Consumer Advocate expert recommends 12% ROE for Young Brothers; opposing counsel questions methodology and qualifications

Dr. Pavlovic, a Consumer Advocate witness, told the Public Utilities Commission he recommends a 12 percent allowed return on equity (ROE) for Young Brothers.

Pavlovic said he relied in part on the ROE ranges presented in the utility’s cost‑of‑capital filings (characterized in the transcript as the overall reasonable range from another expert’s analysis). He explained he used the intermodal transport proxy‑group reasonable range (reported in testimony as roughly 11.75 percent to 14.5 percent before risk adjustment) and positioned his recommendation toward the lower part of that range. He described part of his assessment as a "rough measure" and pointed to lower comparative betas for regulated utilities as one indicator that Young Brothers faces lower systematic risk than some unregulated proxy companies.

In direct testimony Pavlovic corrected a prior arithmetic detail in his capital‑structure calculation (rounding to a 48% debt, 52% equity recommendation) and said the minor numeric correction did not change his recommended ROE.

Young Brothers’ counsel questioned Pavlovic about his educational background and analytic practice. Counsel noted Pavlovic does not hold a formal degree in economics, asked whether he had published peer‑reviewed work on cost‑of‑capital analysis, and pressed him on why he did not run his own CAPM or discounted cash flow models. Pavlovic acknowledged he did not run independent CAPM or DCF models in this docket and that he relied on the other expert’s model results, together with his professional judgment about relative risk and regulatory protections.

Pavlovic defended his approach as consistent with regulatory practice that considers multiple models and expert judgment. On cross‑examination he described the comparison of betas and the observation that regulated companies often exhibit lower measured betas as illustrative rather than dispositive, and he said his recommended placement (12 percent) sits within the intermodal sample’s lower quartile rather than at the absolute floor of the proxy range.

The record shows a dispute over methodology and expert credentials. Pavlovic emphasized his decades of participation in regulatory rate proceedings and experience evaluating business, financial and regulatory risks, while opposing counsel characterized parts of his analysis as a "rough estimate" that lacked the empirical modeling normally relied on in cost‑of‑capital testimony.

Commissioners accepted Pavlovic’s answers for the record and the parties agreed to submit post‑hearing briefs; the commission did not render a decision on ROE in the hearing transcript.