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SUMMARY OF TESTIMONY <br /> <br />Witness: Dr. Bruce Faimhild, consultant with FINCAP, Inc. <br /> <br />Background: M.B.A. and Ph.D. in finance, accounting, and economics; <br /> Certified Public Accountant. Extensive consulting <br /> experience involving regulated industries, valuation of <br /> closely-held businesses, and other economic analyses. <br /> Previously held managerial and technical positions in <br /> government (PUCT), academia, and business, and taught <br /> at the undergraduate, graduate, and executive education <br /> levels. Broad experience in technical research, computer <br /> modeling, and expert witness testimony. <br /> <br />Purpose of Testimony: <br /> <br /> Recommend a fair rate of retum to apply to the TXU Gas' net <br /> invested capital, based on appropriate capital structure ratios <br /> and costs of debt, preferred stock, and common equity. <br /> <br /> Key Points/issues: <br /> <br /> 1. The Company's capital structure ratios should be based <br /> on Local Distribution Company (LDC) industry group <br /> averages. This approach is consistent with economic and <br /> legal principles underlying a fair rate of return, reflects the <br /> mix of capital required to accommodate the business risks <br /> associated with providing transmission and distribution <br /> services, allows the ROE to be based directly on estimates <br /> for comparable utilities, and follows precedent established <br /> in previous Commission-approved dockets. <br /> <br /> 2. The Company's costs of debt and preferred stock should <br /> reflect the average rates of the same group of companies <br /> from which the capital structure ratios were derived. <br /> <br /> 3. The ROE estimate reflects the application of the <br /> Discounted Cash Flow (DCF) model and the risk premium <br /> methods to the same group of LDCs used to determine <br /> the capital structure and debt and preferred stock costs. <br /> The DCF approach revealed a ROE range between 10.4% <br /> and 11.4%, and the risk premium approach revealed a <br /> ROE range between 10.74% and 12.14%. <br /> <br /> Fairchild - Summary of Testimony Page I of 2 <br /> <br /> <br />