2013-08-30 ETR Wells Fargo S Adjusting Utility Valuation Ranges643284.pdf

Please see page 5 for rating definitions, important disclosures
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All estimates/forecasts are as of 08/30/13 unless otherwise stated.
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making their investment decision.

August 30, 2013
Equity Research
Adjusting Utility Valuation Ranges

Sector Rating: Diversified Electric Utilities, Market Weight
Sector Rating: Integrated Electric & Gas, Market Weight
Sector Rating: Regulated Electric Utilities, Market Weight
Sector Rating: Water Utilities, Market Weight
Sector Rating: Natural Gas LDCs, Market Weight
FY EPS Valuation Range Chg. Price Chg. Chg.
Ticker Rating Y/N 08/30/13 2013E Y/N 2014E Y/N Curr Prior
Diversified Electric Utilities ET 1 $63.27 $5.00 $4.65 $69-71 $75-77 EX 3 30.49 2.40 2.05 $25-26 $26-27 F 2 37.49 2.95 3.00 $38-39 N NE 1 80.23 4.90 5.35 $89-90 $95-96
PPL 2 30.76 2.30 2.25 $30-31 $32-33
PEG 2 32.41 2.40 2.50 $32-33 $34-35
Integrated Electric & Gas
V 2 32.67 2.00 2.20 $34-35 $37-39
Regulated Electric Utilities LN 2 49.78 3.10 3.30 $51-52 $54-55 E 2 33.75 2.10 2.30 $34-35 $37-38 EP 2 42.69 3.15 3.35 $44-45 $48-49 CNL 1 45.33 2.50 2.75 $50-51 $53-54
CMS 1 26.51 1.65 1.75 $30-31 $33-34
ED 2 56.03 3.75 3.82 $58-60 $63-64
DU 2 65.55 4.27 4.55 $67-69 $73-75
EI 1 45.89 3.35 3.50 $51-52 $55-56
ED 2 21.12 1.35 1.40 $21-22 $23-24 GXP 2 22.03 1.55 1.60 $23-24 $25-26 IDA 2 48.10 3.50 3.40 $49-51 $54-55
IT 1 89.13 4.90 5.65 $109-111 $114-116 NU 1 40.87 2.55 2.75 $46-47 $49-50 NW 2 40.17 2.55 2.70 $41-42 $43-44 NV 2 23.46 1.30 1.35 $24-24 N
POM 1 18.92 1.12 1.30 $21-22 $22-23
PCG 2 41.38 2.60 3.05 $42-43 $45-46
PNW 2 54.42 3.64 3.73 $56-58 $61-63
PO 2 28.81 1.38 2.10 $30-31 $33-34 SCG 1 48.10 3.37 3.50 $54-55 $58-59 SO 1 41.43 2.75 2.88 $45-46 $48-49 UIL 1 37.75 2.25 2.40 $42-43 $43-44 1 31.17 2.10 2.20 $34-35 $36-37 E 2 40.76 2.45 2.55 $42-43 $44-45 X L 1 27.78 1.90 2.00 $31-32 $33-34
Water Utilities
W 2 53.03 2.85 2.65 $50-51 $55-56
W 1 40.62 2.20 2.37 $45-46 $47-48
T 2 30.74 1.42 1.47 $30-31 $31-32
CW 2 19.99 0.84 1.08 $21-22 $22-23 CTWS 2 30.97 1.63 1.65 $31-32 $30-31Natural Gas LDCs PN 2 32.36 1.72 1.90 $33-34 $34-35 LG 1 44.48 2.52 2.85 $48-49 $52-53

Source: Company data and Wells Fargo Securities, LLC estimates 1= Outperform, 2 = Market Perform, 3 = Underperform, V = Volatile
= Company is on the Priority Stock List NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful

• We are lowering our valuation ranges for all names except CTWS, FE, and NVE to
reflect lower group P/E multiples. Since the end of July, the S&P Utilities have
fallen 6% (versus S&P 500 -3%) amid a 6% rise in the 10-year Treasury (intraday
8/30/13). We are lifting CTWS’s range to align it with the median water multiple.

Neil Kalton, CFA, Senior Analyst
[phone] /
[e-mail] Akers, CFA, Senior Analyst(314) 875-2040 /
[e-mail]
Jonathan Reeder, Associate Analyst
[phone] /
[e-mail]
Glen F. Pruitt, Associate Analyst
[phone] /
[e-mail]
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

2

Valuation Range Information:
ETR Basis and Risks: Our $69-71/sh valuation range is based on a sum-of-the-parts analysis ($52/sh for
Regulated & Parent, $17 for transmission assets, and $0-2/sh for merchant. Risks to our valuation include
commodity price sensitivity, nuclear relicensing, operational, and regulatory risks and failure of the
transmission transaction.

EXC Basis and Risks: Our $25-26 per share valuation range is premised on (1) Utility & Parent value of
approximately $17 per share (based on a P/E multiple of 14.5-15.0X our 2015 estimate of $1.17) and (2)
Generation value of nearly $8-9 per share (based on an EV/EBITDA multiple of 5.0-5.5x our 2015 EBITDA
estimate of $2.3 billion). Risks include commodity price sensitivity, failure to achieve cost and revenue
synergies, and regulatory risk.

FE Basis and Risks: Our valuation range is based on a sum-of-the-parts ($38-39/sh Regulated & Parent and
$0/sh Merchant) and residual income analyses. Risks include commodity price sensitivity and operational
risks.

NEE Basis and Risks: Our $89-90/sh valuation range is based on comparison, sum-of-the-parts ($57-58/sh
Regulated & Parent and $32/sh for NEER) and residual income analyses. Risks include the ability to deliver on
wind development plans, FL economic and regulatory concerns and commodity price risk.

PPL Basis and Risks: We value PPL under a P/E multiple analysis (apply a 10% discount to the 2014
Electric Power Universe peer group median of 14.5-15.0X - to our 15E of $2.25). Risks include earnings
sensitivity to power prices, regulatory/political risks and generation-related operating risks.

PEG Basis and Risks: Our valuation range is based on a sum-of-the-parts (we value Utility, Parent & Energy
Holdings at $23 per share 14.5-15.0X our 2015E EPS--and Power at $9-10 per share-6.0x our 2015E EBITDA)
and residual income analysis. Risks to our valuation include earnings sensitivity to commodity prices,
operational risks and unfavorable regulatory/political developments.

VVC Basis and Risks: Our valuation range is based on a sum-of-the-parts ($27/share for Utility Holdings and $8/share for Non-Utility), dividend discount and residual income analyses. Risks include economic
weakness, lower than expected coal sales, and Non-Utility exposure to commodity prices.

LNT Basis and Risks: Our valuation range is based on a P/E multiple (apply the 2014 Regulated Electric
peer group median of 14.5-15.0X - to our 15E of $3.45) and dividend discount analysis. Risks to our valuation
include negative regulatory developments in Iowa or Wisconsin, inability to control operating costs and
economic weakness.

AEE Basis and Risks: Our valuation range is based on a P/E multiple (apply a 5% discount to the 2014
Regulated Electric peer group median of 14.5-15.0X - to our 15E of $2.45) and dividend discount analysis.
Risks include unfavorable regulatory outcomes, ability to cleanly exit the merchant business, and a material
rise in interest rates.

AEP Basis and Risks: Our valuation range is supported by our P/E multiple (apply a 10-15% discount to the
2014 Regulated Electric peer group median of 14.5-15.0X - to our 15E of $3.50), dividend discount and residual
income methodologies. Risks include potential regulatory pushback related to environmental spend/costs,
economic risks and increasing sensitivity to power/capacity prices.

CNL Basis and Risks: Our valuation range is based on a P/E multiple (apply a 10% premium to the 2014
Regulated Electric peer group median of 14.5-15.0X - to our 15E of $3.05) and dividend discount model. Risks
are largely regulatory related (Coughlin approval & rate case).

CMS Basis and Risks: Our $30-31/sh valuation range is based on a P/E multiple (apply a 5-10% premium
to the 2014E Regulated Electric group median of 14.5-15.0X to our 15E of $1.88 and add $1/sh for the DIG
power plant) and dividend discount model analysis. Key risks include regulatory risk and a comparatively weak
parent level balance sheet.

ED Basis and Risks: We value ED under P/E multiple (apply 14.8x to our 2015E EPS of $3.98), dividend
discount, and residual income analysis. Risks to our valuation include regulatory-related risks related to
CECONY pending rate cases and Sandy-related investigation, higher than expected O&M expense and interest
rate sensitivity.
WELLS FARGO SECURITIES, LLC
Adjusting Utility Valuation Ranges EQUITY RESEARCH DEPARTMENT

3

DUK Basis and Risks: Our $67-69/sh valuation range reflects a P/E multiple (apply the 2014 Regulated
Electric group median of 14.5-15.0X to our 15E of $4.75), a dividend discount model and a residual income
analysis. Risks relate to post-merger execution, regulatory orders, international ops and unregulated coal fleet
margins.
EIX Basis and Risks: Our $51-52/sh valuation range is based on a P/E multiple (apply the 14E peer group
median of 14.5-15.0X to our 15E EPS of $3.55) and dividend discount analyses. Key risks include regulatory
and SONGS outage-related.

EDE Basis and Risks: Our valuation range is supported by our P/E multiple (apply the 2014 Regulated
Electric peer group median of 14.5-15.0X - to our 15E of $1.45) and Dividend discount analysis. Risks include
below average regulatory environment in Missouri, lower than expected sales, interest rate sensitivity, and
inflationary concerns.

GXP Basis and Risks: Our valuation range is primarily based on a P/E multiple analysis (14X our 15E EPS
of $1.65). Key risks include cost pressures, lower than expected sales and negative regulatory developments.

IDA Basis and Risks: We value IDA under P/E multiple (14.6X multiple on our 15E EPS of $3.40), dividend
discount, and residual income analysis. Risks to our valuation include project delays/cancellations, negative
regulatory developments and economic weakness.

ITC Basis and Risks: Our $109-111/sh valuation range is based on P/E and residual income analyses. We
apply a 15.0-15.5X multiple to our 17E of $8.75 and then discount this value back 2-yrs by 9% annually. The
15.0-15.5X multiple is arguably conservative relative to the 14E Regulated Electric group median of 14.8X. Our
forward-looking valuation range is also well supported by our residual income model. Risks to our valuation
include adverse changes in the FERC's transmission policies, project delays or cancellations and failure to close
the ETR Mid-South transaction.

NU Basis and Risks: Our $46-47/sh valuation range is premised on a 5-10% premium to the 14E Regulated
Electric group median of 14.5-15.0X to our 15E EPS of $2.90. Risks include project delays/cancellations related
to Northern Pass and regulatory risks.

NWE Basis and Risks: Our $41-42/sh valuation range is based on a P/E multiple (apply the 14E Regulated
Electric median of 14.5-15.0X to our 15E EPS of $2.85) and dividend discount model analysis. Chief risks
include regulatory, project timing and interest rate risks.

NVE Basis and Risks: Our valuation range is premised on our belief that the definitive agreement under
which MidAmerican will purchase NVE for $23.75/share will receive the necessary regulatory approvals. Risks
include failure to secure regulatory approval, negative economic developments and unsupportive rate case
outcomes.

POM Basis and Risks: Our $21-22/sh valuation range is based on a P/E multiple comparison (apply the 14E
Regulated Electric group median of 14.5-15.0X to our 15E EPS of $1.50), dividend discount and residual
income methodologies. Risks include regulatory risks associated with pending and upcoming rate filings and
interest rate sensitivity.
PCG Basis and Risks: Our $42-43/sh valuation range is based on a P/E multiple (apply a ~10% discount to
the 14E Regulated Electric group median of 14.5-15.0X to our 15E of $3.20) and dividend discount model
analysis. Key risks include unfavorable regulatory outcomes and higher than expected unrecoverable San
Bruno pipeline explosion costs.

PNW Basis and Risks: Our valuation range is based on P/E multiple (14.9X our 2015E EPS of $3.85),
dividend discount and residual income analyses. Risks include unfavorable regulatory developments, weaker-
than-expected customer growth and cost inflation.

POR Basis and Risks: Our valuation range is based on a P/E (14X on our 15E EPS of $2.22), dividend
discount and residual income analyses. Risks include pending/upcoming rate cases, greater than expected
expense pressure, and lackluster sales growth.

SCG Basis and Risks: Our $54-55/sh valuation range is based on a P/E multiple (apply the 14E Regulated
Electric group median of 14.5-15.0X to our '15E of $3.75) and dividend discount analysis. Risks to SCG shares
include regulatory risk, construction risk and a slower-than-expected Southeastern economy.
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

4

SO Basis and Risks: Our $45-46/sh valuation range is based on a P/E multiple (apply a modest premium to
the 14E Regulated Electric group median of 14.5-15.0X to our 2015E of $3.03) and dividend discount model
analysis. In our view, risks include regulatory risk, construction risk and potential exposure to adverse federal
energy legislation.
UIL Basis and Risks: Our valuation range is based on P/E multiple analysis (apply 5-10% premium to 2014
Regulated Electric peer group median of 14.5-15.0X - to our 15E of $2.60), dividend discount, and residual
income analysis. Risks to our valuation include negative regulatory developments, lower than expected gas
conversion, and FERC section 206 challenges.

WR Basis and Risks: Our valuation is based on a P/E multiple (15.1X to our 15E EPS of $2.25) analysis.
Risks to our valuation include customer and regulatory pushback to rising costs, lower than expected sales
growth and higher than expected cost inflation.

WEC Basis and Risks: Our valuation range is based on a P/E multiple (apply a 5-10% premium to the 2014
Regulated Electric peer group median of 14.5-15.0X - to our 15E of $2.65) and dividend discount model. Risks
to our valuation include regulatory risk and the impact of a protracted recession on sales and costs.

XEL Basis and Risks: Our valuation range is based on a P/E multiple (apply the 2014 Regulated Electric
peer group median of 14.5-15.0X - to our 15E of $2.10) and dividend discount model. Risks include regulatory
risks related to pending and upcoming rate cases, a weaker than expected rebound in sales and cost pressures.

AWR Basis and Risks: Our 12-18 month valuation range of $50-51/sh is based on a P/E multiple (roughly
18.5-19.0X our 15E EPS of $2.70) and DDM analyses. We believe an inline-to-modest discount P/E multiple is
appropriate given the uncertainty surrounding ASUS' ongoing EPS power. Risks include regulatory risk,
interest rate risk and the ability to win construction projects and timely price re-determinations at ASUS.

AWK Basis and Risks: Our 12-18 month valuation range of $45-46/sh is based on a P/E multiple (apply a
17.5-18.0X multiple to our 15E of $2.55) and DDM analysis. Chief risks to AWK shares include execution risk,
regulatory risk and interest rate risk.

WTR Basis and Risks: Our relative P/E multiple (apply a 5-10% premium to the 14E water utility median of
19.0-19.5X to our 15E of $1.50) and DDM analyses indicate a 12-18 month valuation range of $30-31/sh. Risks
include regulatory risk, potential undertaking of dilutive growth ventures and deterioration in the water
industry's premium multiple relative to electric utilities.

CWT Basis and Risks: Our relative P/E multiple (apply the 14E water utility median of 19.0-19.5X to our
15E of $1.11) and DDM analyses indicate a 12-18 month valuation range of $21-22/sh Chief risks to CWT
shares include regulatory risk, lack of geographical diversity and a potential material increase in long-term
interest rates.

CTWS Basis and Risks: Our 12-18 month valuation range of $31-32/sh is based on a relative P/E multiple
(apply the 14E water utility median of 19.0-19.5X to our 15E EPS of $1.70) and dividend discount model. Chief
risks to CTWS shares include regulatory risk, potential to pursue undisciplined M&A growth and interest rate
risk.
PNY Basis and Risks: Our valuation range is supported by our P/E multiple (16.9X our 15E EPS of $2.00)
and dividend discount analyses. Risks include unsupportive regulatory outcomes, particularly in the pending
North Carolina rate case, greater than expected cost pressures, and the impact of interest rates on utility
valuations.

LG Basis and Risks: Our valuation range is based on a P/E multiple (15.5X our 15E EPS of $3.12) and
dividend discount analysis. Key risks include negative regulatory developments, exposure to gas marketing
operations, inability to execute cost synergies, and potential risks associated wtih future M&A.

WELLS FARGO SECURITIES, LLC
Adjusting Utility Valuation Ranges EQUITY RESEARCH DEPARTMENT

5

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I certify that:
1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or
issuers discussed; and
2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed
by me in this research report.

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Utilities EQUITY RESEARCH DEPARTMENT

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Utilities EQUITY RESEARCH DEPARTMENT

8

Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions.
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AEE: Risks include unfavorable regulatory outcomes, ability to cleanly exit the merchant business, and a material rise in interest
rates.
AEP: Risks include potential regulatory pushback related to environmental spend/costs, economic risks and increasing sensitivity
to power/capacity prices.
AWK: Chief risks to AWK shares include execution risk, regulatory risk and interest rate risk.
AWR: Risks include regulatory risk, interest rate risk and the ability to win construction projects and timely price re-
determinations at ASUS.
CMS: Key risks include regulatory risk and a comparatively weak parent level balance sheet.
CNL: Risks are largely regulatory related (Coughlin approval & rate case).
CTWS: Chief risks to CTWS shares include regulatory risk, potential to pursue undisciplined M&A growth and interest rate risk.
CWT: Chief risks to CWT shares include regulatory risk, lack of geographical diversity and a potential material increase in long-
term interest rates.
DUK: Risks relate to post-merger execution, regulatory orders, international ops and unregulated coal fleet margins.
ED: Risks to our valuation include regulatory-related risks related to CECONY pending rate cases and Sandy-related investigation,
higher than expected O&M expense and interest rate sensitivity.
EDE: Risks include below average regulatory environment in Missouri, lower than expected sales, interest rate sensitivity, and
inflationary concerns.
EIX: Key risks include regulatory and SONGS outage-related.
ETR: Risks to our valuation include commodity price sensitivity, nuclear relicensing, operational, and regulatory risks and failure
of the transmission transaction.
EXC: Risks include commodity price sensitivity, failure to achieve cost and revenue synergies, and regulatory risk.
FE: Risks include commodity price sensitivity and operational risks.
GXP: Key risks include cost pressures, lower than expected sales and negative regulatory developments.
IDA: Risks to our valuation include project delays/cancellations, negative regulatory developments and economic weakness.
ITC: Risks to our valuation include adverse changes in the FERC's transmission policies, project delays or cancellations and failure
to close the ETR Mid-South transaction.
LG: Key risks include negative regulatory developments, exposure to gas marketing operations, inability to execute cost synergies,
and potential risks associated wtih future M&A. LNT: Risks to our valuation include negative regulatory developments in Iowa or Wisconsin, inability to control operating costs
and economic weakness.
NEE: Risks include the ability to deliver on wind development plans, FL economic and regulatory concerns and commodity price
risk.
NU: Risks include project delays/cancellations related to Northern Pass and regulatory risks.
NVE: Risks include failure to secure regulatory approval, negative economic developments and unsupportive rate case outcomes.
NWE: Chief risks include regulatory, project timing and interest rate risks.
PCG: Key risks include unfavorable regulatory outcomes and higher than expected unrecoverable San Bruno pipeline explosion
costs.
PEG: Risks to our valuation include earnings sensitivity to commodity prices, operational risks and unfavorable
regulatory/political developments.
PNW: Risks include unfavorable regulatory developments, weaker-than-expected customer growth and cost inflation.
PNY: Risks include unsupportive regulatory outcomes, particularly in the pending North Carolina rate case, greater than expected
cost pressures, and the impact of interest rates on utility valuations.
POM: Risks include regulatory risks associated with pending and upcoming rate filings and interest rate sensitivity.
POR: Risks include pending/upcoming rate cases, greater than expected expense pressure, and lackluster sales growth.
PPL: Risks include earnings sensitivity to power prices, regulatory/political risks and generation-related operating risks.
SCG: Risks to SCG shares include regulatory risk, construction risk and a slower-than-expected Southeastern economy.
SO: In our view, risks include regulatory risk, construction risk and potential exposure to adverse federal energy legislation.
UIL: Risks to our valuation include negative regulatory developments, lower than expected gas conversion, and FERC section 206
challenges.
VVC: Risks include economic weakness, lower than expected coal sales, and Non-Utility exposure to commodity prices.
WEC: Risks to our valuation include regulatory risk and the impact of a protracted recession on sales and costs.
WR: Risks to our valuation include customer and regulatory pushback to rising costs, lower than expected sales growth and higher
than expected cost inflation.
WTR: Risks include regulatory risk, potential undertaking of dilutive growth ventures and deterioration in the water industry's
premium multiple relative to electric utilities.
XEL: Risks include regulatory risks related to pending and upcoming rate cases, a weaker than expected rebound in sales and cost
pressures.
WELLS FARGO SECURITIES, LLC
Adjusting Utility Valuation Ranges EQUITY RESEARCH DEPARTMENT

9

STOCK RATING
1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the
next 12 months. BUY
2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market
over the next 12 months. HOLD
3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12
months. SELL
SECTOR RATING
O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
VOLATILITY RATING
V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the
analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.

As of: August 30, 2013
49% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Outperform.
Wells Fargo Securities, LLC has provided investment banking
services for 49% of its Equity Research Outperform-rated
companies.
48% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Market Perform.
Wells Fargo Securities, LLC has provided investment banking
services for 35% of its Equity Research Market Perform-rated
companies.
3% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Underperform.
Wells Fargo Securities, LLC has provided investment banking
services for 19% of its Equity Research Underperform-rated
companies.

Important Information for Non-U.S. Recipients
EEA – The securities and related financial instruments described herein may not be eligible for sale in all jurisdictions or to certain
categories of investors. For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited
(“WFSIL”). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Services Authority. For the
purposes of Section 21 of the UK Financial Services and Markets Act 2000 (“the Act”), the content of this report has been approved
by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets in Financial
Instruments Directive 2007. The FSA rules made under the Financial Services and Markets Act 2000 for the protection of retail
clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for,
and should not be relied upon by, retail clients.
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

10

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This report is for your information only and is not an offer to sell, or a solicitation of an offer to buy, the securities or instruments
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Wells Fargo Securities, LLC.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE