Response From the Author

Stephen Hill's long letter raises a number of theoretical and empirical criticisms of my article, as well as raising accusations of my "bias" in favor of utilities. Briefly, Mr. Hill appears to have three thrusts to his criticism: 1) I understand neither the theory of DCF valuation nor its implementation, yet advocate its abandonment by regulators; 2) I reject the Efficient Market Hypothesis (EMH) and, therefore, all market-based techniques for estimating the cost of equity; and 3) in raising the volatility of cost of equity (COE) estimates produced by the DCF, I have simply created a straw man issue, which I then conveniently knock down. In raising these criticisms, Mr. Hill, who predominantly testifies on behalf of ratepayer advocates, has completely misrepresented the conclusions of my article. Furthermore, his own arguments are inconsistent and illogical, a sin of which he accuses me.