COC Utilities Report 02-01-11.pdf

Please refer to page 14 of this report for detailed disclosure and certification information.
INDUSTRY UPDATE
Institutional Equity Research

February 2, 2011 Utility Monthly

Prices: (2/2/11)

Industry:
Utilities

James L. Bellessa, Jr., CFA
406.791.7230
[e-mail]

Michael Bates
Research Associate
406.791.7216
[e-mail]

When Will More Utilities Abandon Defined Pension Plans?

• Our BUY-rated utilities are Alliant Energy Corp., IDACORP, Inc., ITC Holdings
Corp., and MDU Resources Group.
• New legislation has been introduced in Colorado with the intention of altering the
state’s energy policy, which, if enacted, could result in less capital spending by
Xcel Energy and Black Hills over the next five years.
• Regulators in California reaffirmed limits on the number of renewable energy
credits the state’s investor-owned utilities can purchase from sources outside the
state. If the rule stands, the electric market’s interest in NorthWestern Corp.’s
proposed transmission projects could be greatly reduced in the near-term.
• Portland General Electric issued a request for proposals to evaluate bids for
potential new electric generation assets, including peaking, renewable, and
baseload generation that will potentially be constructed and brought online
between 2013 and 2015.

The nation’s economic difficulties in the last few years appear to be leading utility
regulators to begin closely scrutinizing the traditional regulatory practice of allowing the
expenses of defined benefit pension plans to be passed through to utility customers.
Regulators in several states have acknowledged (and in some cases voiced
agreement with) public opinion that it is unreasonable for utility customers to be solely
responsible for funding spendy defined pension plans. Regulators in California and
Idaho have both pointed to the fact that a majority of non-utility employers have
replaced defined benefit plans with programs that place greater responsibility and
investment risks on employees.

Within our coverage universe, we would not be surprised to see this trend continue.
The Idaho Public Utilities Commission recently directed utilities under its jurisdiction
(including IDACORP and to a lesser extent Avista) to investigate possible changes to
retirement programs that place investment risk more in the hands of shareholders and
employees. In some other states, utilities began implementing alternatives to defined
pension plans several years ago. As shown in Table 1, roughly half of the utilities
under our coverage have either closed their defined benefit pension plans to new
employees or closed their plan to new non-union employees.

It is our view that over time we will continue to see a slow but steady trend of utilities
closing their defined benefit pension plans to new employees in favor of retirement
packages that more closely mirror what is available to employees in other sectors.
(We believe it is important to note here that prudent contributions to these plans are
still likely to be funded by the ratepayers, though the size of the contributions
recovered in rates will likely be more predictable.) Over time, the elimination of
defined benefit plans has potential to add to the risk profile of utilities as the difference
between pension contributions and revenue collections could vary significantly in some
years. However, these differences are unlikely to be material until new employees
make up a larger proportion of the utilities’ employee base.

D.A. Davidson & Co.
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Table 1: Defined Benefit Plan Status within D.A. Davidson Utility Coverage Universe
Plan
Status1
Funding
Shortfall
($ millions)2 % Funded
Shortfall
Per Share
Shortfall as
% of Share
Price
Shortfall as
% of EV
ALE U ($138) 70.4% $3.85 10.2% 6.7%
AVA O ($106) 72.1% $1.86 8.1% 4.5%
BKH U ($143) 55.9% $3.65 11.5% 5.7%
HE O ($275) 72.9% $2.93 11.6% 7.5%
IDA O ($193) 61.9% $3.93 10.3% 5.8%
ITC O ($19) 46.2% $0.38 0.6% 0.3%
LNT O ($144) 84.4% $1.30 3.5% 2.1%
MDU U ($98) 72.3% $0.52 2.5% 1.8%
MGEE C ($75) 64.1% $3.24 7.8% 5.7%
NWE O ($24) 94.3% $0.66 2.3% 1.1%
NWN C ($107) 65.4% $4.00 9.0% 5.4%
OTTR O ($67) 67.8% $1.85 8.0% 4.8%
POR U ($85) 82.7% $1.13 5.0% 2.4%
STR C ($168) 65.5% $0.94 5.3% 3.8%
XEL O ($381) 86.5% $0.79 3.3% 1.8%
Average ($135) 70.8% $2.07 6.6% 4.0% 1O:Defined Benefit Plan is open to new employees U:Open only to new union employees C:Closed to new
employees 2As of December 31, 2009
Source: Company Reports

A number of proposed legislative bills have been introduced in Colorado with the intention of
altering the state’s energy landscape and redirecting public utility policy, which could
potentially have an impact on the operations of Xcel Energy and Black Hills Corp. The
proposals would largely eliminate the former governor’s (Bill Ritter) "new energy economy"
efforts as the state’s new governor, John Hickenlooper (also a Democrat), pushes for a
reordering of priorities, placing greater emphasis on the state’s water concerns than those of
its energy sources. Proposed legislation includes the following:
1. Eliminate or reduce the state’s aggressive renewable energy standard (currently
calling for 30% renewables by 2020).
2. Eliminate the state’s new guidelines for greenhouse gas emissions reductions.
3. Removal of a requirement for the Colorado Public Utilities Commission (CPUC) to
give special consideration to renewable energy projects in planning generation as
well as restate the priority of minimizing costs to ratepayers.
4. Utilities would be required to structure their resource planning based on least-cost
principles, being neutral with regard to fuel type and resource technology.
5. The state’s current transmission siting process, in which approval must be granted by
affected counties and municipalities, would be replaced with a requirement that all
new projects would need approval of the CPUC and a new siting commission, made
up of three utility regulators, three representatives of local governments affected by
the application, and one representative of the public.
6. Public utilities would be allowed to offer financing to ratepayers for the costs
associated with energy efficiency improvements to residences, with the property
owner repaying the financing over time through direct charges on the owner's utility
bills.
7. Investor-owned gas and electric utilities would be required to make a quarterly
disclosure to customers about the types of fuels used to generate electricity, the
percentage of the utility's electricity attributable to each fuel, the load profile for each
fuel and the total cost of generating electricity per kWh for each fuel type.

At this point we do not believe these proposals have significant potential or likelihood of
passage to alter our outlook on Xcel Energy or Black Hills. Several of the proposed bills
appear to be thinly-veiled attempts by the region’s coal producers to reverse the former
Governor’s environmental policies, which have been in effect for less than one year and
continue to reflect a preference for more environmentally friendly energy sources than
relatively low priced coal.

*****
Industry Developments
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On January 13th the California Public Utilities Commission (CPUC) reaffirmed a previously-set
limit of the amount of renewable energy credits (RECs) the state’s investor-owned utilities
(IOUs) can purchase from outside the state. This “temporary” rule limits the RECs to no more
than 25% of the IOU’s annual renewable portfolio standard through the end of 2013.

Such out-of-state limitations on renewable energy and the uncertainty of whether the rules will
be extended beyond 2013 may well reduce the electric market’s interest in NorthWestern
Corp.’s Mountain States Transmission Intertie (MSTI) project and San Diego Gas & Electric’s
interest in the 309-MW Rim Rock wind farm project, in which a subsidiary of MDU Resources
Group hoped to be a contractor to NaturEner S.A., the Spanish company developing the
project in northern Montana.

On February 1st Avista Corp. announced the submission of an all-party settlement agreement
in the natural gas rate case currently underway for its Oregon service territory. If the
settlement is approved by the Public Utility Commission of Oregon (OPUC), the utility would be
granted a total revenue increase of roughly $3.0 million (+3.1%), with the first $2.0 million
increase effective March 15, 2011 and the remaining $1.0 million increase effective June 1,
2011. The settlement would base the utility’s ROE at 10.1% on a 50.0% equity capital
structure. The settlement would also allow deferred accounting treatment for two relatively
small capital projects expected to be completed by November, 2011, and for a subsequent rate
adjustment of ~$0.6 million on June 1, 2012.

*****

On February 1st Avista Corp. announced an agreement that would refund $1.2 million (-1.0%)
to customers as a result of revised 2009 tax calculations based on Oregon's Senate Bill 408,
which requires that utilities in Oregon file an annual tax report on the amount of taxes paid by
the utility compared with the amount of taxes collected through customer rates. In submitting
the filing, the utility noted that this year’s SB 408 refund rate is similar to the refund amount
that is currently being passed back to customers for the prior year’s filing.

*****

A final order was handed down by the Iowa Utilities Board (IUB) in Alliant Energy’s 2011 test
year general rate case. Although the $115 million (+9.7%) revenue increase allowed in the
final order was slightly below the $119 million level that had been collected in interim rates, the
IUB allowed the utility to begin recovering transmission service rates in an automatic
adjustment clause, rather than leaving the utility exposed to regulatory lag in an annual rate
case process. Although this mechanism came under the condition of a three-year rate case
moratorium in Iowa, we see the transmission rate rider as an important tool for the utility to
carry out its business in that state. We also note that requests for reconsideration have been
filed with the IUB by the utility and other intervenors, but so far none have been granted.

*****

On January 7th the Hawaii Public Utilities Commission (HPUC) approved a $6.0 million (+1.7%)
interim rate increase for Hawaiian Electric Industries’ HELCO 2010 test-year electric rate
case, which compares to the utility’s original request for an increase of $20.9 million (+6.0%).
The amount of the increase differs from a $4.4 million increase suggested in a settlement
agreement filed last September due to certain adjustments to the final order handed down in
November for HELCO’s 2006 test year rate case. We also note that the Commission chose
not to immediately implement the requested revenue decoupling mechanism, cost-of-service
recovery mechanism, or earnings-sharing mechanism, which had been agreed upon in the
settlement agreement. The interim rates on the Big Island went into effect on January 14th.

*****

On January 19th the Minnesota Public Utilities Commission (MPUC) denied the request by
Minnesota Power, ALLETE’s main regulated utility, for reconsideration of the regulator’s rate
order of November 2, 2010. In that decision, Minnesota Power was granted a ~$54 million rate
increase based on an allowed 10.38% ROE. The MP requests that were dismissed involved
issues relating to pension and lobbying expenses, allocation of income taxes in the class cost
of service study, class revenue apportionment, and interim rate rules. The decision to reject
the utility’s request does not alter the utility’s earnings power, as it has been collecting roughly
Regulato y Developments
D.A. Davidson & Co.
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the same amount under interim rates as it was granted in the final decision, due largely to the
rebound in electric usage by taconite-producing customers in the past year.

*****

In late January, the Colorado Public Utilities Commission denied Xcel Energy’s request for
reconsideration of its compliance plan for the state’s Clean Air, Clean Jobs Act, which will
require the utility to spend roughly $1.4 billion to replace a significant portion of its coal-fired
generating fleet with natural gas-fired resources, as well as installing emission control
technologies for other plants. The Commission’s decision last month differs in several aspects
from the utility’s preferred plan for compliance with the law, and will result in a larger amount of
capital spending over the next five years. Although shareholders stand to benefit from
additional rate base growth under the approved plan, which also has the constructive
regulatory backing (including rate riders), one long-term risk in the situation is the fact that
popular support for cleaner energy can erode quickly as the associated costs start impacting
customer bills.

*****

On January 11th Black Hills Corp. filed an updated settlement agreement in its Iowa gas rate
case, incorporating most of the provisions included in an earlier settlement that had been
rejected by the Iowa Utilities Board. Under the new settlement agreement, the utility would be
granted a $3.4 million rate increase, which excludes provisions related to the now-rejected
investment recovery mechanism (IRM) which would facilitate recovery of costs associated with
certain infrastructure replacement projects (the previous settlement was rejected because it
was determined that there was not sufficient evidence to support the adoption of the IRM).
Although the settlement agreement appears to be a black box deal, the utility’s original filing
included a request for a $4.7 million rate increase, based on an 11.25% ROE and a 51.58%
equity capital structure and a rate base of $109.2 million.

In January, Portland General Electric issued a request for proposals (RFP) to partner with an
independent evaluator (as required by the Oregon Public Utility Commission) to evaluate bids
for potential new electric generation assets, as specified in the utility’s integrated resource plan
accepted by the OPUC last November. To begin implementing that plan, the utility will conduct
up to three competitive bidding processes this year to acquire ~200 MW of peaking capacity by
2013, ~120 average MW (the equivalent of a 300-400 MW wind farm) of renewable capacity,
and 300-500 MW of baseload, high-efficiency combined-cycle natural gas generating capacity
by 2015. The company's resource plan also calls for 214 average MWs of energy efficiency
savings, amounting to half of the company's expected load growth over the next decade.

*****

On January 21st it was announced that Moody's Investors Service upgraded NorthWestern
Corp.'s long-term senior unsecured rating to Baa1 from Baa2 and the company's senior
secured first mortgage bond rating to A2 from A3. Moody's also assigned a P-2 rating to the
company's senior unsecured commercial paper and gave the company a stable rating outlook.
The upgrade was based on the rating agency’s view that the recently-completed rate case in
Montana had a reasonable outcome, as well as an expectation that the company's trend of
solid financial performance “is likely to be sustainable over the medium term and beyond,
including financial credit metrics that would be considered strong within the Baa rating
category.”
*****

On January 20th IDACORP announced a revision to the expected cost and timing of its
proposed 500 kV Boardman-Hemingway transmission project. The utility now expects total
project costs to be $820 million (versus the previous estimate of $600 million), with IDACORP
potentially holding a 30%-50% ownership share (no partners have been announced). It is also
worth noting that the utility is now targeting a completion date of mid-2016, or roughly a year
later than the previously targeted completion date of 2015.

*****
Other Developments
D.A. Davidson & Co.
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On January 12th MGE Energy, Inc. announced that Unit 2 of the Elm Road Generating Station
had entered commercial service, roughly five months later than expected in early 2010. MGE
holds an 8.3% ownership interest in the 615 MW coal-fired plant, which we expect to add
~$0.11 to EPS in 2011.
*****

On January 27th Avista Corp. announced that its Advantage IQ subsidiary entered into an
agreement to acquire Building Knowledge Networks, a Seattle-based real-time building energy
management services provider. The acquisition is small—with revenues of roughly $1 million
in 2010—and is expected to be neutral to Avista’s earnings in 2011.

*****

On January 20th Questar Corp. submitted a notice with the Federal Energy Regulatory
Commission (FERC) that its Questar Pipeline subsidiary plans to replace two sections (totaling
12.8 miles) of its main line in the Wasatch Front serving northern Utah at an estimated cost of
$16.2 million. The project expected to improve the reliability of the pipeline and is not
expected to result in a reduction or abandonment of service. Unless FERC objects to the
company’s proposal, the project is expected to begin later in 1Q’11.

*****

After eight quarters of an unchanged quarterly dividend rate, on January 20th ALLETE, Inc.
declared a 1% increase in its quarterly dividend, from $0.44 to $0.445. The size and timing of
the dividend increase were in line with our expectations.

*****

On January 27th Black Hills Corp. announced that its board of directors had voted to approve
its 41st consecutive annual increase in the company's dividend. The quarterly dividend was
increased by $0.005 per common share to $0.365 per share, equivalent to an annual dividend
rate of $1.46 per share.
D.A. Davidson & Co.
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As displayed in Table 2, temperatures in January 2011 were mostly near normal but colder
than the same period one year ago in the service territories of many utilities under our
coverage. Assuming the same patterns continue through the first quarter, the gas utility
operations of Avista Corp., MDU Resources, and NW Natural should benefit from higher
sales, though this benefit could be offset in some cases by the fact that revenues for some gas
utilities within our coverage universe are weather normalized or decoupled.

In terms of cooling degree days (see Table 3) temperatures in the service territory of Hawaiian
Electric Industries were between 10-%18% cooler in January than last year, which could
have a negative impact on the utility’s electric loads in 1Q’11.

Table 2: Heating Degree Day* Data (HDD) –January 2011 Totals
ALLETE, Inc. (ALE)
Minnesota Powe Duluth, MN 1625 1% 10%
Superior Water, Light & Power Superior, WI 1625 1% 10%
Alliant Energy, Inc. (LNT)
Interstate Power & Light Cedar Rapids, IA 1375 5% -3%
Wisconsin Power & Light Madison, WI 1352 0% 2%
Avista Corp. (AVA)
Avista Utilities Spokane, WA 957 -10% 15%
Black Hills Corp. (BKH)
Black Hills Power Rapid City, SD 1212 2% 2%
Cheyenne Light Fuel & Power Cheyenne, WY 1001 -7% 2%
Black Hills Energy - Colorado Electric & Gas Colorado Springs, CO 963 -6% 2%
Black Hills Energy - Iowa Gas Des Moines, IA 1294 3% -2%
Black Hills Energy - Kansas Gas Wichita, KS 986 0% 1%
Black Hills Energy - Nebraska Gas Lincoln, NE 1281 7% 0%
IDACORP, Inc. (IDA)
Idaho Power Company Boise, ID 914 -8% 20%
MDU Resources Group, Inc. (MDU)
Cascade Natural Gas Co. Tri Cities, WA 719 -16% 10%
Great Plains Natural Gas Co. Fergus Falls, MN 1721 5% 12%
Intermountain Natural Gas Boise, ID 914 -8% 20%
Montana-Dakota Utilities Co. Bismarck, ND 1541 -1% 2%
MGE Energy, Inc. (MGEE)
Madison Gas & Electric Co. Madison, WI 1352 0% 2%
Portland General Electric Co. (POR)
Portland General Electric Portland, OR 631 -9% 15%
Northwest Natural Gas Co. (NWN)
NW Natural Portland, OR 631 -9% 15%
NorthWestern Corp. (NWE)
NorthWestern Energy Billings, MT 1027 -11% -4%
NorthWestern Energy Sioux Falls, SD 1513 6% 1%
Otter Tail Corp. (OTTR)
Otter Tail Power Co. Fargo, ND 1721 5% 12%
Questar Corp. (STR)
Questar Corp. Salt Lake City, UT 1034 3% 2%
Xcel Energy, Inc. (XEL)
NSP-Minnesota Minneapolis, MN 1452 1% 4%
NSP-Minnesota Fargo, ND 1721 5% 12%
NSP-Minnesota Sioux Falls, SD 1513 6% 1%
NSP-Wisconsin Eau Claire, WI 1540 3% 9%
PSCo Denver, CO 943 -6% -2%
SPS Clovis, NM 778 2% 2%
% From
Average
January
Total
% From
2010
Source: National Weather Service’s Climate Prediction Center
Table 3: Cooling Degree Day* Data (CDD) –January 2011 Totals
Hawaiian Electric Industries, Inc. (HE)
Hawaiian Electric Co. Honolulu, HI 247 13% -14%
Maui Electric Co. Kahului, HI 188 -1% -10%
Hawaiian Electric Light Co. Hilo, HI 187 4% -18%
% From
Average
January
Total
% From
2009LocationParent Company & Utility
Source: National Weather Service’s Climate Prediction Center
*A degree day is a quantitative index demonstrated to reflect demand for energy to heat or cool houses and businesses. This index is derived
from daily temperature observations at nearly 200 major weather stations in the contiguous United States. The "heating year" during which
heating degree days are accumulated extends from July 1st to June 30th and the "cooling year" during which cooling degree data are
accumulated extends from January 1st to December 31st. A mean daily temperature (average of the daily maximum and minimum
temperatures) of 65°F is the base for both heating and cooling degree day computations. Heating degree days are summations of negative
differences between the mean daily temperature and the 65°F base; cooling degree days are summations of positive differences from the same
base. For example, cooling degree days for a station with daily mean temperatures during a seven-day period of 67, 65, 70, 74, 78, 65 and 68,
are 2, 0, 5, 9, 13, 0 and 3, for a total for the week of 32 cooling degree days.
TEMPERATURE DAT
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The Northwest River Forecast Center continues to forecast normal or above-normal water
supply in the northwestern region of the United States through the spring and summer of 2011
due in part to a strong La Niña effect that is expected to continue for several months. As
depicted in Figure 1, accumulated precipitation in the Pacific Northwest from October 1, 2010
through January 24, 2011 has been above-normal (the “precipitation year” extends from
October 1st to September 30th), which stands in contrast with the extremely dry conditions one
year ago.

Figure 1: Accumulated Precipitation: October 2010–January 2011
Source: National Weather Service Northwest River Forecast Center
Hydrogeneration Outlook
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Although last December’s heavy precipitation levels were a welcome reprieve from an
otherwise dry winter, the trend did not continue into January, which brought relatively light
levels of precipitation in the Northwestern region. As of February 1st, and as seen in Figure 2,
the snow water content in key drainages for hydrogeneration used by Avista Corp. and
IDACORP, Inc. remain at or above normal levels, while those for Portland General Electric are
now below normal.

Figure 2: Western Region Snow Water Content

Source: United States Department of Agriculture

The Northwest River Forecast Center’s projection released on January 27th calls for
streamflows in the Northwest to be approximately normal through the spring and summer
months of 2011, as seen in Table 4. Streamflows in the region are, for the most part, expected
to show an improvement over 2010’s hydrogeneration season, which had an extremely slow
start and gradually recovered to near-normal levels.

Table 4: Streamflow Projections for Key Hydrogeneration Measurement Locations
Location of Forecasted % Forecast as %
Company Streamflow Forecast Period of Normal - 1/27/11 of Prior-Year Steamflows
Avista Corp. Coeur d'Alene Lake Inflow, ID April-July 100% 124%
Avista Corp. Whitehorse Rapids, ID April-Sept. 103% 133%
IDACORP, Inc. Brownlee Reservoir Inflow April-July 106% 147%
Portland General Electric Grand Coulee, WA April-Sept. 97% 120%
Portland General Electric Clackamas River, OR April-Sept. 102% 84%
Portland General Electric Deschutes River, OR April-Sept. 104% 126%
Portland General Electric The Dalles, OR April-Sept. 98% 116% Source: National Weather Service Northwest River Forecast Center
D.A. Davidson & Co.
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The upper portion of Chart 1 depicts an overall ~22% price decline in FactSet’s market-
weighted index of 102 investor-owned utilities since reaching its peak in 2007. The lower
portion of the chart depicts the group’s 13.7x P/E ratio on year-forward earnings estimates, or
half of a multiple point above the 10-year average. After reaching an all-time record of 16.8x in
2007, the group’s P/E ratio slumped to 9.6x in March 2009, before rallying to its current level.

Chart 2 provides two additional measurements of value (EV/EBITDA and P/BV), showing that
utility valuations remain below the 10-year average, based on these metrics.

As shown in the top panel of Chart 3, the sector’s current average dividend yield of 3.9% is just
slightly above the 10-year average of 3.7%. The bottom panel depicts the yield of the utility
group relative to the yield of the S&P 500 is currently at ~2.2x. After a prolonged relative
downtrend, utilities’ relative yields trended upward through 2009 until turning sideways early in
the second quarter of 2010 and leaving the current relative yield near a 6-year high.

As depicted in Chart 4, yields in the group relative to 10-year Treasury Bonds sharply
improved from mid-2007 to the end of March 2009, due to the flight to quality during the
worldwide financial crisis, reaching 187% of parity with T-bonds in December 2008. The flight
to quality left the yield on T-bonds at their lowest level since the U.S. Treasury started selling
them. The current 115% relative yield compares to the 10-year average of 94%.

150
200
250
300
350
400
Utilities
31-Jan-2001 to 01-Feb-2011 (Monthly) High: 381.88 Low: 164.52 Latest: 297.10
Price (USD)
'01 '02 '03 '04 '05 '06 '07 '08 '09 '108
9
10
11
12
13
14
15
16
17
18
©FactSet Research SystemsData Source: FactSet Aggregates, FactSet Aggregates
Average: 13.1 High: 16.8 Low: 9.0 Latest: 13.7
Price to Earnings - FY2
Source: FactSet
Valuation Metrics
Chart 1: Utility Price Index and
Forward Price-Earnings Ratio
D.A. Davidson & Co.
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6.5
7
7.5
8
8.5
9
9.5
10
Utilities
31-Jan-2001 to 01-Feb-2011 (Monthly) Average: 8.2 High: 9.7 Low: 6.9 Latest: 7.4
Enterprise Value to EBITDA
'01 '02 '03 '04 '05 '06 '07 '08 '09 '101
1.2
1.4
1.6
1.8
2
2.2
2.4
2.6
©FactSet Research SystemsData Source: , FactSet Aggregates
Average: 1.7 High: 2.5 Low: 1.2 Latest: 1.5
Price to Book
Source: FactSet

2
2.5
3
3.5
4
4.5
5
5.5
6
Utilities
31-Jan-2001 to 01-Feb-2011 (Monthly) Average: 3.7 High: 5.7 Low: 2.5 Latest: 3.9
Dividend Yield
'01 '02 '03 '04 '05 '06 '07 '08 '09 '101
1.5
2
2.5
3
3.5
©FactSet Research SystemsData Source: FactSet Aggregates,
Average: 2.09 High: 3.08 Low: 1.25 Latest: 2.21
Dividend Yield - Relative to S&P 500
Source: FactSet

Chart 2: Utility Ratios of
EV/EBITDA and P/BV
Chart 3: Utility Dividend Yields and
ield Relative to Yield on S&P 500

D.A. Davidson & Co.
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'01 '02 '03 '04 '05 '06 '07 '08 '09 '1040%
60%
80%
100%
120%
140%
160%
180%
200%
Max: 187.38
Min: 53.41
Last: 115.25
FDSAGG United States / Utilities -SEC - Dividend Yield / US Treasury Constant Maturity - 10 Year - Yield * 100 Recession Periods - United States
Source: FactSet
Chart 4: Utility Dividend Yield
Relative to Yield on U.S. 10-Year
Treasury Bonds
D.A. Davidson & Co.
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Table 5: D.A. Davidson Utility Coverage Relative Performance
Price Price Ex-Dividend Monthly Year-to-Date
12/31/2010 1/31/2011 in January Total Return Total Return
ALLETE, Inc. (ALE) $35.26 $36.91 4.7% 4.7%
Alliant Energy Corporation (LNT) 36.77 37.16 $0.425 2.2% 2.2%
Avista Corp. (AVA) 22.52 22.65 0.6% 0.6%
Black Hills Corporation (BKH) 30.00 31.01 3.4% 3.4%
Hawaiian Electric Industries (HE) 22.79 24.90 9.3% 9.3%
IDACORP, Inc. (IDA) 36.98 37.37 1.1% 1.1%
ITC Holdings Corp. (ITC) 61.98 65.70 6.0% 6.0%
MDU Resources Group, Inc. (MDU) 20.27 21.23 4.7% 4.7%
MGE Energy, Inc. (MGEE) 42.76 40.70 -4.8% -4.8%
Northwest Natural Gas Co. (NWN) 46.47 44.56 $0.435 -3.2% -3.2%
NorthWestern Corporation (NWE) 28.83 28.24 -2.0% -2.0%
Otter Tail Corp. (OTTR) 22.54 22.67 0.6% 0.6%
Portland General Electric Co. (POR) 21.70 22.34 2.9% 2.9%
Questar Corp. (STR) 17.41 17.43 0.1% 0.1%
Xcel Energy Inc. (XEL)1 23.55 23.57 0.1% 0.1%
Median 1.1% 1.1%
Mean 1.7% 1.7%
Dow Jones Industrial Average (.DJIA) $11,577.51 $11,891.93 $15.660 2.9% 2.9%
Standard & Poors 500 (.SPX) 1,257.64 1,286.12 1.316 2.4% 2.4%
Dow Jones Utility Average (.UTIL) 404.99 409.35 0.185 1.1% 1.1%
SNL Electric Utilities Index 528.30 532.65 * 0.8% 0.8%
SNL Gas Utilities Index 549.78 576.25 * 4.8% 4.8% 1Prices for Questar Corp. prior to 7/1/10 are adjusted for the spin-off of QEP Resources.
*Ex-Dividend amount incorporated in index
Sources: Bloomberg and SNL Interactive

As shown in Table 5, total returns of the Dow Jones Utility Average lagged the broader indices
in January, climbing 1.1% versus gains of 2.9% and 2.4% from the Dow Jones Industrials and
the S&P 500, respectively, though returns of SNL’s Gas Companies Index advanced strongly
(+4.8%). Leading our coverage universe from a total return perspective in January were
Hawaiian Electric Industries and ITC Holdings, which rose 9.3% and 6.0%, respectively (it
should be noted that the advance in Hawaiian Electric is at least partially attributable to the
January media coverage of a newly-organized investor group that said it was preparing a
takeover bid, upon which we place a low probability of success). Shares of MGE Energy
retreated 4.8% in the month as the stock’s valuation drifted down closer to the sector mean.

As depicted in Table 6, the utility peer group’s mean 2012 price-earnings ratio remains virtually
unchanged for the month at 13.3x, while the mean EV/EBITDA ratio based on our 2012
forecast and the average current dividend yield in our coverage universe are currently 7.2x and
4.0%, respectively. Otter Tail sports the highest yield in the group (currently 5.1%) with a
payout ratio of 92% of projected 2012 earnings.

RELATIVE PERFORMANCE
D.A. Davidson & Co.
13
Table 6: D.A. Davidson & Co. Utilities Comparison

Price EPS EPS EPS EPS P/E P/E P/E
2/2/11 2009 2010E 2011E 2012E 2010E 2011E 2012E
ALLETE Inc.1,2 ALE N $37.53 $39.00 $1,344 $2.04 $2.27 $2.53 $2.69 15.2 13.6 12.8 92% 1.3 4.7% 70% 5.6 5.5 5.2 44.6% 9.2 9.0 8.5 8.6% 3.3%
Alliant Energy Corp.1 LNT B $37.26 $41.00 $4,130 $1.95 $2.75 $2.87 $3.05 13.5 13.0 12.2 98% 1.4 4.6% 59% 4.5 4.1 3.9 50.5% 7.5 6.8 6.5 10.5% 3.4%
Avista Corp.1 AVA N $23.06 $24.00 $1,305 $1.58 $1.73 $1.80 $1.92 13.3 12.8 12.0 91% 1.2 4.3% 56% 3.9 3.7 3.5 50.2% 7.0 6.7 6.4 8.2% 2.4%
Black Hills Corp.1 BKH N $31.58 $33.00 $1,239 $2.04 $1.46 $2.07 $2.75 21.6 15.3 11.5 83% 1.1 4.6% 70% 3.8 3.6 2.9 55.3% 7.8 7.4 5.9 6.3% 2.0%
Hawaiian Electric Industries, Inc.1 HE N $25.20 $22.00 $2,372 $0.91 $1.23 $1.58 $1.81 20.6 16.0 13.9 100% 1.6 4.9% 79% 5.7 4.9 4.5 53.1% 8.8 7.5 7.0 7.2% 1.2%
IDACORP Inc.1 IDA B $38.07 $42.00 $1,870 $2.64 $2.89 $2.80 $3.00 13.2 13.6 12.7 93% 1.2 3.2% 43% 5.6 4.8 4.3 51.6% 9.9 8.5 7.7 10.1% 3.4%
ITC Holdings Corp.1 ITC B $67.18 $75.00 $3,402 $2.58 $2.84 $3.30 $4.23 23.6 20.3 15.9 76% 3.1 1.9% 39% 7.4 6.7 5.5 69.3% 12.6 11.4 9.3 13.6% 3.4%
MDU Resources Group, Inc.1 MDU B $21.06 $24.00 $3,963 $1.38 $1.24 $1.46 $1.74 16.9 14.4 12.1 91% 1.5 3.1% 45% 5.1 4.5 4.1 36.6% 7.0 6.2 5.6 9.2% 3.9%
MGE Energy Inc.1 MGEE N $41.43 $40.50 $958 $2.21 $2.63 $2.83 $2.97 15.8 14.7 14.0 97% 1.8 3.6% 53% 6.3 6.0 5.8 41.5% 8.6 8.2 8.0 11.6% 4.7%
Northwest Natural Gas Co.1 NWN N $44.52 $48.00 $1,186 $2.83 $2.72 $2.78 $2.87 16.4 16.0 15.5 99% 1.8 3.8% 60% 5.2 4.9 4.8 54.1% 8.7 8.2 8.0 11.3% 3.1%
NorthWestern Corp.1 NWE N $28.49 $30.00 $1,031 $2.02 $2.09 $2.20 $2.30 12.6 12.1 11.5 84% 1.2 4.8% 62% 4.1 3.7 3.6 56.7% 8.2 7.5 7.3 9.9% 2.8%
Otter Tail Corp.1 OTTR N $23.10 $20.00 $830 $0.71 $0.71 $1.30 $1.53 32.3 17.8 15.1 98% 1.3 5.2% 92% 5.5 4.5 4.1 46.1% 9.1 7.4 6.8 3.0% 1.1%
Portland General Electric Co.1 POR N $22.75 $23.00 $1,713 $1.31 $1.75 $1.90 $1.90 13.0 12.0 12.0 97% 1.1 4.5% 54% 3.3 3.1 3.0 53.3% 6.7 6.4 6.1 6.8% 2.0%
Questar Corp.1 STR N $17.64 $18.50 $3,143 $1.03 $1.07 $1.11 $1.19 16.5 15.8 14.8 102% 3.2 2.9% 47% 6.1 5.8 5.5 55.5% 8.5 8.0 7.6 8.8% 3.3%
Xcel Energy, Inc.1,3 XEL N $23.75 $24.00 $11,450 $1.50 $1.62 $1.72 $1.82 14.7 13.8 13.0 104% 1.4 4.3% 59% 4.6 4.2 4.0 55.2% 8.6 7.9 7.5 9.8% 2.9%
Median, 15 Regional Utilities 15.8 14.4 12.8 97% 1.4 4.3% 59% 5.2 4.5 4.1 53.1% 8.6 7.5 7.3 9.2% 3.1%
Mean, 15 Regional Utilities 17.3 14.7 13.3 94% 1.6 4.0% 59% 5.1 4.7 4.3 51.6% 8.6 7.8 7.2 9.0% 2.9%
Price/
EBITDA
2012E
EV /
EBITDA
2012E
1D.A. Davidson & Co. makes a market in this security.
2For purposes of calculating P/E, P/EBITDA, and EV/EBITDA ratios, the stock price of ALE has been reduced by our $3.00/sh point estimate of the value of ALLETE Properties.
Sources: Company reports and D.A. Davidson & Co. estimates
Payout
Ratio
2011E
ROAA
(ttm)
Debt /
Capital
Price/
EBITDA
2011E
Price
Target
Mkt Cap
($M)
PE '12E /
10 yr
Median
Dividend
YieldCompany Name Symbol Rating
Price/
EBITDA
2010E
P / BV
32010 EPS reflects full-year results reported on January 27, 2010.
ROAE
(ttm)
EV /
EBITDA
2010E
EV /
EBITDA
2011E

D.A. Davidson & Co.
Two Centerpointe Drive, Suite 400 • Lake Oswego, Oregon 97035 • [phone] • [phone] • www.dadavidson.com
Copyright D.A. Davidson & Co., 2011. All rights reserved.
14
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mentioned in this report in the next three months.
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Bellessa, Jr., CFA and Michael Bates the research analysts principally responsible for the preparation of this report, will receive
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Ratings Information
D.A. Davidson & Co.’s Institutional Research Rating Scale (maintained since 7/9/02): Buy, Neutral, Underperform

D.A. Davidson & Co. Institutional Research Ratings Buy Neutral Underperform
Risk adjusted return potential azbycx Over 15% total return
expected on a risk adjusted
basis over next 12-18 months
>0-15% return potential
on a risk adjusted basis
over next 12-18 months
Likely to remain flat or lose
value on a risk adjusted basis
over next 12-18 months
Distribution of Ratings (as of 12/31/10) Buy Hold Sell
Corresponding Institutional Research Ratings Buy Neutral Underperform
and Distribution 57% 39% 4%
Corresponding Individual Investor Group Ratings Outperform Market Perform Underperform
and Distribution 81% 19% 0%
Distribution of Combined Ratings 59% 37% 4%
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Target prices are our Institutional Research Department’s evaluation of price potential over the next 12-18 months and 5 years, based
upon our assessment of future earnings and cash flow, comparable company valuations, growth prospects and other financial criteria.
Certain risks may impede achievement of these price targets including, but not limited to, broader market and macroeconomic
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