COC Utility Monthly 04-01-11.pdf

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

April 5, 2011 Utility Monthly

Prices: (4/5/11)

Industry:
Utilities

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

Michael Bates
Research Associate
406.791.7216
[e-mail]

Low Wholesale Power Prices Appear Unlikely to Halt New Projects

• Our BUY-rated utilities are Alliant Energy Corp. and IDACORP, Inc.
• Since publishing our last Utility Monthly, we initiated coverage of Integrys Energy
Group with a NEUTRAL rating and lowered our ratings for ITC Holdings Corp.
and MDU Resources Group from Buy to NEUTRAL.
• Black Hills Corp. announced plans for additional wind and natural gas-fired
generating resources in Colorado.
• ITC Holdings Corp. announced updates for two major transmission projects.
• NW Natural temporarily withdrew its FERC application for the Palomar Pipeline.
• Xcel Energy, Inc. announced the cancellation of its Merricourt Wind Project.

The persistence of relatively low wholesale electricity prices has called into question
capital spending for new generation resources within the electric utility industry.
Coupling current reduced natural gas prices levels (due largely to an increase in
supply) with a lack of confidence as to when natural gas prices could rise again, some
observers believe utilities should delay spending and rely on short-term power
purchase agreements to meet customer demand. Indeed, the expected break-even
cost of electricity generated at a new power plant, no matter what the fuel source, is
higher than the current open market wholesale price, as suggested by Chart 1.

Chart 1: Cost of Electric Generation by Fuel Source vs. Current Wholesale Price
$0.057
$0.087
$0.236
$0.067$0.063
$0.117$0.115
$0.047
$0.000
$0.050
$0.100
$0.150
$0.200
$0.250
Wholesale
Electricity
Natural
Gas
Coal Natural
Gas
(Mitigated)
Coal
(Mitigated)
Wind Nuclear Solar PV
Br
e
a
k
-
E
v
e
n

P
r
i
c
e

p
e
r

k
W
h
Source: U.S. Energy Information Administration, Dallas Morning News, Bluescape Resources

However, our contacts within the industry have expressed a general view that low
natural gas prices are a short-term luxury. Although the persistence of low wholesale
electricity prices should not be ignored by regulators and utilities, in most cases
managements are inclined to take a long-term view to go ahead with projects, rather
than remaining heavily exposed to the wholesale market, which has been volatile over
the last decade.

This view is evidenced by the fact that the capital spending budgets released by
utilities within our coverage universe continue to show significant spending on new,
owned generating resources to replace expiring purchased power agreements. As
detailed in Table 1, several utilities under our coverage have set plans in motion to add
new generation within the next several years, which we believe will remain intact
despite the current low prices for wholesale power.
D.A. Davidson & Co.
2
Table 1: Planned Spending for Generating Resources Remains Strong
Symbol Utility Project Fuel Source Capacity (MW) In-Service Exp. Cost ($ millions)
ALE ALLETE Inc., Bison 2 Wind 105 2012 $160
LNT Alliant Energy Corp. Edgewater Unit 5 Acquisition Coal 95 Acquisition - 2011 $45
Whispering Willow-East Wind 100 TBA $250
Bent Tree 1 Wind 200 1Q'11 $450
Riverside Acquisition Natural Gas 600 Acquisition - 2013 $375
BKH Black Hills Corp. Colorado Regulated Generation Natural Gas 180 2011 $260
Colorado Regulated - Third Turbine Natural Gas 88 2012 $102
Colorado IPP Natural Gas 200 2011 $260
EUI Development Project Wind 29 2012 TBA
NWE NorthWestern Corp. Wind Resources (RFI) Wind ~50 2012 $120
South Dakota Peaking Natural Gas ~60 2013-2014 $60
POR Portland General Electric Co. Natural Gas - Peaking (RFI) Natural Gas 200 2013 TBA
Natural Gas - Baseload (RFI) Natural Gas 300-500 2015 TBA
Natural Gas - Peaking (RFI) Renewable 330-400 2015 TBA
XEL Xcel Energy, Inc. Nuclear Uprates/Life Extensions Nuclear 235 2014-2015 $725
Black Dog Repowering Natural Gas 680 2016 $585
Colorado CACJA Repowerings Natural Gas 900 2017 $1,400 Source: Company reports and regulatory filings

On March 30th we initiated research coverage of Integrys Energy Group, Inc., a diversified
energy company based in Chicago, Illinois that operates primarily as a combination electric
and gas utility in the Midwest. The company’s primary operations are carried out through six
regulated utilities providing service to ~1.7 million natural gas customers and ~500,000 electric
customers in Illinois, Michigan, Minnesota, and Wisconsin.

Integrys’ electric and gas utility subsidiaries are at the front end of multi-year plans to upgrade
their electric and natural gas distribution systems and install pollution control equipment for
their electric generating fleets. We estimate these projects will fuel annual utility earnings
growth of ~6% on average over the next five years.

Last year, Integrys completed strategic repositioning of its nonregulated Integrys Energy
Services segment, which provides retail natural gas and electric products to customers in the
Upper Midwest and Northeast regions of the United States. We believe the repositioning of
this segment will increase the predictability of the segment’s earnings and cash flows, as well
as compete for growth opportunities in retail markets.

We also note that Integrys holds a 34% equity stake in American Transmission Company
(ATC), which provides a stream of predictable earnings that we believe will continue to grow as
the company continues to expand its asset base.

Although the current yield of 5.4% remains well above the peer average, we see little potential
for dividend increases over the next few years as the firm seeks to manage its relatively high
payout ratio. It is our view that the stock’s current valuation is appropriate, given the
company’s growth profile, relatively favorable regulatory backdrop, and its large equity stake in
ATC. We initiated coverage with a NEUTRAL rating and a 12-18 month risk-adjusted target
price of $50, which equates to 14.5x the average of our 2011 and 2012 EPS estimates.

On March 14th Black Hills Corp. announced that it had filed for regulatory approval to add a
third gas-fired turbine at its Pueblo Airport Generating Station, which is currently under
construction. The utility’s request to increase the new plant’s capacity was primarily driven by
an order by the Colorado Public Utilities Commission (CPUC) in December 2010 to retire and
replace roughly 88 MW of the company's outdated coal-fired facilities in compliance with the
state’s Clean Air-Clean Jobs Act. The additional investment at the Pueblo plant is expected to
equate to an additional capital investment of ~$102 million.

On March 24th Black Hills Corp. announced the filing of a proposal to own 50% of a 29 MW
wind project in Colorado (the utility also intends to purchase the electricity and renewable
energy credits from its partner’s (EUI Development, LLC) portion of the project). The utility has
indicated that although the state’s renewable portfolio standard of 30% renewables by 2020 is
still distant, the CPUC will be looking for the utilities to make steady progress toward that
requirement over the next decade. If approved, the project will be constructed south of Pueblo
in 2012.

*****

New Research Coverage
Capital Projects
D.A. Davidson & Co.
3
On April 1st, an Xcel Energy utility subsidiary announced that it had terminated a construction
agreement with a wind farm developer for the planned Merricourt Wind Project in southeastern
North Dakota. The reason given for the cancellation was the uncertainty of the cost and timing
of mitigating the project’s possible impact on endangered or threatened species (whooping
crane and piping plover) protected by federal law. The utility had previously expected to place
the 150 MW wind farm in service by year-end 2011 at a cost of roughly $400 million. No
material charge-off of development expenses is expected by Xcel, but we estimate the removal
of the project reduces XEL’s earnings power by roughly $0.03 per share in 2012.

With the removal of the Merricourt wind farm from its capex budget, Xcel now plans to spend
~$2 billion on capital projects in 2011. Although the firm’s store of banked renewable energy
credits will likely be sufficient to keep it in compliance with Minnesota’s renewable portfolio
standard over the short term, we believe it is reasonable to assume the utility will announce a
replacement project within 1-2 years.

*****

On March 25th ALLETE, Inc. filed for approval by the Minnesota Public Utilities Commission
(MPUC) to construct the Bison 2 wind project at an expected cost of ~$160 million. If
approved, the 105 MW wind farm will be constructed near its Bison 1 project in central North
Dakota in 2012. The electricity generated from the project will be transported to its core
markets in Minnesota via the high voltage DC transmission line purchased by the utility in
December 2009.

*****

On March 17th ITC Holdings filed a request for a siting permit to construct its Kansas V-Plan,
which includes 120 miles of 345 kV transmission lines. The estimated $300 million
transmission plan has already been approved by SPP regulators as a priority project,
qualifying for regional cost recovery. The transmission-only utility expects to begin surveying
and easement acquisitions for the line in mid-2011, with the line expected to be in service by
year-end 2014.

*****

On March 22nd Northwest Natural Gas Co. and TransCanada Corp. (TRP - $41.21)
announced the withdrawal of their joint application to construct the two-segment version of the
Palomar Pipeline, which included a western extension to the now-cancelled Bradwood Landing
LNG terminal on the Columbia River. The parties continue to stress the need for the project
and have expressed plans to file a revised application (now excluding the western extension)
in 2012, assuming this year’s open season process reflects sufficient demand. We also note
that next year’s revised application may include Williams Companies, Inc. (WMB - $31.05) as
a partner, which would likely result in a decreased ownership stake for NW Natural.

*****

In late February the Public Service Commission of Wisconsin (PSCW) granted approval for a
$630 million plan to install scrubbers and baghouses at the 1,139 MW Columbia Energy
Center. The coal-fired plant is jointly owned by Alliant Energy Corp. (with a 46.2% interest),
Integrys Energy Group Inc. (31.8%), and MGE Energy Inc. (22.0%), and each utility will
share in the costs in proportion to their ownership of the asset. The 36-month project is
expected to be finished in early 2014. Although the plan faced opposition from intervenors on
the basis of cost, these groups are not expected to formally appeal the PSCW’s decision.

*****

In late February, the Michigan Public Service Commission (MPSC) handed down approval for
ITC Holdings Corp.’s request for an expedited siting certificate for the Michigan Thumb Loop
project. The transmission line will be comprised of a 140-mile double circuit 345 kV
transmission line and four new substations at a total expected cost of $510 million (significant
capital investments are expected to begin in 2012). The project is intended to serve as the
backbone of the transmission system needed in that region to accommodate future wind
development, and has been classified by MISO as a “Multi-Value Project” under its new cost
allocation methodology, which means the costs will be allocated regionally.

*****
D.A. Davidson & Co.
4

The New Mexico-based electric utility subsidiary of Xcel Energy (Southwestern Public
Service) filed its 2011-test year general rate case, requesting a $19.9 million (+6.9%) electric
rate increase. The request is based on an 11.25% ROE and a 51.1% equity capital structure
and a $390.3 million rate base. The utility has based its sales forecast on a 2011 test year and
asked that the new rates go into effect for 2012.

*****

On March 14th the Public Utility Commission of Oregon (OPUC) granted approval of the all-
party settlement submitted in Avista Corp.’s natural gas rate case settlement. Under the
settlement, rates increased $2.0 million (+2.0%) on March 15th and will increase another
$1.0 million (+1.1%) on June 1st.

Avista Corp. received upgrades to its credit ratings from both Moody’s and Standard & Poor’s
in March, with both upgrades reflective of improved liquidity and recent regulatory rate
increases. The firm now holds an overall credit rating of Baa2 (previously Baa3) from Moody’s
and BBB (previously BBB-) from S&P’s.

*****

On March 15th Alliant Energy Corp. announced a notice of redemption for 1.6 million shares
of its 7.10% Series C Cumulative Preferred Stock. The cost to redeem the shares is expected
to total $40.4 million, which is expected to be funded by cash from operations. We estimate
the redemption of these preferred shares will allow the company to save $2.8 million per year
($0.025 per share) in preferred dividends, but the premium paid for the redemption will delay
this benefit until 2012.

*****

In early March, ALLETE, Inc. reported that demand nominations from its industrial customers
for the months of May through August 2011 were slightly higher than those for the previous
four-month period. ALLETE’s pool of industrial customers is heavily weighted toward taconite
producers, which are expected to produce at near full capacity levels for the period. The
increase in production by these customers should translate into increased power sales and
earnings for the utility.

Regulatory Developments
Other Developments
D.A. Davidson & Co.
5

As displayed in Table 2, temperatures in the first quarter of 2011 were mixed in relation to
historical averages, but colder than the same period one year ago in the service territories of
nearly every utility under our coverage. The gas utility operations of NorthWestern Corp. and
Black Hills Corp. likely received the most benefit from favorable weather in the quarter, while
we point out that the mild temperatures in Colorado likely resulted in a weak comparison for
Xcel Energy’s gas operations in that state.

In terms of cooling degree days (see Table 3) temperatures in the service territory of Hawaiian
Electric Industries were warmer than both the historical average and what was recorded last
year, which likely helped the utility’s electric loads in 1Q’11.

Table 2: Heating Degree Day* Data (HDD) –March 2011 and 1Q’11 Totals
Parent Company / Utility Location
ALLETE, Inc. (ALE)
Minnesota Powe Duluth, MN 1264 2% 47% 4439 0% 13%
Superior Water, Light & Power Superior, WI 1264 2% 47% 4439 0% 13%
Alliant Energy, Inc. (LNT)
Interstate Power & Light Cedar Rapids, IA 899 2% 20% 3754 8% 9%
Wisconsin Power & Light Madison, WI 998 2% 24% 3647 -1% 6%
Avista Corp. (AVA)
Avista Utilities Spokane, WA 782 -1% 7% 2628 -9% 1%
Black Hills Corp. (BKH)
Black Hills Power Rapid City, SD 1040 12% 30% 3672 11% 16%
Cheyenne Light Fuel & Power Cheyenne, WY 826 -12% -7% 3103 -1% 9%
Black Hills Energy - Colorado Electric Colorado Springs, CO 666 -19% -10% 2807 -2% 8%
Black Hills Energy - Iowa Gas Des Moines, IA 787 -5% 10% 3465 5% 9%
Black Hills Energy - Kansas Gas Wichita, KS 534 -10% -3% 2549 2% 12%
Black Hills Energy - Nebraska Gas Lincoln, NE 783 -2% 6% 3397 7% 9%
IDACORP, Inc. (IDA)
Idaho Power Company Boise, ID 880 3% 23% 2588 -6% 11%
Idaho Power Company Idaho Falls, ID 1124 6% 35% 3838 7% 11%
Integrys Energy Group, Inc. (TEG)
Peoples Gas Light and Coke Co. Chicago, IL 637 -5% 3% 3085 0% 2%
Wisconsin Public Service Corp. Green Bay, WI 917 0% 0% 3748 1% 6%
MDU Resources Group, Inc. (MDU)
Cascade Natural Gas Co. Tri Cities, WA 551 -4% 4% 1977 -11% -3%
Great Plains Natural Gas Co. Fergus Falls, MN 1327 13% 48% 4676 7% 14%
Intermountain Natural Gas Boise, ID 637 -5% 3% 2345 -9% 4%
Montana-Dakota Utilities Co. Bismarck, ND 1353 22% 41% 4622 11% 12%
MGE Energy, Inc. (MGEE)
Madison Gas & Electric Co. Madison, WI 998 2% 24% 3647 -1% 6%
Portland General Electric Co. (POR)
Portland General Electric Portland, OR 575 7% 15% 1791 -6% 2%
Northwest Natural Gas Co. (NWN)
NW Natural Portland, OR 575 7% 15% 1791 -6% 2%
NorthWestern Corp. (NWE)
NorthWestern Energy Billings, MT 899 3% 41% 3177 1% 17%
NorthWestern Energy Sioux Falls, SD 1083 10% 28% 4177 10% 14%
Otter Tail Corp. (OTTR)
Otter Tail Power Co. Fargo, ND 1370 16% 51% 4821 9% 16%
Questar Corp. (STR)
Questar Corp. Salt Lake City, UT 660 -1% -4% 951 -3% -4%
Xcel Energy, Inc. (XEL)
NSP-Minnesota Minneapolis, MN 1095 6% 49% 1458 -6% -5%
NSP-Minnesota Fargo, ND 1370 16% 51% 1833 2% 10%
NSP-Minnesota Sioux Falls, SD 1083 10% 28% 1498 -1% -2%
NSP-Wisconsin Eau Claire, WI 1156 9% 48% 1519 -4% -4%
PSCo Denver, CO 661 -16% -10% 1117 -19% -30%
SPS Clovis, NM 371 -25% -33% 667 -24% -41%
% From
Average
March
Total
% From
2010
% From
Average
1Q'11
Total
% From
2010
Source: National Weather Service’s Climate Prediction Center
Table 3: Cooling Degree Day* Data (CDD) – March 2011 and 1Q’11 Totals
Hawaiian Electric Industries, Inc. (HE)
Hawaiian Electric Co. Honolulu, HI 366 27% 15% 901 23% 7%
Maui Electric Co. Kahului, HI 306 22% 20% 728 15% 14%
Hawaiian Electric Light Co. Hilo, HI 244 13% 23% 657 14% 3%
% From
Average
March
Total
% From
2010
% From
Average
1Q'11
Total
% From
2010LocationParent 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
D.A. Davidson & Co.
6

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 2010
through February 2011 (the most recent data available) 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 and should bode well for hydrogeneration-oriented
utilities in the region.

Figure 1: Accumulated Precipitation: October 2010–February 2011
Source: National Weather Service Northwest River Forecast Center
Hydrogeneration Outlook
D.A. Davidson & Co.
7
Heavy precipitation levels through most of 1Q’11 were a welcome change from 2010’s mostly
dry winter, which brought relatively light levels of precipitation in the Northwestern region. As
of April 4th, and as seen in Figure 2, the snow water content in key drainages for
hydrogeneration used by Avista Corp., IDACORP, Inc., and Portland General Electric
remain above normal levels.

Figure 2: Western Region Snow Water Content
Source: United States Department of Agriculture

The Northwest River Forecast Center’s projection released on March 31st calls for streamflows
in the Northwest to be above 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 a significant
improvement over 2010’s hydrogeneration season, which had an extremely slow start but
gradually recovered to near-normal levels by the end of the year.

Table 4: Streamflow Projections for Key Hydrogeneration Measurement Locations
Location of Forecasted % Forecast as %
Company Streamflow Forecast Period of Normal - 3/5/10 of Prior-Year Steamflows
Avista Corp. Coeur d'Alene Lake Inflow, ID April-July 113% 140%
Avista Corp. Whitehorse Rapids, ID April-Sept. 124% 160%
IDACORP, Inc. Brownlee Reservoir Inflow April-July 111% 153%
Portland General Electric Grand Coulee, WA April-Sept. 110% 136%
Portland General Electric Clackamas River, OR April-Sept. 100% 82%
Portland General Electric Deschutes River, OR April-Sept. 113% 136%
Portland General Electric The Dalles, OR April-Sept. 107% 128% Source: National Weather Service Northwest River Forecast Center
D.A. Davidson & Co.
8

The upper portion of Chart 2 depicts an overall ~49% advance in the price of FactSet’s market-
weighted index of 100 domestic investor-owned utilities since reaching a trough in early 2009.
The middle portion of the chart depicts the group’s 14.3x P/E ratio on year-forward earnings
estimates, or half a multiple point below the 5-year average. The bottom panel of Chart 2
shows utilities trading at a 5% premium valuation relative to the S&P 500, or moderately above
the 5-year average discount of 1%.

Chart 3 provides two additional measurements of value (EV/EBITDA and P/BV), showing that
utility valuations have returned to approximately match the 5-year average, based on these
metrics. P/BV valuations remain below the average but in line with the general level seen
since 2008.

As shown in the top panel of Chart 4, the sector’s current average dividend yield of 4.0%
remains above the 5-year average of 3.6%. The bottom panel depicts the yield of the utility
group relative to the yield of the S&P 500 is currently at ~2.3x. 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 the 5-year high.

As depicted in Chart 5, yields in the group relative to 5-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 203% of parity with T-bonds in December 2008, when the flight to
quality left the yield on T-bonds at their lowest level since the U.S. Treasury started selling
them. The current 116% relative yield for the sector compares to the 5-year average of 100%.

150
200
250
300
350
400
Utilities
31-Mar-2006 to 04-Apr-2011 (Weekly) High: 388.51 Low: 203.66 Latest: 304.06
Price (USD)
5
10
15
20 Average: 14.8 High: 18.8 Low: 9.5 Latest: 14.3
Price to Earnings - FY1
'06 '07 '08 '09 '100.6
0.8
1
1.2
1.4
©FactSet Research SystemsData Source: FactSet Aggregates, FactSet Aggregates,
Average: 0.99 High: 1.19 Low: 0.70 Latest: 1.05
Price to Earnings - FY1 - Relative to S&P 500
Source: FactSet
Valuation Metrics
Chart 2: Utility Price Index,
Forward P/E Ratios, and P/E
Relative to the S&P 500
D.A. Davidson & Co.
9

6
6.5
7
7.5
8
8.5
9
9.5
Utilities
31-Mar-2006 to 04-Apr-2011 (Weekly) Average: 8.0 High: 9.2 Low: 6.6 Latest: 8.2
Enterprise Value to EBITDA
'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: 1.8 High: 2.5 Low: 1.1 Latest: 1.5
Price to Book
Source: FactSet

2
2.5
3
3.5
4
4.5
5
5.5
6
Utilities
31-Mar-2006 to 04-Apr-2011 (Weekly) Average: 3.6 High: 5.5 Low: 2.4 Latest: 4.0
Dividend Yield
'06 '07 '08 '09 '101.2
1.4
1.6
1.8
2
2.2
2.4
©FactSet Research SystemsData Source: FactSet Aggregates,
Average: 1.76 High: 2.31 Low: 1.26 Latest: 2.28
Dividend Yield - Relative to S&P 500
Source: FactSet

Chart 3: Utility Ratios of
EV/EBITDA and P/BV
Chart 4: Utility Dividend Yields and
ield Relative to Yield on S&P 500

D.A. Davidson & Co.
10
'06 '07 '08 '09 '1040%
60%
80%
100%
120%
140%
160%
180%
200%
220%Utility Industry Yield Relative to 10-Year T-Bond
Max: 203.23
Min: 50.50
Last: 116.00
FDSAGG United States / Utilities -SEC - Dividend Yield / US Treasury Constant Maturity - 10 Year - Yield * 100 Recession Periods - United States
Source: FactSet
Chart 5: Utility Dividend Yield
Relative to Yield on U.S. 10-Year
Treasury Bonds
D.A. Davidson & Co.
11

Table 5: D.A. Davidson Utility Coverage Relative Performance
Price Price Ex-Dividend Monthly Year-to-Date
12/31/2010 3/31/2011 in March Total Return Total Return
ALLETE, Inc. (ALE) $35.26 $38.97 3.1% 11.8%
Alliant Energy Corporation (LNT) 36.77 38.93 -1.1% 7.0%
Avista Corp. (AVA) 22.52 23.13 3.6% 3.9%
Black Hills Corporation (BKH) 30.00 33.44 8.5% 12.7%
Hawaiian Electric Industries (HE) 22.79 24.80 2.7% 10.2%
IDACORP, Inc. (IDA) 36.98 38.10 1.0% 3.8%
ITC Holdings Corp. (ITC) 61.98 69.90 2.0% 13.3%
Integrys Energy Group, Inc. (TEG) 48.51 50.51 3.1% 5.5%
MDU Resources Group, Inc. (MDU) 20.27 22.97 $0.16 7.7% 14.1%
MGE Energy, Inc. (MGEE) 42.76 40.49 -1.2% -4.4%
Northwest Natural Gas Co. (NWN) 46.47 46.13 -1.9% 0.2%
NorthWestern Corporation (NWE) 28.83 30.30 0.36 3.2% 6.3%
Otter Tail Corp. (OTTR) 22.54 22.73 0.9% 2.2%
Portland General Electric Co. (POR) 21.70 23.77 0.26 2.6% 10.7%
Questar Corp. (STR) 17.41 17.45 0.15 -1.5% 1.1%
Xcel Energy Inc. (XEL)1 23.55 23.89 0.25 0.8% 2.5%
Median 2.3% 5.9%
Mean 2.1% 6.3%
Dow Jones Industrial Average (.DJIA) $11,577.51 $12,319.73 $17.14 0.9% 7.1%
Standard & Poors 500 (.SPX) 1,257.64 1,325.83 1.90 0.0% 5.9%
Dow Jones Utility Average (.UTIL) 404.99 413.06 1.86 -0.2% 3.1%
FactSet U.S. Utilities Index 1,158.70 1,207.52 0.7% 4.2%
FactSet U.S. Electric Utilities Index 1,151.63 1,186.91 0.5% 3.1%
FactSet U.S. Gas Utilities Index 986.33 1,066.12 1.0% 8.1% 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 5, advances by utility stocks in March were not exempt from the broad
market’s subdued total return. FactSet’s broad index of 100 utilities advanced 0.7% on a total
return basis, compared to 0.9% by the Dow Jones Industrials and a flat return on the S&P 500.
The average return by our universe of mostly small to mid-cap utilities generally outperformed
these benchmarks, posting a mean monthly return of 2.1%, led by strong gains by Black Hills
Corp. (+8.5%) and MDU Resources Group, Inc. (+7.7%). This strong performance by two
diversified energy companies stands in contrast to moderate declines in the stock of natural
gas distributors Northwest Natural Gas Co. (-1.9%), and Questar Corp. (-1.5%).

Leading our coverage universe from a year-to-date total return perspective are MDU
Resources Group, Inc. and ITC Holdings Corp., which have risen 14.1% and 13.3% through
March 31, 2011. We attribute the strong performance of these companies’ shares relative to
their peers to their non-traditional business strategies and above average prospects to grow
their asset bases and earnings despite the prevailing uncertainties on the regulatory and
economic fronts.

As depicted in Table 6, the mean 2012 price-earnings ratio has advanced to 14.2x, up from
13.3x on February 2nd (the pricing date of our last utility monthly), while the mean EV/EBITDA
ratio based on our 2012 forecast and the average current dividend yield in our coverage
universe are currently 7.4x and 4.1%, respectively. Integrys Energy Group sports the highest
yield in the group (currently 5.3%) with a relatively high, yet secure, payout ratio of 80% of
projected 2012 earnings.

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

Price EPS EPS EPS P/E P/E P/E
4/5/11 2010 2011E 2012E 2010 2011E 2012E
ALLETE Inc.1,2 ALE N $39.82 $39.00 $1,426 $2.31 $2.50 $2.62 15.9 14.7 14.1 99% 1.4 4.5% 71% 6.1 5.8 5.5 44.6% 10.0 9.6 9.1 8.3% 3.2%
Alliant Ener Corp.1 LNT B $39.29 $43.00 $4,357 $2.75 $2.90 $3.05 14.3 13.6 12.9 104% 1.5 4.3% 59% 5.1 4.7 4.4 50.9% 8.5 7.7 7.3 10.5% 3.2%
Avista Corp.1 AVA N $23.42 $24.00 $1,338 $1.65 $1.70 $1.83 14.2 13.7 12.8 97% 1.2 4.7% 65% 4.0 3.8 3.6 50.6% 7.2 6.8 6.5 8.5% 2.4%
Black Hills Corp.1 BKH N $34.31 $32.00 $1,348 $1.76 $2.11 $2.60 19.5 16.3 13.2 95% 1.8 4.3% 69% 4.2 3.9 3.2 56.7% 8.7 8.0 6.6 6.3% 2.0%
Hawaiian Electric Industries, Inc.1 HE N $25.34 $23.50 $2,399 $1.21 $1.53 $1.90 20.9 16.5 13.3 96% 1.7 4.9% 81% 5.8 5.1 4.5 52.8% 9.0 7.9 7.0 7.9% 1.3%
IDACORP Inc.1 IDA B $38.82 $42.00 $1,918 $2.95 $2.80 $3.00 13.1 13.9 12.9 95% 1.3 3.1% 43% 5.7 4.9 4.4 52.3% 10.0 8.6 7.8 9.7% 3.2%
Integrys Energy Group, Inc.1 TEG N $50.87 $50.00 $3,935 $3.13 $3.38 $3.53 16.3 15.1 14.4 108% 1.7 5.3% 80% 5.5 5.5 5.2 48.2% 9.0 9.1 8.6 8.4% 2.2%
ITC Holdings Corp.1 ITC N $69.79 $75.00 $3,539 $2.84 $3.30 $4.23 24.6 21.1 16.5 79% 30.2 1.9% 41% 8.0 7.2 6.0 69.1% 13.4 12.1 10.0 13.6% 3.5%
MDU Resources Group, Inc.1 MDU N $23.47 $24.00 $4,419 $1.29 $1.33 $1.55 18.2 17.7 15.2 113% 2.2 2.8% 49% 5.8 5.4 4.9 36.4% 7.5 7.0 6.4 9.3% 3.9%
MGE Energy Inc.1 MGEE U $41.61 $37.00 $962 $2.43 $2.50 $2.55 17.2 16.6 16.3 113% 1.8 3.6% 60% 6.7 6.6 6.4 40.6% 9.2 9.0 8.8 10.9% 4.3%
Northwest Natural Gas Co.1 NWN N $45.99 $46.00 $1,226 $2.58 $2.60 $2.70 17.8 17.7 17.0 108% 2.0 3.8% 67% 5.6 5.3 5.1 55.3% 9.5 9.0 8.7 10.2% 2.7%
NorthWestern Corp.1 NWE N $30.61 $31.00 $1,109 $2.07 $2.25 $2.35 13.8 12.7 12.2 89% 2.2 4.7% 64% 4.4 4.1 3.8 57.4% 8.7 8.1 7.5 9.4% 2.6%
Otter Tail Corp.1 OTTR U $23.01 $20.00 $827 $0.62 $1.20 $1.48 37.1 19.2 15.5 101% 1.6 5.2% 99% 6.1 4.6 4.1 45.7% 10.1 7.5 6.8 3.3% 1.2%
Portland General Electric Co.1 POR N $24.20 $24.00 $1,823 $1.66 $1.88 $1.88 14.6 12.9 12.9 105% 1.3 4.3% 55% 3.6 3.4 3.2 53.1% 7.2 6.8 6.4 7.7% 2.3%
Questar Corp.1 STR N $17.53 $18.50 $3,134 $1.13 $1.11 $1.19 15.6 15.7 14.7 101% 3.0 3.5% 55% 6.0 5.8 5.4 56.1% 8.5 8.2 7.7 8.8% 3.2%
Xcel Ener , Inc.1 XEL N $24.12 $24.00 $11,628 $1.62 $1.71 $1.79 14.9 14.1 13.5 108% 1.4 4.2% 59% 4.7 4.3 4.1 55.2% 8.7 8.0 7.6 9.8% 2.9%
Median, 16 Regional Utilities 16.1 15.4 13.8 101% 1.7 4.3% 62% 5.7 5.0 4.5 52.5% 8.8 8.0 7.6 9.0% 2.8%
Mean, 16 Regional Utilities 18.0 15.7 14.2 101% 3.5 4.1% 64% 5.5 5.0 4.6 51.5% 9.1 8.3 7.7 8.9% 2.8%
Price/
EBITDA
2012E
EV /
EBITDA
2012E
1D.A. Davidson & Co. makes a market in this security.
PE '12E /
10 yr
Median
Payout
Ratio
2011E
ROAA
(ttm)
Dividend
Yield
ROAE
(ttm)Rating Debt /
Capital
Price/
EBITDA
2011E
Price/
EBITDA
2010
Company Name Symbol
2For purposes of calculating P/E, P/EBITDA, and EV/EBITDA ratios, the stock price of ALE has been reduced by our $3.00/sh point estimate of the value of ALLETE Properties.
Sources: Company reports and D.A. Davidson & Co. estimates
P / TBVPrice
Target
Mkt Cap
($M)
EV /
EBITDA
2010
EV /
EBITDA
2011E

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