Representative Mavroules 6 August 20, 1985 they are actually incurred. This allows the firm to recover its equity investment more rapidly. Finally, for profitable projects, the IRR is not sensitive to changes in revenues that occur far into the future. Indeed, this is one reason that a front loaded tariff makes sense for both the TAPS owners and landowners like the State of Alaska and the federal government. The IRR on total assets, however, does show greater sensitivity to the tariff profiles. In nominal terms it drops from 20.6 percent to 11.8 to 15.5 percent. The real IRR drops from 13 percent to 4 to 7.2 percent. The return on total assets is more sensitive to the tariff profiles because it is not based on debt leveraging or on the way that income taxes are computed. The returns calculated here, 11.8 to 15.5 percent in nominal terms, and 4 to 7.2 percent in real terms, are healthy when compared to other regulated industries, or even when compared to manufacturing industries in general. It is important to keep in mind that these returns are for a project that was financed in the 1970's when the real cost of debt was often negative. I hope these calculations will prove useful to you and your Subcommittee. I appreciated the opportunity to provide testimony on June 18, 1985 and look forward to working with you in the future. to contact me. If I can be of further assistance do not hesitate Sincerely, James P. Love (f) sinking fund for expense of dismantling and removing pipeline in 2011 (g) straight line depreciation based on 35 year economic life as stipulated in FERC proceeding (h) estimates for debt and interest provided by DR (j) current taxes based on single company return paying taxes at full statutory rate. Timing differences due to accelarated depreciation. Current taxes are adjusted for carryforward of (a) based on norealized income taxes [rather than "current taxes which are the taxes which would actually be paid by on a stand alone basis] (n) the undepreciated book value value of capitalized TAPS investment (o) estigated by DR based on FERC filings (p) cumulative sum of deferred income taxes as a source of capital (q) the amount of the book value of total assets financed by shareholder equity (r) the rate of return on total assets is the sum of pre-tax profits and interest paysents divided by the book value of total assets (s) the after tax rate of return to equity is column (a) divided by coluan (q) FEDERAL INCOME TAX CALCULATIONS STATE AND FED INCOME TAX DD&R, prp tx, fed op cost fed year rev & intr dep tax st txble inc fed ITC cur add to normal Cu fed tx defrd ized defrd fed w/loss fed state fed tax cry fw tax tax tax curr add to nora defrd income defrd inc inc tax tax tax tax cua (c) tariffs that will result under the proposed TAPS Settlement Methodology (TSM] (d) product of coluan (b) and (c) (f) sinking fund for expense of dismantling and removing pipeline in 2011 FEDERAL INCOME TAX CALCULATIONS STATE AND FED INCOME TAX (g) straight line depreciation based on 35 year economic life as stipulated in FERC proceeding (h) estimates for debt and interest provided by the Alaska Department of Revenue [DR] 77 845 581 423 0 -159 790 -863 0 136 136 136 0 164 164 164 (j) current taxes based on single company return paying taxes at full statutory rate. Tiaing differences due to accelarated depreciation. (a) based on normalized income taxes rather than 'current' taxes which are the taxes which would actually be paid by on a stand alone basis] 82 3557 1073 644 157 1684 5 769 769 173 942 1183 926 224 1149 1283 6 809 808 156 964 1345 974 203 1177 1486 3 906 806 139 946 1484 973 182 1155 1668 (q) the amount of the book value of total assets financed by shareholder equity (r) the rate of return on total assets is the sum of pre-tax profits and interest payments divided by the book value of total assets (s) the after tax rate of return to equity is column (a) divided by column (q) 77 181.5 6.5 97 8.87 6.21 78 195.4 7.7 396 6.28 6.21 79 217.4 11.3 467 5.70 6.21 107 1226.7 861 1540 3557 3994 224 -29 -18 -11 -26 -50 -122 73 22 0.9 -3 5.0 -15 -18 -8 -931 -2047 74 96 16.8 93.1 -137 -163 713 1178 1550 2519 3313 80 3087 43.7 463 627 309 1.9 716 10.6 560 713 901 1046 file: DOCVTSM TARIFFS TABLE 4 COMPARISON OF TARIFFS AND REVENUE REQUIREMENTS UNDER PROPOSED SETTLEMENT [TSM] AND DOC METHODOLOGY Depreciated Original Cost 12.34 11.39 10.45 (2.87) (1.92) (0.97) (3.47) (2.52) (1.58) TOTALS: 24532 26507 28481 1565 1639 1590 1649 1707 1424 1285 1339 1485 1546 1582 1618 1175 1221 1457 1486 1514 1385 1407 1429 1129 1362 1595 996 1201 1407 1955 1544 1668 1791 1794 1871 1949 1680 1753 1826 1072 1112 1308 1325 1342 760 790 820 964 977 989 |