COC Utilities Report 11-16-10.pdf

Please refer to page 13 of this report for detailed disclosure and certification information.
INDUSTRY UPDATE
Institutional Equity Research

November 16, 2010 Utility Monthly

Prices: (11/16/10)

Industry:
Utilities

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

Michael Bates
Research Associate
406.791.7216
[e-mail]

Transmission/Renewables/Electric Vehicle Updates

• Our BUY-rated utilities are Alliant Energy Corp., IDACORP, Inc., ITC Holdings
Corp., and MDU Resources Group.
• Since publishing our last Utility Monthly, we initiated coverage of Questar Corp.
with a NEUTRAL rating, downgraded Avista Corp. from Buy to NEUTRAL,
upgraded ITC Holdings from Neutral to BUY, and upgraded Otter Tail Corp.
from Underperform to NEUTRAL.
• ALLETE, Inc. filed for FERC transmission incentives for two CapX2020
transmission projects being jointly developed with Otter Tail Corp.
• Regulators in Wisconsin granted approval for Alliant Energy to rate base its Bent
Tree wind farm in 1Q’11 and acquire a 25% interest in the Edgewater coal plant.
• Black Hills Corp. carried out a secondary offering of 4 million common shares
through a forward sales agreement to raise capital needed to complete
construction of two new gas-fired generation facilities in Colorado.
• An interim case decision was handed down in Hawaiian Electric Industries’
HELCO rate case, but regulators did not address revenue decoupling or cost-of-
service recovery.
• Hoku Materials announced another delay in the commercial operation date of its
polysilicon plant in Pocatello, Idaho, which is expected to be IDACORP’s largest
industrial customer when the plant is fully online.
• ITC Holdings broke ground on the first segment of its KETA transmission project.
• MDU Resources Group announced a 3% increase in its quarterly dividend.
• MGE Energy continues to target November 28th as the contracted start-up date
for Unit 2 of its Elm Road generating facility.
• TransCanada Corp. announced that it had mothballed its Chinook line, a potential
direct competitor to NorthWestern Corp.’s MSTI project.
• Northwest Natural Gas Co. announced several updates in its endeavor to
develop the Palomar Pipeline. Although the project’s timeline may be marginally
extended, the news appears to increase the likelihood of the project’s ultimate
success.
• Regulators in Oregon produced a report in October forecasting that Portland
General Electric will likely need to increase rates ~13% by 2020 to comply with
the state’s greenhouse gas emissions reduction mandates.
• Questar Corp. announced the early completion of its Overthrust Loop pipeline
project. The project is expected to come in $12 million below its $100 million
budget.
D.A. Davidson & Co.
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In October the public utility commissions of Iowa, Minnesota, North Dakota, South Dakota, and
Wisconsin submitted a report to participants in the Upper Midwest Transmission Development
Initiative (UMTDI) which included their recommendations for six primary renewable energy
transmission corridors within those states. The UMTDI was created in 2008 by the Governors
in the region with the intent of studying and resolving transmission planning and cost allocation
challenges associated with the build-out of large regional transmission lines.

The designation of these areas as renewable energy corridors is intended to give state
governments direction as to where legislative support for renewables development would be
best allocated. The corridors were chosen with the assistance of MISO and other transmission
owners in the region, and represent an expected investment of ~$3 billion. We note that
several of the corridors identified fall within the footprint of either American Transmission
Company (ATC) or ITC Holdings Corp.

In theory, full development of the transmission projects within the UMTDI corridors would lead
to the interconnection of over 15,000 MW of wind development in the Upper Midwest by
connecting 20 previously-identified renewable energy zones. However, the timing of
significant new wind development remains uncertain. With the November 2nd midterm
elections behind the nation, management of the American Wind Energy Association (AWEA)
pointed to the loss of some of its "champions" (i.e., political allies), as it continues to look
toward a difficult 2011. Though the industry could see some benefit from more favorable tax
policies in some states as Republicans picked up 680 seats in state legislatures, AWEA's
greatest concern is that renewables will see additional slowing if the U.S. Congress fails to
extend the construction deadline for the U.S. Treasury Department's Section 1603 cash grant
program. AWEA also noted that the absence of cap and trade increases the likelihood of
passing a national renewable energy standard, though it remains unclear as to whether this
would take place in a lame duck session of Congress.

Aside from what the Congressional session brings in terms of subsidies for renewable
development, FERC continues to move toward a spring 2011 conclusion to its notice of
proposed rulemaking (NOPR) process. We note that in the last month stakeholders in the
western United States have been more vocal in expressing concerns that the sweeping
changes could create more problems than they correct in that part of the country. The NOPR
deals primarily with creating broad regional planning and cost allocation rules, which have
been addressed in recent months by both SPP and MISO, and are typically addressed in the
west by the Northern Tier Transmission Group. The hope by western stakeholders, including
BPA, is that FERC’s rulemaking will allow enough flexibility in designing a rule that fits both
halves of the country and avoids making the planning process in the west as adversarial as it
has been in other parts of the country.

The extended public comment period for FERC’s NOPR closed on November 12th, prompting
some negative attention from the press that resulted in a public response from Jon Wellinghoff,
Chairman of the FERC. No new information was released in Wellinghoff’s statement, but we
anticipate a continuation of the contentious process the NOPR has prompted thusfar. FERC is
expected to hand down its final decision in spring 2011.

On November 11th General Electric Co. (GE - $15.95) announced plans to buy 25,000 electric
cars by 2015 for its own fleet and its customers, marking the largest-ever electric vehicle
purchase to date. EV proponents are hailing GE's announcement as a major boon for the
industry, saying such a massive purchase by one of the world's largest fleet owners will help
scale car battery production and lower the overall price of electric vehicles on the market. The
first order (12,000 vehicles) will be through General Motors, beginning with shipments of the
Chevrolet Volt in 2011, with the remainder of the purchases to come as manufacturers expand
their EV options. GE’s interest in spurring development of the EV industry is intuitive, as the
company makes technology that touches every point of the EV infrastructure, including smart
grid technology. One of the primary hurdles we see in the nation adopting EVs in a significant
way is range anxiety. Most chargers to be installed through government-led programs will be
the “level 2” type, which implies a wait of several hours for a full battery charge (there will be
some “level 3” chargers installed as well, which would be expected to provide an 80% charge
within 20-30 minutes.

It is our expectation that EVs are likely to have a meaningful impact on the utility space over
the long-term, but the impact is likely to be negligible in the intermediate term. The issue is
only beginning to hit the radar screens for a handful of our utilities, with the most progressive
being Portland General Electric, MGE Energy, and Hawaiian Electric Industries. Although
Transmission/Renewables
Developments
General Electric Announces Plans
to Electrify its Fleet
D.A. Davidson & Co.
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the utilities’ involvement in installing EV infrastructure, primarily charging stations, remains at a
small scale and is largely dependent on government funding, we see the typical EV purchase
equating to a ~33% increase in electric usage for a typical residential customer. Under
Portland General’s most aggressive forecast in its Integrated Resource Plan (IRP), EVs would
equate to 2% of the utility’s current generating capacity by 2020 (our extrapolation of various
data points would have demand from EV growing to roughly 7% of PGE’s load by 2035).
Portland General Electric covers the service territory with the highest hybrid vehicle ownership
per capita in the U.S (19 per 1,000 vehicles, compared with the national average of 2 per
1,000 vehicles).

On November 11th the Wisconsin Public Service Commission (WPSC) issued an oral decision
in Alliant Energy’s Wisconsin rate case, pointing to no net increase in revenues for the utility
in this relatively small case.

The primary components in the decision are as follows:
• Inclusion of the ~$450 million Bent Tree wind farm into rate base when the facility is
placed into service in 1Q’11 (awarded in full, translating to an increase of
~$36.5 million in annual revenue, or approximately $0.20 per share after tax).
• The utility’s request to cease the deferral of various credits (also awarded in full,
translating to $4.7 million in increased revenue).
• A rate adjustment for fuel costs, which is continuously updated throughout the
proceeding based on where energy prices move. The sustained downward move in
energy prices translates into a revenue decrease of ~$33 million, plus a reversal of
$4.5 million of fuel cost overcollection since the case was filed. Although the
reduction in fuel costs will translate into lower revenue at the utility, we note that these
costs are largely a pass-through and have little impact on the bottom line.
• LNT was penalized $3.2 million for failure to adequately inform the Commission about
the adverse effects of transmission constraints where Bent Tree connects to the grid
(the constraints reduce the realized output of the wind farm and will result in reduced
generation until an upgrade is completed in 2012. Because the utility will have to buy
additional power on the market to offset the lost power from Bent Tree, the PSCW is
forcing shareholders to eat the loss).

All told, we see the decision as generally positive, (the only exception being the $3.2 million
penalty). We do not view this as a disruption in LNT’s growth story, as the ~$0.20 of EPS
growth from the rate basing of Bent Tree is still expected to benefit 2011 results.

*****

On November 3rd the Hawaii Public Utilities Commission (HPUC) approved an interim rate
settlement in Hawaiian Electric Industries’ HELCO’s 2010-test-year rate case. Under the
settlement, the utility was granted a 10.5% ROE and an 8.593% overall return (the exact
amount of increase will be known when a written order is issued). Importantly, we note the
Commission took no action on certain other elements of settlement, including the agreed upon
revenue balancing account (revenue decoupling) mechanism, revenue adjustment (cost-of-
service recovery) mechanism, and earnings-sharing mechanism. One commissioner
disagreed with the HPUC’s decision not to address these issues, stating the move was not in
the public interest and would damage the financial integrity of the utility in the face of a weak
economic outlook and declining sales forecast. The delay in approving these mechanisms
also drags out the utility’s ability to comply with the state’s mandates to integrate more
renewable energy resources.

*****

ALLETE, Inc. submitted a joint filing with MISO to secure FERC approval for transmission rate
incentives and the recovery of the utility’s share of CWIP for the planned 68-mile 230 kV
Bemidji project and the proposed 250-mile, 345-kV Fargo line. The two projects are being
developed in partnership with Otter Tail Corp. as part of CapX2020 -- an effort to develop
additional backbone transmission infrastructure in the Upper Midwest by 2020.

The construction costs of the Bemidji and Fargo projects are expected to be in the range of
$600-$900 million, with ALLETE’s share being between $82.5 million and $124.3 million. If
REGULATORY DEVELOPMENTS
D.A. Davidson & Co.
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constructed, the investment would approximately double ALLETE's existing alternating current
transmission plant investment of $105.9 million

*****

On November 12th MDU Resources Group’s natural gas distributor, Intermountain Gas Co.,
submitted its 5-year Integrated Resource Plan (IRP) to the Idaho Public Utilities Commission
(IPUC). The utility is forecasting an annual peak load increase of 1.75% though 2015 and
anticipates a need for at least two pipeline upgrades to avoid future peak-day deficits. The
Commission will be taking comment on the IRP for a few weeks prior to its formal review of the
plan and subsequent approval for the recommended upgrades.

On November 15th, Standard & Poor's Ratings Services cut its rating on Hawaiian Electric
Industries Inc. (HE) and its electric utility subsidiaries by one notch to BBB-. The primary
reason for the downgrade was the rating agency saw little hope for improvement in the
"aggressive" financial profile of its utility subsidiaries over the next several years as the state’s
weak economy has magnified the effect of shrinking electric sales, which had already been in
decline due to conservation efforts. It made no change to its ratings of American Savings
Bank.

****

On November 11th Black Hills Corp. priced a public offering of 4 million shares of its common
stock at $29.75 per share using a forward sales agreement with underwriters. The secondary
offering has been on the radar screen for quite some time, as the capital will be needed to
complete construction of two new gas-fired generation facilities in Colorado, which replace a
PPA that expires at the end of 2011. The forward structure of the offering is intended to allow
the utility to efficiently align the receipt of proceeds with the spending requirements for those
facilities over the next 12 months.

*****

TransCanada Corp. (TRP - $34.90) has abandoned its plans to develop the $3 billion Chinook
transmission project, which had been proposed to ship 3,000 MW of wind-generated electricity
from Montana to the southwestern United States. The primary reason given for the
cancellation was a general inability on the part of wind farm developers to reserve capacity on
the line. Importantly, we have viewed the Chinook line as a primary competitor to the $1 billion
Mountain States Transmission Intertie (MSTI) proposed by NorthWestern Corp. One
significant development since the cancellation of Chinook was announced is that California’s
Proposition 23 failed on November 2nd (Prop. 23 would have reduced that state’s ability to
import renewables to meet its aggressive RPS). Although we see the absence of these two
obstacles (Prop 23 and the Chinook line) as a positive for MSTI, it remains unclear whether
NorthWestern will be able to secure enough interest from large wind developers to carry its
project forward to completion.

*****

Northwest Natural Gas Company announced several developments related to its Palomar
Pipeline project, including a court decision in an LNG developer’s bankruptcy proceeding, a
non-binding memorandum of understanding (MOU) with a major pipeline operator, and a route
agreement with a native American tribe. In November 2010, the Palomar Project entered into
a non-binding MOU with The Williams Companies’ (WMB - $22.50) Northwest Pipeline, which
may point to Williams taking a partial ownership interest in the project. We believe that the
three-way partnership should help to consolidate the region’s efforts to develop a cross-
Cascades pipeline around the use of the Palomar route. We will be watching for future
indications from management as to how this agreement could affect NW Natural’s 50% stake
in the project.

In October 2010, Palomar executed an agreement with the Confederated Tribe of the Warm
Springs Reservation that provides Tribal consent for the Bureau of Indian Affairs to issue a
pipeline right-of-way grant across the Warm Springs Reservation. We believe that this route
modification should both shorten the pipeline’s length and reduce its environmental impact
relative to the initially proposed route, though it remains unclear what impact this will have on
the project’s final price tag.

COMPANY DEVELOPMENTS
D.A. Davidson & Co.
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*****

Questar Corp. announced that its Overthrust Loop pipeline project is now expected to be
brought into service by year-end 2010 (previously expected toward the end of 1Q’11) and
$12 million below its $100 million budget. We also note that the persistence of low natural gas
prices will result in slower growth at Wexpro in the near term. In our view, the combination of
these factors will likely produce enough positive cash flow next year to enable management to
raise the dividend at the north end of the 5%-10% range, though we expect a portion of the
surplus will be retained to create flexibility for Wexpro to respond to a future up-tick in natural
gas prices.

*****

On November 4th ITC Holdings broke ground on the first phase of its KETA project, which is
the company’s first major transmission project in Kansas. ITC’s portion of the 345 kV
transmission line will run from Spearville, Kansas to the Nebraska state line. ITC will construct
its portion of the project in two phases at an expected cost of $203 million, with the first phase
(89 miles) representing an investment of ~$105 million. ITC is still in the process of securing
other regulatory approvals for the second phase of the project. ITC continues to target a 2012
in-service date for phase 1 and 2013 for phase 2.

*****

In early November the city of Great Falls, MT submitted a letter to NorthWestern Corp. to
evaluate the utility’s interest in acquiring the contracts of ~17 industrial/commercial customers,
which have been receiving power from the city’s unsuccessful nonprofit electric utility since
2004. Neither party has released detail that would offer the investment community color about
the customers’ load profile or contract pricing. It is our expectation that if NorthWestern
chooses to acquire the customer portfolio, it would not translate into any material increase in
rate base due to the fact that power for the customers has been secured through a purchased
power contract and Northwestern already owns the T&D infrastructure in that region.

*****

On November 4th an announcement was made by Hoku Materials, Inc. (HOKU - $2.65) that it
had revised its schedule for placing its Pocatello, Idaho polysilicon plant into phase 1 of
commercial service (2,500 metric tons of production per year) from 1Q’11 to 2Q’11 due to
delays in securing adequate short-term financing to continue construction of the plant.
IDACORP’s utility subsidiary has entered into a contract with Hoku to supply electric capacity
for the plant, which is expected to require 82 MW when it is fully operational, making Hoku
Idaho Power’s largest industrial customer.

*****

On November 11th MDU Resources Group announced an increase in its quarterly dividend to
$0.1625 per share, up half a penny from $0.1575 per share. Although the company’s track
record of 20 consecutive years of dividend increases is impressive, the 3% increase was
below average as the company’s earnings profile continues to be weakened by the struggling
economy’s effects on its construction and E&P segments

*****

MGE Energy continues to expect Unit 2 of its Elm Road generating facility to commence
operations in the fourth quarter. The guaranteed contractual in-service date for the facility is
November 28th, which will add to the company’s regulated EPS and strengthen MGE’s
production of free cash flow, which we believe will contribute to reduced reliance on external
capital and healthier dividend increases in the future.

*****

On October 26th, the Oregon Public Utility Commission (OPUC) produced a report for its state
legislature, confirming its belief that the state's investor-owned utilities can meet the state’s
requirements to reduce greenhouse gases by 2020. The report indicated that the state’s
largest electric utility, Portland General Electric, is likely to incur the greatest costs to comply
with the state’s aspiration goal to reduce greenhouse emissions by either 10% below the 1990
level or 15% below the 2005 level.
D.A. Davidson & Co.
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Assuming that the Boardman and Colstrip coal-fired plants are shut down and replacement
power is secured from renewable power sources, the report indicates that POR's electric rates
would need to increase by roughly 13% by 2020 to meet the standards. The utility has
proposed the shutdown of Boardman by 2020, but has no designs to exit Colstrip Unit 4.

D.A. Davidson & Co.
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As displayed in Table 1, temperatures in the fourth quarter so far have been warmer than both
the historical average and the same period one year ago in the service territories of utilities
under our coverage, with those of Black Hills showing up as especially mild. Although
weather patterns from now through the end of the year generally have a greater impact on
heating loads in the fourth quarter, a continuation of the mild weather that has been
experienced thus far would point to weak quarter results.

In terms of cooling degree days, as displayed in Table 2, temperatures in the service territory
of Hawaiian Electric Industries have been modestly cooler than normal so far in 4Q’10 and
~10% cooler than at this point in the fourth quarter a year ago.

Table 1: Heating Degree Day* Data (HDD) –4Q’10 QTD Totals
ALLETE, Inc. (ALE)
Minnesota Powe Duluth, MN 1293 -20% -10%
Superior Water, Light & Power Superior, WI 1293 -20% -10%
Alliant Energy, Inc. (LNT)
Interstate Power & Light Cedar Rapids, IA 714 -18% -26%
Wisconsin Power & Light Madison, WI 812 -24% -21%
Avista Corp. (AVA)
Avista Utilities Spokane, WA 1004 -15% -12%
Black Hills Corp. (BKH)
Black Hills Power Rapid City, SD 796 -28% -36%
Cheyenne Light Fuel & Power Cheyenne, WY 925 -28% -34%
Black Hills Energy - Colorado Electric & Gas Colorado Springs, CO 627 -39% -43%
Black Hills Energy - Iowa Gas Des Moines, IA 504 -36% -32%
Black Hills Energy - Kansas Gas Wichita, KS 290 -42% -48%
Black Hills Energy - Nebraska Gas Lincoln, NE 593 -24% -32%
IDACORP, Inc. (IDA)
Idaho Power Company Boise, ID 549 -33% -32%
Idaho Power Company Idaho Falls, ID 1088 -18% -9%
MDU Resources Group, Inc. (MDU)
Cascade Natural Gas Co. Tri Cities, WA 575 -16% -21%
Great Plains Natural Gas Co. Fergus Falls, MN 1017 -24% -15%
Intermountain Natural Gas Boise, ID 549 -33% -32%
Montana-Dakota Utilities Co. Bismarck, ND 1078 -21% -11%
MGE Energy, Inc. (MGEE)
Madison Gas & Electric Co. Madison, WI 812 -24% -21%
Portland General Electric Co. (POR)
Portland General Electric Portland, OR 577 -12% 1%
Northwest Natural Gas Co. (NWN)
NW Natural Portland, OR 577 -12% 1%
NorthWestern Corp. (NWE)
NorthWestern Energy Billings, MT 815 -27% -25%
NorthWestern Energy Sioux Falls, SD 839 -23% -21%
Otter Tail Corp. (OTTR)
Otter Tail Power Co. Fargo, ND 1017 -24% -15%
% From
2009
% From
Average
4Q'10
QTD
Source: National Weather Service’s Climate Prediction Center
Table 2: Cooling Degree Day* Data (CDD) –4Q’10 QTD Totals
Hawaiian Electric Industries, Inc. (HE)
Hawaiian Electric Co. Honolulu, HI 593 0% -7%
Maui Electric Co. Kahului, HI 566 -3% -10%
Hawaiian Electric Light Co. Hilo, HI 451 -6% -11%
% From
2009
% From
Average
4Q'10
QTD
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
D.A. Davidson & Co.
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After reaching all-time highs on an absolute and relative basis in December 2007, valuations
within the electric utility sector retreated as the market weakened in 2008. Further market
declines in early 2009 took the group’s valuation below the October 2008 lows by early March
2009, with price-earnings (P/E) ratios dropping materially below their 10-year norm.
Subsequently, the average P/E valuation has risen ~34% as the market rallied.

The upper portion of Chart 1 depicts an overall ~29% price decline in a market-weighted index
of 56 investor-owned electric and combination utilities since reaching its peak in December
2007. The lower portion depicts the group’s 12.4x P/E ratio on year-forward earnings
estimates versus a 10-year norm of 13.8x. After reaching an all-time record of 18.8x in
December 2007, the group’s P/E ratio slumped to 9.1x in March 2009, before the recent rally.

Chart 2 provides two additional measurements of value (EV/EBITDA and P/BV), showing that
electric utility valuations remain below the 10-year average since reaching a peak in December
2007.

As shown in the top panel of Chart 3, the sector’s current average dividend yield of 4.3%
exceeds the 10-year average of 3.8%. The bottom panel depicts the yield of the electric utility
index relative to the yield of the S&P 500 is currently at ~2.3x. After a prolonged 6-year
subsidence, utilities’ relative yields were in an upward trend from early 2009 until turning
downward early in the second quarter of 2010.

As depicted in Chart 4, yields in the electric 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 215% 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 154% relative yield compares to the 10-year average of 95%.

100
150
200
250
300
350
400
Electric Utilities
10-Nov-2000 to 12-Nov-2010 (Weekly) High: 387.80 Low: 150.18 Latest: 275.41
Price (USD)
'01 '02 '03 '04 '05 '06 '07 '08 '09 '108
10
12
14
16
18
20
©FactSet Research SystemsData Source: FactSet Aggregates, FactSet Aggregates
Average: 13.8 High: 18.8 Low: 9.1 Latest: 12.4
Price to Earnings - FY1
Source: FactSet
Valuation Metrics
Chart 1: Electric Utility Price Index
and Price-Earnings Ratio
D.A. Davidson & Co.
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6
6.5
7
7.5
8
8.5
9
9.5
10
Electric Utilities
10-Nov-2000 to 12-Nov-2010 (Weekly) Average: 8.0 High: 9.5 Low: 6.4 Latest: 6.8
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: 2.4 Low: 1.1 Latest: 1.4
Price to Book
Source: FactSet

2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
Electric Utilities
10-Nov-2000 to 12-Nov-2010 (Weekly) Average: 3.8 High: 6.0 Low: 2.4 Latest: 4.3
Dividend Yield
'01 '02 '03 '04 '05 '06 '07 '08 '09 '101
1.5
2
2.5
3
3.5
4
©FactSet Research SystemsData Source: FactSet Aggregates,
Average: 2.22 High: 3.70 Low: 1.29 Latest: 2.30
Dividend Yield - Relative to S&P 500
Source: FactSet

Chart 2: Electric Utility Ratios of
EV/EBITDA and P/BV
Chart 3: Electric Utility Dividend
ields and Yield 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%
220%Electric Utilities Yield Relative to 10-Year Treasuries
Max: 210.18
Min: 49.81Last: 154.42
Recession Periods - United States
Source: FactSet
Chart 4: Electric Utility Dividend
ield Relative to Yield on U.S. 10-
ear Treasury Bonds
D.A. Davidson & Co.
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Table 3: D.A. Davidson Utility Coverage Relative Performance
Price Price Ex-Dividend Monthly Year-to-Date
12/31/2009 11/16/2010 Month-to-Date Total Return Total Return
ALLETE, Inc. (ALE) 32.68 35.31 0.44 -1.7% 13.4%
Alliant Energy Corporation (LNT) 30.26 36.27 -0.7% 25.1%
Avista Corp. (AVA) 21.59 21.64 -0.9% 3.7%
Black Hills Corporation (BKH) 26.63 29.47 -7.4% 14.7%
Hawaiian Electric Industries (HE) 20.90 22.28 0.31 0.2% 12.5%
IDACORP, Inc. (IDA) 31.95 36.19 0.30 -0.8% 17.0%
ITC Holdings Corp. (ITC) 52.09 61.25 -2.2% 19.5%
MDU Resources Group, Inc. (MDU) 23.60 20.34 2.1% -11.8%
MGE Energy, Inc. (MGEE) 35.74 41.55 2.5% 19.4%
Northwest Natural Gas Co. (NWN) 45.04 48.33 -1.9% 11.0%
NorthWestern Corporation (NWE) 26.02 28.85 -3.1% 14.8%
Otter Tail Corp. (OTTR) 24.82 20.45 0.30 1.0% -12.8%
Portland General Electric Co. (POR) 20.41 21.09 0.9% 5.9%
Questar Corp. (STR)1 13.21 17.03 0.4% 30.0%
Mean -0.8% 11.6%
Median -0.8% 14.1%
Dow Jones Industrial Average (.DJIA) 10,428.05 11,024.49 17.31 -0.7% 8.0%
Standard & Poors 500 (.SPX) 1,115.10 1,179.31 1.45 -0.2% 7.5%
Dow Jones Utility Average (.UTIL) 398.01 397.79 2.07 -1.2% 3.9%
SNL Electric Companies Index 496.35 525.06 * -0.8% 5.8%
SNL Gas Companies Index 527.77 533.54 * 3.5% 1.1% 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 3, total returns of electric utilities (as measured by SNL’s market weighted
index of 24 investor-owned electric utilities) have been generally in line with the broader
indices in the first half of November, declining 0.8% versus declines of 0.7% and 0.2% from the
Dow Jones Industrials and the S&P 500, respectively. Gas utilities have had a much better
month, rising 3.5%, which only partially offsets significant underperformance year-to-date
(+1.1%) in that group. The mean total return in our coverage universe has been a modest loss
of 0.8% in the month, though performance has been a mixed bag. MGE Energy (+2.5%) and
MDU Resources Group (+2.1%) have posted the strongest gains, while shares of Black Hills
Corp. have fallen 7.4% (mostly in response to the company’s secondary offering).

Leading our coverage universe from a year-to-date total return perspective are Questar Corp.
and Alliant Energy Corp., which have risen 30.0% (adjusted) and 25.1%, respectively.
Utilities with significant exposure to non-regulated businesses have posted negative
performance on a total return basis for the year, with the most pronounced being Otter Tail
Corp. (-12.8%) and MDU Resources Group (-11.8%). Although the utilities owned by these
two companies continue to be healthy, the continuing weakness in the nonregulated
operations has continued to hold back the companies’ shares.

As depicted in Table 4, the utility peer group’s mean 2010 price-earnings ratio is 16.5x, up
from 16.4x on September 14th, the pricing date of our last Utility Monthly. The mean
EV/EBITDA ratio based on our 2010 forecast and the average dividend yield in our coverage
universe are currently 8.3x and 4.2%, respectively. Otter Tail sports the highest yield in the
group (currently 5.8%) with a payout ratio of 167% of projected 2010 earnings.

RELATIVE PERFORMANCE
D.A. Davidson & Co.
12
Table 4: D.A. Davidson & Co. Utilities Comparison

Price EPS EPS EPS P/E P/E P/E
11/16/10 2009 2010E 2011E 2009 2010E 2011E
ALLETE Inc.1,2 ALE N $35.31 $37.00 $1,264.1 $2.04 $2.27 $2.43 14.8 14.2 13.3 92% 1.2 5.0% 78% 5.1 45% 8.7 8.3 8.6% 3.3% Above
Alliant Energy Corp.1 LNT B $36.27 $41.00 $4,020.7 $1.95 $2.75 $3.00 18.6 13.2 12.1 96% 1.4 4.4% 57% 4.2 50% 7.1 6.7 10.5% 3.4% Above
Avista Corp.1 AVA N $21.64 $23.00 $1,224.2 $1.58 $1.67 $1.73 13.7 12.9 12.5 81% 1.1 4.6% 60% 3.7 50% 6.9 6.6 8.2% 2.4% Average
Black Hills Corp.1 BKH N $29.47 $30.00 $1,156.5 $2.04 $1.52 $2.00 14.5 19.4 14.8 128% 1.1 4.9% 95% 3.6 55% 7.6 7.1 8.1% 2.6% Average
Hawaiian Electric Industries, Inc.1 HE U $22.28 $19.00 $2,085.9 $0.91 $1.44 $1.75 24.6 15.5 12.7 99% 1.4 5.6% 86% 4.7 54% 7.9 6.8 7.4% 1.2% Below
IDACORP Inc.1 IDA B $36.19 $42.00 $1,743.1 $2.64 $2.78 $2.90 13.7 13.0 12.5 81% 1.2 3.3% 43% 5.1 50% 9.2 7.7 9.8% 3.2% Average
ITC Holdings Corp.1 ITC B $61.25 $75.00 $3,101.3 $2.58 $2.84 $3.30 23.8 21.5 18.5 84% 2.8 2.1% 45% 6.8 69% 12.0 10.8 13.6% 3.4% Above
MDU Resources Group, Inc.1 MDU B $20.34 $23.00 $3,838.2 $1.38 $1.24 $1.55 14.7 16.3 13.1 113% 1.4 3.2% 52% 4.9 36% 6.8 5.9 9.2% 3.9% Average
MGE Energy Inc.1 MGEE N $41.55 $40.50 $960.4 $2.21 $2.60 $2.85 18.8 16.0 14.6 99% 1.8 3.6% 58% 6.4 41% 8.7 8.1 11.6% 4.7% Above
Northwest Natural Gas Co.1 NWN N $48.33 $48.00 $1,287.5 $2.83 $2.75 $2.70 17.1 17.6 17.9 108% 1.9 3.5% 61% 5.6 54% 9.0 8.8 11.3% 3.1% Average
NorthWestern Corp.1 NWE N $28.85 $30.00 $1,044.5 $2.02 $2.09 $2.20 13.3 12.8 12.2 83% 1.2 4.7% 65% 4.1 57% 8.2 7.5 9.9% 2.8% Below
Otter Tail Corp.1 OTTR N $20.45 $20.00 $734.8 $0.71 $0.71 $1.30 28.9 28.6 15.8 154% 1.2 5.8% 167% 4.9 46% 8.5 6.9 3.0% 1.1% Average
Portland General Electric Co.1 POR N $21.09 $21.50 $1,587.6 $1.31 $1.55 $1.65 16.2 13.6 12.8 91% 1.0 4.9% 67% 3.2 54% 6.8 6.3 5.8% 1.7% Average
Questar Corp.1 STR N $17.03 $18.50 $3,034.7 $1.03 $1.07 $1.11 16.6 15.9 15.3 101% 3.1 3.1% 49% 5.9 55% 8.3 7.9 8.8% 3.3% Above
Median, 14 Regional Utilities 16.4 15.7 13.2 98% 1.3 4.5% 60% 4.9 52% 8.3 7.3 9.0% 3.2%
Mean, 14 Regional Utilities 17.8 16.5 14.2 101% 1.6 4.2% 70% 4.9 51% 8.3 7.5 9.0% 2.9%
Regulatory
Rank
ROAE
(ttm)
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 $3.00/sh point estimate of the value of ALLETE Properties.
Sources: Company reports and D.A. Davidson & Co. estimates
EV /
EBITDA
2010E
EV /
EBITDA
2011E
Rating
Price/
EBITDA
2010E
P / BV Dividend
Yield
Price
Target
Mkt Cap
($M)
PE '10E /
10 yr
Median
Company Name Symbol
Payout
Ratio
2010E
ROAA
(ttm)
Debt /
Capital

D.A. Davidson & Co.
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Copyright D.A. Davidson & Co., 2010. All rights reserved.
13
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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 9/30/10) Buy Hold Sell
Corresponding Institutional Research Ratings Buy Neutral Underperform
and Distribution 56% 39% 5%
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and Distribution 88% 12% 0%
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