023 0.0738 0.0275 0.1794 0.1510 9 22 0.1093 0.0305 0.0980 0.0718 0.0290 0.1693 0.1430

10 21 0.1041 0.0319 0.0938 0.0697 0.0305 0.1591 0.1350 11 20 0.0989 0.0333 0.0895 0.0676 0.0320 0.1489 0.1270 12 19 0.0937 0.0346 0.0853 0.0656 0.0335 0.1387 0.1190 13 18 0.0885 0.0360 0.0810 0.0635 0.0350 0.1285 0.1110 14 17 0.0833 0.0374 0.0768 0.0614 0.0365 0.1183 0.1030 15 16 0.0781 0.0388 0.0725 0.0594 0.0380 0.1081 0.0950 16 15 0.0729 0.0401 0.0683 0.0573 0.0395 0.0979 0.0870 17 14 0.0678 0.0415 0.0640 0.0553 0.0410 0.0878 0.0790 18 13 0.0626 0.0429 0.0598 0.0532 0.0425 0.0776 0.0710 19 12 0.0574 0.0443 0.0555 0.0511 0.0440 0.0674 0.0630 20 11 0.0522 0.0456 0.0513 0.0491 0.0455 0.0572 0.0550 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470

Support for Yield Capitalization Cost of Equity Component - Multi-Stage Earnings Growth Model



Indi

cate

d G

row

th R

ate



LP-10

4.70% ANDX BPL EPD MMP NS PAA PSXP2.30%

5.50% -3.00% 8.00% 9.00% 2.30% 1.50% 18.50%5.20% -0.14% 6.78% 7.40% 3.19% 2.69% 13.38%

Year Weight1 30 0.0550 (0.0300) 0.0800 0.0900 0.0230 0.0150 0.1850 2 29 0.0550 (0.0300) 0.0800 0.0900 0.0230 0.0150 0.1850 3 28 0.0550 (0.0300) 0.0800 0.0900 0.0230 0.0150 0.1850 4 27 0.0550 (0.0300) 0.0800 0.0900 0.0230 0.0150 0.1850 5 26 0.0550 (0.0300) 0.0800 0.0900 0.0230 0.0150 0.1850 6 25 0.0545 (0.0252) 0.0779 0.0873 0.0245 0.0170 0.1764 7 24 0.0540 (0.0204) 0.0759 0.0846 0.0260 0.0190 0.1678 8 23 0.0535 (0.0156) 0.0738 0.0819 0.0275 0.0210 0.1591 9 22 0.0530 (0.0108) 0.0718 0.0793 0.0290 0.0230 0.1505

10 21 0.0525 (0.0059) 0.0697 0.0766 0.0305 0.0250 0.1419 11 20 0.0520 (0.0011) 0.0676 0.0739 0.0320 0.0270 0.1333 12 19 0.0515 0.0037 0.0656 0.0712 0.0335 0.0290 0.1246 13 18 0.0510 0.0085 0.0635 0.0685 0.0350 0.0310 0.1160 14 17 0.0505 0.0133 0.0614 0.0658 0.0365 0.0330 0.1074 15 16 0.0500 0.0181 0.0594 0.0631 0.0380 0.0350 0.0988 16 15 0.0495 0.0229 0.0573 0.0604 0.0395 0.0370 0.0901 17 14 0.0490 0.0278 0.0553 0.0578 0.0410 0.0390 0.0815 18 13 0.0485 0.0326 0.0532 0.0551 0.0425 0.0410 0.0729 19 12 0.0480 0.0374 0.0511 0.0524 0.0440 0.0430 0.0643 20 11 0.0475 0.0422 0.0491 0.0497 0.0455 0.0450 0.0556 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470

Support for Yield Capitalization Cost of Equity Component - Multi-Stage Dividend Growth Model



Indi

cate

d G

row

th R

ate



LP-11

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term



Andeavor Logistics LP ANDX PIPEMLP B+ Ba1 11Buckeye Partners L.P. BPL PIPEMLP B+ Baa3 10Enterprise Products EPD PIPEMLP B++Magellan Midstream MMP PIPEMLP B++ Baa1 8NuStar Energy L.P. NS PIPEMLP B Ba2 12Plains All Amer. Pipe. PAA PIPEMLP B+ Ba1 11Phillips 66 Partners PSXP PIPEMLP B++ Baa3 10All Companies


Say Baa3-Ba1 10-11



LP-12


CompanyTicker

Symbol

End of Year

Closing Stock Price



VL Est P/E Ratio






VL Est P/CF Ratio


Ke Estimate -Cash Flow (Est. P/CF)

Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/MAndeavor Logistics LP ANDX 32.49 2.56 2.70 12.69 12.03 7.88% 8.31% 3.02 3.95 10.76 8.23 9.30% 12.16%Buckeye Partners L.P. BPL 28.99 (0.41) 2.85 10.17 9.83% 5.10 4.90 5.68 5.92 17.59% 16.90%Enterprise Products EPD 24.59 1.91 2.05 12.87 12.00 7.77% 8.34% 2.06 2.70 11.94 9.11 8.38% 10.98%Magellan Midstream MMP 57.06 5.84 4.25 9.77 13.43 10.23% 7.45% 4.68 7.00 12.19 8.15 8.20% 12.27%NuStar Energy L.P. NS 20.93 (2.50) 0.00 3.74 0.00 5.60 17.87%Plains All Amer. Pipe. PAA 20.04 2.65 2.00 7.56 10.02 13.22% 9.98% 2.04 3.35 9.82 5.98 10.18% 16.72%Phillips 66 Partners PSXP 42.11 4.00 4.35 10.53 9.68 9.50% 10.33% 4.58 7.30 9.19 5.77 10.88% 17.34%


Say



9.25% 12.80%

LP-13

A B C D E F G H I J K2018 YE 2017 YE 2017 YE 2018 YE 2018 2018 Avg 2018 2018 Avg

Company Ticker Interest Exp. MV LT Debt BV LT Debt MV LT Debt BV LT Debt MV LT Debt Current Yield BV LT Debt MTBRSource 10-K 10-K 10-K 10-K 10-K (D+F)/2 (C/H) (E+G)/2 (H/J)

($000) ($000) ($000) ($000) ($000) ($000) ($000)Andeavor Logistics LP ANDX 233,000 4,300,000 4,200,000 4,900,000 5,000,000 4,600,000 5.07% 4,600,000 1.00 Buckeye Partners L.P. BPL 190,172 5,053,240 4,910,525 4,536,877 4,714,442 4,795,059 3.97% 4,812,484 1.00 Enterprise Products EPD 1,096,700 23,470,000 21,480,000 25,970,000 26,150,000 24,720,000 4.44% 23,815,000 1.04 Magellan Midstream MMP 220,979 4,826,480 4,524,492 4,224,373 4,270,869 4,525,427 4.88% 4,397,681 1.03 NuStar Energy L.P. NS 186,237 3,677,622 3,613,059 3,056,704 3,111,996 3,367,163 5.53% 3,362,528 1.00 Plains All Amer. Pipe. PAA 431,000 9,100,000 9,000,000 8,600,000 9,000,000 8,850,000 4.87% 9,000,000 0.98 Phillips 66 Partners PSXP 115,000 3,018,000 2,975,000 2,860,000 3,075,000 2,939,000 3.91% 3,025,000 0.97 All Companies 2,473,088 53,796,648 4.60% 53,012,692 1.01

Average 4.67% 1.00 Median 4.87% 1.00 Trimmed Average 4.64% 1.00 High 5.53% 1.04 Low 3.91% 0.97

Say 4.90% 1.00



Support for Direct Capitalization Cost of Debt Component - Calculated Current YieldIndustry: Liquid Pipelines

LP-14


End of Year

Closing4th Qtr


ANDX Andeavor Logistics LP high 55.21$ 52.63$ 48.00$ 49.90$ 46.20$ 45.08$ 45.60$ 50.63$ 50.82$ 50.00$ 41.93$ 39.00$ 32.49$ $39.48 $44.62low 45.83$ 46.35$ 42.17$ 41.27$ 40.66$ 41.37$ 40.88$ 43.86$ 47.67$ 39.17$ 35.28$ 31.49$

BPL Buckeye Partners L.P. high 57.19$ 54.34$ 45.98$ 42.68$ 42.35$ 38.50$ 36.60$ 40.41$ 38.64$ 37.36$ 35.99$ 30.57$ 28.99$ $31.70 $38.50low 49.65$ 44.70$ 35.24$ 36.32$ 35.63$ 34.51$ 32.03$ 34.10$ 34.93$ 31.41$ 29.18$ 25.71$

EPD Enterprise Products high 29.51$ 28.25$ 26.39$ 27.45$ 28.99$ 29.65$ 30.05$ 29.79$ 29.56$ 29.44$ 27.85$ 27.19$ 24.59$ $26.53 $27.27low 26.36$ 25.30$ 23.10$ 23.78$ 26.19$ 26.96$ 27.20$ 28.39$ 28.42$ 25.85$ 25.52$ 23.33$

MMP Magellan Midstream high 75.82$ 71.94$ 64.73$ 67.40$ 70.20$ 71.00$ 72.04$ 72.90$ 69.40$ 69.44$ 64.11$ 62.30$ 57.06$ $61.58 $66.00low 70.86$ 62.36$ 54.82$ 56.42$ 65.48$ 67.33$ 66.60$ 67.94$ 67.29$ 60.06$ 59.34$ 54.25$

NS NuStar Energy L.P. high 35.91$ 33.93$ 23.79$ 22.51$ 24.61$ 26.31$ 26.55$ 29.12$ 28.04$ 29.00$ 26.80$ 25.72$ 20.93$ $24.46 $25.20low 29.89$ 21.72$ 19.22$ 19.57$ 20.37$ 22.48$ 22.28$ 25.33$ 26.40$ 22.59$ 22.85$ 19.81$

PAA Plains All Amer. Pipe. high 24.13$ 23.03$ 23.36$ 25.95$ 25.09$ 26.38$ 25.13$ 27.70$ 26.36$ 26.14$ 24.56$ 23.85$ 20.04$ $22.64 $23.40low 20.50$ 19.80$ 20.47$ 21.19$ 22.46$ 23.26$ 22.68$ 24.52$ 23.82$ 21.32$ 20.66$ 19.34$

PSXP Phillips 66 Partners high 56.48$ 54.59$ 52.31$ 53.58$ 52.77$ 54.20$ 55.00$ 54.94$ 53.40$ 53.63$ 50.18$ 48.35$ $42.11 $47.90 $50.50low 51.39$ 47.14$ 45.51$ 46.50$ 47.72$ 49.62$ 49.56$ 50.94$ 48.81$ 48.79$ 45.72$ 40.76$



LP-15

Railroads



FINAL

Capital StructureEquity 77.00% Page RR-4Debt 23.00% Page RR-4

Equity Cost of Capital Capital Asset Pricing Model 9.95% Page RR-5Dividend Growth Model (g = Earnings Growth) 12.50% Page RR-9Dividend Growth Model (g = Dividends Growth) 9.40% Page RR-9

10.25%

Debt Cost of Capital MTDOR Cost of Debt Study:


5.13%

Source of CapitalCapital

Structure Cost of CapitalMarginal Tax

RateAfter-tax Cost

of Capital Weighted CostEquity 77.00% 10.25% 10.25% 7.89%Debt 23.00% 5.13% 24.00% 3.90% 0.90%WACC 100.00% 8.79%


Railroads - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: Railroads



RR-2

Capital StructureEquity 77.00% Page RR-4Debt 23.00% Page RR-4

Equity Cost of Capital NOI After-tax 6.60% Page RR-13GCF 8.30% Page RR-13

Debt Cost of Capital Calculated Current Yield 4.50% Page RR-14

Source of Capital


Marginal Tax Rate




Source of Capital


Marginal Tax Rate


Equity 77.00% 8.30% 8.30% 6.39%Debt 23.00% 4.50% 24.00% 3.42% 0.79%WACC 100.00% 7.18%


Railroads - GCF Direct Capitalization Rate




Railroads - NOI After-tax Direct Capitalization Rate

RR-3


CompanyTicker


Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common Stock

MV Preferred Stock*

MV Long Term Debt

PV of Operating

Leases


% Preferred

% Debt & OpLeases

Value Line Value Line 10-K Yahoo ExF Value Line 10-K 10-K G+H+I+J G/K H/K (I+J)/K(000) ($000) ($000) ($000) ($000) ($000)

Can. Pacific Railway** CP RAILROAD B++ 140,500 177.62 24,955,610 0 7,065,387 208,887 32,229,884 77% 0% 23%CSX Corp. CSX RAILROAD B++ 815,630 62.13 50,675,115 0 14,914,000 798,752 66,387,867 76% 0% 24%Genesee & Wyoming GWR RAILROAD B+ 56,866 74.02 4,209,256 0 2,468,506 492,049 7,169,811 59% 0% 41%Kansas City South'n KSU RAILROAD A 100,897 95.45 9,630,588 5,700 2,661,300 176,420 12,474,008 77% 0% 23%Norfolk Southern NSC RAILROAD A+ 268,098 149.54 40,091,446 0 12,203,000 561,163 52,855,608 76% 0% 24%Union Pacific UNP RAILROAD A++ 725,057 138.23 100,224,586 0 21,900,000 2,139,568 124,264,154 81% 0% 19%All Companies 229,786,600 5,700 61,212,193 4,376,838 295,381,332 78% 0% 22%

Average 74% 0% 26%Median 77% 0% 23%Trimmed Average 77% 0% 23%High 81% 0% 41%Low 59% 0% 19%Say 77% 23%

*Market value of preferred stock is assumed to equal book value.**CAD converted to USD 1 CAD=.7330 USD at 12/31/18 http://www.bankofcanada.ca/rates/exchange/legacy-noon-and-closing-rates/usd-can-summary/ YE 2018 77% 0% 23%

YE 2017 77% 0% 23%YE 2016 73% 0% 27%

Notes/Rational for Changes to Guideline Companies 3YR AVG 76% 24%

Prior 2YR AVG 75% 0% 25%


Industry: Railroads2019 Assessment Year

RR-4



The Value Line Investment Survey: Selection & Opinion 1


10-year 2.81%30-year 3.06%

Federal Reserve Statistical Release2 and U.S. Department of the Treasury, Daily Treasury Yield Curve Rates 3



1






RR-5










Rm4 Rm Rf ERP



4 R m estimated using selected Risk Free Rate (Rf )

RR-6




Inflation (CPI)

Real Growth (GDP)




Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000



7 Congressional Budget Office Real GDP Economic Projections Table 1-1 pg 10 The Budget and Economic Outlook 2018-2022 2.0% Average Percentage Changehttps://www.cbo.gov/publication/53651

8 Social Security AdministrationOASDI Trustee Report", Board of Trustees of the Federal Old-Age Survivors Insurance and Federal Disability Insurance Trust Fundhttps://www.ssa.gov/oact/TR/2018/tr2018.pdf


105.935107.948110.389

Year

98.118100

101.755103.68

104.789

95.00496.111

Nominal Growth



RR-7

A B C D E

CompanyTicker



Value Line Value Line Value LineCan. Pacific Railway CP RAILROAD B++ 1.20 CSX Corp. CSX RAILROAD B++ 1.20 Genesee & Wyoming GWR RAILROAD B+ 1.45 Kansas City South'n KSU RAILROAD A 1.10 Norfolk Southern NSC RAILROAD A+ 1.15 Union Pacific UNP RAILROAD A++ 1.15

Average 1.21 Median 1.18 Trimmed Average 1.18High 1.45 Low 1.10 Say 1.18




RR-8



Company Name Ticker

End of Year Closing

Stock Price 2019 Est Dividend

Dividend Yield


2019 Est Payout Ratio

Retention Ratio

2018 Est Return on

Equity


Estimate


Growth Estimate

Sustainable Growth*

Cost of Equity

Cost of Equity

Cost of Equity

P 0 D 1 D 1 /P 0 EPS D 1 /EPSb =


Earnings gg =

Dividends gg =

b x ROEK e

g = Earnings g

K e

g = Dividends g

K e

g = b x ROE


WrkshtMulti Stg g

Wrksht H*I E+J E+K E+LCan. Pacific Railway CP 177.62 2.04 1.15% 12.60 16.19% 83.81% 31.50% 9.61% 9.92% 26.40% 10.75% 11.07% 27.55%CSX Corp. CSX 62.13 0.96 1.55% 4.25 22.59% 77.41% 29.00% 12.12% 7.72% 22.45% 13.67% 9.26% 23.99%Genesee & Wyoming GWR 74.02 0.00 0.00% 4.50 0.00% 100.00% 7.00% 8.98% 1.74% 7.00%Kansas City South'n KSU 95.45 1.60 1.68% 6.90 23.19% 76.81% 13.00% 9.29% 6.78% 9.99% 10.97% 8.45% 11.66%Norfolk Southern NSC 149.54 3.44 2.30% 10.20 33.73% 66.27% 17.50% 10.24% 7.09% 11.60% 12.54% 9.39% 13.90%Union Pacific UNP 138.23 3.52 2.55% 9.00 39.11% 60.89% 36.00% 10.86% 8.35% 21.92% 13.41% 10.89% 24.47%


Say 12.50% 9.40% 24.00%

Ke = (D1 / P0) + g


Support for Yield Capitalization Cost of Equity Component - Based on Dividend Growth ModelIndustry: Railroads


RR-9

4.70% CP CSX GWR KSU NSC UNP2.30%

12.50% 16.50% 11.50% 12.00% 13.50% 14.50%9.61% 12.12% 8.98% 9.29% 10.24% 10.86%

Year Weight1 30 0.1250 0.1650 0.1150 0.1200 0.1350 0.1450 2 29 0.1250 0.1650 0.1150 0.1200 0.1350 0.1450 3 28 0.1250 0.1650 0.1150 0.1200 0.1350 0.1450 4 27 0.1250 0.1650 0.1150 0.1200 0.1350 0.1450 5 26 0.1250 0.1650 0.1150 0.1200 0.1350 0.1450 6 25 0.1201 0.1576 0.1108 0.1154 0.1295 0.1389 7 24 0.1153 0.1503 0.1065 0.1109 0.1240 0.1328 8 23 0.1104 0.1429 0.1023 0.1063 0.1185 0.1266 9 22 0.1055 0.1355 0.0980 0.1018 0.1130 0.1205

10 21 0.1006 0.1281 0.0938 0.0972 0.1075 0.1144 11 20 0.0958 0.1208 0.0895 0.0926 0.1020 0.1083 12 19 0.0909 0.1134 0.0853 0.0881 0.0965 0.1021 13 18 0.0860 0.1060 0.0810 0.0835 0.0910 0.0960 14 17 0.0811 0.0986 0.0768 0.0789 0.0855 0.0899 15 16 0.0763 0.0913 0.0725 0.0744 0.0800 0.0838 16 15 0.0714 0.0839 0.0683 0.0698 0.0745 0.0776 17 14 0.0665 0.0765 0.0640 0.0653 0.0690 0.0715 18 13 0.0616 0.0691 0.0598 0.0607 0.0635 0.0654 19 12 0.0568 0.0618 0.0555 0.0561 0.0580 0.0593 20 11 0.0519 0.0544 0.0513 0.0516 0.0525 0.0531 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470


Indi

cate

d G

row

th R

ate


Support for Yield Capitalization Cost of Equity Component - Multi-Stage Earnings Growth ModelIndustry: Railroads



RR-10

4.70% CP CSX GWR KSU NSC UNP2.30%

13.00% 9.50% 0.00% 8.00% 8.50% 10.50%9.92% 7.72% 1.74% 6.78% 7.09% 8.35%

Year Weight1 30 0.1300 0.0950 - 0.0800 0.0850 0.1050 2 29 0.1300 0.0950 - 0.0800 0.0850 0.1050 3 28 0.1300 0.0950 - 0.0800 0.0850 0.1050 4 27 0.1300 0.0950 - 0.0800 0.0850 0.1050 5 26 0.1300 0.0950 - 0.0800 0.0850 0.1050 6 25 0.1248 0.0920 0.0029 0.0779 0.0826 0.1014 7 24 0.1196 0.0890 0.0059 0.0759 0.0803 0.0978 8 23 0.1144 0.0860 0.0088 0.0738 0.0779 0.0941 9 22 0.1093 0.0830 0.0118 0.0718 0.0755 0.0905

10 21 0.1041 0.0800 0.0147 0.0697 0.0731 0.0869 11 20 0.0989 0.0770 0.0176 0.0676 0.0708 0.0833 12 19 0.0937 0.0740 0.0206 0.0656 0.0684 0.0796 13 18 0.0885 0.0710 0.0235 0.0635 0.0660 0.0760 14 17 0.0833 0.0680 0.0264 0.0614 0.0636 0.0724 15 16 0.0781 0.0650 0.0294 0.0594 0.0613 0.0688 16 15 0.0729 0.0620 0.0323 0.0573 0.0589 0.0651 17 14 0.0678 0.0590 0.0353 0.0553 0.0565 0.0615 18 13 0.0626 0.0560 0.0382 0.0532 0.0541 0.0579 19 12 0.0574 0.0530 0.0411 0.0511 0.0518 0.0543 20 11 0.0522 0.0500 0.0441 0.0491 0.0494 0.0506 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470


Indi

cate

d G

row

th R

ate


Support for Yield Capitalization Cost of Equity Component - Multi-Stage Dividend Growth ModelIndustry: Railroads



RR-11

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term



Can. Pacific Railway CP RAILROAD B++ Baa1 8CSX Corp. CSX RAILROAD B++ Baa1 8Genesee & Wyoming GWR RAILROAD B+ Ba2 12Kansas City South'n KSU RAILROAD A Baa2 9Norfolk Southern NSC RAILROAD A+ Baa1 8Union Pacific UNP RAILROAD A++ Baa1 8All Companies

Average 9Median 8Trimmed Average 8High 12Low 8Say Baa1 8



RR-12


CompanyTicker

Symbol

End of Year

Closing Stock Price



VL Est P/E Ratio






VL Est P/CF Ratio

Ke Estimate -

Cash Flow (Hist. P/CF)

Ke Estimate -

Cash Flow (Est. P/CF)

Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/MCan. Pacific Railway CP 177.62 11.08 12.60 16.03 14.10 6.24% 7.09% 12.37 14.65 14.36 12.12 6.96% 8.25%CSX Corp. CSX 62.13 3.85 4.25 16.14 14.62 6.20% 6.84% 3.80 5.60 16.35 11.09 6.12% 9.01%Genesee & Wyoming GWR 74.02 3.85 4.50 19.23 16.45 5.20% 6.08% 6.90 8.55 10.73 8.66 9.32% 11.55%Kansas City South'n KSU 95.45 6.04 6.90 15.80 13.83 6.33% 7.23% 9.55 10.65 9.99 8.96 10.01% 11.16%Norfolk Southern NSC 149.54 9.52 10.20 15.71 14.66 6.37% 6.82% 10.39 13.95 14.39 10.72 6.95% 9.33%Union Pacific UNP 138.23 7.93 9.00 17.43 15.36 5.74% 6.51% 8.64 11.20 16.00 12.34 6.25% 8.10%


Say



6.60% 8.30%

RR-13



($000) ($000) ($000) ($000) ($000) ($000) ($000)Can. Pacific Railway CP 453,000 9,680,000 8,159,000 9,639,000 8,696,000 9,659,500 4.69% 8,427,500 1.15 CSX Corp. CSX 639,000 13,220,000 11,809,000 14,914,000 14,757,000 14,067,000 4.54% 13,283,000 1.06 Genesee & Wyoming GWR 107,719 2,354,884 2,331,295 2,468,506 2,453,538 2,411,695 4.47% 2,392,417 1.01 Kansas City South'n KSU 110,000 2,377,800 2,274,300 2,661,300 2,689,400 2,519,550 4.37% 2,481,850 1.02 Norfolk Southern NSC 557,000 11,771,000 9,736,000 12,203,000 11,145,000 11,987,000 4.65% 10,440,500 1.15 Union Pacific UNP 870,000 18,200,000 16,900,000 21,900,000 22,400,000 20,050,000 4.34% 19,650,000 1.02 Average 4.51% 1.07 Median 4.50% 1.04 Trimmed Average 4.51% 1.06 High 4.69% 1.15 Low 4.34% 1.01

Say 4.50% 1.04


MONTANA DEPARTMENT OF REVENUESupport for Direct Capitalization Cost of Debt Component - Calculated Current Yield

Industry: Railroads

RR-14

Ticker Name Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18End of Year

Closing4th Qtr Average

Annual Average

CP Can. Pacific Railway high 188.75$ 188.80$ 181.68$ 187.21$ 193.37$ 196.34$ 198.68$ 211.44$ 213.77$ 224.19$ 213.72$ 217.66$ 177.62$ 202.12$ 191.45$ low 178.77$ 166.36$ 171.56$ 171.96$ 176.32$ 177.69$ 178.34$ 197.09$ 203.90$ 192.41$ 197.28$ 167.48$

CSX CSX Corp. high 60.04$ 57.10$ 58.40$ 61.50$ 65.93$ 67.69$ 72.22$ 76.24$ 74.91$ 75.66$ 73.61$ 73.90$ 62.13$ 68.98$ 64.36$ low 55.02$ 48.43$ 53.13$ 53.53$ 57.97$ 62.72$ 63.23$ 70.09$ 72.69$ 63.65$ 68.58$ 58.47$

GWR Genesee & Wyoming high 84.40$ 80.22$ 75.58$ 73.60$ 80.27$ 82.97$ 86.11$ 90.19$ 92.59$ 92.91$ 83.77$ 85.51$ 74.02$ 80.32$ 79.51$ low 78.75$ 67.61$ 68.07$ 67.61$ 69.07$ 77.68$ 80.47$ 84.69$ 86.52$ 74.46$ 77.02$ 68.27$

KSU Kansas City South'n high 114.75$ 114.00$ 112.15$ 114.91$ 112.87$ 111.00$ 117.79$ 120.34$ 120.21$ 117.20$ 104.93$ 105.71$ 95.45$ 101.90$ 108.27$ low 105.22$ 99.47$ 101.62$ 106.07$ 104.43$ 103.30$ 103.98$ 111.96$ 112.94$ 97.46$ 95.54$ 90.55$

NSC Norfolk Southern high 157.15$ 150.35$ 145.99$ 147.84$ 155.53$ 158.58$ 172.81$ 177.08$ 186.91$ 185.51$ 174.65$ 175.46$ 149.54$ 165.07$ 156.43$ low 144.83$ 131.81$ 131.81$ 127.79$ 138.34$ 147.22$ 149.89$ 166.76$ 173.17$ 155.00$ 161.17$ 138.65$

UNP Union Pacific high 143.05$ 139.86$ 140.25$ 141.10$ 147.07$ 148.33$ 151.50$ 153.72$ 165.63$ 164.98$ 154.37$ 159.63$ 138.23$ 147.31$ 142.53$ low 131.82$ 121.22$ 125.31$ 126.37$ 129.45$ 138.87$ 136.66$ 147.00$ 149.71$ 135.81$ 140.97$ 128.08$




RR-15

Electric Utilities



FINAL

Capital StructureEquity 60.00% Page EU-5Debt 40.00% Page EU-5

Equity Cost of Capital Capital Asset Pricing Model 6.47% Page EU-6Dividend Growth Model (g = Earnings Growth) 9.10% Page EU-10Dividend Growth Model (g = Dividend Growth) 8.80% Page EU-10Dividend Growth Model (g = b x ROE) 6.90% Page EU-10

7.50%



5.13%

Source of Capital


Marginal Tax Rate



Electric Utilities - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: Electric Utilities



EU-2


Equity Cost of Capital NOI After-tax 5.35% Page EU-14GCF 11.50% Page EU-14

Debt Cost of CapitalCalculated Current Yield 4.45% Page EU-15

Source of Capital


Marginal Tax Rate


Equity 60.00% 5.35% 5.35% 3.21%Debt 40.00% 4.45% 4.45% 1.78%Total 100.00% 4.99%


Source of Capital


Marginal Tax Rate


Equity 60.00% 11.50% 11.50% 6.90%Debt 40.00% 4.45% 4.45% 1.78%WACC 100.00% 8.68%


Electric Utilities - GCF Direct Capitalization Rate - If Using Regulatory Tax Str.




Electric Utilities - NOI After-tax Direct Capitalization Rate - If Using Regulatory Tax Str.

EU-3


Equity Cost of Capital NOI After-tax 5.35% Page EU-14GCF 11.50% Page EU-14

Debt Cost of CapitalCalculated Current Yield 4.45% Page EU-15

Source of Capital


Marginal Tax Rate




Source of Capital


Marginal Tax Rate


Equity 60.00% 11.50% 11.50% 6.90%Debt 40.00% 4.45% 24.00% 3.38% 1.35%WACC 100.00% 8.25%


Electric Utilities - GCF Direct Capitalization Rate - If Using Marginal Tax

MONTANA DEPARTMENT OF REVENUEDirect Capitalization Rate Study

Industry: Electric Utilities2019 Assessment Year

Electric Utilities - NOI After-tax Direct Capitalization Rate - If Using Marginal Tax

EU-4


CompanyTicker


Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common Stock

MV Preferred Stock*

MV Long Term Debt

PV of Operating

Leases


% Preferred

% Debt & OpLeases


Alliant Energy LNT UTILCENT A 236,063 42.25 9,973,674 200,000 5,860,800 24,337 16,058,810 62% 1% 37%Black Hills BKH UTILWEST A 60,049 62.78 3,769,849 0 3,039,108 3,290 6,812,247 55% 0% 45%IDACORP Inc. IDA UTILWEST A 50,420 93.06 4,692,085 0 1,942,773 36,818 6,671,676 70% 0% 30%NorthWestern Corp. NWE UTILWEST B++ 53,889 59.44 3,203,187 0 2,117,912 0 5,321,099 60% 0% 40%OGE Energy OGE UTILCENT A 199,700 39.19 7,826,243 0 3,322,300 0 11,148,543 70% 0% 30%Pinnacle West Capital PNW UTILWEST A+ 112,160 85.20 9,556,023 0 5,233,563 71,051 14,860,637 64% 0% 36%PNM Resources PNM UTILWEST B+ 79,654 41.09 3,272,967 11,529 2,939,710 151,883 6,376,090 51% 0% 48%Portland General POR UTILWEST B++ 89,268 45.85 4,092,936 0 2,760,000 71,553 6,924,489 59% 0% 41%Xcel Energy Inc. XEL UTILWEST A+ 514,037 49.27 25,326,592 0 16,755,000 1,680,905 43,762,498 58% 0% 42%All Companies 71,713,556 211,529 43,971,166 2,039,838 117,936,089 61% 0% 39%


Say 60% 40%


Notes/Rational for Changes to Guideline Companies YE 2017 63% 0% 37%2019 - Removed GXP from guideline companies; merged with Westar in June of 2018 YE 2016 57% 0% 41%2019 - Removed AVA. Too volatile during potential acquisition. 3YR AVG 60% 39%



EU-5



The Value Line Investment Survey: Selection & Opinion 1


10-year 2.81%30-year 3.06%

Federal Reserve Statistical Release2 and U.S. Department of the Treasury, Daily Treasury Yield Curve Rates 3



1



k e = R f + β x ERP2019 Assessment Year

Industry: Electric UtilitiesCapital Asset Pricing Model (CAPM)


EU-6




Equity Risk Premium Measures (ERP = Rm - Rf)







Rm4 Rm Rf ERP



4 R m estimated using selected Risk Free Rate (Rf )

EU-7




Inflation and Growth Estimates

Inflation (CPI)

Real Growth (GDP)




Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000



7 Congressional Budget Office Real GDP Economic Projections Table 1-1 pg 10 The Budget and Economic Outlook 2018-2022 2.0% Average Percentage Changehttps://www.cbo.gov/publication/53651

8 Social Security AdministrationOASDI Trustee Report", Board of Trustees of the Federal Old-Age Survivors Insurance and Federal Disability Insurance Trust Fundhttps://www.ssa.gov/oact/TR/2018/tr2018.pdf




100

Nominal Growth

Year

95.00496.11198.118

110.389

101.755103.68

104.789105.935107.948

EU-8

A B C D E

CompanyTicker



Value Line Value Line Value LineAlliant Energy LNT UTILCENT A 0.65Black Hills BKH UTILWEST A 0.80IDACORP Inc. IDA UTILWEST A 0.60NorthWestern Corp. NWE UTILWEST B++ 0.60OGE Energy OGE UTILCENT A 0.85Pinnacle West Capital PNW UTILWEST A+ 0.55PNM Resources PNM UTILWEST B+ 0.65Portland General POR UTILWEST B++ 0.60Xcel Energy Inc. XEL UTILWEST A+ 0.50


Say 0.60




EU-9



Company Name Ticker

End of Year

Closing Stock Price

2019 Est Dividend

Dividend Yield



Retention Ratio

2019 Est Return on

Equity


Estimate


Growth Estimate

Sustainable Growth*

Cost of Equity Cost of Equity

Cost of Equity

P 0 D 1 D 1 /P 0 EPS D 1 /EPSb =


Earnings gg =

Dividends gg =

b x ROEK e

g = Earnings gK e

g = Dividends gK e

g = b x ROE


WrkshtMulti Stg g

Wrksht H*I E+J E+K E+LAlliant Energy LNT 42.25 1.42 3.36% 2.25 63.11% 36.89% 10.00% 5.83% 5.20% 3.69% 9.19% 8.56% 7.05%Black Hills BKH 62.78 2.05 3.27% 3.45 59.42% 40.58% 9.00% 5.83% 5.52% 3.65% 9.10% 8.78% 6.92%IDACORP Inc. IDA 93.06 2.56 2.75% 4.55 56.26% 43.74% 9.50% 4.57% 5.83% 4.15% 7.33% 8.58% 6.91%NorthWestern Corp. NWE 59.44 2.30 3.87% 3.50 65.71% 34.29% 9.00% 3.32% 4.57% 3.09% 7.19% 8.44% 6.96%OGE Energy OGE 39.19 1.54 3.93% 2.15 71.63% 28.37% 10.50% 5.83% 6.46% 2.98% 9.76% 10.39% 6.91%PNM Resources PNM 41.09 1.18 2.87% 2.15 54.88% 45.12% 9.00% 6.46% 6.15% 4.06% 9.33% 9.02% 6.93%Pinnacle West Capital PNW 85.20 3.04 3.57% 4.85 62.68% 37.32% 9.50% 5.52% 5.52% 3.55% 9.09% 9.09% 7.11%Portland General POR 45.85 1.52 3.32% 2.50 60.80% 39.20% 8.50% 4.26% 5.52% 3.33% 7.57% 8.83% 6.65%Xcel Energy Inc. XEL 49.27 1.60 3.25% 2.60 61.54% 38.46% 10.50% 5.20% 5.20% 4.04% 8.45% 8.45% 7.29%


Say 9.10% 8.80% 6.90%

Ke = (D1 / P0) + g

MONTANA DEPARTMENT OF REVENUESupport for Yield Capitalization Cost of Equity Component - Based on Dividend Growth Model


EU-10

4.70% LNT BKH IDA NWE OGE PNW PNM POR XEL2.30%

6.50% 6.50% 4.50% 2.50% 6.50% 6.00% 7.50% 4.00% 5.50%5.83% 5.83% 4.57% 3.32% 5.83% 5.52% 6.46% 4.26% 5.20%

Year Weight1 30 0.0650 0.0650 0.0450 0.0250 0.0650 0.0600 0.0750 0.0400 0.0550 2 29 0.0650 0.0650 0.0450 0.0250 0.0650 0.0600 0.0750 0.0400 0.0550 3 28 0.0650 0.0650 0.0450 0.0250 0.0650 0.0600 0.0750 0.0400 0.0550 4 27 0.0650 0.0650 0.0450 0.0250 0.0650 0.0600 0.0750 0.0400 0.0550 5 26 0.0650 0.0650 0.0450 0.0250 0.0650 0.0600 0.0750 0.0400 0.0550 6 25 0.0639 0.0639 0.0451 0.0264 0.0639 0.0592 0.0733 0.0404 0.0545 7 24 0.0628 0.0628 0.0453 0.0278 0.0628 0.0584 0.0715 0.0409 0.0540 8 23 0.0616 0.0616 0.0454 0.0291 0.0616 0.0576 0.0698 0.0413 0.0535 9 22 0.0605 0.0605 0.0455 0.0305 0.0605 0.0568 0.0680 0.0418 0.0530

10 21 0.0594 0.0594 0.0456 0.0319 0.0594 0.0559 0.0663 0.0422 0.0525 11 20 0.0583 0.0583 0.0458 0.0333 0.0583 0.0551 0.0645 0.0426 0.0520 12 19 0.0571 0.0571 0.0459 0.0346 0.0571 0.0543 0.0628 0.0431 0.0515 13 18 0.0560 0.0560 0.0460 0.0360 0.0560 0.0535 0.0610 0.0435 0.0510 14 17 0.0549 0.0549 0.0461 0.0374 0.0549 0.0527 0.0593 0.0439 0.0505 15 16 0.0538 0.0538 0.0463 0.0388 0.0538 0.0519 0.0575 0.0444 0.0500 16 15 0.0526 0.0526 0.0464 0.0401 0.0526 0.0511 0.0558 0.0448 0.0495 17 14 0.0515 0.0515 0.0465 0.0415 0.0515 0.0503 0.0540 0.0453 0.0490 18 13 0.0504 0.0504 0.0466 0.0429 0.0504 0.0494 0.0523 0.0457 0.0485 19 12 0.0493 0.0493 0.0468 0.0443 0.0493 0.0486 0.0505 0.0461 0.0480 20 11 0.0481 0.0481 0.0469 0.0456 0.0481 0.0478 0.0488 0.0466 0.0475 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470


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EU-11

4.70% LNT BKH IDA NWE OGE PNW PNM POR XEL2.30%

5.50% 6.00% 6.50% 4.50% 7.50% 6.00% 7.00% 6.00% 5.50%5.20% 5.52% 5.83% 4.57% 6.46% 5.52% 6.15% 5.52% 5.20%

Year Weight1 30 0.0550 0.0600 0.0650 0.0450 0.0750 0.0600 0.0700 0.0600 0.0550 2 29 0.0550 0.0600 0.0650 0.0450 0.0750 0.0600 0.0700 0.0600 0.0550 3 28 0.0550 0.0600 0.0650 0.0450 0.0750 0.0600 0.0700 0.0600 0.0550 4 27 0.0550 0.0600 0.0650 0.0450 0.0750 0.0600 0.0700 0.0600 0.0550 5 26 0.0550 0.0600 0.0650 0.0450 0.0750 0.0600 0.0700 0.0600 0.0550 6 25 0.0545 0.0592 0.0639 0.0451 0.0733 0.0592 0.0686 0.0592 0.0545 7 24 0.0540 0.0584 0.0628 0.0453 0.0715 0.0584 0.0671 0.0584 0.0540 8 23 0.0535 0.0576 0.0616 0.0454 0.0698 0.0576 0.0657 0.0576 0.0535 9 22 0.0530 0.0568 0.0605 0.0455 0.0680 0.0568 0.0643 0.0568 0.0530

10 21 0.0525 0.0559 0.0594 0.0456 0.0663 0.0559 0.0628 0.0559 0.0525 11 20 0.0520 0.0551 0.0583 0.0458 0.0645 0.0551 0.0614 0.0551 0.0520 12 19 0.0515 0.0543 0.0571 0.0459 0.0628 0.0543 0.0599 0.0543 0.0515 13 18 0.0510 0.0535 0.0560 0.0460 0.0610 0.0535 0.0585 0.0535 0.0510 14 17 0.0505 0.0527 0.0549 0.0461 0.0593 0.0527 0.0571 0.0527 0.0505 15 16 0.0500 0.0519 0.0538 0.0463 0.0575 0.0519 0.0556 0.0519 0.0500 16 15 0.0495 0.0511 0.0526 0.0464 0.0558 0.0511 0.0542 0.0511 0.0495 17 14 0.0490 0.0503 0.0515 0.0465 0.0540 0.0503 0.0528 0.0503 0.0490 18 13 0.0485 0.0494 0.0504 0.0466 0.0523 0.0494 0.0513 0.0494 0.0485 19 12 0.0480 0.0486 0.0493 0.0468 0.0505 0.0486 0.0499 0.0486 0.0480 20 11 0.0475 0.0478 0.0481 0.0469 0.0488 0.0478 0.0484 0.0478 0.0475 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470


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Support for Yield Capitalization Cost of Equity Component - Multi-Stage Dividend Growth ModelIndustry: Electric Utilities



EU-12

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term



Alliant Energy LNT UTILCENT A Baa1 8Black Hills BKH UTILWEST A Baa2 9IDACORP Inc. IDA UTILWEST A Baa1 8NorthWestern Corp. NWE UTILWEST B++ A3 7OGE Energy OGE UTILCENT A Baa1 8Pinnacle West Capital PNW UTILWEST A+ A3 7PNM Resources PNM UTILWEST B+ Baa3 10Portland General POR UTILWEST B++ A3 7Xcel Energy Inc. XEL UTILWEST A+ A3 7All Companies


Say Baa1 8



EU-13


CompanyTicker

Symbol

End of Year

Closing Stock Price

VL Historic EPS

VL Est EPS


VL Est P/E Ratio






VL Est P/CF Ratio

Ke Estimate -


Ke Estimate -

Cash Flow (Est. P/CF)

Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/MAlliant Energy LNT 42.25 2.19 2.25 19.29 18.78 5.18% 5.33% 4.32 4.40 9.78 9.60 10.22% 10.41%Black Hills BKH 62.78 3.55 3.45 17.68 18.20 5.65% 5.50% 7.15 6.60 8.78 9.51 11.39% 10.51%IDACORP Inc. IDA 93.06 4.49 4.55 20.73 20.45 4.82% 4.89% 7.85 8.10 11.85 11.49 8.44% 8.70%NorthWestern Corp. NWE 59.44 3.41 3.50 17.43 16.98 5.74% 5.89% 6.76 6.90 8.79 8.61 11.37% 11.61%OGE Energy OGE 39.19 2.11 2.15 18.57 18.23 5.38% 5.49% 3.74 4.05 10.48 9.68 9.54% 10.33%Pinnacle West Capital PNW 85.20 4.54 4.85 18.77 17.57 5.33% 5.69% 9.79 10.00 8.70 8.52 11.49% 11.74%PNM Resources PNM 41.09 1.07 2.15 38.40 19.11 2.60% 5.23% 5.30 5.40 7.75 7.61 12.90% 13.14%Portland General POR 45.85 2.37 2.50 19.35 18.34 5.17% 5.45% 6.65 7.00 6.89 6.55 14.50% 15.27%Xcel Energy Inc. XEL 49.27 2.47 2.60 19.95 18.95 5.01% 5.28% 5.47 5.85 9.01 8.42 11.10% 11.87%


Say



5.35% 11.50%

EU-14



($000) ($000) ($000) ($000) ($000) ($000) ($000)Alliant Energy LNT 247,000 5,447,500 4,866,300 5,860,800 5,502,800 5,654,150 4.37% 5,184,550 1.09 Black Hills BKH 143,720 3,350,544 3,115,143 3,039,108 2,956,578 3,194,826 4.50% 3,035,861 1.05 IDACORP Inc. IDA 84,408 1,915,459 1,746,123 1,942,773 1,834,788 1,929,116 4.38% 1,790,456 1.08 NorthWestern Corp. NWE 91,988 1,901,915 1,793,416 2,117,912 2,102,345 2,009,914 4.58% 1,947,881 1.03 OGE Energy OGE 167,700 3,388,000 2,999,400 3,322,300 3,146,900 3,355,150 5.00% 3,073,150 1.09 Pinnacle West Capital PNW 243,465 5,304,956 4,871,713 5,233,563 5,138,232 5,269,260 4.62% 5,004,973 1.05 PNM Resources PNM 127,244 2,860,236 2,743,045 2,939,710 2,906,011 2,899,973 4.39% 2,824,528 1.03 Portland General POR 124,000 2,829,000 2,426,000 2,760,000 2,478,000 2,794,500 4.44% 2,452,000 1.14 Xcel Energy Inc. XEL 700,000 16,531,000 14,977,000 16,755,000 16,209,000 16,643,000 4.21% 15,593,000 1.07 All Companies 1,929,525 43,749,888 4.41% 40,906,397 1.07 Average 4.50% 1.07 Median 4.44% 1.07 Trimmed Average 4.47% 1.07 High 5.00% 1.14 Low 4.21% 1.03

Say 4.45% 1.07


MONTANA DEPARTMENT OF REVENUESupport for Direct Capitalization Cost of Debt Component - Calculated Current Yield

Industry: Electric Utilities

EU-15


End of Year

Closing4th Qtr


BKH Black Hills high 60.20$ 55.75$ 54.62$ 57.28$ 59.49$ 61.65$ 64.14$ 61.46$ 59.98$ 63.09$ 66.24$ 68.23$ 62.78$ 62.24$ 58.29$ low 52.50$ 50.65$ 50.49$ 52.63$ 55.53$ 55.07$ 59.01$ 58.62$ 56.42$ 57.07$ 59.33$ 59.49$

IDA IDACORP Inc. high 91.40$ 86.57$ 88.60$ 94.16$ 96.01$ 93.28$ 95.35$ 99.28$ 101.49$ 101.89$ 101.41$ 102.44$ 93.06$ 96.94$ 91.95$ low 82.08$ 79.59$ 80.29$ 84.82$ 87.34$ 85.23$ 90.92$ 92.03$ 96.81$ 92.94$ 93.06$ 89.91$

LNT Alliant Energy high 42.72$ 39.90$ 41.04$ 43.27$ 43.47$ 42.78$ 43.95$ 43.84$ 44.18$ 44.70$ 46.05$ 46.58$ 42.25$ 43.71$ 41.85$ low 39.07$ 36.84$ 37.85$ 40.34$ 40.11$ 38.22$ 41.41$ 41.39$ 41.73$ 42.01$ 42.22$ 40.68$

NWE NorthWestern Corp. high 59.82$ 54.51$ 54.19$ 55.75$ 55.80$ 57.74$ 59.92$ 62.16$ 60.97$ 62.19$ 64.76$ 65.74$ 59.44$ 60.76$ 56.94$ low 53.01$ 50.01$ 50.46$ 52.43$ 52.77$ 51.53$ 55.98$ 58.03$ 56.93$ 56.23$ 58.33$ 57.28$

OGE OGE Energy high 33.07$ 33.06$ 32.83$ 33.39$ 35.42$ 35.54$ 36.59$ 37.69$ 37.74$ 38.13$ 39.97$ 41.80$ 39.19$ 38.17$ 34.91$ low 30.70$ 29.59$ 30.76$ 31.49$ 32.70$ 33.19$ 34.13$ 35.58$ 35.29$ 35.91$ 35.55$ 37.67$

PNM PNM Resources high 40.55$ 38.05$ 38.70$ 40.73$ 40.60$ 40.05$ 39.90$ 40.95$ 40.75$ 40.59$ 43.29$ 45.35$ 41.09$ 40.72$ 38.82$ low 35.15$ 33.75$ 34.95$ 37.10$ 37.60$ 34.95$ 37.17$ 38.25$ 38.15$ 37.90$ 37.67$ 39.52$

PNW Pinnacle West Capital high 85.55$ 80.83$ 80.21$ 81.85$ 80.73$ 81.25$ 83.05$ 82.83$ 81.12$ 86.71$ 90.06$ 92.64$ 85.20$ 85.36$ 80.68$ low 78.31$ 73.81$ 75.21$ 77.14$ 75.82$ 73.41$ 77.56$ 78.27$ 77.19$ 78.11$ 81.51$ 83.14$

POR Portland General high 45.65$ 42.47$ 41.06$ 42.70$ 42.93$ 43.29$ 46.00$ 47.56$ 47.54$ 47.53$ 49.21$ 50.40$ 45.85$ 46.54$ 43.66$ low 41.61$ 39.40$ 39.02$ 39.18$ 39.66$ 39.60$ 42.10$ 44.38$ 44.44$ 43.94$ 44.40$ 43.73$

XEL Xcel Energy Inc. high 48.36$ 45.78$ 45.87$ 47.38$ 46.93$ 46.24$ 47.15$ 48.72$ 49.49$ 50.53$ 52.49$ 54.11$ 49.27$ 49.88$ 46.65$ low 44.74$ 41.51$ 42.57$ 43.93$ 43.28$ 41.99$ 44.54$ 45.87$ 46.01$ 46.52$ 47.44$ 48.16$




EU-16

FINAL

2019 Capitalization Rate StudyExempt Wholesale Generators


Capital StructureEquity 40.00% Page EWG-4Debt 60.00% Page EWG-4

Equity Cost of Capital Capital Asset Pricing Model 10.55% Page EWG-5Dividend Growth Model (g = Earnings Growth) 9.50% Page EWG-9Dividend Growth Model (g = Dividend Growth) 11.20% Page EWG-9

10.75%



7.16%

Source of Capital


Marginal Tax Rate



Exempt Wholesale Generators - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: Exempt Wholesale Generators



EWG-2

Capital StructureEquity 40.00% Page EWG-4Debt 60.00% Page EWG-4

Equity Cost of Capital NOI After-tax 7.00% Page EWG-13GCF 14.00% Page EWG-13

Debt Cost of CapitalCalculated Current Yield 5.50% Page EWG-14

Source of Capital


Marginal Tax Rate




Source of Capital


Marginal Tax Rate


Equity 40.00% 14.00% 14.00% 5.60%Debt 60.00% 5.50% 24.00% 4.18% 2.51%WACC 100.00% 8.11%


Exempt Wholesale Generators - GCF Direct Capitalization Rate




Exempt Wholesale Generators - NOI After-tax Direct Capitalization Rate

EWG-3


CompanyTicker


Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common

StockMV Preferred

StockMV Long

Term Debt

PV of Operating

Leases


% Preferred

% Debt & OpLease

sValue Line Value Line 10-K Yahoo ExF 10-K 10-K 10-K G+H+I+J G/K H/K (I+J)/K

(000) ($000) ($000) ($000) ($000) ($000)AES Corp. AES POWER B 662,298 14.46 9,576,830 0 19,846,000 371,192 29,794,022 32% 0% 68%NRG Energy NRG POWER B+ 283,650 39.60 11,232,542 0 6,697,000 257,406 18,186,947 62% 0% 38%Pattern Energy Group PEGI POWER B+ 98,052 18.62 1,825,721 0 2,240,000 232,504 4,298,225 42% 0% 58%Vivint Solar Inc VSLR POWER C+ 120,193 3.81 457,936 0 1,261,275 80,237 1,799,448 25% 0% 75%All Companies 23,093,030 0 30,044,275 941,338 54,078,643 43% 0% 57%


Say 40% % 60%

*Market value is estimated fair value of debt from 10-K notes to financial statementsYE 2018 37% 0% 63%

2019 Notes/Rationale for Changes to Guideline Companies YE 2017 32% 0% 68%DYN removed. Merged with Vistra Energy April, 2018. YE 2016 26% 0% 74%NYLDA removed. Global Infrastructure Partners acquired NRG's controlling interest in NRG Yield. 3YR AVG 32% 68%


Industry: Exempt Wholesale Generators2019 Assessment Year

EWG-4





10-year 2.81%30-year 3.06%




1




Industry: Exempt Wholesale GeneratorsCapital Asset Pricing Model (CAPM)


EWG-5




Equity Risk Premium Measures (ERP = Rm - Rf)







Rm4 Rm Rf ERP




EWG-6




Inflation and Growth Estimates

Inflation (CPI)

Real Growth (GDP)




Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000






105.935107.948110.389

98.118100

101.755103.68

104.789

95.00496.111

Nominal Growth



EWG-7

A B C D E

CompanyTicker



Value Line Value Line Value LineAES Corp. AES POWER B 1.15NRG Energy NRG POWER B+ 1.30Pattern Energy Group PEGI POWER B+ 1.25Vivint Solar Inc VSLR POWER C+ 1.55


Say 1.28

MONTANA DEPARTMENT OF REVENUESupport for Beta Selection in CAPM


EWG-8



Company Name Ticker

End of Year

Closing Stock Price

2018 Est Dividend

Dividend Yield



Retention Ratio

2018 Est Return on

Equity


Estimate


Growth Estimate

Sustainable Growth*


Cost of Equity

P 0 D 1 D 1 /P 0 EPS D 1 /EPSb =


Earnings gg =

Dividends gg =

b x ROEK e

g = Earnings gK e

g = Dividends gK e

g = b x ROE


WrkshtMulti Stg g

Wrksht H*I E+J E+K E+LAES Corp. AES 14.46 0.52 3.60% 1.30 40.00% 60.00% 39.00% 3.19% 6.15% 23.40% 6.79% 9.74% 27.00%NRG Energy NRG 39.60 0.12 0.30% 2.55 4.71% 95.29% 0.00% 3.19% -1.09% 0.00%Pattern Energy Group PEGI 18.62 1.69 9.08% 0.45 375.56% -275.56% 0.00% 3.19% 3.63% 0.00% 12.27% 12.71%Vivint Solar Inc VSLR 3.81 0.00 - 0.00% 3.19% 3.19% 0.00%

Average 4.33% 140.09% -40.09% 9.75% 3.19% 2.97% 5.85% 9.53% 11.22% 27.00%Median 3.60% 40.00% 60.00% 0.00% 3.19% 3.41% 0.00% 9.53% 11.22% 27.00%Trimmed Average 3.60% 40.00% 60.00% 0.00% 3.19% 3.41%High 9.08% 375.56% 95.29% 39.00% 3.19% 6.15% 23.40% 12.27% 12.71% 27.00%Low 0.30% 4.71% -275.56% 0.00% 3.19% -1.09% 0.00% 6.79% 9.74% 27.00%

Say 9.50% 11.20% nmf

Ke = (D1 / P0) + g


Support for Yield Capitalization Cost of Equity Component - Based on Dividend Growth ModelIndustry: Exempt Wholesale Generators


EWG-9

4.70% AES NRG PEGI VSLR2.30%

2.30% 2.30% 2.30% 2.30%3.19% 3.19% 3.19% 3.19%

Year Weight1 30 0.0230 0.0230 0.0230 0.0230 2 29 0.0230 0.0230 0.0230 0.0230 3 28 0.0230 0.0230 0.0230 0.0230 4 27 0.0230 0.0230 0.0230 0.0230 5 26 0.0230 0.0230 0.0230 0.0230 6 25 0.0245 0.0245 0.0245 0.0245 7 24 0.0260 0.0260 0.0260 0.0260 8 23 0.0275 0.0275 0.0275 0.0275 9 22 0.0290 0.0290 0.0290 0.0290

10 21 0.0305 0.0305 0.0305 0.0305 11 20 0.0320 0.0320 0.0320 0.0320 12 19 0.0335 0.0335 0.0335 0.0335 13 18 0.0350 0.0350 0.0350 0.0350 14 17 0.0365 0.0365 0.0365 0.0365 15 16 0.0380 0.0380 0.0380 0.0380 16 15 0.0395 0.0395 0.0395 0.0395 17 14 0.0410 0.0410 0.0410 0.0410 18 13 0.0425 0.0425 0.0425 0.0425 19 12 0.0440 0.0440 0.0440 0.0440 20 11 0.0455 0.0455 0.0455 0.0455 21 10 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470


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EWG-10

4.70% AES NRG PEGI VSLR2.30%

7.00% -4.50% 3.00% 2.30%6.15% -1.09% 3.63% 3.19%

Year Weight1 30 0.0700 (0.0450) 0.0300 0.0230 2 29 0.0700 (0.0450) 0.0300 0.0230 3 28 0.0700 (0.0450) 0.0300 0.0230 4 27 0.0700 (0.0450) 0.0300 0.0230 5 26 0.0700 (0.0450) 0.0300 0.0230 6 25 0.0686 (0.0393) 0.0311 0.0245 7 24 0.0671 (0.0335) 0.0321 0.0260 8 23 0.0657 (0.0278) 0.0332 0.0275 9 22 0.0643 (0.0220) 0.0343 0.0290

10 21 0.0628 (0.0163) 0.0353 0.0305 11 20 0.0614 (0.0105) 0.0364 0.0320 12 19 0.0599 (0.0048) 0.0374 0.0335 13 18 0.0585 0.0010 0.0385 0.0350 14 17 0.0571 0.0068 0.0396 0.0365 15 16 0.0556 0.0125 0.0406 0.0380 16 15 0.0542 0.0183 0.0417 0.0395 17 14 0.0528 0.0240 0.0428 0.0410 18 13 0.0513 0.0298 0.0438 0.0425 19 12 0.0499 0.0355 0.0449 0.0440 20 11 0.0484 0.0413 0.0459 0.0455 21 10 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470


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EWG-11

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term



AES Corp. AES POWER B Ba1 11NRG Energy NRG POWER B+ Ba2 12Pattern Energy Group PEGI POWER B+ Ba3 13Vivint Solar Inc VSLR POWER C+All Companies


Say Ba2 12



EWG-12


CompanyTicker

Symbol

End of Year

Closing Stock Price



VL Est P/E Ratio






VL Est P/CF Ratio

Ke Estimate -


Ke Estimate -

Cash Flow (Est.

P/CF)Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/M

AES Corp. AES 14.46 1.81 1.30 7.99 11.12 12.52% 8.99% 0.85 3.75 17.01 3.86 25.93%NRG Energy NRG 39.60 0.56 2.55 70.71 15.53 1.41% 6.44% (1.58) 2.70 (25.06) 14.67 6.82%Pattern Energy Group PEGI 18.62 (0.06) 0.45 (310.33) 41.38 2.42% 2.01 2.35 9.26 7.92 10.79% 12.62%Vivint Solar Inc VSLR 3.81 (0.13) 0.00 (29.31) 0.45 0.00 8.47 11.81%

Average (65.23) 22.68 6.97% 5.95% 2.42 8.82 11.30% 15.12%Median (10.66) 15.53 6.97% 6.44% 8.87 7.92 11.30% 12.62%Trimmed Average 15.53 6.44% 8.87 7.92 12.62%High 70.71 41.38 12.52% 8.99% 17.01 14.67 11.81% 25.93%Low (310.33) 11.12 1.41% 2.42% (25.06) 3.86 10.79% 6.82%

Say



7.00% 14.00%

EWG-13



($000) ($000) ($000) ($000) ($000) ($000) ($000)AES Corp. AES 1,056,000 20,810,000 19,970,000 19,846,000 19,300,000 20,328,000 5.19% 19,635,000 1.04 NRG Energy NRG 483,000 9,739,000 9,482,000 6,697,000 6,591,000 8,218,000 5.88% 8,036,500 1.02 Pattern Energy Group PEGI 109,000 1,938,000 1,931,000 2,240,000 2,283,000 2,089,000 5.22% 2,107,000 0.99 Vivint Solar Inc VSLR 65,308 995,662 956,107 1,261,275 1,240,389 1,128,469 5.79% 1,098,248 1.03 All Companies 1,713,308 31,763,469 5.39% 30,876,748 1.03 Average 5.52% 1.02 Median 5.50% 1.03 Trimmed Average 5.50% 1.03 High 5.88% 1.04 Low 5.19% 0.99

Say 5.50% 1.03

Support for Direct Capitalization Cost of Debt Component - Calculated Current Yield



EWG-14


End of Year

Closing4th Qtr


AES AES Corp. high 11.95$ 11.67$ 11.43$ 12.45$ 12.86$ 13.56$ 13.58$ 14.11$ 14.01$ 15.39$ 16.28$ 16.02$ 14.46$ 14.93$ 12.93$ low 10.64$ 9.87$ 10.49$ 11.19$ 11.66$ 12.47$ 12.55$ 13.23$ 13.00$ 13.88$ 14.47$ 13.55$

NRG NRG Energy high 29.61$ 27.04$ 31.15$ 31.82$ 35.17$ 34.52$ 32.89$ 35.76$ 37.42$ 38.25$ 40.38$ 43.08$ 39.60$ 38.14$ 32.75$ low 25.71$ 23.75$ 26.49$ 29.82$ 30.25$ 30.35$ 29.90$ 30.96$ 34.51$ 35.08$ 36.07$ 35.98$

PEGI Pattern Energy Group high 21.97$ 20.61$ 18.84$ 18.33$ 19.05$ 19.60$ 19.39$ 20.86$ 20.95$ 20.31$ 21.40$ 21.54$ 18.62$ 19.33$ 19.01$ low 20.45$ 18.15$ 16.58$ 16.78$ 17.36$ 17.99$ 16.81$ 17.46$ 19.10$ 17.23$ 17.95$ 17.52$

VSLR Vivint Solar Inc high 4.25$ 3.48$ 3.95$ 4.25$ 4.55$ 5.40$ 6.00$ 6.15$ 5.30$ 5.70$ 7.44$ 5.72$ 3.81$ 5.31$ 4.57$ low 3.45$ 2.70$ 2.85$ 3.50$ 3.60$ 3.70$ 4.80$ 5.05$ 4.80$ 4.37$ 5.05$ 3.55$




EWG-15

2019 Capitalization Rate StudyLarge Telecommunications


Final

Capital StructureEquity 55.00% Page Tel-4Debt 45.00% Page Tel-4

Equity Cost of CapitalCapital Asset Pricing Model 7.67% Page Tel-5

Dividend Growth Model (g = Earnings Growth) 11.80% Page Tel-9

Dividend Growth Model (g = Dividend Growth) 11.20% Page Tel-99.20%



5.13%

Source of Capital


Marginal Tax Rate


Equity 55.00% 9.20% 9.20% 5.06%Debt 45.00% 5.13% 24.00% 3.90% 1.75%WACC 100.00% 6.81%


Large Telecommunications - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: Large Telecommunications



Lg Tel-2


Equity Cost of CapitalNOI After-tax 8.30% Page Tel-13GCF 16.00% Page Tel-13

Debt Cost of CapitalCalculated Current Yield 4.00% Page Tel-14

Source of Capital


Marginal Tax Rate




Source of Capital


Marginal Tax Rate


Equity 55.00% 16.00% 16.00% 8.80%Debt 45.00% 4.00% 24.00% 3.04% 1.37%WACC 100.00% 10.17%


Large Telecommunications - GCF Direct Capitalization Rate

MONTANA DEPARTMENT OF REVENUEDirect Capitalization Rate Study

Industry: Large Telecommunications2019 Assessment Year

Large Telecommunications - NOI After-tax Direct Capitalization Rate

Lg Tel-3


CompanyTicker


Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common Stock

MV Preferred Stock*

MV Long Term Debt

PV of Operating

Leases

Total Common,

Preferred, LT Debt, &

OpLeases % Common%

Preferred% Debt & OpLeases


Comcast Corp. CMCSA CABLETV A 4,525,963 33.69 152,479,677 0 114,100,000 4,181,526 270,761,204 56% 0% 44%AT&T Inc. T TELESERV A++ 7,620,749 28.54 217,496,165 0 174,202,000 22,528,637 414,226,802 53% 0% 47%Verizon Communic. VZ TELESERV A++ 4,291,434 56.22 241,264,400 0 118,535,000 21,501,079 381,300,479 63% 0% 37%All Companies 611,240,242 0 406,837,000 48,211,242 1,066,288,484 57% 0% 43%


Say 55% 45%

*Market value of preferred stock assumed to equal book value. Market value of long term debt is fair value.

Guideline Company Selection Criteria:-Companies listed in The Value Line Investment Survey

Telecommunications Services IndustryTelecommunications Utility IndustryCable TV Industry

-Domestic Companies-Large Companies - Selected if MVIC is Greater than $200 Billion

Notes/Rational for Changes to Guideline Companies:First year of study.



Lg Tel-4





10-year 2.81%30-year 3.06%




1


MONTANA DEPARTMENT OF REVENUECapital Asset Pricing Model (CAPM)Industry: Large Telecommunications




Lg Tel-5










Rm4 Rm Rf ERP




Lg Tel-6




Inflation (CPI)

Real Growth (GDP)




Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000






95.00496.111

Nominal Growth


Conversion FactorYear GDP Annual Implicit Price Deflator9

105.935107.948110.389

98.118100

101.755103.68

104.789

Lg Tel-7

A B C D E

CompanyTicker



Value Line Value Line Value LineComcast Corp. CMCSA CABLETV A 0.85 AT&T Inc. T TELESERV A++ 0.80 Verizon Communic. VZ TELESERV A++ 0.75


Say 0.80

MONTANA DEPARTMENT OF REVENUESupport for Beta Selection in CAPMIndustry: Large Telecommunications


Lg Tel-8



Company Name Ticker

End of Year Closing


Dividend Yield



Retention Ratio

2019 Est Return on

Equity


Estimate


Growth Estimate

Sustainable Growth*


Cost of Equity

P 0 D 1 D 1 /P 0 EPS D 1 /EPSb =


Earnings gg =

Dividends gg =

b x ROEK e

g = Earnings gK e

g = Dividends gK e

g = b x ROE


WrkshtMulti Stg g

Wrksht H*I E+J E+K E+LComcast Corp. CMCSA 33.69 0.84 2.49% 2.80 30.00% 70.00% 15.50% 9.29% 8.66% 10.85% 11.79% 11.16% 13.34%AT&T Inc. T 28.54 2.04 7.15% 3.65 55.89% 44.11% 13.50% 5.20% 4.57% 5.95% 12.35% 11.72% 13.10%Verizon Communic. VZ 56.22 2.37 4.22% 4.65 50.97% 49.03% 37.00% 4.57% 3.00% 18.14% 8.79% 7.22% 22.36%


Say 11.80% 11.20% 13.30%

Ke = (D1 / P0) + g


Support for Yield Capitalization Cost of Equity Component - Based on Dividend Growth ModelIndustry: Large Telecommunications


Lg Tel-9

4.70% T VZ CMCSA2.30%

5.50% 4.50% 12.00%5.20% 4.57% 9.29%

Year Weight1 30 0.0550 0.0450 0.1200 2 29 0.0550 0.0450 0.1200 3 28 0.0550 0.0450 0.1200 4 27 0.0550 0.0450 0.1200 5 26 0.0550 0.0450 0.1200 6 25 0.0545 0.0451 0.1154 7 24 0.0540 0.0453 0.1109 8 23 0.0535 0.0454 0.1063 9 22 0.0530 0.0455 0.1018

10 21 0.0525 0.0456 0.0972 11 20 0.0520 0.0458 0.0926 12 19 0.0515 0.0459 0.0881 13 18 0.0510 0.0460 0.0835 14 17 0.0505 0.0461 0.0789 15 16 0.0500 0.0463 0.0744 16 15 0.0495 0.0464 0.0698 17 14 0.0490 0.0465 0.0653 18 13 0.0485 0.0466 0.0607 19 12 0.0480 0.0468 0.0561 20 11 0.0475 0.0469 0.0516 21 10 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470

Indi

cate

d G

row

th R

ate




rt for Yield Capitalization Cost of Equity Component - Multi-Stage Earnings Growth Industry: Large Telecommunications



Lg Tel-10

4.70% T VZ CMCSA2.30%

4.50% 2.00% 11.00%4.57% 3.00% 8.66%

Year Weight1 30 0.0450 0.0200 0.1100 2 29 0.0450 0.0200 0.1100 3 28 0.0450 0.0200 0.1100 4 27 0.0450 0.0200 0.1100 5 26 0.0450 0.0200 0.1100 6 25 0.0451 0.0217 0.1061 7 24 0.0453 0.0234 0.1021 8 23 0.0454 0.0251 0.0982 9 22 0.0455 0.0268 0.0943

10 21 0.0456 0.0284 0.0903 11 20 0.0458 0.0301 0.0864 12 19 0.0459 0.0318 0.0824 13 18 0.0460 0.0335 0.0785 14 17 0.0461 0.0352 0.0746 15 16 0.0463 0.0369 0.0706 16 15 0.0464 0.0386 0.0667 17 14 0.0465 0.0403 0.0628 18 13 0.0466 0.0419 0.0588 19 12 0.0468 0.0436 0.0549 20 11 0.0469 0.0453 0.0509 21 10 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470

Indi

cate

d G

row

th R

ate




ort for Yield Capitalization Cost of Equity Component - Multi-Stage Dividend Growth Industry: Large Telecommunications



Lg Tel-11

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term



Comcast Corp. CMCSA CABLETV A A3 7AT&T Inc. T TELESERV A++ Baa2 9Verizon Communic. VZ TELESERV A++ Baa1 8All Companies


Say Baa1 8



Lg Tel-12


CompanyTicker

Symbol

End of Year

Closing Stock Price



VL Est P/E Ratio






VL Est P/CF Ratio



Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/MComcast Corp. CMCSA 33.69 2.56 2.80 13.16 12.03 7.60% 8.31% 5.05 5.60 6.67 6.02 14.99% 16.62%AT&T Inc. T 28.54 3.52 3.65 8.11 7.82 12.33% 12.79% 7.19 7.75 3.97 3.68 25.19% 27.15%Verizon Communic. VZ 56.22 4.71 4.65 11.94 12.09 8.38% 8.27% 7.91 6.10 7.11 9.22 14.07% 10.85%

Average 11.07 10.65 9.44% 9.79% 5.92 6.31 18.08% 18.21%Median 11.94 12.03 8.38% 8.31% 6.67 6.02 14.99% 16.62%Trimmed Average 11.94 12.03 8.38% 8.31% 6.67 6.02 14.99% 16.62%High 13.16 12.09 12.33% 12.79% 7.11 9.22 25.19% 27.15%Low 8.11 7.82 7.60% 8.27% 3.97 3.68 14.07% 10.85%Say


Industry: Large Telecommunications 2019 Assessment Year

8.30% 16.00%

Lg Tel-13


Company Ticker Interest Exp. MV LT Debt BV LT Debt MV LT Debt BV LT Debt MV LT Debt Current Yield BV LT Debt MTBR10‐K 10‐K 10‐K 10‐K 10‐K (D+F)/2 (C/H) (E+G)/2 (H/J)($000) ($000) ($000) ($000) ($000) ($000) ($000)

Comcast Corp. CMCSA 3,542,000 71,700,000 59,422,000 114,100,000 107,345,000 92,900,000 3.81% 83,383,500 1.11 AT&T Inc. T 7,957,000 173,758,000 164,346,000 174,202,000 173,444,000 173,980,000 4.57% 168,895,000 1.03 Verizon Communic. VZ 4,833,000 128,658,000 116,075,000 118,535,000 112,159,000 123,596,500 3.91% 114,117,000 1.08 All Companies 16,332,000 390,476,500 4.18% 366,395,500 1.07 Average 4.10% 1.08 Median 3.91% 1.08 Trimmed Average 3.91% 1.08 High 4.57% 1.11 Low 3.81% 1.03

Say 4.00% 1.08


MONTANA DEPARTMENT OF REVENUESupport for Cost of Debt Component - Calculated Current Yield

Industry: Large Telecommunications

Lg Tel-14


End of Year

Closing4th Qtr

AverageAnnual

AverageCMCSA Comcast Corp. high 44.00$ 42.59$ 37.22$ 34.81$ 32.89$ 34.40$ 36.09$ 37.07$ 38.06$ 38.65$ 39.66$ 39.29$ 33.69$ 36.72$ 35.86$

low 40.05$ 35.75$ 32.74$ 31.34$ 30.43$ 30.96$ 32.42$ 34.62$ 34.75$ 33.51$ 36.61$ 32.61$

T AT&T Inc. high 39.06$ 39.29$ 37.81$ 36.39$ 32.91$ 34.53$ 32.80$ 33.58$ 34.28$ 34.30$ 31.43$ 32.01$ 28.54$ 30.46$ 33.23$ low 36.32$ 35.03$ 34.44$ 32.47$ 31.17$ 31.40$ 30.13$ 31.72$ 31.48$ 28.85$ 29.35$ 26.80$

VZ Verizon Communic. high 54.77$ 54.75$ 49.26$ 51.69$ 49.65$ 51.05$ 53.00$ 55.21$ 55.42$ 58.80$ 61.58$ 59.75$ 56.22$ 56.82$ 52.27$ low 51.15$ 47.54$ 46.20$ 46.71$ 46.09$ 47.13$ 49.70$ 51.43$ 52.84$ 52.82$ 55.55$ 52.40$


Support of Stock Price - From YAHOO FinanceIndustry: Large Telecommunications


Lg Tel-15

2019 Capitalization Rate StudyTelecommunications


FINAL


Equity Cost of CapitalCapital Asset Pricing Model 9.77% Page Tel-5

Dividend Growth Model (g = Earnings Growth) 15.00% Page Tel-9

Dividend Growth Model (g = Dividend Growth) 11.70% Page Tel-911.00%


A - Mergent's - Avg. YTM of A Rated Corporate Bonds 4.37%Baa - Mergent's - Avg. YTM of Baa Rated Corporate Bonds 5.13%Ba - Mergent's - Avg. YTM of Ba Rated Corporate Bonds 7.16%B - Mergent's - Avg. YTM of B Rated Corporate Bonds 7.94%

7.55%

Source of Capital


Marginal Tax Rate


Equity 40.00% 11.00% 11.00% 4.40%Debt 60.00% 7.55% 24.00% 5.74% 3.44%WACC 100.00% 7.84%


Telecommunications - Weighted Average Cost of Capital (WACC)

2019 Assessment YearIndustry: TelecommunicationsYield Capitalization Rate Study


Tel-2


Equity Cost of CapitalNOI After-tax 4.10% Page Tel-13GCF 24.75% Page Tel-13

Debt Cost of CapitalCalculated Current Yield 6.00% Page Tel-14

Source of Capital


Marginal Tax Rate




Source of Capital


Marginal Tax Rate


Equity 40.00% 24.75% 24.75% 9.90%Debt 60.00% 6.00% 24.00% 4.56% 2.74%WACC 100.00% 12.64%


Telecommunications - GCF Direct Capitalization Rate

MONTANA DEPARTMENT OF REVENUEDirect Capitalization Rate StudyIndustry: Telecommunications


Telecommunications - NOI After-tax Direct Capitalization Rate

Tel-3


CompanyTicker


Financial Strength

Shares Outstanding

End of Year

Closing Stock Price

MV Common Stock

MV Preferred Stock*

MV Long Term Debt

PV of Operating

Leases

Total Common,

Preferred, LT Debt, &

OpLeases % Common%

Preferred% Debt & OpLeases


Cincinnati Bell CBB TELUTIL C+ 50,184 7.78 390,432 129,400 1,673,600 43,502 2,236,935 17% 6% 77%Charter Communic. CHTR CABLETV B+ 225,354 284.97 64,219,074 0 70,695,000 1,230,565 136,144,639 47% 0% 53%Consol. Communic. CNSL TELUTIL C++ 71,187 9.88 703,331 0 2,155,127 32,660 2,891,117 24% 0% 76%CenturyLink Inc. CTL TELUTIL B 1,079,783 15.15 16,358,716 0 33,716,000 3,221,048 53,295,763 31% 0% 69%Frontier Communic. FTR TELUTIL C 105,536 2.38 251,176 0 12,756,000 165,617 13,172,792 2% 0% 98%Sprint Corp. S TELESERV C++ 4,011,475 5.85 23,467,126 0 41,286,000 9,967,591 74,720,718 31% 0% 69%Shenandoah Telecom. SHEN TELESERV B 49,831 44.25 2,205,016 0 770,242 310,168 3,285,426 67% 0% 33%Telephone & Data TDS TELESERV B 106,539 32.54 3,466,779 0 2,309,000 1,005,000 6,780,779 51% 0% 49%T-Mobile US TMUS TELESERV B+ 850,180 63.61 54,079,970 0 25,363,000 17,566,932 97,009,902 56% 0% 44%All Companies 165,141,620 129,400 190,723,969 33,543,082 389,538,071 42% 0% 58%


Say 40% 60%

*Market value of preferred stock assumed to equal book value. Market value of long term debt is fair value. Avg. Exc. FTR: 41% 1% 59%

Guideline Company Selection Criteria:-Companies listed in The Value Line Investment Survey

Telecommunications Services IndustryTelecommunications Utility IndustryCable TV Industry

-Domestic Companies-Excludes Mega Companies - Removed if MVIC (Column K) is Greater than $200 Billion

Removed: AT&T Inc. (T)Verizon Communications (VZ)

Notes/Rational for Changes to Guideline Companies2019 Changes to Guideline CompaniesWindstream Holdings (WIN) removed due to filing of Chapter 11 bankruptcy.U.S. Cellular (USM) removed. Subsidiary of TDS.


Industry: Telecommunications2019 Assessment Year

Tel-4





10-year 2.81%30-year 3.06%




1






Tel-5










Rm4 Rm Rf ERP




Tel-6




Inflation (CPI)

Real Growth (GDP)




Say 2.30% 2.40% 4.70% 4.38% 5.00%Rounded 5.00%

2009 1.16192010 1.14862011 1.12512012 1.88% 1.10392013 1.72% 1.08492014 1.86% 1.06472015 1.06% 1.05342016 1.08% 1.04202017 1.86% 1.02262018 2.21% 1.0000






95.00496.111

Nominal Growth


Conversion FactorYear GDP Annual Implicit Price Deflator9

105.935107.948110.389

98.118100.000101.755103.680104.789

Tel-7

A B C D E

CompanyTicker



Value Line Value Line Value LineCincinnati Bell CBB TELUTIL C+ 1.60 Charter Communic. CHTR CABLETV B+ 1.05 Consol. Communic. CNSL TELUTIL C++ 1.15 CenturyLink Inc. CTL TELUTIL B 1.05 Frontier Communic. FTR TELUTIL C 1.55 Sprint Corp. S TELESERV C++ 1.20 Shenandoah Telecom. SHEN TELESERV B 1.00 Telephone & Data TDS TELESERV B 1.15 T-Mobile US TMUS TELESERV B+ 0.95


Say 1.15

Avg. Exc. FTR: 1.14

MONTANA DEPARTMENT OF REVENUESupport for Beta Selection in CAPM


Tel-8



Company Name Ticker

End of Year Closing


Dividend Yield



Retention Ratio

2019 Est Return on

Equity


Estimate


Growth Estimate

Sustainable Growth*


Cost of Equity

P 0 D 1 D 1 /P 0 EPS D 1 /EPSb =


Earnings gg =

Dividends gg =

b x ROEK e

g = Earnings gK e

g = Dividends gK e

g = b x ROE


WrkshtMulti Stg g

Wrksht H*I E+J E+K E+LCincinnati Bell CBB 7.78 0.00 0.00% (0.10) 0.00% 100.00% 0.00% -12.72% 1.74% 0.00%Charter Communic. CHTR 284.97 0.00 0.00% 7.20 0.00% 100.00% 5.00% 14.01% 1.74% 5.00%Consol. Communic. CNSL 9.88 1.55 15.69% (0.15) -1033.33% 1133.33% 0.00% 3.19% 1.74% 0.00% 18.88% 17.43%CenturyLink Inc. CTL 15.15 2.16 14.26% 1.20 180.00% -80.00% 5.00% 3.32% 1.74% -4.00% 17.57% 16.00%Frontier Communic. FTR 2.38 0.00 0.00% (0.15) 0.00% 100.00% 0.00% 3.19% 3.19% 0.00%Sprint Corp. S 5.85 0.00 0.00% 0.15 0.00% 100.00% 2.00% 3.19% 1.74% 2.00%Shenandoah Telecom. SHEN 44.25 0.30 0.68% 1.25 24.00% 76.00% 13.00% 12.12% 6.78% 9.88% 12.80% 7.45% 10.56%Telephone & Data TDS 32.54 0.65 2.00% 1.30 50.00% 50.00% 1.50% 3.00% 3.95% 0.75% 5.00% 5.94% 2.75%T-Mobile US TMUS 63.61 0.00 0.00% 4.20 0.00% 100.00% 13.00% 18.73% 1.74% 13.00%

Average 3.62% -86.59% 186.59% 4.39% 5.34% 2.71% 2.96% 13.56% 11.71% 6.65%Median 0.00% 0.00% 100.00% 2.00% 3.19% 1.74% 0.75% 15.19% 11.73% 6.65%Trimmed Average 2.42% 0.00% 100.00% 2.00% 3.19% 1.74% 0.75% 15.19% 11.73% 6.65%High 15.69% 180.00% 1133.33% 13.00% 18.73% 6.78% 13.00% 18.88% 17.43% 10.56%Low 0.00% -1033.33% -80.00% 0.00% -12.72% 1.74% -4.00% 5.00% 5.94% 2.75%

Say 15.00% 11.70% 6.65%

Ke = (D1 / P0) + g


Support for Yield Capitalization Cost of Equity Component - Based on Dividend Growth ModelIndustry: Telecommunications


Tel-9

4.70% CBB CHTR CNSL CTL FTR S SHEN TDS TMUS2.30%

-23.00% 19.50% 2.30% 2.50% 2.30% 2.30% 16.50% 2.00% 27.00%-12.72% 14.01% 3.19% 3.32% 3.19% 3.19% 12.12% 3.00% 18.73%

Year Weight1 30 (0.2300) 0.1950 0.0230 0.0250 0.0230 0.0230 0.1650 0.0200 0.2700 2 29 (0.2300) 0.1950 0.0230 0.0250 0.0230 0.0230 0.1650 0.0200 0.2700 3 28 (0.2300) 0.1950 0.0230 0.0250 0.0230 0.0230 0.1650 0.0200 0.2700 4 27 (0.2300) 0.1950 0.0230 0.0250 0.0230 0.0230 0.1650 0.0200 0.2700 5 26 (0.2300) 0.1950 0.0230 0.0250 0.0230 0.0230 0.1650 0.0200 0.2700 6 25 (0.2127) 0.1858 0.0245 0.0264 0.0245 0.0245 0.1576 0.0217 0.2561 7 24 (0.1954) 0.1765 0.0260 0.0278 0.0260 0.0260 0.1503 0.0234 0.2421 8 23 (0.1781) 0.1673 0.0275 0.0291 0.0275 0.0275 0.1429 0.0251 0.2282 9 22 (0.1608) 0.1580 0.0290 0.0305 0.0290 0.0290 0.1355 0.0268 0.2143

10 21 (0.1434) 0.1488 0.0305 0.0319 0.0305 0.0305 0.1281 0.0284 0.2003 11 20 (0.1261) 0.1395 0.0320 0.0333 0.0320 0.0320 0.1208 0.0301 0.1864 12 19 (0.1088) 0.1303 0.0335 0.0346 0.0335 0.0335 0.1134 0.0318 0.1724 13 18 (0.0915) 0.1210 0.0350 0.0360 0.0350 0.0350 0.1060 0.0335 0.1585 14 17 (0.0742) 0.1118 0.0365 0.0374 0.0365 0.0365 0.0986 0.0352 0.1446 15 16 (0.0569) 0.1025 0.0380 0.0388 0.0380 0.0380 0.0913 0.0369 0.1306 16 15 (0.0396) 0.0933 0.0395 0.0401 0.0395 0.0395 0.0839 0.0386 0.1167 17 14 (0.0223) 0.0840 0.0410 0.0415 0.0410 0.0410 0.0765 0.0403 0.1028 18 13 (0.0049) 0.0748 0.0425 0.0429 0.0425 0.0425 0.0691 0.0419 0.0888 19 12 0.0124 0.0655 0.0440 0.0443 0.0440 0.0440 0.0618 0.0436 0.0749 20 11 0.0297 0.0563 0.0455 0.0456 0.0455 0.0455 0.0544 0.0453 0.0609 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470

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Support for Yield Capitalization Cost of Equity Component - Multi-Stage Earnings Growth ModelIndustry: Telecommunications



Tel-10

4.70% CBB CHTR CNSL CTL FTR S SHEN TDS TMUS2.30%

0.00% 0.00% 0.00% 0.00% 2.30% 0.00% 8.00% 3.50% 0.00%1.74% 1.74% 1.74% 1.74% 3.19% 1.74% 6.78% 3.95% 1.74%

Year Weight1 30 - - - - 0.0230 - 0.0800 0.0350 - 2 29 - - - - 0.0230 - 0.0800 0.0350 - 3 28 - - - - 0.0230 - 0.0800 0.0350 - 4 27 - - - - 0.0230 - 0.0800 0.0350 - 5 26 - - - - 0.0230 - 0.0800 0.0350 - 6 25 0.0029 0.0029 0.0029 0.0029 0.0245 0.0029 0.0779 0.0358 0.0029 7 24 0.0059 0.0059 0.0059 0.0059 0.0260 0.0059 0.0759 0.0365 0.0059 8 23 0.0088 0.0088 0.0088 0.0088 0.0275 0.0088 0.0738 0.0373 0.0088 9 22 0.0118 0.0118 0.0118 0.0118 0.0290 0.0118 0.0718 0.0380 0.0118

10 21 0.0147 0.0147 0.0147 0.0147 0.0305 0.0147 0.0697 0.0388 0.0147 11 20 0.0176 0.0176 0.0176 0.0176 0.0320 0.0176 0.0676 0.0395 0.0176 12 19 0.0206 0.0206 0.0206 0.0206 0.0335 0.0206 0.0656 0.0403 0.0206 13 18 0.0235 0.0235 0.0235 0.0235 0.0350 0.0235 0.0635 0.0410 0.0235 14 17 0.0264 0.0264 0.0264 0.0264 0.0365 0.0264 0.0614 0.0418 0.0264 15 16 0.0294 0.0294 0.0294 0.0294 0.0380 0.0294 0.0594 0.0425 0.0294 16 15 0.0323 0.0323 0.0323 0.0323 0.0395 0.0323 0.0573 0.0433 0.0323 17 14 0.0353 0.0353 0.0353 0.0353 0.0410 0.0353 0.0553 0.0440 0.0353 18 13 0.0382 0.0382 0.0382 0.0382 0.0425 0.0382 0.0532 0.0448 0.0382 19 12 0.0411 0.0411 0.0411 0.0411 0.0440 0.0411 0.0511 0.0455 0.0411 20 11 0.0441 0.0441 0.0441 0.0441 0.0455 0.0441 0.0491 0.0463 0.0441 21 10 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 22 9 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 23 8 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 24 7 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 25 6 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 26 5 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 27 4 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 28 3 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 29 2 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 30 1 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470 0.0470

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Long-Term Nominal GrowthInflation (*If Forecast N/A )



Support for Yield Capitalization Cost of Equity Component - Multi-Stage Dividend Growth ModelIndustry: Telecommunications



Tel-11

A B C D E F

CompanyTicker


Financial Strength

Moody's Long Term



Cincinnati Bell CBB TELUTIL C+ B2 15Charter Communic. CHTR CABLETV B+ Ba2 12Consol. Communic. CNSL TELUTIL C++CenturyLink Inc. CTL TELUTIL B Ba3 13Frontier Communic. FTR TELUTIL C B3 16Sprint Corp. S TELESERV C++ B1 14Shenandoah Telecom. SHEN TELESERV BTelephone & Data TDS TELESERV B Ba1 11T-Mobile US TMUS TELESERV B+ Ba2 12All Companies


Say Ba3 13

Avg. Exc. FTR: 13



Tel-12


CompanyTicker

Symbol

End of Year

Closing Stock Price



VL Est P/E Ratio

Ke Estimate -Earnings (Hist. P/E)





VL Est P/CF Ratio



Yahoo Value Line Value Line C/D C/E 1/F 1/G Value Line Value Line C/J C/K 1/L 1/MCincinnati Bell CBB 7.78 (1.09) (0.10) 4.25 4.35 1.83 1.79 Charter Communic. CHTR 284.97 5.25 7.20 54.28 39.58 1.84% 2.53% 51.24 53.50 5.56 5.33 17.98% 18.77%Consol. Communic. CNSL 9.88 (0.72) (0.15) 5.36 6.40 1.84 1.54 CenturyLink Inc. CTL 15.15 1.18 1.20 12.84 12.63 7.79% 7.92% 4.61 5.95 3.29 2.55 30.43% 39.27%Frontier Communic. FTR 2.38 (1.51) (0.15) 24.21 18.15 0.10 0.13 Sprint Corp. S 5.85 0.08 0.15 73.13 39.00 1.37% 2.56% 2.15 2.45 2.72 2.39 36.75% 41.88%Shenandoah Telecom. SHEN 44.25 0.93 1.25 47.58 35.40 2.10% 2.82% 4.29 4.35 10.31 10.17 9.69% 9.83%Telephone & Data TDS 32.54 1.18 1.30 27.58 25.03 3.63% 4.00% 8.98 8.20 3.62 3.97 27.60% 25.20%T-Mobile US TMUS 63.61 3.38 4.20 18.82 15.15 5.31% 6.60% 11.03 12.10 5.77 5.26 17.34% 19.02%

Average 39.04 27.80 3.67% 4.41% 3.89 3.68 23.30% 25.66%Median 37.58 30.22 2.86% 3.41% 3.29 2.55 22.79% 22.11%Trimmed Average 37.06 28.64 3.22% 4.00% 3.52 3.26 23.34% 25.57%High 73.13 39.58 7.79% 7.92% 10.31 10.17 36.75% 41.88%Low 12.84 12.63 1.37% 2.53% 0.10 0.13 9.69% 9.83%Say


Industry: Telecommunications 2019 Assessment Year

4.10% 24.75%

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Company Ticker Interest Exp. MV LT Debt BV LT Debt MV LT Debt BV LT Debt MV LT Debt Current Yield BV LT Debt MTBR10‐K 10‐K 10‐K 10‐K 10‐K (D+F)/2 (C/H) (E+G)/2 (H/J)($000) ($000) ($000) ($000) ($000) ($000) ($000)

Cincinnati Bell CBB 131,500 1,687,500 1,687,100 1,673,600 1,880,000 1,680,550 7.82% 1,783,550 0.94 Charter Communic. CHTR 3,540,000 72,883,000 70,231,000 70,695,000 72,827,000 71,789,000 4.93% 71,529,000 1.00 Consol. Communic. CNSL 134,578 2,253,545 2,331,400 2,155,127 2,315,077 2,204,336 6.11% 2,323,239 0.95 CenturyLink Inc. CTL 2,177,000 37,293,000 37,726,000 33,716,000 36,061,000 35,504,500 6.13% 36,893,500 0.96 Frontier Communic. FTR 1,536,000 14,650,000 17,626,000 12,756,000 17,172,000 13,703,000 11.21% 17,399,000 0.79 Sprint Corp. S 2,365,000 43,016,000 40,581,000 41,286,000 40,820,000 42,151,000 5.61% 40,700,500 1.04 Shenandoah Telecom. SHEN 34,847 821,958 821,958 770,242 770,242 796,100 4.38% 796,100 1.00 Telephone & Data TDS 172,000 2,499,000 2,481,000 2,309,000 2,469,000 2,404,000 7.15% 2,475,000 0.97 T-Mobile US TMUS 1,357,000 27,672,000 26,496,000 25,363,000 25,532,000 26,517,500 5.12% 26,014,000 1.02 All Companies 11,447,925 196,749,986 5.82% 199,913,889 0.98 Average 6.50% 0.96 Median 6.11% 0.97 Trimmed Average 6.13% 0.98 High 11.21% 1.04 Low 4.38% 0.79

Say 6.00% 0.99

Avg. Exc. FTR: 5.91% 0.99


MONTANA DEPARTMENT OF REVENUESupport for Cost of Debt Component - Calculated Current Yield

Industry: Telecommunications

Tel-14


End of Year

Closing4th Qtr

AverageAnnual

AverageCBB Cincinnati Bell high 21.20$ 17.50$ 16.60$ 15.55$ 17.50$ 15.80$ 17.60$ 13.90$ 16.00$ 16.10$ 15.13$ 12.80$ 7.78$ 12.45$ 14.26$

low 17.05$ 14.00$ 13.30$ 13.00$ 11.65$ 11.85$ 12.45$ 9.90$ 12.65$ 12.77$ 11.32$ 6.60$

CHTR Charter Communic. high 379.33$ 396.64$ 369.51$ 322.89$ 281.33$ 302.43$ 314.88$ 313.11$ 334.98$ 329.14$ 334.76$ 334.31$ 284.97$ 309.66$ 312.22$ low 337.77$ 341.71$ 303.78$ 250.10$ 259.48$ 260.00$ 271.56$ 292.71$ 303.09$ 284.35$ 302.46$ 272.91$

CNSL Consol. Communic. high 13.35$ 12.61$ 12.80$ 11.85$ 11.81$ 13.37$ 13.65$ 12.91$ 13.56$ 13.95$ 14.23$ 13.91$ 9.88$ 12.28$ 12.07$ low 12.03$ 10.83$ 10.72$ 10.31$ 10.91$ 11.11$ 12.00$ 10.77$ 11.43$ 11.17$ 11.90$ 8.51$

CTL CenturyLink Inc. high 18.29$ 19.47$ 18.25$ 19.06$ 19.88$ 19.02$ 20.15$ 24.20$ 23.23$ 22.21$ 21.50$ 19.05$ 15.15$ 18.92$ 18.78$ low 16.35$ 15.45$ 15.48$ 16.16$ 17.88$ 17.29$ 18.06$ 18.35$ 20.55$ 19.12$ 17.65$ 13.97$

FTR Frontier Communic. high 8.83$ 9.59$ 8.48$ 9.00$ 11.64$ 8.15$ 5.67$ 5.94$ 6.84$ 7.25$ 5.39$ 3.80$ 2.38$ 4.36$ 6.40$ low 6.59$ 6.65$ 6.75$ 7.00$ 7.17$ 5.08$ 4.52$ 4.65$ 4.82$ 4.26$ 3.46$ 2.01$

S Sprint Corp. high 6.01$ 5.64$ 5.44$ 6.62$ 5.68$ 5.60$ 5.69$ 6.24$ 6.61$ 6.61$ 6.47$ 6.38$ 5.85$ 6.12$ 5.69$ low 5.10$ 4.91$ 4.81$ 4.81$ 5.04$ 5.12$ 5.35$ 5.36$ 5.87$ 5.66$ 6.05$ 5.55$

SHEN Shenandoah Telecom. high 34.15$ 34.00$ 38.60$ 39.65$ 37.75$ 34.40$ 34.75$ 38.80$ 39.40$ 39.63$ 51.41$ 50.82$ 44.25$ 42.51$ 36.42$ low 31.00$ 30.00$ 31.30$ 33.78$ 29.93$ 31.75$ 31.10$ 32.35$ 36.30$ 34.74$ 37.57$ 40.90$

TDS Telephone & Data high 28.28$ 28.29$ 29.56$ 29.48$ 27.64$ 27.59$ 29.09$ 31.01$ 31.00$ 33.33$ 36.52$ 36.16$ 32.54$ 32.52$ 28.77$ low 26.39$ 23.54$ 27.49$ 27.10$ 25.07$ 25.51$ 24.00$ 25.04$ 29.17$ 29.08$ 29.37$ 30.65$

TMUS T-Mobile US high 66.52$ 65.11$ 65.78$ 65.68$ 61.19$ 61.16$ 62.09$ 66.64$ 70.88$ 70.94$ 70.78$ 69.02$ 63.61$ 66.71$ 63.15$ low 62.44$ 57.06$ 59.73$ 58.91$ 55.09$ 55.90$ 57.89$ 59.14$ 64.07$ 63.48$ 66.08$ 59.96$


Support of Stock Price - From YAHOO FinanceIndustry: Telecommunications


Tel-15

Rating

Average YTM of

Corporate Bonds

Risk Free Rate (Rf)

Spread Over Rf Source

Aaa 4.02% 2.87% 1.15% Mergent Bond Record, January 2019

Aa 4.20% 2.87% 1.33% Mergent Bond Record, January 2019

A 4.37% 2.87% 1.50% Mergent Bond Record, January 2019

Baa 5.13% 2.87% 2.26% Mergent Bond Record, January 2019

Ba 7.16% 2.87% 4.29% Mergent Bond Record, January 2019 and Moodys.com

B 7.94% 2.87% 5.07% Mergent Bond Record, January 2019 and Moodys.com

Caa 8.54% 2.87% 5.67% Mergent Bond Record, January 2019 and Moodys.com

Ca 9.26% 2.87% 6.39% Linear forecast based on Ba, B, and Caa data

C 9.95% 2.87% 7.08% Linear forecast based on Ba, B, and Caa data


For Tax Year 2019Based on Corporate Bond Yields

Cost of Debt StudyYield to Maturity of Debt by Rating

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Aaa Aa A Baa Ba B Caa Ca C

Average YTM of Corporate Bonds by Debt Rating

Investment Grade Non‐Investment Grade

Page 1

Rating Average YTM Median YTM # of SecuritiesBa 7.16% 6.89% 38B 7.94% 8.14% 16Caa 8.54% 8.36% 31Ca 0C 7.50% 7.50% 1

For Tax Year 2019Based on Corporate Bond Yields

Yield to Maturity of Non-Investment Grade Debt by RatingCost of Debt Study


Page 2

S&P 500, 3 Stage Dividend Growth ModelDeveloped by the Montana Department of RevenueTo Be Used in Conjunction with the 2019 Capitalization Rate Studies

Determines The Implied Risk Premium Using Macroeconomic DataThis type of calculation can also be found in Chapter 9 of Ibbotson's (MorningStar) SBBI, Supply Side Model

3 Stage Dividend Growth Model

Assumptions:Stages Growth

1st Stage Constant @:

2nd Stage Linear from: 12.33% to 4.88% OR 12.85% to 3.77%Real Growth Inflation

3rd Stage GDP Growth: Real and Inflation 1.70% 2.80% + 2.07% 4 2.08%

GDP Growth*: Real + Inflation TOUPDATE

1.7 2.8 DELAYYEDLivingston Survey Release Date December 21, 2018

Model 1Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

ExpectedStarting Industry Start Price Dividends 13.080% 13.080% 13.080% 13.080% 13.080% 12.33% 11.589% 10.844% 10.099% 9.353% 8.608% 7.862% 7.117% 6.372% 5.626% 4.881%

S & P 500 (2,506.85)$ 57.00$ 64.46$ 72.89$ 82.42$ 93.20$ 105.39$ 118.39$ 132.11$ 146.44$ 161.23$ 176.31$ 191.48$ 206.54$ 221.24$ 235.33$ 248.57$ 260.71$

9.10%

Model 2Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

ExpectedStarting Industry Start Price Dividends 13.760% 13.760% 13.760% 13.760% 13.760% 12.85% 11.944% 11.035% 10.127% 9.219% 8.311% 7.403% 6.495% 5.586% 4.678% 3.770%

S & P 500 (2,506.85)$ 57.00$ 64.84$ 73.77$ 83.92$ 95.46$ 108.60$ 122.56$ 137.19$ 152.33$ 167.76$ 183.23$ 198.45$ 213.14$ 226.99$ 239.67$ 250.88$ 260.34$

8.58%

Conclusions:Implied Market Rate Range = 8.58% to 9.10%

Mean 8.84%Market Rate Selected 8.84%

Implied Market Return =

1st Stage Growth Rates 2nd Stage Growth Rates

2nd Stage Growth Rates

Implied Market Return =

1st Stage Growth Rates

*GDP Growth = Real growth + InflationFirst Quarter 2018 Survey of Professional Forecasters - Philadelphia Federal Reserve Release Date 2/9/2018

Years

15 years -perpetuity

13.08%

4.88%

1-5 years

6-15 years

Model 113.76%

3.77%

Model 2S & P Dow Jones Indices Index Earnings, S&P 500 Earnings Estimate Report, January 9, 2019 Linear from 1st Stage to 3rd Stage

Inflation Range = Federal Reserve, Treasuries Inflation -

1 of 7

2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053

4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881%273.43$ 286.78$ 300.77$ 315.46$ 330.85$ 347.00$ 363.94$ 381.70$ 400.33$ 419.87$ 440.37$ 461.86$ 484.41$ 508.05$ 532.85$ 558.86$ 586.13$ 614.74$

2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053

3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770%270.15$ 280.34$ 290.91$ 301.87$ 313.25$ 325.06$ 337.32$ 350.03$ 363.23$ 376.92$ 391.13$ 405.88$ 421.18$ 437.06$ 453.54$ 470.64$ 488.38$ 506.79$

2 of 7

2054 2055 2056 2057 2058 2059 2060 2061 2062 2063 2064 2065 2066 2067 2068 2069 2070 2071

4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881%644.75$ 676.22$ 709.22$ 743.84$ 780.15$ 818.23$ 858.17$ 900.05$ 943.98$ 990.06$ 1,038.38$ 1,089.07$ 1,142.23$ 1,197.98$ 1,256.45$ 1,317.78$ 1,382.10$ 1,449.56$

2054 2055 2056 2057 2058 2059 2060 2061 2062 2063 2064 2065 2066 2067 2068 2069 2070 2071

3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770%525.90$ 545.72$ 566.30$ 587.65$ 609.80$ 632.79$ 656.65$ 681.40$ 707.09$ 733.75$ 761.41$ 790.12$ 819.90$ 850.81$ 882.89$ 916.17$ 950.71$ 986.56$

3 of 7

2072 2073 2074 2075 2076 2077 2078 2079 2080 2081 2082 2083 2084 2085 2086 2087 2088 2089

4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881%1,520.31$ 1,594.52$ 1,672.35$ 1,753.97$ 1,839.59$ 1,929.38$ 2,023.55$ 2,122.32$ 2,225.91$ 2,334.55$ 2,448.50$ 2,568.02$ 2,693.36$ 2,824.82$ 2,962.70$ 3,107.31$ 3,258.98$ 3,418.05$

2072 2073 2074 2075 2076 2077 2078 2079 2080 2081 2082 2083 2084 2085 2086 2087 2088 2089

3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770%1,023.75$ 1,062.35$ 1,102.40$ 1,143.96$ 1,187.08$ 1,231.84$ 1,278.28$ 1,326.47$ 1,376.47$ 1,428.37$ 1,482.22$ 1,538.10$ 1,596.08$ 1,656.26$ 1,718.70$ 1,783.49$ 1,850.73$ 1,920.50$

3rd Stage Growth Rates

3rd Stage Growth Rates

4 of 7

2090 2091 2092 2093 2094 2095 2096 2097 2098 2099 2100 2101 2102 2103 2104 2105 2106 2107

4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881%3,584.89$ 3,759.86$ 3,943.38$ 4,135.86$ 4,337.73$ 4,549.46$ 4,771.52$ 5,004.41$ 5,248.68$ 5,504.87$ 5,773.56$ 6,055.37$ 6,350.93$ 6,660.92$ 6,986.04$ 7,327.03$ 7,684.66$ 8,059.75$

2090 2091 2092 2093 2094 2095 2096 2097 2098 2099 2100 2101 2102 2103 2104 2105 2106 2107

3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770%1,992.90$ 2,068.04$ 2,146.00$ 2,226.91$ 2,310.86$ 2,397.98$ 2,488.38$ 2,582.20$ 2,679.54$ 2,780.56$ 2,885.39$ 2,994.17$ 3,107.05$ 3,224.19$ 3,345.74$ 3,471.87$ 3,602.76$ 3,738.59$

5 of 7

2108 2109 2110 2111 2112 2113 2114 2115 2116 2117 2118 2119 2120 2121 2122 2123

4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881%8,453.14$ 8,865.74$ 9,298.48$ 9,752.34$ 10,228.35$ 10,727.59$ 11,251.21$ 11,800.38$ 12,376.35$ 12,980.44$ 13,614.02$ 14,278.52$ 14,975.45$ 15,706.41$ 16,473.04$ 17,277.08$

2108 2109 2110 2111 2112 2113 2114 2115 2116 2117 2118 2119 2120 2121 2122 2123

3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770%3,879.53$ 4,025.79$ 4,177.56$ 4,335.06$ 4,498.49$ 4,668.08$ 4,844.07$ 5,026.69$ 5,216.19$ 5,412.84$ 5,616.91$ 5,828.67$ 6,048.41$ 6,276.43$ 6,513.05$ 6,758.60$

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2124 2125 2126 2127 2128 2129 2130 2131 2132 2133 2134 2135

4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881% 4.881%18,120.38$ 19,004.83$ 19,932.46$ 20,905.36$ 21,925.76$ 22,995.95$ 24,118.38$ 25,295.60$ 26,530.28$ 27,825.22$ 29,183.37$ 30,607.81$

2124 2125 2126 2127 2128 2129 2130 2131 2132 2133 2134 2135

3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770% 3.770%7,013.39$ 7,277.80$ 7,552.17$ 7,836.89$ 8,132.34$ 8,438.93$ 8,757.08$ 9,087.22$ 9,429.81$ 9,785.31$ 10,154.22$ 10,537.03$

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montana department of revenue · to determine a cash flow stream. the yield capitalization rate for...

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