Attachment 2 - Sole Source Justification.pdf

JUSTIFICATION FOR

OTHER THAN FULL & OPEN COMPETITION

Moody’s CreditView and Credit Trends is used by Financial Analysts in the Office of Administrative Litigation for credit ratings, individual risk reports on subject and proxy group companies and public utility bond yields required to assess ROE analyses for the appropriate return on capital to be allowed for companies before the Commission in rate cases.

The following Justification for Other than Full & Open Competition is prepared in accordance with FAR Subpart 6.303-2.

1. ORGANIZATION:

Federal Energy Regulatory Commission Office of the Executive Director Acquisition Services Division 888 First Street, NE Washington, DC 20426

2. NATURE AND/OR DESCRIPTION OF ACTION BEING APPROVED:

It is the intent of the Office of Administrative Litigation at the Federal Energy Regulatory Commission to obtain (Moody’s CreditView and Credit Trends information and data for the aforementioned location.

The basis for limiting the sources for this acquisition is that the Commission specifically requires use of Moody’s credit ratings and bond yield data for its ROE analyses in utility rate cases. The Commission has expressly determined that Moody’s is one of its two main sources of credit ratings for developing proxy groups. For example, in Opinion No. 531 at paragraph 107, the Commission stated:

We further find that ratings from both major credit ratings services should be considered when developing the comparable risk band. As the NETOs correctly state, investors rely upon credit ratings from both S&P and Moody’s. Therefore, while the Presiding Judge’s application of the credit rating screen using only S&P ratings is consistent with Commission precedent, basing the credit rating screen on data only from S&P does not necessarily provide an accurate estimate of the NETOs’ risk. Thus, we find that, in applying the credit rating proxy group screen to exclude companies more than one notch above or below the NETOs’ credit ratings, it is appropriate to use both the S&P corporate credit ratings and the Moody’s issuer ratings when both are available. If a company is more than one notch above or below the credit ratings of the utilities whose rates are at issue based on either the S&P ratings or the Moody’s ratings, that company shall be excluded from the proxy group.

In another rate case decision, the Commission specified Moody’s as one of its two main sources for credit ratings. See Opinion No. 524 at paragraph 306.

In addition, Moody’s is the sole source of public utility bond index yield data that the Commission requires for assessing the results of its ROE analyses for low-end outliers. See Opinion No. 879 at paragraph 81;

Opinion 575 at paragraphs 20, 96 and 134; Mystic Order Setting Base ROE at paragraph 133. All of these rate case decisions, which reflect precedents to be followed in future rate cases, require the use of Moody’s public utility bond yields. I am not aware of any other sources (not even S&P) that provide monthly updated public utility bond yields for various credit ratings that can be used to calculate the Commission’s low-end outlier test.

Since the Commission specifies use of Moody’s credit ratings (along with S&P) and public utility bond index yield data (Moody’s is the only publisher of such information based on its ratings), no other source of similar information can be used to satisfy Commission requirements. Other investor services may develop or calculate ratings or information and data differently than Moody’s and are not renowned enough to be considered reflective of investor sentiment. Indeed, institutional investors are the major purchasers of utility common stocks and can easily afford subscriptions to the top investor services, which are then considered to reflect investor sentiment. Therefore, substitute sources of such information, which to my knowledge do not even exist, cannot be used to satisfy Commission requirements.

3. DESCRIPTION OF REQUIREMENT:

Moody’s credit ratings and analyses are unique, and since the Commission requires their use, the finance group must have access to their credit trends and analyses regardless of cost. Otherwise, the finance group cannot perform its assigned duties at the Commission. However, historical pricing has been consistent and fair. Market research using Moody’s platform is conducted by all financial analysts, as all are routinely assigned rate cases that require analysis dependent on Moody’s Direct data and analyses.

The estimated dollar value of this procurement with a base and four option years is $677,240.

4. STATUTORY AUTHORITY:

The statutory authority permitting other than full and open competition is 41 U.S.C. 253(c)(3) in accordance with:

[ ] FAR 6.302-1, only one responsible source and no other supplies and services will satisfy Agency Requirements;

[ ] FAR 6.302-2, Unusual and compelling urgency;

[ X ] Other, defined below:

FAR 6.302-3 Industrial mobilization; engineering development or research capability; or expert services.

5. DEMONSTRATE PROPOSED CONTRACTOR’S UNIQUE QUALIFICATIONS:

Moody’s is recognized as highly renowned investor service whose views are explicitly considered to be reflective of investor sentiment, and its information and data are explicitly required by the Commission for credit ratings and bond yield inputs into rate of return on equity analysis that is an element of utility companies’ cost of service in rate filings at the Commission. There are other highly renowned investor service companies such as Standard & Poor’s and Value Line that do exist. However they are also explicitly required by the Commission for certain other inputs to return on equity analysis. Moody’s credit ratings are explicitly required by the Commission for proxy group selection, its company specific risk reports are routinely used in the Commission’s comparative risk analysis to determine ROE placement within the zone of reasonableness of proxy groups for the return component of the company’s rates, and its bond yields are the only source of such data required for inputs into its low-end outlier analysis for both the DCF and CAPM models.

6. SOURCES SOUGHT EFFORTS:

OAL does not know of other sources that publish the public utility industry bond yield data required by the Commission to conduct its ROE analyses and also sometimes used as a surrogate for the cost of debt.

The Commission requires the use of Moody’s specifically for credit ratings to determine proxy group selection, its risk analysis of subject companies and the proxy group companies for ROE placement within the zone of reasonableness, and its public utility bond yields for its various ratings, updated monthly, which are used to develop low-end outlier tests of its DCF and CAPM model results. Please refer to the Commission’s precedent cites in section 2 above. Since the FERC’s financial analysts in the Office of Administrative Litigation are bound by Commission precedents which require the use of Moody’s data and analyses, we must use Moody’s in all rate cases before the Commission to fulfill our duties.

7. DETERMINATION OF FAIR & REASONABLE PRICING:

Moody’s credit ratings and analyses are unique, and since the Commission requires their use, the finance group must have access to their credit trends and analyses regardless of cost. Otherwise, the finance group cannot perform its assigned duties at the Commission. However, historical pricing has been consistent and fair.

8. DESCRIPTION OF MARKET RESEARCH CONDUCTED & RESULTS:

Market research was conducted via internet search and the products were not found on GSA or a GWAC.

9. ANY OTHER FACTORS SUPPORTING THE USE OF OTHER THAN FULL AND OPEN

COMPETITION:

OAL is not aware of any other sources of data besides the ones specified and required by the Commission that may be considered renowned investor services whose data and analysis are considered reflective of investor sentiment as required by the Commission.

10. A LISTING OF THE SOURCES, IF ANY, THAT EXPRESSED, IN WRITING, AN INTEREST IN

THE ACQUISITION.

None

11. A STATEMENT OF THE ACTIONS, IF ANY, THE AGENCY MAY TAKE TO REMOVE OR

OVERCOME ANY BARRIERS TO COMPETITION BEFORE ANY SUBSEQUENT ACQUISITION FOR

THE SERVICES REQUIRED:

None

12. CERTIFICATIONS & APPROVALS: (Signatures are required)

Technical & Requirements Certification:

I certify that the supporting data under my cognizance that are included in this document are accurate and complete to the best of my knowledge and belief.

Insert Name Date (Insert Title & Department)

Contracting Officer Certification:

I certify that this justification is accurate and complete to the best of my knowledge and belief.

Date

Contracting Officer Acquisition Services Division Office of the Executive Director Federal Energy Regulatory Commission