The Calaveras matter was a Cost of Capital ratemaking proceeding before the Public Utilities Commission of the State of California. Ten independent, small, rural local exchange carriers (the “Independent Small LECs” or “Applicants”)—California telephone companies serving high-cost rural territories—jointly applied to the Commission for a determination of their cost of capital for ratemaking purposes. The Weighted Average Cost of Capital (“WACC”) that the Commission adopts sets the authorized rate of return on rate base, which in turn drives each company's revenue requirement and rates in its next rate case.
On behalf of the Applicants, Professor Mark E. Zmijewski—the Charles T. Horngren Professor of Accounting Emeritus at The University of Chicago Booth School of Business—submitted pre-filed opening testimony and testified on the appropriate cost of capital for the Independent Small LECs. He was asked to recommend an appropriate cost of equity capital and the related inputs needed to assist the Commission in determining an appropriate WACC for each Applicant and whether a single cost of capital was applicable to each company.