COC Utility Monthly 07-01-11.pdf

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

July 8, 2011 Utility Monthly

Prices: (7/7/11)

Industry:
Utilities

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

Michael Bates
Research Associate
406.791.7216
[e-mail]

Upper Midwest Strategy for Hydro Power & New Transmission Unfolding

• Our BUY-rated utilities are Alliant Energy Corp., IDACORP, Inc., NorthWestern
Corp., and Westar Energy.
• Fitch Ratings revised its rating outlook for Otter Tail Corp. from stable to
negative, while affirming the holding company’s current credit rating at 'BBB-',
• Xcel Energy received NRC approval to extend its operating licenses for the
Prairie Island nuclear power plant for an additional 20 years.
• Final orders were handed down in rate cases filed by subsidiaries of Alliant
Energy and MDU Resources Group, and new rate cases were recently filed by
the utility subsidiaries of Avista Corp., and Xcel Energy.
• The KCC approved the Prairie Wind Transmission line route, which has positive
implications for both Westar Energy and ITC Holdings.
• Wind farm PPAs were announced by the utility subsidiaries of Avista Corp. and
Xcel Energy. Black Hills Corp. announced that it will not proceed with plans to
develop a 20 MW wind farm in South Dakota.

On July 5th Wisconsin Governor Scott Walker (Rep.) signed Senate Bill 81 into law,
amending the state’s renewable portfolio standard (RPS), which allows an electric
utility to count power from new large hydroelectric resources in Manitoba (60 MW and
greater) toward its 10% renewables by 2015 RPS requirement. "Allowing electric
providers to use a wider range of renewable energies will make Wisconsin's
environment cleaner for future generations," Walker said in a statement. Although
critics pointed out the definitional change will sharply reduce both the need to
construct future renewable projects in Wisconsin and the number of related
construction & permanent jobs, supporters of the bill saw the cost of potential new and
state-subsidized renewable projects as too expensive for the state’s constrained
budget.

The hydroelectric amendment was sought by Integrys Energy Group’s Wisconsin
Public Service Corp. (WPS) subsidiary, which has entered into a 100 MW purchase
power agreement (PPA) with Manitoba Hydro between 2021 and 2027, with the
potential to expand to 500 MW. This Canadian Crown corporation is in the process of
constructing, in conjunction with four Cree nations, the emission-free 695-MW
Keeyask (the Cree word for “gull”) hydro-generating station on the Nelson River near
Hudson Bay, approximately 450 miles northeast of Winnipeg. Construction of
Keeyask is expected to take seven years and cost C$5.6 billion with the first unit
coming online in 2019 and all seven units in operation by 2021.

Besides the aforementioned WPS contract for 100 MW, Manitoba Hydro has also
entered Keeyask-related sales agreements to supply Minnesota Power Inc., a
subsidiary of ALLETE, Inc., with 250 MW of electricity from 2020 to 2035, and
Northern States Power-Minnesota, a subsidiary of Xcel Energy Inc., for 125 MW of
year round capacity from 2021 to 2025. Over their lifetimes, these contracts are
expected to provide Manitoba Hydro ~C$4 billion in revenues.

D.A. Davidson & Co.
2
If the power purchase agreement with WPS is enlarged, another Manitoba hydroelectric
project on the design board (the 1,485-MW Conawapa hydro-generating station) would need to
be built on the Nelson River. Under this expanded arrangement, it is estimated that WPS
alone would provide Manitoba Hydro over C$2 billion in revenues over the life of the PPA.

While we believe the existing Duluth-Wausau transmission line in Wisconsin owned by
American Transmission Company (ATC) has excess capacity to transport the power to WPS,
another line will likely need to be constructed to connect a new Canadian line to Duluth, MN /
Superior, WI, which could create an additional earnings growth opportunity for ALLETE and/or
ATC. (The investor-owned utility stakes in ATC are divvied up as follows: Integrys Energy
Group (34.0%), Wisconsin Energy Corp. (26.2%), Alliant Energy Corp. (16.0%), ALLETE,
Inc. (8.3%), and MGE Energy, Inc. (3.4%).)

ALLETE’s involvement in such a project would also provide it with an ability to send excess
wind power to Manitoba once its North Dakota wind farms (Bison I, II, III, and IV) are built and
are at full capacity, or electric loads are low. In this situation, Manitoba Hydro would absorb
the wind power into its system – curtailing an equivalent amount of hydro power and in
essence using the Manitoba system as a “rechargeable battery”, which would allow Minnesota
Power to balance its energy and maximize the value of its wind resources.

On June 17th the Minnesota Public Utilities Commission (MPUC) issued a final order in the
general rate case filed by Alliant Energy. Although a final written order in the case has not
been issued, it appears the utility will be granted an increase of roughly $8-$9 million, which is
below the $14.1 million (+20.4%) interim level it has been collecting since July 2010 (the utility
will be required to refund the difference in customer bills). This would equate to roughly half of
its original request for a $15 million (+22.0%) increase. Although the final written order is due
by July 21st, a shutdown of the state government could result in additional delays.

*****

On June 8th the North Dakota Public Service Commission (NDPSC) issued a final order in the
general rate case filed in that state 14 months earlier by an MDU Resources Group
subsidiary, Montana-Dakota Utilities. The utility was granted an increase of $7.6 million
(+7.0%), which is well below its original request for an increase of $15.4 million (14.0%) but
approximately matches the interim rate increase it has been collecting since June 2010. The
revenue increase was based on a 10.75% allowed ROE and an equity capital structure of
53.3%.

*****

On July 5th Avista Corp. filed a general rate case with the Idaho Public Utilities Commission
(IPUC), in which it requested a $9.0 million (+3.5%) increase in electric rates and a $1.9 million
(+2.8%) increase in gas rates for customers in its Idaho service territory. A large portion of the
request is related to recovery of capital spent to enhance its aging transmission and
distribution system, as well as higher operating and maintenance costs. The utility currently
expects to spend ~$1.2 billion through 2015 to upgrade and maintain its system, and
management stressed the need for fair and timely recovery of its costs to maintain its credit
ratings. The rate request is based on a 10.9% allowed ROE and an equity capital structure of
50.15%. The IPUC is expected to issue its final order by early February 2012, unless a
settlement agreement is reached.

*****

On June 30th Xcel Energy’s NSP-Minnesota subsidiary filed for a $14.6 million increase in
electric rates for customers in its South Dakota service territory. The requested revenue
increase is based on a 2010 test year and an 11.0% allowed ROE, an equity capital structure
of 52.48%, and a rate base of $323.4 million. The utility is also requesting a cost recovery
rider to recover expenses associated with the life extension and uprates at its Monticello
nuclear facility over the next five years. The South Dakota Public Utilities Commission
(SDPUC) is expected to issue its final order by year-end.

*****

On June 17th Xcel Energy updated its newly-filed request for a rate increase in its Wisconsin
service territory. In the filing the utility increased its requested electric revenue increase from
Rate Case Developments
D.A. Davidson & Co.
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$21.9 million (+3.8%) to $29.2 million (+5.1%), while lowering its gas utility request from
$8.1 million (+6.6%) to $8.0 million (+6.6%). The majority of the request is related to the
recovery of capital spent to enhance its generation and distribution systems in that state, with
the balance being driven by higher operating and maintenance costs. The request is based on
a 2012 forecasted test year and a 10.75% allowed ROE, an equity capital structure of 52.54%,
an electric rate base of $718 million, and a gas rate base of $84 million. The Public Service
Commission of Wisconsin (PSCW) is expected to issue its final order in the case in December,
with new rates taking effect on January 1, 2012.

On June 28th Xcel Energy announced that the Nuclear Regulatory Commission (NRC) had
renewed its operating licenses for the Prairie Island nuclear facility for an additional 20 years.
With the life extension in hand, the utility continues to plan to invest ~$1 billion through 2015 to
extend the lives and uprate its two nuclear facilities in Minnesota (Monticello and Prairie
Island). NRC approval to extend the operating license of the Monticello plant was granted in
2006 and, although the MPUC has granted certificates of need and siting approval for the
uprates at both nuclear facilities, the utility has yet to obtain NRC approval for the uprates.

*****

On June 29th the Kansas Corporation Commission (KCC) granted its approval for the Prairie
Wind Transmission line route with only minor modifications. The 110-mile 345 kV line is being
jointly developed by Westar Energy, MidAmerican Energy, and American Electric Power Co.
(AEP - $38.52), and connects with the ‘Kansas V-Plan’ being developed by ITC Holdings.
Westar’s investment in the Prairie Wind project is expected to total $112.5 million, with rights of
way acquisition likely beginning in mid-2012 for an in-service date in late 2014. ITC anticipates
its 180-mile Kansas V-Plan will enter commercial service in 2013 and will represent a total
investment of roughly $300 million.

*****

On June 13th Black Hills Corp. announced that it will not proceed with plans to develop a
20 MW wind farm near Belle Fourche, SD. The decision was made due to the SDPUC's
recent decision to dismiss the utility's request for a declaratory ruling that the proposed
$38 million project was reasonable and cost effective from the regulators’ point of view, which
would have given confidence that the project’s costs would be fairly recovered. Because
South Dakota has only a voluntary renewable energy objective, rather than a statutory RPS
mandate as established in many states, we do not expect the absence of this wind energy to
be problematic for the utility, aside from the missed earnings opportunity.

On July 7th Fitch Ratings revised its rating outlook for Otter Tail Corp. from stable to negative,
while affirming the holding company’s current credit rating at 'BBB-' and the debt of Otter Tail
Power (OTTR’s regulated electric utility subsidiary) at 'BBB'. Fitch noted that it rates the
holding company’s debt one notch below that of its utility subsidiary due to the risks associated
with its ‘unusual’ portfolio of “small cyclical industrial businesses that operate in fragmented
and competitive markets [which] do not benefit from advantageous size and scale in its
industrial markets.” We agree with the rating agency’s assessment that the utility will need to
rely heavily on its parent company to meet its financing requirements as it invests
~$700 million for environmental and transmission investments through 2015, which may result
in either external financing or the sale of more of its diversified business portfolio.

*****

On June 27th Xcel Energy, Inc.’s Public Service Company of Colorado (PSCo) subsidiary
announced an agreement for it to purchase the electricity generated by the 200 MW Limon
Wind Energy Center to be built in 2012 in eastern Colorado by a subsidiary of NextEra Energy,
Inc. (NEE - $58.05). With the completion of the Limon facility, Xcel’s electric utility system in
Colorado will include ~1,935 MW of wind energy resources, with the majority of that power
supplied through purchased power agreements (PPAs) with NextEra. Although it is our
opinion that the utility’s signage of a PPA rather than building its own facility represents a
missed opportunity to further expand its rate base and grow earnings, the exclusion of another
capital project from the utility’s already-aggressive capital spending plan through 2015 reduces
the firm’s need for future external financing.

*****
Capital Projects
Other Developments
D.A. Davidson & Co.
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On June 30th Avista Corp. announced an agreement to purchase the electricity generated by
the ~100 MW Palouse Wind project, which is expected to be constructed and in service by
year-end 2012. The project is being developed in Whitman County, Washington by First Wind
and will contribute toward the utility’s requirement under Washington’s RPS, which requires
that 3% of the utility’s energy be generated by renewable resources beginning in 2012, 9% by
2016, and 15% by 2020 (renewable energy credits (RECs) from the Palouse project will
contribute toward the 2016 requirement). As we have noted previously, it would be our
preference that a utility take advantage of opportunities to build its own facilities and grow its
rate base and earnings, rather than entering PPAs.
D.A. Davidson & Co.
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As displayed in Tables 1 and 2, temperatures in 2Q’11 were colder than normal and colder
than the same period last year in many territories served by utilities under our coverage.
Although the onset of summer has been slow to materialize and could have negative
implications for demand in some areas, this drag could be partially offset by higher late-season
heating demand. We also note that, although extreme shoulder month temperature swings
can move 2Q earnings, weather is generally less of a driver to earnings in these months than
in the third quarter.

Table 1: Cooling Degree Day* Data (CDD) – 2Q’11 Totals
2Q'11
Parent Company & Utility Location TotalALLETE, Inc. (ALE)
Minnesota Powe Duluth, MN 2 -93% -89% 2 -93% -89%
Alliant Energy, Inc. (LNT)
Interstate Power & Light Cedar Rapids, IA 143 -25% -25% 143 -25% -25%
Wisconsin Power & Light Madison, WI 145 18% 12% 145 18% 12%
Avista Corp. (AVA)
Avista Utilities Spokane, WA 20 -57% 0% 20 -57% 0%
Black Hills Corp. (BKH)
Black Hills Power Rapid City, SD 57 -34% 6% 57 -34% 6%
Cheyenne Light Fuel & Power Cheyenne, WY 31 -24% -11% 31 -24% -11%
Black Hills Energy - Colorado Colorado Springs, CO 178 141% -4% 178 141% -4%
Hawaiian Electric Industries, Inc. (HE)
Hawaiian Electric Co. Honolulu, HI 449 3% 0% 1257 11% 3%
Maui Electric Co. Kahului, HI 384 1% -6% 1047 6% -3%
Hawaiian Electric Light Co. Hilo, HI 290 -4% -7% 828 4% 0%
IDACORP, Inc. (IDA)
Idaho Power Company Boise, ID 76 -38% -23% 76 -38% -23%
Integrys Energy Group, Inc. (TEG)
Peoples Gas Light and Coke Co. Chicago, IL 171 8% -15% 171 8% -15%
Wisconsin Public Service Corp. Green Bay, WI 72 -24% 6% 72 -24% 6%
MDU Resources Group, Inc. (MDU)
Cascade Natural Gas Co. Tri Cities, WA 51 -63% -27% 51 -63% -27%
Great Plains Natural Gas Co. Fergus Falls, MN 69 -26% 13% 69 -26% 13%
Intermountain Natural Gas Boise, ID 76 -38% -23% 76 -38% -23%
Montana-Dakota Utilities Co. Bismarck, ND 42 -48% -47% 42 -48% -47%
MGE Energy, Inc. (MGEE)
Madison Gas & Electric Co. Madison, WI 145 18% 12% 145 18% 12%
Portland General Electric Co. (POR)
Portland General Electric Portland, OR 16 -63% -16% 16 -63% -16%
Northwest Natural Gas Co. (NWN)
NW Natural Portland, OR 16 -63% -16% 16 -63% -16%
NorthWestern Corp. (NWE)
NorthWestern Energy Billings, MT 52 -42% -12% 52 -42% -12%
NorthWestern Energy Great Falls, MT 13 -72% -35% 13 -72% -35%
NorthWestern Energy Sioux Falls, SD 118 -21% 18% 118 -21% 18%
Otter Tail Corp. (OTTR)
Otter Tail Power Co. Fargo, ND 108 4% 17% 108 4% 17%
Questar Corp. (STR)
Questar Corp. Salt Lake City, UT 115 -37% -31% 115 -37% -31%
Westar Energy, Inc. (WR)
Westar Energy, Inc. Topeka, KS 411 48% -2% 411 48% -2%
Xcel Energy, Inc. (XEL)
NSP-Minnesota Minneapolis, MN 175 20% 22% 175 20% 22%
NSP-Wisconsin Eau Claire, WI 115 4% 31% 115 4% 31%
PSCo Denver, CO 131 -4% -21% 131 -4% -21%
SPS Clovis, NM 433 50% 15% 433 50% 15%
% From
2010
% From
Average
% From
2010
% From
Average
June
Total
Source: National Weather Service’s Climate Prediction Center

June and 2Q’11 Temperatures
Expected to be a Net Positive for
Utility Demand
D.A. Davidson & Co.
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Table 2: Heating Degree Day* Data (HDD) – 2Q’11 Totals
2Q'11
Parent Company & Utility Location Total
ALLETE, Inc. (ALE)
Minnesota Powe Duluth, MN 203 13% 22% 1438 4% 34%
Alliant Energy, Inc. (LNT)
Interstate Power & Light Cedar Rapids, IA 27 8% n.m. 765 12% 58%
Wisconsin Power & Light Madison, WI 39 -38% 179% 908 1% 52%Avista Corp. (AVA)
Avista Utilities Spokane, WA 183 23% -2% 1277 22% 12%
Black Hills Corp. (BKH)
Black Hills Power Rapid City, SD 105 19% 13% 1172 18% 11%
Cheyenne Light Fuel & Power Cheyenne, WY 121 -11% 11% 1346 9% 4%
Black Hills Energy - Colorado Colorado Springs, CO 6 -92% -84% 830 -14% -2%
IDACORP, Inc. (IDA)
Idaho Power Company Boise, ID 89 25% 68% 937 22% 7%
Integrys Energy Group, Inc. (TEG)
Peoples Gas Light and Coke Co. Chicago, IL n.m.
Wisconsin Public Service Corp. Green Bay, WI 73 -14% 52% 1087 6% 49%MDU Resources Group, Inc. (MDU)
Cascade Natural Gas Co. Tri Cities, WA 67 -3% 14% 841 33% 18%
Great Plains Natural Gas Co. Fergus Falls, MN 78 -14% 105% 1161 -2% 29%
Intermountain Natural Gas Boise, ID 89 25% 68% 937 22% 7%
Montana-Dakota Utilities Co. Bismarck, ND 103 11% 58% 1225 16% 31%
MGE Energy, Inc. (MGEE)
Madison Gas & Electric Co. Madison, WI 39 -38% 179% 908 1% 52%
Portland General Electric Co. (POR)
Portland General Electric Portland, OR 107 11% -25% 928 26% 8%
Northwest Natural Gas Co. (NWN)
NW Natural Portland, OR 107 11% -25% 928 26% 8%NorthWestern Corp. (NWE)
NorthWestern Energy Billings, MT 117 30% 41% 1228 26% 21%
NorthWestern Energy Great Falls, MT 252 38% 16% 1475 18% 5%
NorthWestern Energy Sioux Falls, SD 45 -22% 200% 950 9% 40%
Otter Tail Corp. (OTTR)
Otter Tail Power Co. Fargo, ND 48 -34% 20% 1037 4% 45%
Questar Corp. (STR)
Questar Corp. Salt Lake City, UT 65 30% 23% 993 39% 12%
Westar Energy, Inc. (WR)
Westar Energy, Inc. Topeka, KS 0 -100% n.m. 394 -12% 33%
Xcel Energy, Inc. (XEL)
NSP-Minnesota Minneapolis, MN 31 -30% 158% 816 -1% 58%
NSP-Wisconsin Eau Claire, WI 72 24% 76% 998 8% 51%
PSCo Denver, CO 26 -57% -26% 881 4% -1%
% From
Average
June
Total
% From
2010
% From
Average
% From
2010
Source: National Weather Service’s Climate Prediction Center

As displayed in Figure 1, the National Weather Service is forecasting hot temperatures
between July and September this year in the southwest, which bodes well for the electric utility
operations of Xcel Energy’s SPS subsidiary (based in New Mexico). The forecast is no longer
calling for below-normal temperatures near the Great Lakes, but continues to predict a cool
summer in portions of the upper Great Plains region, which could have a negative impact on
ALLETE, Black Hills, MDU Resources Group, NorthWestern Corp., Otter Tail Corp., and
Xcel Energy’s Northern States Power-Minnesota subsidiary (serving Minnesota and eastern
portions of the Dakotas) if the forecast is accurate.

Figure 1: Jul-Aug-Sept 2011 Official Temperature Forecast

33% to 40% Chance of Above Normal Temperature 33% to 40% Chance of Below Normal Temperature
40% to 50% Chance of Above Normal Temperature 40% or Greater for Below Normal Temperature
50% or Greater for Above Normal Temperature Means Equal Chances for Above, Normal, or Below Normal Temperature Source: National Weather Service Climate Prediction Center
3-Month Temperature Forecast
Calls for a Mixed Comparison
D.A. Davidson & Co.
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Heavy precipitation levels in 1H’11 were a major departure from 2010’s mostly dry winter,
which brought relatively light levels of precipitation in the Northwestern region. As of July 6th,
and as seen in Figure 2, the snow water equivalents in key drainages for hydrogeneration
used by Avista Corp., IDACORP, Inc., and Portland General Electric remain far above
normal levels, further evidenced by the Northwest River Forecast Center’s projection released
on June 30th, which calls for streamflows in the Northwest to be far above normal through the
spring and summer months of 2011, as seen in Table 3. This has created problems for the
Bonneville Power Administration (BPA), which markets power from federal dams and controls
the majority of the region’s high-voltage transmission system. The near-record spring runoff
within BPA’s hydro system led to a decision in early May to sharply curtail production from
thermal power plants, and to occasionally turn off wind farms during off-peak hours. To date,
wind power production in the region has been curtailed by ~7%, with the most drastic cuts
taking place during the first two weeks of May. Wind farm owners have challenged BPA’s
decision to curtail production from their renewable power facilities, as the curtailments
eliminated the assets’ ability to earn Renewable Energy Credits (RECs) and Production Tax
Credits (PTCs).

Figure 2: Western Region Snow Water Equivalents Remain Far Above Normal Levels

Source: United States Department of Agriculture

Table 3: Streamflow Projections for Key Hydrogeneration Measurement Locations
Location of Forecasted % Forecast as %
Company Streamflow Forecast Period of Normal - 6/30/11 of Prior-Year Steamflows
Avista Corp. Coeur d'Alene Lake Inflow, ID April-July 169% 210%
Avista Corp. Whitehorse Rapids, ID April-Sept. 160% 206%
IDACORP, Inc. Brownlee Reservoir Inflow April-July 181% 249%
Portland General Electric Grand Coulee, WA April-Sept. 128% 159%
Portland General Electric Clackamas River, OR April-Sept. 134% 111%
Portland General Electric Deschutes River, OR April-Sept. 120% 145%
Portland General Electric The Dalles, OR April-Sept. 138% 164% Source: National Weather Service Northwest River Forecast Center
Hydrogeneration Outlook
D.A. Davidson & Co.
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The upper portion of Chart 1 depicts an overall ~55% 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 15.0x P/E ratio on year-forward earnings
estimates, or just above the 5-year average (14.8x). The bottom panel shows utilities trading
at a 12% premium P/E valuation relative to the S&P 500. Although this is above the 5-year
average relative valuation of parity with the broad index, it represents a return to the premium
accorded to the group prior to the 2009-2010 period.

Chart 2 provides two additional measurements of value (EV/EBITDA and P/BV), showing that
utility valuations have risen moderately above the 5-year average 8.0x EV/EBIDTA multiple but
remain below the 1.8x average P/BV.

As shown in the top panel of Chart 3, the sector’s current average dividend yield of 3.9%
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 ~2.1x. 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 4, 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 125.5% relative yield for the sector compares to the 5-year average of
103%.

150
200
250
300
350
400
Utilities
07-Jul-2006 to 07-Jul-2011 (Weekly) High: 388.51 Low: 203.66 Latest: 315.22
Price (USD)
5
10
15
20 Average: 14.8 High: 18.8 Low: 9.5 Latest: 15.0
Price to Earnings - FY1
'07 '08 '09 '10 '110.6
0.8
1
1.2
1.4
©FactSet Research SystemsData Source: FactSet Aggregates, FactSet Aggregates,
Average: 1.00 High: 1.20 Low: 0.70 Latest: 1.12
Price to Earnings - FY1 - Relative to S&P 500
Source: FactSet
Valuation Metrics
Chart 1: Utility Price Index,
Forward P/E Ratios, and P/E
Relative to the S&P 500
D.A. Davidson & Co.
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6
6.5
7
7.5
8
8.5
9
9.5
Utilities
07-Jul-2006 to 07-Jul-2011 (Weekly) Average: 8.0 High: 9.2 Low: 6.6 Latest: 8.5
Enterprise Value to EBITDA
'07 '08 '09 '10 '111
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: 1.6
Price to Book
Source: FactSet

2
2.5
3
3.5
4
4.5
5
5.5
6
Utilities
07-Jul-2006 to 01-Jul-2011 (Weekly) Average: 3.6 High: 5.5 Low: 2.4 Latest: 3.9
Dividend Yield
'07 '08 '09 '10 '111.2
1.4
1.6
1.8
2
2.2
2.4
©FactSet Research SystemsData Source: FactSet Aggregates,
Average: 1.77 High: 2.30 Low: 1.25 Latest: 2.13
Dividend Yield - Relative to S&P 500
Source: FactSet
Chart 2: Utility Ratios of
EV/EBITDA and P/BV
Chart 3: Utility Dividend Yields and
ield Relative to Yield on S&P 500

D.A. Davidson & Co.
10
'07 '08 '09 '10 '1140%
60%
80%
100%
120%
140%
160%
180%
200%
220%Elec utilities yield relative to 10-yr treasury Launch full data release
FDSAGG United States / Utilities -SEC - Dividend Yield / US Treasury Constant Maturity - 10 Year - Yield * 100 [Max: 208.15, Min: 50.50, Last: 125.46]
Source: FactSet
Chart 4: Utility Dividend Yield
Relative to Yield on U.S. 10-Year
Treasury Bonds
D.A. Davidson & Co.
11

Table 4: D.A. Davidson Utility Coverage Relative Performance
Price Price Ex-Dividend Month-to-Date Year-to-Date
12/31/2010 6/30/2011 in June Total Return Total Return
ALLETE, Inc. (ALE) $35.26 $41.04 2.9% 16.4%
Alliant Energy Corporation (LNT) 36.77 40.66 -1.1% 10.6%
Avista Corp. (AVA) 22.52 25.69 3.0% 14.1%
Black Hills Corporation (BKH) 30.00 30.09 -3.0% 0.3%
Hawaiian Electric Industries (HE) 22.79 24.06 -3.1% 5.6%
IDACORP, Inc. (IDA) 36.98 39.50 0.3% 6.8%
Integrys Energy Group, Inc. (TEG) 48.51 51.84 -1.0% 6.9%
ITC Holdings Corp. (ITC) 61.98 71.77 -0.7% 15.8%
MDU Resources Group, Inc. (MDU) 20.27 22.50 0.16 -4.1% 11.8%
MGE Energy, Inc. (MGEE) 42.76 40.53 -2.7% -5.2%
Northwest Natural Gas Co. (NWN) 46.47 45.13 -0.1% -2.9%
NorthWestern Corporation (NWE) 28.83 33.11 0.36 1.2% 16.1%
Otter Tail Corp. (OTTR) 22.54 21.10 -3.7% -6.4%
Portland General Electric Co. (POR) 21.70 25.28 0.27 -1.6% 17.7%
Questar Corp. (STR) 17.41 17.71 2.2% 1.7%
Westar Energy, Inc. (WR) 25.16 26.91 0.32 0.1% 8.2%
Xcel Energy Inc. (XEL) 23.55 24.30 0.26 -0.7% 4.3%
Median -0.7% 6.9%
Mean -0.7% 7.2%
Dow Jones Industrial Average (.DJIA) $11,577.51 $12,414.34 $17.14 -1.1% 7.4%
Standard & Poors 500 (.SPX) 1,257.64 1,320.64 1.90 -1.7% 5.2%
Dow Jones Utility Average (.UTIL) 404.99 433.48 1.86 -0.2% 7.5%
FactSet U.S. Utilities Index 1,158.70 1,261.35 -0.1% 8.9%
FactSet U.S. Electric Utilities Index 1,151.63 1,254.55 -0.2% 8.9%
FactSet U.S. Gas Utilities Index 986.33 1,084.24 0.3% 9.9% *Ex-Dividend amount incorporated in index
Source: FactSet

As shown in Table 4, FactSet’s broad index of 100 utilities declined -0.1% on a total return
basis in June, compared to declines of 1.1% and 1.7% by the Dow Jones Industrials and the
S&P 500, respectively. The average decline within our universe of mostly small to mid-cap
utilities was -0.7%, or slightly better than these broad benchmarks, with the best performers
being Avista Corp. (+3.0%) and ALLETE, Inc. (+2.9%). It is our belief that expectations for
higher earnings in 2012 have been dampened somewhat over the last two months, which has
resulted in mostly tepid stock performance. Following the recent trend, performance by more
traditional utilities stood in contrast to declines in the stock of companies with diversified
business structures, including MDU Resources Group, Inc. (-4.1%), and Otter Tail Corp.
(-3.7%).

Leading our coverage universe from a year-to-date total return perspective are Portland
General Electric Co., ALLETE, Inc, and NorthWestern Corp., which have risen 17.7%,
16.4%, and 16.1%, respectively, through June 30, 2011. We attribute the strong performance
of these companies’ shares relative to their peers to their relatively low-risk profiles, coupled
with above average prospects to grow their asset bases and earnings, despite the prevailing
uncertainties on the regulatory and economic fronts. Also, this year’s above-average hydro-
generation condition may be drawing attention to POR, and wind farm developments and
contracts with Manitoba Hydro may be drawing attention to ALE.

As depicted in Table 5, the mean 2012 price-earnings ratio has risen to 14.5x, up from 13.8x
on June 8th (the pricing date of our last utility monthly). The mean EV/EBITDA ratio based on
our 2012 forecast and the average current dividend yield in our coverage universe are
currently 7.7x and 4.0%, respectively. Otter Tail Corp. sports the highest yield in the group
(currently 5.5%) with a payout ratio of 87% of our asset sale gain-assisted 2011 earnings
projection.

Relative Performance
D.A. Davidson & Co.
12
Table 5: D.A. Davidson & Co. Utilities Comparison

Price EPS EPS EPS P/E P/E P/E
7/7/11 2010 2011E 2012E 2010 2011E 2012E
ALLETE Inc.1,2 ALE N $41.94 $41.00 $1.5 $2.31 $2.60 $2.65 16.9 15.0 14.7 103% 1.4 43.9% $1.78 4.2% 69% 8.8% 3.4% 37% 25% 9.3 9.0
Alliant Ener Corp.1 LNT B $41.83 $44.00 $4.6 $2.75 $2.95 $3.05 15.2 14.2 13.7 111% 1.6 46.4% $1.70 4.1% 58% 11.6% 3.6% 62% 38% 8.5 8.3
Avista Corp.1 AVA N $26.38 $26.00 $1.5 $1.65 $1.80 $1.92 16.0 14.6 13.8 104% 1.3 49.9% $1.10 4.2% 61% 8.3% 2.5% 43% 25% 7.3 6.8
Black Hills Corp.1 BKH N $30.52 $33.00 $1.2 $1.81 $1.82 $2.49 16.9 16.8 12.2 88% 1.1 57.0% $1.46 4.8% 80% 6.2% 1.9% 113% 52% 7.9 6.3
Hawaiian Electric Industries, Inc.1 HE N $24.69 $25.00 $2.4 $1.21 $1.41 $1.83 20.4 17.5 13.5 97% 1.6 52.4% $1.24 5.0% 88% 7.8% 1.3% 36% 23% 8.2 7.1
IDACORP Inc.1 IDA B $40.18 $44.50 $2.0 $2.95 $2.86 $3.00 13.6 14.0 13.4 98% 1.3 50.2% $1.20 3.0% 42% 9.6% 3.2% 41% 23% 9.1 8.2
Integrys Energy Group, Inc.1 TEG N $52.72 $50.00 $4.1 $3.13 $3.30 $3.53 16.8 16.0 14.9 112% 1.4 43.8% $2.72 5.2% 82% 8.6% 2.5% 41% 27% 8.2 7.7
ITC Holdings Corp.1 ITC N $71.88 $75.00 $3.6 $2.84 $3.30 $4.10 25.3 21.8 17.5 84% 3.2 68.7% $1.34 1.9% 41% 14.0% 3.6% 60% 36% 12.4 10.4
MDU Resources Group, Inc.1 MDU N $23.20 $23.50 $4.4 $1.29 $1.25 $1.44 18.0 18.6 16.1 120% 1.6 34.7% $0.65 2.8% 52% 9.3% 4.0% 48% 37% 7.3 6.5
MGE Energy Inc.1 MGEE U $41.43 $37.00 $1.0 $2.43 $2.70 $2.70 17.1 15.3 15.3 106% 1.8 40.6% $1.50 3.6% 56% 11.8% 4.7% 32% 24% 8.1 8.1
Northwest Natural Gas Co.1 NWN N $46.10 $46.00 $1.2 $2.58 $2.54 $2.70 17.8 18.2 17.0 109% 1.7 52.1% $1.74 3.8% 69% 9.9% 2.8% 35% 22% 9.1 8.4
NorthWestern Corp.1 NWE B $33.84 $36.00 $1.2 $2.07 $2.35 $2.45 16.4 14.4 13.8 101% 1.5 55.1% $1.44 4.3% 61% 9.6% 2.7% 65% 35% 8.3 7.8
Otter Tail Corp.1 OTTR N $21.79 $22.00 $0.8 $0.62 $0.94 $1.53 34.9 23.3 14.2 92% 1.3 46.3% $1.19 5.5% 87% 3.0% 1.1% 56% 32% 8.0 6.5
Portland General Electric Co.1 POR N $25.93 $25.50 $2.0 $1.66 $2.05 $1.88 15.6 12.7 13.8 112% 1.2 52.2% $1.04 4.0% 51% 10.2% 3.0% 57% 30% 6.9 6.8
Questar Corp.1 STR N $18.20 $18.50 $3.2 $1.12 $1.11 $1.19 16.2 16.3 15.3 105% 3.0 51.7% $0.61 3.4% 55% 8.0% 3.1% 31% 23% 8.2 7.8
Westar Energy, Inc.1 WR B $27.21 $30.00 $3.1 $1.81 $1.75 $2.05 15.0 15.5 13.3 98% 1.3 56.0% $1.28 4.7% 73% 8.7% 2.6% 77% 38% 8.0 7.1
Xcel Energy, Inc.1 XEL N $24.66 $24.00 $11.9 $1.62 $1.71 $1.79 15.2 14.5 13.8 110% 1.5 54.4% $1.01 4.1% 59% 9.8% 2.9% 62% 34% 8.2 7.7
Median, 17 Utilities $2.0 16.8 15.5 13.8 104% 1.5 51.7% 4.1% 61% 9.3% 2.9% 48% 30% 8.2 7.7
Mean, 17 Utilities $2.9 18.1 16.4 14.5 103% 1.6 50.3% 4.0% 64% 9.1% 2.9% 53% 31% 8.4 7.7
EV /
EBITDA
2011E
'11E-'13E
CapEx/
Mkt Cap
EV /
EBITDA
2012E
Annual
Dividend
Dividend
Yield
11E-'13E
CapEx/
EV
Payout
Ratio
2011E
ROAA
(ttm)
ROAE
(ttm)
Price
Target
Mkt Cap
($B)
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
Company Name P / BVRating Debt /
Capital
PE '12E /
10 yr
Median
Symbol

D.A. Davidson & Co.
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Copyright D.A. Davidson & Co., 2011. 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
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Corresponding Institutional Research Ratings Buy Neutral Underperform
and Distribution 54% 41% 5%
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