3. Summary of Parties' Requests

Great Oaks proposes a rate of return of 17.58% on its operating expenses using a rate of margin (operating margin) analysis, which it states is traditionally applied to Class B water companies. This would equate to a return on equity of 18.70% based on a 100% equity capital structure, as explained below. Alternatively, Great Oaks argues it should receive 192 basis points above the otherwise applicable return on equity. Assuming the 10.20% return on equity adopted in D.09-05-019 and D.10-10-036 for the other Class A water companies, this would translate into a requested 12.12% return on equity for Great Oaks.

DRA imputed a capital structure of 34% debt and 66% common equity and DRA used the same average debt cost rate of 7.48% that DRA recommended for the five single-district Class A water companies considered in A.09-05-001 et al. (Ex. DRA-1 at 6.) Therefore DRA recommends the following cost of capital: