Cost of Capital

Ponderosa requests an overall intrastate rate of return on rate base of 10.00%. CD believes that the return on rate base for all rural ILEC's would be the same since the systematic and non-diversifiable risks faced by all rural ILEC's are similar. In addition, on October 30, 2003 in Resolution T-16771, the Commission authorized a 10.00% rate of return in Ponderosa's last general rate case. CD recommends that the Commission approve Ponderosa's request for an overall rate of return of 10.00% for test year 2009.

Taxes

The differences in tax estimates between Ponderosa and CD are due to differences in estimates of revenues and expenses. Both CD and Ponderosa used a Corporate State Franchise Tax (CCFT) rate of 8.84% and a Federal Income Tax of 34.00%. CD's estimate of 2009 Intrastate Operating Taxes (including other taxes) of $1,340,119 is $193,513, or 12.62%, lower than Ponderosa's estimate of $1,533,632.