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1 BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION?:? -.-U I$ '10 h5 /=I!.- i q IN THE MATTER OF THE APPLICATION 1 OF THE EMPIRE DISTRICT ELECTRIC 1 COMPANY FOR APPROVAL OF A GENERAL ) CHANGE IN RATES AND TARIFFS ) DOCKET NO DIRECT EXHIBITS OF ROBERT DANIEL FINANCIAL ANALYST FINANCIAL ANALYSIS SECTION ON BEHALF OF THE GENERAL STAFF OF THE ARKANSAS PUBLIC SERVICE COMMISSION DECEMBER 17,2010 a

2 DOCKET NO. *I U DIRECT EXHIBIT RD-7 The Empire District Electric Company Weighted Cost of Capital Staff Recommendation Component Amount Proportion Rate Wtd Cost Long-Term Debt (7) (5) Common Equity {I) ADIT (4) ADlTC - Long (2)(5) ADlTC - Short (2) (5) ADITC - Common (2) Customer Deposits (3)(5) Short-Term I Interim Debt (I) (5) CAOL (4) $655,488, ,077, ,636,438 10,042, ,808 9,254,479 9,511,380 25,705, ,913, % 34.26% 14.16% 0.57% 0.02% 0.52% 0.54% 1.46% 1 +I.28% 5.54% 10.00% 0.00% 5.54% 1.20% 10.00% 3.28% 1.20% 0.00% 2.06% 3.43% 0.00% 0.03% 0.00% 0.05% 0.02% 0.02% 0.00% Totals $1,763,022, % 5.61% Sources: (I) Direct Exhibit RD-6 (2) Direct Exhibit RD-7 (3) Response to Staff Data Request APSC-048 (4) Amounts provided by Staff witness Trent Fulmer (5) Cost rates provided in APSC-048

3 DOCKET NO. IO-052-U DIRECT EXHIBIT RD-2 The Empire District Electric Company Requested Cost of Capital Per Application Component Amount Proportion Rate Wtd Cost Long-Term Debt $670,724, % 5.75% 2.24% Common Equity 648,275, % 10.90% 4.10% ADIT 165,277, % 0.00% 0.00% ADITC 2,307, % 70.00% 0.01% Customer Deposits 9,216, % 3.28% 0.02% Short-Term I Interim Debt % 2.02% 0.00% CAOL 228,38l, % 0.00% 0.00% Totals w,724~ 132,~ % 6.37% Source: MFR Schedule D-1 Requested External Capital Balance Proportions Long-Term Debt 670,724, % Short-Term I Interim Debt - Common Equity 648,275,720 49% 1,319,000, %

4 DOCKET NO. IO-0524 DIRECT EXHIBIT RD-3 The Empire District Electric Company External Capital Components Amounts and Proportions 4 Quarter Average Amount (millions) Short-Term Long-Term Preferred Common Debt Debt Stock Equity Balances $34.6 $690.9 $0.0 $ Qtr Avg as of Quarter Average Proportions Short-Term Long-Term Preferred Common Debt Debt Stock Equity Proportions 2.5% 50.9% 46.6% Total Debt I Total Equity 53% 47% Source: 2009 SEC Form IO-K and IO-Q s for the noted quarter ends

5 DOCKET NO DIRECT EXHIBIT RD-4 Staff Rlsk-Comparable Sample TotaI Debt-to-Total Equity 4 Quarter Average Amount (millions) Short-Term Long-Tern Preferred Common Company Debt Debt Stock Equity AlIete he American Elec. Pwr , ,347.3 CIeco Cop ,265.4 I.o 1,238.4 DPL Inc , ,154.1 Duke Energy Corp , , ,181.5 Emplre District Electric Company Hawaiian Electric Industries, Inc , , Idacorp, Inc , , , ,895.7 PG&E Corp. 1, , ,649.0 Pinnacle West Capital Coy , , Portland General Electric Company I,786.a 12, , ,750.8 Southern Company ,604. I 1, , ,308.9 Xcel Energy tnc Allete Inc. American EIec. Pwi. Clew Corp. DPL Inc. Duke Energy Corp. Empire District Electric Company Hawaiian Electric Industries, Ine. Idacorp, Inc. PG&E Cop. Pinnacte West Capitat Corp. Portland Genera! Electric Company Southern Company Xcel Energy Inc. 4 Quarter Average Proportions Short-Term Long-Term Preferred Common Debt Debt Stock Equity 0.1% 43.2% 56.7% 3.2% 54.7% 0.2% 41.9% 4.3% 48.3% 47.3% 52.9% 0.9% 46.1% 0.6% 44.2% 55.2% 1.1% 49.9% 4.0% 45.0% 2.5% 50.9% 46.6% 1..6% 47.0% 1.2% 50.3% 0.9% 50.1, % 49.0% 1.5% 54.5% I.4% 42.7% 7.5% 52.0% 0.9% 39.6% 4.4% 5 1.1% 44.6% 1.5% 51.3% 47.2% 0.1% 53.3% 46.5% 0.2% 56.3% 0.4% 43.1% 3.8% 53.3% 2.9% 42.0% 4.0% 52.2% 0.2% 43.6% 1.7% 53.0% 0.6% 44.8% Average 2.1% 50.9% 0.8% 46.2% Total Debt I Total Equity 53% 47% Source: 2009 SEC Form 10-K and IO-Q's for the noted quarter ends

6 DOCKET NO DIRECT EXHIBIT RD-5 Page 7 OF 2 Staff Industry Sample of Electric Utilities Total Debt-to-Total Equity 4 Quarter Average Amount (millions) Short-Term Long-Term Preferred Common Com pan y Debt Debt Stock Equity Allete Inc. Alliant Energy A , American Elec. Pwr. 1, , Avista Corp , Black Hills Corp , Centerpoint Eenergy, Inc , CH Energy Group, Inc o Cteco Corp , Consolidated Edison Inc , Dominion Resources lnc , DPL Inc , DTE Energy Company , Duke Energy Corp , , Empire District Electric Company Entergy Corp , Exelon Corp , FPL Group Inc. 2, , Hawaiian Electric Industries, Inc , Idacorp, Inc , I lntegrys Energy Group, Inc , MGE Energy Inc , , OGE Energy Corp , Otter Tail Corp Pepco Holdings Inc , PG&E Corp. 1, , Pinnacle West Capital Corp. I , Portland General Electric Company 5.0 I, , P.S. Enterprise Gp , SCANA Corp , Sempra Energy ,943.O Southern Company , ,081.9 TECO Energy, Inc , Vectren Corp , I , Wisconsin Energy Corp , Xcel Energy lnc , , , , , , , , , , , , , , , , ,460.3, , ,646.2 i, , , , , , , , , , , ,119.3, , , ,409.2

7 DOCKET NO. IO-0524 DIRECT EXHIBIT RD-5 Page 2 OF 2 Allete Inc. Alliant Energy American Elec. Pwr. Avista Corp. Black Hills Corp. Centerpoint Eenergy, Inc. CH Energy Group, lnc. Cleco Corp. Consolidated Edison Inc. Dominion Resources Inc. DPL Inc. 5TE Energy Company Duke Energy Corp. Empire District Electric Company Entergy Corp. ExeIon Corp FPL Group lnc. Hawaiian Electric Industries, Inc. Idacorp, Inc. tntegrys Energy Group, lnc. MGE Energy Inc. OGE Energy Cop. Otter Tail Corp Pepco Holdings Inc. PG&E Corp. Pinnacle West Capital Corp. Portland General Electrjc Company P.S. Enterprise Gp. SCANA Corp Sempra Energy Southern Company TECO Energy, lnc. Vectren Corp Wisconsin Energy Corp. 4 Quarter Average Proportions ShorbTerm Long-Term Preferred Common Debt Debt Stock Equity 0.1 % 43.2% 56.7% 2.3% 3.2% 3.5% 8.1% 0.3% 0.8% 4.3% 1.7% I.5% 0.6% 0.6% 1.1% 2.5% 0.7% I.4% 6.0% I.6% 0.4% 2.2% 6.4% 1.5% 7.5% 4.6% 5.9% 7.0% 4.4% 1.5% 0.1% 0.2% 1.3% 3.3% 4.2% 1.8% 0.8% 4.0% 6.8% 44.8% 54.7% 50.3% 45.4% 76.7% 46.3% 48.3% 49.3% 57.4% 52.9% 54.8% 44.2% 49.9% 50.9% 56.4% 47.3% 53.8% 47.0% 50. I % 44.5% 36.2% 54.5% 52.0% 50.3% 37.9% 50.7% % 53.3% 56.3% 47.6% 54.8% 44.4% 53.3% 61-3% 50.9% 52.2% 50.5% 4.2% 0.2% 2.0% 1.0% 0.9% 0.9% 4.0% 1.5% 0.3% 1.2% 0.9% 1.4% 0.9% 1.3% 1.I% 0.4% 0.1% 0.9% 2.9% 0.2% 0.4% 48.6% 41-9% 46.2% 46.5% 23.0% 50.9% 47.3% 48.0% 40.2% 46.1% 44.6% 55.2% 45.0% 46.6% 41.4% 51.O% 40.3% 50.3% 49.0% 52.4% 57.4% 42.7% 39.6% 45.1% 54.9% 42.3% 44.6% 47.2% 46.5% 43.1 % 51.O% 41.9% 50.4% 42.0% 37.9% 43.9% 43.6% 42.3% Xcel Energy Inc. 1.7% 53.0% 0.6% 44.8% Average 2.8% 50.7% 0.7% 45.8% Total Debt I Total Equity 54% 46% Source: 2009 SEC Form 10-K and IO-Q s for the noted quarter ends

8 DOCKET NO. IO-052-U DIRECT EXHIBIT RD-6 The Empire District Electric Company Staff Recommended Capital Structure Amounts and Proportions Staff Recommended Recommended Total Debt-to- External Capital Balances Proportions Capital Structure Total Equity Long-Term Debt (I) $616,271, O% $655,488,224 53% Shod-Term Debt (I) ~9,000, % 25,705,421 Common Equity (I j 649,999, % 604,077,383 47% Total $1,285,271, $1,285,271,028 Source: (I) Response to Staff Data Request APSC-048

9 DOCKET NO. IO-052-U DIRECT EXHIBIT RD-7 The Empire District Electric Company Post-I 970 ADITC Allocation Post-1970 ADlTC (I) $1 9,690,381 Long-Term Short-Term Common Debt Debt Stock Tota I Amounts (2) $655,488,224 $25,705,421 $604,077,383 $1,285,271,028 Proportions 51 % 2% 47% 100% Amount of Post-I 970 ADITC $1 0,042,094 $393,808 $9,254,479 $1 9,690,381 All oca ted Source: (1) Response to Staff Data Request APSC-048 (2) Direct Exhibit RD-6

10 DOCKET NO U DIRECT EXHIBIT RD-8 Staff Risk-Comparable Sample Electric Company Revenue (d) S&P Rating (2) AIlete Inc. American Electric Power Cleco Corp. DPL Inc. Duke Energy Empire District Electric Company Hawaiian Electric Industries, Inc. IDACORP, lnc. PG&E Corp. Pinnacle West Capital Corp. Portland General Electric Company The Southern Company XceI Energy Inc. 90% 94% 95% 100% 79% 81 % 87% 88% 100% 91 % 84% 77% 96% 98% 00% 99% 91 % 80% BBB+ BBB BBB A- A- BBB- BBB- BBB BBB BBB A+ BBB+ BBB- BBB BBB+ A BBB A- Source: (?) Company 2009 SEC Form IO-Ks (2) S&P RatingsDirect, Strongest to Weakest, September 9, 201 0

11 THE EMPIRE DISTRICT LECTRIC COMPANY DOCKET NO DIRECT EXHIBITS OF ROBERT DANlEL DIRECT EXHIBIT RD-9 Staff Risk Comparable Sample Price, Dividend, and Yield 13 Week Average Current Dividend Company Price Dividend Yield AIlete Inc. American Electric Power Cleco Corp. DPL Inc. Duke Energy Empire District Electric Company Hawaiian Electric Industries, Inc. IDACORP, Inc. PG&E Corp. Pinnacle West Capital Corp. Portland General Electric Company The Southern Company Xcel Energy Inc. $35.72 $35.46 $28.40 $25.41 $16.7? $35.09 $ $ $35.96 $27.29 $36.58 $46.59 $40.95 $20.41 $40.84 $34.70 $23.58 $23. l I a % 4.74% 3.52% 4.77% 5.87% 3.59% 6.49 % 5.36% 3.34% 3.75% 4.37% 3.91% 5.13% 5.10% 6.07% 5.24% 5.26% 4.38% Sou me: Yahoo! Finance

12 DOCKET NO. IO-0524 DIRECT EXHIBIT RD-lO Staff Risk-Comparable Sample Growth Rates Company Allete, Inc. American Electric Power Inc. Cleco Corp. DPL lnc. Duke Energy Corp. Empire District Electric Company Hawaiian Electric Industries, lnc. IDACORP, Inc. PG&E Corp. Pinnacle West Capital Corp. Portland General Electric Company The Southern Company Xcel Energy Inc. 4.0% 4.1% 6.6% 8.6% 2.9% 3.6% 5.6% 7.8% 4.5% 6.1% 5.4% 6.8% 6.0% 4.2% 3.5% 4.9% 6.8% 5.7% 3.5% 4.3% 6.0% 1 2.7% 4.1 % 4.8% 6.6% 4.6% 5.6% 5.0% 6.6% 5.2% 4.1% 3.1% 4.8% 5.6% 3.0% 4.5% *I 1.4% 2.4% 4.6% 3.9% 5.4% 4.7% 5.0% 4.7% 6.3% 4.3% 3.9% 2.8% 4.8% 4.4% 4.9% Notes: gl: Calculated long-term sustainable growth rate giving 114 weight to projected "brvs" ending in and 314 weight to the average of Value Line's projected growth in earnings from to , Zack's, Reuters, and Yahoo's estimated EPS growth rates g2: Calculated long-term sustainable growth rate giving 112 weight to projected "bws" ending in and 112 weight to the average of Value Line's projected growth in earnings from to , Zack's, Reuters, and Yahoo's estimated EPS growth rates g3: Calculated long-term sustainable growth rate giving 314 weight to projected "brvs" ending in and 114 weight to the average of Value tine's projected growth in earnings from to , Zack's, Reuters, and Yahoo's estimated EPS growth rates g4: Average projected GDP growth rate as reported by the CBO for

13 DOCKET NO. IO-0524 DIRECT EXHIBIT RD-1 I Staff Risk-Comparable Sample Cost of Equity Results Company kl k2 k3 k4 AIlete, Inc. American Electric Power Inc. Cleco Cop. DPL Inc. Duke Energy Corp. Empire District Electric Company Hawaiian Electric Industries, Inc. IDACORP, Inc. PG&E Corp. Pinnacle West Capital Corp. Portland General Electric Company The Southern Company Xcel Energy Inc. 0.9% 8.9% 9 0.2% 13.5% 8.8% 7.3% q 2.2% 13.2% 7.9% 9.9% 9.8% 'I 0.8% I1 2% 9.4% 9.6% 10.2% 12.1% *10.1% 8.5% 9.1% 9.5% 14.9% 8.6% 7.0% I.3% 12.0% 8.0% 9.4% 9.5% 10.5% 10.4% 9.2% 9.3% 10.1% 10.9% 9.7% 8.0% 9.3% 8.9% 16.3% 8.3% 0.3% 10.4% 10.8% 8.1% 8.8% 9.j % 10.3% 9.5% 9.0% 8.9% 10.1 % 9.7% 9.4% 10.3% A0.1% 8.9% IO.?% 1 1.2% 8.9% 11.9% 10.7% 8.7% 9.1% 9.7% 9.3% 10.5% 0.5% 11-5% 10.6% 10.6% 9.7% Cost of Equity Results 10.2% 9.9% 9.6% 10.1 % Average 1 Median 1 Midpoint 9.9% Source: Direct Exhibits RD-9 and RD-I 0

14 DOCKET NO. IO-052-U DIRECT EXHIBIT RD-12 Staff Industry Sample of Electric Utilities Price, Dividend, and Yield 13 Week Current Dividend Company Average Price Dividend Yield Allete, Inc. Alliant Energy American Electric Power Inc. Avista Corp. Hack Hills Corp. Centerpoint Energy, Inc. CH Energy Group, Inc. CIeco Corp. Consolidated Edison, Inc. Dominion Resources Inc. DPL Inc. DTE Energy Company Duke Energy Corp. Empire District Electric Company Entergy Corp. Exelon Corp. FPL Group, Inc. Hawaiian Electric Industries, Inc. IDACORP, Inc. Integrys Energy MGE Energy Inc. OGE Energy Corp. Otter Tail Corp. Pepco Holdings, Inc. PG&E Corp. Pinnacle West Capital Corp. Portland General Electric Company P.S. Enterprise Group SCANA Corp. Sernpra Energy The Southern Company TECO Energy, Inc. Vectren Corp. Wisconsin Energy Corp. Xcel Energy Inc. $35.72 $34.88 $35.46 $21-23 $31.43 $14.55 $40.50 $28.40 $45.32 $41-62 $25.41 $46.75 $ $35.09 $j 9.71 $77.49 $40.36 $51-64 $23.13 $35.96 $48.29 $37.38 $27.29 $36.58 $ $ $ $46.59 $40.95 $20.41 $40.84 $32.42 $37.67 $53.06 $34.70 $*16.12 $24.73 $23.58 $55.25 $23.1 I l.oo I oo 2.38 I 'I I I I.go I I I.60 1.Ol 4.93% 4.53% 4.74% 4.71 % 4.58% 5.36% 5.33% 3.52% 5.25% 4.40% 4.77% 4.79% 5.87% 3.59% 6.49% 4.20% 5.20% 3.87% 5.36% 3.34% 5.63% 4.01% 3.75% 4.37% 3.71 % 6.1 0% 6.46% 3.91 % 5.13% 5.1 0% 6.07% 4.23% 5.04% 2.94% 5.24% 5.09% 5.50% 5.26% 2.90% 4.38% Source: Yahoo! Finance

15 DOCKET NO DIRECT EXHIBIT RD-13 Staff Industry Sample of Electric UtIltties Growth Rates Company gl Allete, Inc. Wliant Energy American Electric Power Inc. Avista Corp. Black Hilts Cop. Centerpoint Energy. [ne. CH Energy Group, tnc. Clem cop. Consolidated Edison, Inc. Dominion Resources Inc. DPL tnc. DTE Energy Company Duke Energy Cop. Empire District Electric Company Entergy Cow. Exelon Corp. FPL Group, Ine. Hawaiian Electric Industries, lnc. [DACORP, Inc. lntegiys Energy MGE Energy Inc. OGE Energy Cow. Otter Tail Coy. Pepco Holdings, Inc. PG&E Cop. Pinnacle West Capital Corp. Portland Genera[ Electric Company P.S. Enterprise Group SCANA cop. Sempra Energy The Southern Company TECO Energy, tnc. Vectren Cop. Wisconsin Energy Cop. Xcel Energy Inc. 4.0% 7.1% 4.1% 4.9% 5.7% 3.3% 6.6% 3.7% 5.7% 8.6% 4.9% 2.9% 3.6% 5.6% 4.4% 2.7% 6.3% 7.8% 4.5% 8.0% 5.4% 6.1% 5.4% 5.2% 9.4% 4.3% 6.8% 6.0% 4.2% 3.5% 3.3% 4.5% 5.1% 4.9% 6.8% 4.5% 6.8% 0.5% 5.7% 3.5% 6.7% 4.3% 4.4% 4.5% 6.3% 3.1% 6.0% 3.6% 5.7% 1 4.5% 2.7% 4.+l% 4.0% 4.7% 4.2% 6.3% 6.6% 4.6% 6.4% 5.4% 5.6% 5.0% 5.6% 7.6% 3.5% 6.6% 5.2% 4.1% 3.1% 4.3% 4.7% 5.4% 4.8% 6.3% 4.3% 5.6% 7.9% 3.0% 6.2% 4.5% 3.9% 3.8% 6.8% 2.8% 3.6% 5.7% 11.4% 4.1% 2.4% 4.6% 3.9% 5.0% 5.6% 6.4% 5.4% 4.7% 4.7% 5.5% 5.0% 4.7% 6.1% 5.8% 2.8% 6.3% 4.3% 3.9% 2.8% 4.9% 5.7% 4.0% 5.9% 4.0% 4.4% 7.2% 4.9% 53% 53% Notes: gl: Calculated long-term sustainab!e growth rate giving 1/4 weight to projected "brvs" ending in and 314 weight to the average of Value Line's projected growth in eamlngs from to , Zack's, Reuters, and Yahoo's estimated EPS growth fates g2: Calcutated long-term sustainabte growth rate giving It2 weight to projected "brvs" ending in and 112 weight to the average of Value Llne's projected growth in earnings from to , Zack's, Reuters, and Yahoo's estimated EPS growth rates g3: Calculated long-term sustainable growth rate giving 3f4 weight to projected "brvs" endlng in and 114 weight to the average of Value Line's projected growth in earnings from to Zack's, Reuters, and Yahoo's estimated EPS growth rates a4: Averaoe oroiected GDP arowth rate as reaorted bv the CBO for

16 DOCKET NO DIRECT EXHIBITS OF ROSERT DANIEL DIRECT EXHIBIT RD-14 Staff tndustry Sarnpie of Electric Utilities Cost of Equity Results Company ki k2 k3 k4 Altete, Inc. Altiant Energy American Electric Power Inc. Avista Corp. Black Hills Corp. Centerpoint Energy, Inc. CH Energy Group, Inc. Cleco Corp. Consolidated Edison, Inc. Dominion Resources Inc. DPL lnc. DTE Energy Company Duke Energy Corp. Empire District Etectric Company Entergy Corp. ExeIon Corp. FPL Group, Inc. Hawaiian Electric Industries, Inc. IDACORP, Inc. lntegrys Energy MGE Energy Inc. OGE Energy Corp. Otter Tail Coy. Pepco Holdings, Inc. PG&E Corp. Pinnacle West Capital Corp. Portland General Electric Company P.S. Enterprise Group SCANA Corp. Sempra Energy The Southern Company TECO Energy, Inc. Vectren Corp. Wisconsin Energy Corp. Xcel Energy Inc. Cost of Equity Results Average Median Midpoint 8.9% 11.7% 8.9% 8.5% 11.3% 9.1% 8.0% 10.8% 9.3% 10.3% 9.4% 10.1% 9.6% 9.1 % 8.7% 10.1% 1 9.2% 8.4% 9.9% 11.2% I-l.7% 12.3% 10.7% 8.7% 8.4% 0.2% 10.7% 10.2% 9.5% 8.9% 8.9% 9.0% 8.9% 8.9% 10.6% 10.1% 13.5% 9.7% 0.8% 10.1% 14.9% 9.3% 8.6% 10.1% 16.3% 8.9% 8.3% 9.8% 10.1% 10.2% 11.2% 7.3% 7.8% 0.3% 8.9% 12.2% 11.3% 10.4% 11.9% 8.7% 10.2% 13.2% 7.9% 13.7% 9.0% 9.4% 10.3% 12.0% 8.0% 12.1% 9.3% 10.9% 10.3% 10.8% 8.1% 10.4% 9.6% 10.6% 9.2% 10.7% 8.7% 11.0% 9.4% 9.5% 9.5% 9.4% 9.9% 9.4% 8.8% 9.1% 9.8% 9.5% 9.1% 9.7% 8.9% 75.7% 10.8% 10.8% 112% 9.4% 9.4% 13.8% % 10.4% 9.2% 9.0% 12.0% 9.3% 10.3% 9.5% 9.0% 9.1% 11.5% 11.9% 9.3% 10.5% 10.5% 9.6% 9.3% 8.9% 11.5% 7.6% 8.6% 9.6% 9.6% 9.6% 10.2% 11.9% 9.8% 8.3% 10.1% 11.5% 1 8.7% 10.1% 11.1% 10.4% 8.3% 10.6% 10.5% 10.1% 9.0% 9.6% 10.9% 12.1% 10.9% 9.7% 10.6% 7 1.5% 10.8% 10.1% 0.2% 10.1% 9.7% 9.4% 9.7% 10.2% 1 9.8% 10.1 % 1 1 I O,O% Source: Direct Exhibits RD-I2 and RD-13

17 DOCKET NO U DIRECT EXHIBIT RD-15 The Empire District Electric Company Weighted Cost of Debt Component Long-term Debt Short-term Debt Customer Deposits ADITC - LT Debt ADlTC - ST Debt Total Weighted cost 2.06% 0.02% 0.02% 0.03% 0.00% 2.13% Source: Direct Exhibit RD-7

18 CERTIFICATE OF SERVICE I certify that a copy of the foregoing has been delivered to all parties of record by electronic means or regular mail, postage prepaid, on December 17,

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