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HomeMy WebLinkAboutCOC Utilities Report 05-01-08.pdf Institutional Equity Research INDUSTRY UPDATE UTILITY MONTHLY May 6, 2008 Prices: (5/5/08) Industry: Utilities James L. Bellessa, Jr., CFA 406.791.7230 jbellessa@dadco.com Bryan H. Nicholls Research Associate 406.791.7240 bnicholls@dadco.com Wind Energy Announcements Pick Up Pace • Our BUY-rated utility picks include ALLETE, Inc., Avista Corp., Black Hills Corporation, MDU Resources Group, and Portland General Electric Co. • Avista Corp. filed a rate case with Idaho state regulators requesting an increase in both electric and gas rates of $32.2 million and $4.7 million, respectively. • ALLETE’s utility subsidiary filed its first rate case in 14 years with Minnesota state regulators requesting an increase in electric rates of $45 million. • Wind power announcements were made in the past month by Avista Corp., Otter Tail Corporation, Portland General Electric, and Puget Energy. • Streamflow forecasts continue to show near-to-above normal levels for Avista Corp., Portland General Electric and Puget Energy. In April, the American Wind Energy Association (AWEA) released its annual industry rankings of wind energy development in the United States. The report indicates that the wind energy industry installed over 5,000-MW of capacity in 2007, or over $9 billion of new investment and represented nearly 30% of all new electric generating capacity installed in the U.S. The 2007 additions increased cumulative U.S. installed wind power by approximately 45%, to a generating capacity of over 16,800-MW, or enough capacity to serve approximately 4.5 million average households. Leading manufacturers of installed capacity during 2007 include GE Energy (GE - $33.18) (2,340-MW), Vestas (953-MW), Siemens (863-MW), Gamesa (574-MW), and Mitsubishi (356-MW). Table 1 lists the states with the most wind energy installed by capacity through 2007, while Illustration 1 details the “slice of the pie” that wind energy generation contributes to each state’s total generation portfolio. Table 1: Top ten states with most wind energy installed, by capacity (MW) Ranking State Capacity (MW)Ranking State Capacity (MW) 1 Texas 4,446 6 Colorado 1,067 2 California 2,439 7 Oregon 885 3 Minnesota 1,299 8 Illinois 699 4 Iowa 1,271 9 Oklahoma 689 5 Washington 1,163 10 New Mexico 496 Source: American Wind Energy Association Please refer to page 13 of this report for detailed disclosure and certification information. D.A. Davidson & Co. Illustration 1: Percentage of Wind Generation by State Source: American Wind Energy Association * * * * * Avista Corp. announced during its 1Q’08 earnings conference call that it was close to completing the acquisition of land located in central Washington that will be the future location of a wind generating facility. According to the company, the wind farm will have approximately 50-MW of output and cost approximately $120 million. The utility had previously expected to add wind generation to its portfolio of resources later in the next decade, but, due to increasing costs and limited site availability that is strategically located near its transmission system, it will now move up construction of the project so it is operational by late 2011 or early 2012. Avista expects to finalize the purchase of the site this year and is continuing to look at other locally-diversified wind sites in its service territory. * * * * * Portland General Electric Co. announced in April that it has entered into an agreement with wind turbine manufacturer, Siemens Power Generation, Inc., to purchase 141 turbines for the next phases of its Biglow Canyon wind farm. Phase II of the project will consist of 65 turbines to be built in 2009 and Phase III will consist of 76 turbines, which will be installed in 2010. Phases II and III are estimated to cost a total of $740-$780 million. Total install capacity of the Biglow project, when finalized, will be approximately 450-MW, or enough power to supply electricity to over 100,000 households. Phase I of the project, which was fully operational in December 2007, consists of 76 turbines with 125-MW of capacity, and cost approximately $255 million (including AFDC). * * * * * Puget Sound Energy, the utility subsidiary of Puget Energy, Inc. announced in April that it plans to add approximately 25 additional wind turbines to its Wild Horse Wind facility. The facility currently produces up to 229-MW of electric generation, or enough power to supply 60,000 households. According to the company, the planned expansion will increase the 2 D.A. Davidson & Co. output by a projected 40-MW-50-MW. Given regulatory approval, Puget expects to begin construction in 2009 and have the expansion turbines on-line by 2010. * * * * * Otter Tail Power, the utility subsidiary of Otter Tail Corporation announced in late April that it plans to build and own approximately 48-MW of wind energy generation at a proposed wind energy facility located in North Dakota. The company expects to invest approximately $121 million on the project, which would be part of a 200-MW wind farm operated by FPL Energy, LLC and known as the Ashtabula Wind Center. Although various approvals still need to be obtained, Otter Tail expects the wind farm to be operational by the end of 2008. Avista Corp. filed a rate case in April with the Idaho Public Utilities Commission (IPUC) requesting an increase in both electric and gas rates. The electric rate increase would amount to an increase to residential customers of 15.9%, or approximately $32.2 million. The gas portion of the rate increase requests an increase to residential customers of 6.5%, or $4.7 million. Avista requested an 8.74% return on rate base, a common equity ratio of 47.9%, and a 10.8% return on equity. According to the company, rate increases have been requested due to increased costs associated with the company’s continued investment in its infrastructure and significant increases in fuel and purchased power costs. The request to increase natural gas rates stems from the company’s investment in upgrading the Jackson Prairie Natural Gas Storage Project, in which it has an ownership interest. The request to Idaho regulators follows a request made in March 2008 to increase electric and natural gas rates in Washington for the same reasons as in Idaho. Avista anticipates that Idaho regulators will take up to seven months to review the filing. RATE DEVELOPMENTS * * * * * Due primarily to a string of 100 degree temperature days last summer and expected below- average run off this spring, Idaho Power, the utility subsidiary of IDACORP, Inc., filed its 2008/2009 Power Cost Adjustment (PCA) in April requesting recovery of approximately $87 million in power supply and fuel expenses incurred from April 15, 2007 through April 15, 2008. The filing essentially suggests electric bills needed to increase approximately 12.76% on average for all customer classes effective June 1, 2008. Subsequent to its PCA filing, the Idaho Public Utilities Commission ordered that the $16 million of proceeds from the sale of SO2 credits in 2007 be used to reduce the impact of the PCA filing. According to the utility, using the clean air emissions credits is estimated to reduce the overall increase to approximately 8.15%. * * * * * In early May, Minnesota Power, the utility subsidiary of ALLETE, Inc. filed its first general rate case in 14 years in the state of Minnesota. The electric rate hike would amount to an increase to its retail customer base of 10%, or approximately $45 million. The company anticipates interim rates to go into effect in July 2008 totaling approximately $36 million, or approximately 8%. The rate filing seeks an overall ROE of 11.15% and a capital structure of 54.8% equity and 45.2% debt. Minnesota Power expects that state regulators will approve final rates by mid-2009. Idaho Power, the utility subsidiary of IDACORP, Inc. filed a Request For Proposal in April to solicit bids for up to approximately 600-MW of new energy capacity by 2012. The minimum proposal quantity that can be submitted is for 50-MW and the maximum potential size is approximately 600-MW. The utility will pursue the development of a natural gas-fired combined cycle combustion turbine, which would be located in its service territory due to transmission constraints, and will forgo coal-fired generation resources. Idaho Power will consider purchase power agreements or tolling agreements that include a 15-year proposal INFRASTRUCTURE DEVELOPMENTS 3 D.A. Davidson & Co. with at least one 5-year renewal option, but will not consider build and transfer agreements. Response proposals are due in October 2008 with identification of the approved proposals made in early 2009. * * * * * Black Hills Corporation announced late April that affiliates of Hastings Funds Management Ltd. and a subsidiary of an investment entity advised by JP Morgan Asset Management were the winning bidders of an auction process involving seven of Black Hills’ natural gas-fired power plants. In October 2007 Black Hills engaged an investment banker to formally review strategic options for its independent power production (IPP) unit, including the sale of some or all of its wholesale power generating assets. The winning bid consisted of $840 million for the assets, equating to $862/kw. The intended divestiture assets and the IPP assets to be retained in the company’s portfolio are listed in Table 2. Table 2: Snapshot of Black Hills’ IPP assets Assets for Sale Remaining IPP Assets Capacity Capacity Power Plant State (net megawatts)Power Plant State (net megawatts) Fountain Valley Colorado 240 Wygen I Wyoming 90 Las Vegas II Nevada 224 Gillete CT Wyoming 40 Valencia New Mexico 149 Ontario Cogen California 12 Arapahoe Colorado 130 Rupert & Glens Ferry Cogen Idaho 11 Harbor California 98 Energy Fund Invesments -5 Valmont Colorado 80 Total 158 Las Vegas I Nevada 53 Total 974 Source: Blacks Hills Corporation Proceeds of the asset sale will be used to finance a portion of the $940 million purchase of five utility properties in four states from Aquila Inc. (ILA - $3.69), which purchase is conditional on the approval of the following transaction. The Missouri Public Service Commission is currently conducting hearings regarding the merger of Aquila Inc.’s utility operations in Missouri into Great Plains Energy (GXP - $26.16). A decision regarding the acquisition is expected in late 2Q’08. According to Black Hills, if the Aquila deal falls through, it will sell six of the power plants for $600 million and retain the $240 million Fountain Valley generating station. The divestiture of the IPP assets, if granted approval from various regulatory agencies, is expected in late 2Q’08 or early 3Q’08. * * * * * In April, Portland General Electric Co. issued a request for proposal (RFP) to third parities to assist the utility in procuring additional renewable resources that will be utilized to meet future load requirements. PGE is seeking to acquire up to 218-average megawatts (aMW) of additional mid- to long-term renewable energy supply to come on-line in the 2009-2014 timeframe. The company will consider only resources that comply with the Oregon Renewable Energy Act of 2007 (SB 838). SB 838 requires the state’s investor-owned, and largest consumer-owned utilities, to serve at least 15% of its retail load with renewable resources by 2015, and 25% by 2025. In the nearer term, the bill requires utilities to increase their renewable energy generating resources serving retail loads to 5% by 2011. The RFP along with the Biglow Canyon facility, which will have an installed capacity of 450-MW once fully constructed by the end of 2010, will help PGE with its plans to satisfy Oregon's renewable energy standard. * * * * * In April, Puget Energy’s shareholders approved more than the required two-thirds vote regarding the merger agreement with a consortium of long-term infrastructure investors. The 4 D.A. Davidson & Co. parent company of utility subsidiary Puget Sound Energy agreed to be acquired through a definitive merger agreement in October 2007 at $30 per share. Along with the recent shareholder approval, the transaction has been approved by the Boards of Directors of both Puget and the consortium, however, it remains subject to Washington state and federal regulatory approvals. Puget expects the merger to be completed in the second half of 2008. PRECIPITATION Illustration 2 shows accumulated precipitation in the Pacific Northwest from October 1, 2007 – April 28, 2008. It should be noted that the “precipitation year” extends from October 1st to September 30th. Although precipitation levels have slowly regressed over the past few months, utilities in the region, including Avista Corp., IDACORP, Inc., Portland General Electric, and Puget Energy, Inc., continue to be near historical average levels. Illustration 2: Accumulated Precipitation – October 1, 2007 – April 28, 2008 Source: Northwest River Forecast Center “Early bird” streamflow forecasts currently being made by the National Weather Service Northwest River Forecast Center for periods in 2008 are depicted in Table 3. These predictions forecast near and above normal levels for Avista Corp., Portland General Electric and Puget Energy and improved over year ago comparisons, but below normal for IDACORP, Inc. It should be noted that IDACORP’s hydrogenation position is significantly ahead of year ago levels, when April through July 2007 streamflows for Brownlee Reservoir were only 39% of normal. Table 3: Streamflow Projections for Key Hydrogeneration Measurement Locations Location of Forecasted % Forecasted % Company Streamflow Forecast Period of Normal 5/1/2008 of Normal - 4/26/07 Avista Corp.Coeur d'Alene Lake Inflow, ID April-July 119%84% Avista Corp.Whitehorse Rapids, ID April-Sept. 102%88% IDACORP, Inc.Brownlee Reservoir Inflow April-July 78%50% Portland General Electric Clackamas River, OR April-Sept. 130%88% Portland General Electric Deschutes River, OR April-Sept. 97%92% Portland General Electric The Dalles, OR April-Sept. 99%92% Puget Energy, Inc.Grand Coulee, WA April-Sept. 100%103% Source: National Weather Service Northwest River Forecast Center 5 D.A. Davidson & Co. SNOW WATER CONTENT Illustration 3 depicts that average river basin snow water content in much of the Pacific Northwest is above average as of May 1, 2008. This indication suggests that hydrogenation in 2008 could be normal or above normal for Puget Energy, Portland General Electric Co, IDACORP, and Avista Corp. The key factor now, is how the annual spring run off will flow in the coming months as colder than normal weather during 1Q’08 delayed the snow melt. Utilities are hoping that temperatures will rise slowly and not melt the snowpack too rapidly, which would cause overflows at their respective hyrdroelectric generating facilities and not allow them to capture all of the streamflow generation opportunities. Illustration 3: River Basin Snow Water Content Source: Western Regional Climate Center 6 D.A. Davidson & Co. TEMPERATURES For the most part, utilities in our coverage universe experienced colder than normal temperatures during the month of April. When comparing April temperatures to normal and year ago levels, all of the utilities in our coverage universe experienced colder temperatures, especially Pacific Northwest utilities, which had temperatures that were approximately 20% colder than normal and year ago levels. In terms of cooling-degree days, Hawaiian Electric Industries’ service territory experienced significantly warmer than normal and warmer than the year ago comparison during the month of April, a nice start to 2Q’08 utility results. Table 4: Estimated Heating Degree Day* Data (HDD) – Monthly & 2QTD Data Monthly Total From Norm From LYR 2Q'08 QTD From Norm From LYR ALLETE, Inc. (ALE)807 20 29 807 20 29 Avista Corp. (AVA)674 117 134 674 117 134 Black Hills Corporation (BKH) 680 85 57 680 85 57 IDACORP, Inc. (IDA)539 88 146 539 88 146 MDU Resources Group, Inc. (MDU) 686 26 6 686 26 6 Otter Tail Corp. (OTTR)714 62 56 714 62 56 Portland General Electric Co. (POR) 481 81 95 481 81 95 Puget Energy, Inc. (PSD)522 75 102 522 75 102 ALLETE, Inc. (ALE)807 3% 4% 807 3% 4% Avista Corp. (AVA)674 21% 25% 674 21% 25% Black Hills Corporation (BKH) 680 14% 9% 680 14% 9% IDACORP, Inc. (IDA)539 20% 37% 539 20% 37% MDU Resources Group, Inc. (MDU) 686 4% 1% 686 4% 1% Otter Tail Corp. (OTTR)714 10% 9% 714 10% 9% Portland General Electric Co. (POR) 481 20% 25% 481 20% 25% Puget Energy, Inc. (PSD)522 17% 24% 522 17% 24% April 2008 Percentage Difference Table 5: Estimated Cooling Degree Day* Data (CDD) – Monthly & 2QTD Data Monthly 2Q'08 Total From Norm From LYR QTD From Norm From LYR Hawaiian Electric Industries, Inc. (HE) 379 60 22 379 60 22 Hawaiian Electric Industries, Inc. (HE) 379 19% 6% 379 19% 6% April 2008 Percentage Difference 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. 7 D.A. Davidson & Co. ELECTRIC UTILITY VALUATION METRICS After reaching all-time highs on an absolute and relative basis in May 2007, valuations within the electric utility sector retreated until the end of July. A rebound in the August to December timeframe was offset by a nosedive in January and February, with prices breaking below the July lows. With a modest price recovery experienced in March and April 2008, utility valuations as measured by P/E ratios are moderately above their 10-year norm. The upper portion of Chart 1 depicts a 10-year equal-weighted index of over 60 electric utilities. It paints a picture of an overall 10% decline in the index since the mid-May high. The lower portion of Chart 1 also depicts the group’s 14.8x P/E ratio on year-forward earnings estimates. After reaching an all-time record of 17.7x in May 2007, the group’s PE ratio is moderately above the 10-year range median of 13.6x. Chart 2 provides two additional measurements of value involving ratios of earnings before interest, taxes, depreciation and amortization (EBITDA). These measurements reflect valuations that have subsided to slightly above their 10-year medians. While dividends have been ascending for the past four years, as depicted in the top panel of Chart 3, the sector’s current average dividend yield of 3.6% remains below the 10-year norm of 4.2%. Yields in the electric group relative to 10-year Treasury Bonds, as depicted in the lower panel of Chart 3, have sharply improved since May to 96% of the yields on T-bonds, due to the flight to quality during the subprime mortgage crisis, but has sharply contracted from 116% since the middle of March. The 96% relative yield exceeds the 10-year median of 88%. Relative to non-utility stocks, a proxy for which is the S&P 400 Index, and as depicted in Chart 4, the yield on electric utility stocks remains toward the lower end of a 15-year range. Chart 1: Electric Utility Index and Price-Earnings Ratio 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 UTILITY: ELECTRIC POWER E-Wtd (153A) PRICE 35.66 DATE 05-02-2008PRICE 35.66 DATE 05-02-2008 StockVal® 1414 1616 1818 2020 2222 2424 2626 2828 3232 3636 40 44 48 D.A. DAVIDSONRESEARCH PRICE / YR-FORWARD EPS ESTS 8 10 12 14 16 18 HI 17.7 LO 9.2 ME 13.6 CU 14.8 05-01-1998 05-02-2008 8 D.A. Davidson & Co. Chart 2: Electric Utility Ratios of EBITDA StockVal®UTILITY: ELECTRIC POWER E-Wtd (153A) Price 35.66 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 PRICE / EBITDA 2.8 3.2 3.6 4.0 4.4 4.8 5.2 5.6 6.0 HI 5.8 LO 2.9 ME 4.2 CU 4.9 05-01-1998 05-02-2008 ENTERPRISE VALUE/EBITDA 6.0 6.4 6.8 7.2 7.6 8.0 8.4 8.8 9.2 9.6 HI 9.2 LO 6.3 ME 8.1 CU 8.2 05-01-1998 05-02-2008 Chart 3: Electric Utility Dividends, Yields, and Relative Yield StockVal®UTILITY: ELECTRIC POWER E-Wtd (153A) Price 35.66 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 DIVIDENDS-PER-SHARE 1.0 1.1 1.2 1.3 1.4 HI 1.33 LO 1.06 ME 1.21 CU 1.31 GR 0.4% 06-30-1998 03-31-2008 DIVIDEND YIELD % 3 4 5 6 7 HI 6.2 LO 3.3 ME 4.2 CU 3.6 05-01-1998 05-02-2008 DIVIDEND YIELD / 10-YEAR T-BOND YIELD 0.6 0.8 1.0 1.2 1.4 1.6 HI 1.42 LO 0.69 ME 0.88 CU 0.96 05-01-1998 05-02-2008 9 D.A. Davidson & Co. Chart 4: Electric Utility Dividend Yield Relative to Yield on S&P 400 10 D.A. Davidson & Co. 11 VALUATIONS, RISKS & REWARDS Table 6: D.A. Davidson Utility Coverage Monthly Total Returns: (12/31/07 - 4/30/08) Price Price Ex-Dividend Monthly Year-to-Date Stocks:12/31/2007 4/30/2008 in April 2008 Total Return Total Return ALLETE, Inc. (ALE)39.58 41.77 8.2% 6.6% Avista Corp. (AVA)21.54 20.53 5.0% -3.9% Black Hills Corporation (BKH)44.10 39.01 9.0% -10.7% Hawaiian Electric Industries (HE)22.77 24.65 3.3% 9.6% IDACORP, Inc. (IDA)35.22 32.14 0.1% -7.9% MDU Resources Group, Inc. (MDU)27.61 28.87 17.6% 5.1% Otter Tail Corp. (OTTR)34.60 37.08 4.8% 8.0% Portland General Electric Co. (POR)27.78 24.00 6.4% -12.8% 27.43 27.21 $0.250 6.1% 1.0% Average 6.7% -0.6% 13,264.82 12,820.13 18.889 4.7% -2.5% 1,468.36 1,385.59 1.509 4.9% -5.0% 532.53 510.52 0.185 6.6% -3.0% 611.18 581.48 * 5.8% -4.9% 590.99 609.35 * 8.5% 3.1% Puget Energy, Inc. (PSD) Various Indices: Dow Jones Industrial Average (.DJIA) Standard & Poors 500 (.SPX) Dow Jones Utility Average (.UTIL) SNL Electric Companies Index SNL Gas Companies Index *Ex-Dividend amount incorporated in index. Sources: Bloomberg, SNL Interactive As shown in Table 6, monthly utility indices outperformed the results of broader indices during April, with total returns (including dividends) ranging from 5.8%-8.5%. Comparatively, the broader indices to include the Dow Jones Industrials and S&P 500 posted positive total returns of 4.7% and 4.9%, respectively. The average monthly return in our coverage universe posted similar results to utility based indices, posting a monthly total return of approximately 6.7%. Leading our coverage universe was MDU Resources Group, Inc., which posted an impressive 17.6% increase during the month April, due primarily to a favorable U.S. Geological survey releasing positive forecasts regarding oil prospects in the Bakken Formation in North Dakota, in which MDU has acreage and a drilling activity. Leading within our coverage universe from a year-to-date perspective continues to be Hawaiian Electric Industries, Inc. (HEI), which has posted a year-to-date return through the first four months of 2008 of approximately 10%, which can be largely attributed to the interim rate relief granted for the company’s three utility subsidiaries, which virtually assures a 2008 EPS rebound. Portland General Electric Co. continues to be the year-to-date laggard in our group, posting a loss of nearly 13% so far in 2008. As depicted in Table 7, our coverage group’s average estimated 2008 price-earnings ratio is 15.8x, up from 15.0x a month ago. In addition, the average EV/EBITDA ratio of 7.8x, based on forecasted 2008 results, is also up from 7.5x a month ago. As we have moderately increased three of our 2008 EPS estimates in the past month, and lowered one of our 2008 EPS projections, we believe the bulk of the rise in valuations is a function of higher stock prices. The 2008 EPS estimates that were recently changed are ALE (from $2.84 to $2.87), AVA (from $1.45 to $1.48), Black Hills Corp. (from $2.50 to $2.15), and MDU ($1.96 to $2.03). The average yield using our 2007 dividend estimates for the group is 3.6%, down from 3.7% a month earlier, with Hawaiian Electric Industries sporting the highest yield at 4.9%. The stock ratings of IDACORP and Otter Tail Corporation have been lowered one notch since the last Utility Monthly. D.A. Davidson & Co. 12 Table 7: D. A. DAVIDSON UTILITY COVERAGE COMPARISON Company Name Symbol Rating Stock Price 5/5/08 Target Price (12-18 month) Market Value ($Millions) 2006 EPS 2007 EPS 2008E EPS 2009E EPS PE '07 PE '08 PE '09 Price/ Book Value Dividend Yield % on 2008E Dividend Estimated 2008 Payout Ratio % Estimated 2008E EBITDA ($Millions) Ratio of EBITDA to Interest/Pfd. Expense 2008E Price/ 2008E EBITDA Ratio Total Debt / Total Capital % Enterprise Value Less Cash ($Millions) EV/EBIT (E Val Ca i ALLETE INCORPORATED ALE B $41.16 $49.00 $1,269 2.77 3.08 2.87 2.97 13.3 14.4 13.9 1.69 4.2% 60.0% $175 6.3 7.3 38.8% $1,686 AVISTA CORPORATION AVA B 20.51 25.00 $1,088 1.47 0.72 1.48 1.62 28.4 13.9 12.6 1.16 3.1% 43.4% $289 3.6 3.8 52.7% $2,121 BLACK HILLS CORPORATION BKH B 37.59 43.00 $1,443 2.21 2.68 2.15 2.65 14.0 17.5 14.2 1.49 3.7% 65.0% $278 6.1 5.2 43.3% $2,107 HAWAIIAN ELECTRIC INDUSTRIES HE N 25.30 23.00 $2,111 1.33 0.96 1.59 1.70 26.2 15.9 14.9 1.65 4.9% 78.0% $449 5.5 4.7 50.5% $3,269 IDACORP INCORPORATED IDA N 32.44 35.00 $1,453 2.34 1.86 2.13 2.29 17.4 15.2 14.2 1.20 3.7% 56.3% $332 4.8 4.4 52.9% $2,800 MDU RESOURCES GROUP INC MDU B 29.37 35.00 $5,368 1.69 1.76 2.03 2.26 16.7 14.5 13.0 2.13 2.0% 29.6% $1,003 13.1 5.4 37.1% $6,777 OTTER TAIL CORPORATION*OTTR U 38.56 35.00 $1,151 1.69 1.78 2.00 2.22 21.7 19.3 17.4 2.20 3.1% 59.6% $177 8.2 6.5 44.9% $1,569 PORTLAND GENERAL ELECTRIC POR B 23.59 30.00 $1,475 1.14 2.33 1.82 1.93 10.1 12.9 12.2 1.12 4.1% 52.6% $449 4.9 3.3 49.9% $2,715 PUGET ENERGY INCORPORATED PSD N 27.81 29.00 $3,606 1.52 1.61 1.50 1.70 17.3 18.6 16.4 1.47 3.6% 66.9% $815 3.6 4.4 56.9% $6,517 Median -- 9 Diversified Regional Utilities $1,453 1.60 1.77 1.91 2.08 17.3 15.2 14.2 1.49 3.7% 59.6%5.5 4.7 49.9% $2,715 Mean -- 9 Diversified Regional Utilities $2,107 1.69 1.78 2.00 2.22 18.4 15.8 14.3 1.57 3.6% 56.8%6.3 5.0 47.4% $3,284 *D.A. Davidson & Co. makes a market in this security.B = BUY; N = NEUTRAL; U = UNDERPERFORM Sources: Estimates of all companies made by D.A. Davidson & Co. DA nterprise ue Excludes sh; EBITDA s 2008E) 9.6 7.3 7.6 7.3 8.4 6.8 8.9 6.0 8.0 7.6 7.8 D.A. Davidson & Co. Two Centerpointe Drive, Suite 400 • Lake Oswego, Oregon 97035 • (503) 603-3000 • (800) 755-7848 • www.dadavidson.com Copyright D.A. Davidson & Co., 2008. All rights reserved. 13 Required Disclosures D.A. Davidson & Co. expects to receive, or intends to seek, compensation for investment banking services from the companies mentioned in this report in the next three months. D.A. Davidson & Co. is a full service investment firm that provides both brokerage and investment banking services. James L. Bellessa, Jr., CFA and Bryan H. Nicholls, the research analysts principally responsible for the preparation of this report, will receive compensation that is based upon (among other factors) D.A. Davidson & Co.’s investment banking revenue. However, D.A. Davidson & Co.’s analysts are not directly compensated for involvement in specific investment banking transactions. We, James L. Bellessa, Jr., CFA and Bryan H. Nicholls, attest that (i) all the views expressed in this research report accurately reflect our personal views about the common stock of the subject company, and (ii) no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Ratings Information D.A. Davidson & Co. Ratings Buy Neutral Underperform Risk adjusted return potential 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 3/31/08) Buy Hold Sell Corresponding Institutional Research Ratings Buy Neutral Underperform and Distribution 44% 52% 4% Corresponding Private Client Research Ratings Outperform Market Perform Underperform and Distribution 83% 17% 0% Distribution of Combined Ratings 48% 48% 4% Distribution of companies from whom D.A. Davidson & Co. has received compensation for investment banking services in last 12 mos. Institutional Coverage 4% 4% 0% Private Client Coverage 0% 0% 0% Distribution of Combined Investment Banking 4% 4% 0% 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 fluctuations and unforeseen changes in the subject company’s fundamentals or business trends. Other Disclosures Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of data available to us at the time of the original publication of the report. These opinions are subject to change at any time without notice. Investors must bear in mind that inherent in investments are the risks of fluctuating prices and the uncertainties of dividends, rates of return and yield. Investors should also remember that past performance is not necessarily an indicator of future performance and D.A. Davidson & Co. makes no guarantee, express or implied, as to future performance. Investors should note this report was prepared by D.A. Davidson & Co.’s Institutional Research Department for distribution to D.A. Davidson & Co.’s institutional investor clients and assumes a certain level of investment sophistication on the part of the recipient. Readers, who are not institutional investors or other market professionals, should seek the advice of their individual investment advisor for an explanation of this report’s contents, and should always seek such advisor’s advice before making any investment decisions. 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