COC UTILITY110510_EEI.PDF

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November 5, 2010
Equity Research
EEI Conference Wrap-Up
Industry And Company Takeaways

• Power Market Woes. The tone of conversations with Integrated company
management teams was quite sober and distinctly less optimistic than last year.
At EEI 2009, companies expressed a disbelief in the forward curves and pointed
to the “recency effect” associated with the economic downturn. This year,
companies are coming to grips with the outlook due, in part, to the impact of
shale gas on natural gas prices. The only saving grace appears to be potential
coal retirements driven by environmental compliance costs.
• A Tale of Two EPAs. Expectations on the timing of EPA emission restrictions
and coal plant retirements generally fell into two opposite camps. Managements’
points of views appeared to be largely guided by their own generation asset base
and how their company is positioned relative to rising environmental compliance
costs and retirements. We wonder whether the lack of a uniform stance from the
utility industry will lessen the group’s influence on the final rules.
• M&A. On the heels of the NU/NST merger announcement, investors were on
the lookout for the next deal. In particular, companies with robust capital plans
and subsequent equity needs were questioned on the potential to merge with
companies offering a strong balance sheet and cash flows, similar to the NU/NST
marriage. We did not get the sense that managements are itching to do a deal,
though M&A was not ruled out.
• ROE Pressure. In light of the low risk-free rate, there is growing concern
among companies and investors alike that ROEs will continue to trend
downward. We have seen this materialize in several jurisdictions, such as the
District of Columbia and Maryland, resulting in sub-10% ROEs. Companies are
cognizant of this risk, but several noted a psychological hurdle for Commissions
to go below the 10% mark.
• Yield Hungry. Companies with below average payout ratios and dividend
yields were pushed by investors on their dividend policies. Management teams
are well aware of the current thirst for yield in the market and we expect to hear
announcements of dividend increases over the next 6-12 months. On October 19,
American Electric Power (AEP/Outperform) announced a 9.5% increase to its
annual dividend. Northeast Utilities (NU/Market Perform) plans to increase its
dividend to a level on par with NSTAR’s (NST/Market Perform) dividend
following the close of the merger. On Wisconsin Energy’s (WEC/Outperform)
third quarter conference call management informed investors of plans to review
its dividend policy at its December Board meeting. Other companies with below
average payout ratios and dividend yields in our coverage universe are CLECO
Corp. (CNL/Outperform) and IDACORP (IDA/Market Perform). We project 9%
annual dividend growth for CNL through 2014 and we believe IDA, which has
paid a flat dividend since 2004, could begin growing the dividend, albeit at a modest pace, over the next 12-18 months.
• Mid-term Election Implications. While the mid-term elections turned out
as most people were expecting, the power grab by the Republicans seems to have
put the final nail in the coffin for potential carbon legislation over the
intermediate term, and attention will now be focused on the structure of a
national RES as well as legislative initiatives to ensure that EPA actions are
manageable to the industry and customer bills. Implications were much more
interesting and somewhat less predictable on the state level.

Utilities

Neil Kalton, CFA, Senior Analyst
[phone] /
[e-mail] Bolte, Senior Analyst(212) 214-8061 /
[e-mail]
Sarah Akers, CFA, Associate Analyst
[phone] /
[e-mail]
Jonathan Reeder, Associate Analyst
[phone] /
[e-mail]
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

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We attended the EEI Financial Conference in Desert Springs, California on October 31-November 3. In
addition to industry-wide thematic takeaways discussed in the front page bullets, company specific takeaways
from one-on-one meetings with management teams are outlined below.

REGULATED UTILITIES

American Electric Power (AEP/$37.41/Outperform) (Kalton)

• CSPCo/OPCo Merger – The initial response to the announced merger of AEP’s Ohio utilities has been
relatively muted thus far, which we view favorably.

• Electric Security Plan (ESP) - AEP plans to seek a number of non-bypassable charges in its upcoming
ESP filing, including the deferred fuel balance, provider of last resort (POLR) charges and environmental
costs/investments. This would keep the company’s generation rate relatively low, thereby reducing
shopping risk, and also ensure recovery of certain costs and investments by making them immune to
shopping (non-bypassable). Whether or not the non-bypassable charges are approved is at the Ohio
Commission’s discretion.

• Politics – Republican John Kasich defeated Democrat Ted Strickland in the Ohio governor race. As CEO
Mike Morris was a supporter of Strickland, we view Kasich’s victory as a modest negative for AEP.

CLECO Corp. (CNL/$31.50/Outperform) (Kalton)

• Coughlin 6 & 7 – Management laid out a variety of options for Coughlin 6 (264 MW) and 7 (511 MW),
which are currently under a tolling agreement with JP Morgan through 2011. While Cleco Power is 200
MW long power, there could be a need for additional capacity if Power enters additional wholesale
contracts or if Rodemacher 2, a 523 MW unscrubbed coal unit, is retired. While Power only owns 157 MW
of the unit, retirement could create an opportunity to purchase the Coughlin unit(s) and enter a contract
with the other owners of Rodemacher 2 for the output. The Coughlin units could also be sold to Entergy.
Absent a sale, Cleco could enter long-term tolling agreements, in which case the company would likely
include an option to exit the agreement in 5-years in order to preserve its options.

• Sales Growth – Underlying sales growth in Cleco Power’s service territory is trending above the
projections included in the company’s 4-year formula rate plan (FRP), making it more likely that Power is
able to earn above the 10.7% allowed ROE (sharing kicks in at 11.3% and an 11.7% maximum).

• Opportunities – CNL identified a number of rate base growth opportunities including environmental
controls on Rodemacher 2, longer-term transmission opportunities and investments at Madison 3
(formerly Rodemacher 3) that would allow the plant to burn biomass. The company also discussed other
opportunities including the acquisition of smaller systems or a stand-alone utility. Absent attractive
investment opportunities, CNL can return value to shareholders via dividend increases and/or share
buybacks.

CMS Energy (CMS/$18.45/Outperform) (Bolte)

• Capital Investment Program - CMS continues to believe its $6.4B capital investment program for
2011-2015 enjoys strong political and regulatory support. Management noted that Michigan’s governor
elect, Rick Snyder, has a business background and his campaign was largely focused on creating jobs and
reducing the tax burden for individuals and businesses in the state.

• O&M - Thanks to a new five-year contract the utility reached with its union in April 2010, as well as other
cost containment efforts, CMS expects to be able to keep annual O&M cost increases under 1.0% from
2010-2015. This is a key factor in allowing CMS to hit its targeted 5-7% annual average EPS growth rate
while limiting annual average increases in electric base rates to 2% over this time period.

Duke Energy Corp. (DUK/$18.39/Market Perform) (Kalton)

• Ohio – DUK will likely file a market rate offer (MRO) with the Public Utilities Commission of Ohio
(PUCO) by the end of the year. In addition, the company is evaluating whether to include a request to
move its generation assets outside of the utility. Due to the lack of clarity in SB 221, the large amount of
discretion left to the Commission, the lack of precedent and the lack of uniformity among the four major
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Ohio utilities, there is a high degree of uncertainty resulting in frustration among investors and
management teams alike.

• Politics – Further complicating the situation, Republican John Kasich won the governor seat. It is our
understanding that DUK and AEP were publicly supporting Democrat Ted Strickland, while FirstEnergy
(FE/Not Rated) was supporting Kasich.

• Edwardsport IGCC – DUK CFO Lynn Good was confident that the Edwardsport plant will be completed, noting that it is the biggest construction project in Indiana and highlighting the jobs supported
by the project. She also believes the settlement outlining cost recovery for the plant is constructive and
remains on the table. This is consistent with the company’s position laid out in hearings at the Indiana
Utility Regulatory Commission (IURC) on 11/3. While we agree that the project will likely be completed,
we think securing approval of the settlement could pose a greater challenge due, in part, to likely increased
regulatory scrutiny resulting from allegations of improper interactions between Duke and an IURC
attorney.

Great Plains Energy (GXP/$19.35/Market Perform) (Bolte)

• Regulatory Lag - Although we expect the average earned ROE at GXP’s utilities to improve to 8.1% in
2011 versus ~7.0% in 2010, GXP still suffers from high levels of structural regulatory lag. GXP is hoping
to reduce this regulatory lag in its next round of rate cases and is looking at best rate case practices from
around the country. Management cited Florida Power & Light’s recent settlement agreement providing an
earned ROE band of 9-11% as an interesting regulatory model. We note that management indicated that
decoupling was not being actively discussed.

• CapEx - GXP expects to provide an update on its planned capital expenditures in its 2010 10-K filing.
However, management noted that it expects to pull back on capital expenditures in 2011 and 2012 in order
to manage its credit metrics.

IDACORP (IDA/$37.23/Market Perform) (Kalton)

• Rate Plan – We came away from our discussion with IDA management with a greater degree of
confidence that the company may be able to secure another favorable rate plan similar to the current plan
which expires at year-end 2011. Due, in large part, to favorable tax items, there is still $70mm+ of ADITCs
on IDA’s balance sheet, which can be used in the place of rate increases to achieve a minimum ROE. As
the ADITC amortizations are one-time in nature and are non-cash, IDA mentioned the possibility of
seeking a combination of traditional rate relief and ADITC provisions. The company is also considering
requesting a single-item rate proceeding to recover the Langley Gulch plant.

• Capital Plans – Management expects benefit plans to cover 2011 equity needs and continues to assess
needs in 2012. If needed, the company has 1.3 million shares available under a continuous equity
program. IDA is currently balancing its robust capital plans against its below industry average payout
ratio and dividend yield, particularly given investors’ thirst for yield in the current environment. We
would not be surprised if dividend growth resumed over the next 12-18 months, though we expect any
increases would be modest. We should have greater clarity on IDA’s CapEx plans when the company files
an updated Integrated Resource Plan (IRP) in mid-2011.
ITC Holdings (ITC/$62.68/Outperform) (Kalton)

• South Central Development CapEx – ITC expanded on the roughly $520mm of development CapEx
in the South Central region (excluding Hugo-Valliant, KETA and V-Plan). The projects included in the
CapEx fall into three buckets: (1) projects that interconnect with existing ITC assets, (2) projects that
pertain to an existing relationship and (3) projects that pertain to a relationship that ITC is in the process
of fostering or expanding. ITC’s relationships with municipalities and cooperatives in the SPP appear
strong and we would not rule out the potential for ITC to work with investor-owned utilities in the region.

• North Central Development CapEx – ITC CFO Cameron Bready did not view AEP and
MidAmerican’s recent announcement regarding transmission joint ventures with Exelon and
MidAmerican Energy Company as particularly surprising. ITC has a strong footprint in Iowa and
relationships with utilities in the Dakotas which should provide the company ample opportunity to
participate in the western portion of an Upper Midwest build-out. The AEP/MidAmerican lines in Illinois,
Indiana and Iowa are in the eastern portion of MISO.
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Northeast Utilities (NU/$31.67/Market Perform) (Kalton)

• EPS Outlook – The impact of base rate cases, lower uncollectible expense and cost controls, such as
information technology (IT) improvements, are expected to continue benefitting NU’s EPS beyond 2010.

• Merger Update – So far, the response from regulators and politicians has been encouraging. The
company is cautiously optimistic that it can close the merger toward the earlier part of the 9-12 month
goal.
• Transmission Synergies – In addition to an expanded geography in New England, which gives NU a
greater footing to pursue regional projects, the company believes there are incremental transmission
projects within NST’s native footprint.

NorthWestern Corp. (NWE/$29.21/Market Perform) (Kalton)

• MPSC Turnover - As a result of the mid-term elections, the MPSC composition will shift to three
Republicans and two Democrats. While the positions that the two incoming commissioners will take on
various issues are unknown, we believe the greater potential regulatory risk revolves around the likelihood
that Commissioner Molnar assumes the chairmanship as the senior ranking Republican on the MPSC. In
our opinion, Commissioner Molnar has been the least constructive of the five-member MPSC and thus
could potentially reverse some of the improvements we have recently observed in Montana regulation
since Bob Rowe assumed the CEO role.

• Transmission Initiatives – East or West? In our opinion, the headwinds facing the MSTI and
Montana wind collector projects will more than likely cause extension of the open seasons beyond the end
of 2010. Though NWE management believes the delay will probably match up well with regards to where
the market/demand is, the push back of these projects could jeopardize rate base and earnings growth in
2012 or 2013. However, management seemed cautiously optimistic that some of its eastern projects
originating in South Dakota, which would be part of larger regional planning efforts spearheaded by ITC,
Electric Transmission America (ETA) and MISO, could materialize much faster than expected, which
could help backfill the potential shift of MSTI/collector CapEx.

Pepco Holdings (POM/$19.25/Market Perform) (Kalton)

• ROE Trends – POM commented that the recent trend of sub-10% ROEs is likely to continue (in March
Pepco-DC Electric was granted a 9.6% ROE and in August Pepco-MD Electric was granted an 9.83%
ROE). Speaking to the pending Delaware Electric case, management does not expect the ROEs to sink to
the level of the Hearing Examiner’s and Staff’s recommendations of 8.5% (9.5-9.6% without decoupling),
but an ROE below 10% would not be surprising.

• Regulatory Strategy – POM laid out a menu of mechanisms to reduce regulatory lag in the next round
of rate filings, but noted that regulators do not have much appetite for automatic tracker mechanisms.
The preferred strategy is to pursue formula rate plans with annual updates, though regulatory reception is
uncertain at this point.

Pinnacle West Capital Corp. (PNW/$42.00/Market Perform) (Bolte)

• Politics - Consistent with PNW’s expectations (which were based on recent poll results), Republicans
Gary Pierce and Brenda Burns won the race for two seats on the Arizona Corporation Commission (ACC).
The election of Ms. Burns and re-election of Mr. Pierce retain the commission’s 3-2 Republican majority.
During our meeting held before the election results were known, PNW indicated that it did not expect the
election results to negatively impact its increasingly constructive relationship with the ACC.

• Decoupling - Given the recent ACC draft policy statement supporting it, PNW expects a fixed revenue
per customer decoupling mechanism to be approved in its next rate case. Management also noted that the
policy statement indicated that use of a decoupling mechanism should not reduce the utility’s allowed
ROE.

• Fuel Clause - In its next rate case, PNW also plans to request a fuel clause with full pass-through of fuel
costs to customers. Currently, the fuel clause features a 90/10 sharing agreement, whereby the utility
absorbs 10% of the costs of fuel and purchased power in excess of approved levels and retains 10% of the
benefit of the fuel/purchased power costs below approved levels. Although PNW’s earnings have
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benefited from the fuel clause this year, we would view adoption of a fuel clause with full pass-through of
costs favorably as it would reduce commodity price risk and related earnings volatility.

Portland General Electric (POR/$21.44/Market Perform) (Kalton)

• SB408 – POR CEO Jim Piro expressed optimism that Senate Bill (SB) 408 could be repealed in the next
legislative session. The efforts of POR and other Oregon utilities could finally generate outside support as
customers are being hit with surcharges in 2010. In past years, there has been a lack of political will as
SB408 has resulted in refunds to customers. We would view the repeal of SB408 favorably as it would
reduce earnings volatility, get rid of the “double whammy” effect and remove the barrier to the company
being acquired.

• Capital Flexibility – Management indicated that the timing of new generation capacity and, therefore,
equity needs is flexible due, in part, to the soft economy. For example, the need for new wind could be
delayed by using renewable energy credits to meet the 2015 standard. POR’s initial plan to issue roughly
$300mm of equity in late 2011 was based on significantly greater emission control spending at Boardman
and assumed POR pursues self-build generation projects for wind, peaking and baseload capacity on the
original timelines.

Progress Energy (PGN/$44.87/Market Perform) (Kalton)

• Optimistic On Florida Regulation - PGN is optimistic that four new FPSC Commissioners will restore
the historically constructive regulatory environment. In addition, newly elected Governor Rick Scott is
expected to have a very pro-business agenda which we believe bodes well for the state’s economy as well as
the opportunity for PEF to resume growth capex plans with confidence that it will be able to earn a fair
return on its investment. Management anticipates the favorable 2010 weather in conjunction with
discretionary amortization of the depreciation reserve in accordance with the settlement agreement
should allow PEF a reasonable opportunity to earn its maximum ROE of 11.5% through 2012 until the
utility can hopefully reach a more constructive, cash friendly rate agreement for the 2013 and beyond
period.

• North Carolina Regulatory Uncertainty - Momentum existed going into 2011 to modernize the
North Carolina regulatory regime, however, PGN believes the mid-term election results could lower the
chances for passage of major legislation. While we consider the NCUC to be relatively constructive overall,
the absence of regulatory “modernization” legislation would increase PEC’s regulatory risk given the lack
of a forward looking test year or rider mechanism to recover fleet modernization capex as well as potential
new nuclear investment. The PEC base rate filing anticipated in 2012 could be the first of many to come.

• Nuclear Future - PGN readily admits that its nuclear reputation has suffered lately given an abnormally
high number of recent outages, however, management believes appropriate remediation actions are being
taken to restore confidence in its nuclear expertise. The recent spate of incidents does not impact PGN’s
aspirations for constructing Levy County at PEF or partnering on a Carolinas-centric plant at PEC. We
note that SCANA’s partner in the two new units at V.C. Summer, Santee Cooper, is reported to be
interested in selling down a portion of its 45% stake in the project. PGN management indicated it would
not hesitate partnering with a good operator like SCG, provided the numbers work.

Southern Company (SO/$38.30/Outperform) (Kalton)

• Georgia Power Rate Case - Management is optimistic that a constructive three-year agreement with
the GPSC staff (PIAS) will be possible the in the pending rate case. The PIAS recommendation appears to
be a very reasonable starting point for negotiations and management noted that roughly halfway between
GP’s requested ROE of 11.95% and the PIAS’ recommended 10.5% ROE is the midpoint of GP’s current
ROE band of 11.25%.

• Kemper County is Not Edwardsport - SO does not believe the cost increase and other issues that
DUK has encountered with its Edwardsport IGCC plant are applicable to Mississippi Power’s Kemper
County IGCC project. Reasons include SO’s use of proprietary technology, in house EPC capabilities, the
locking in of a significant portion of non-labor costs, utilization of a cheap local fuel source and take-or-
pay contracts for the CO2. While SO is reasonably confident in its $1.8 B estimate, it received MPSC
approval to build Kemper County with a $2.4 B cost cap.

• Environmental Train Wreck - In management’s opinion, the two environmental issues that have the potential to impact SO the most include Mercury BACT and coal ash rules. SO remains steadfast in its
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belief that coal must play a role in the United States’ energy future given the resource availability as well as
the economic impact that a conversion to natural gas would have on employment, wages and local tax
bases. Given the change in power following the mid-term elections, SO believes passage of a national RES
that addresses climate/carbon without putting a price on it may be probable but Congress needs to act
within the next 12 months given the EPA’s agenda.

• Possible Revamp of Southern Power’s Strategy - Management indicated it was considering leaving
a greater percentage of SP’s assets uncovered until capacity prices improve around 2015. We believe this
strategy of only making opportunity sales with this portion of SP’s portfolio rather than contracting
capacity at low prices would result in a $0.02-$0.03 annual consolidated EPS drag. Given a strong
underlying regulated earnings growth profile, we believe SO could absorb such a strategy during the
interim in order to enhance future value while not sacrificing the ability to achieve its 5-7% targeted
annual EPS growth rate.

Westar Energy (WR/$25.50/Outperform) (Kalton)

• Rate Case Timing – WR is still contemplating the timing of its 2011 rate filing. In the past the company
has filed in Spring with new rates effective January 1 of the following year, but strong sales growth may
allow the company to delay the filing until later in the year. Though each case is unique, we are looking to
the outcome of KCP&L’s pending rate case in Kansas as a data point for WR’s upcoming case.

• Rate Base Growth – There appears to be no end in sight to WR’s rate base growth story. WR projects
9% annual rate base growth during the period 2009-2014 driven largely by environmental and
transmission investment, which are recovered via riders. Retrofitting WR’s coal fleet remains
economically superior to retirement based on current environmental regulations largely due to the use of
Powder River Basin (PRB) coal and plant proximity to the mines. Post 2014, the company will likely have
significant transmission investment opportunities driven, in part, by the need to connect wind generation,
which continues to enjoy political support in Kansas.

Wisconsin Energy (WEC/$60.14/Outperform) (Kalton)

• Politics – As Republican Scott Walker won the Wisconsin governor race, it is unlikely that WEC will face
additional renewable requirements post 2015. Separately, the Governor will likely name a new Chairman
of the Public Service Commission (PSC) of Wisconsin and could appoint a new commissioner when Mark
Meyer’s term expires in March 2011.

• Dividend Policy – Absent the need to add more renewables beyond current plans, WEC’s capital
expenditures are expected to trend toward $600mm per year post-2013, versus $695mm in ’10, $983mm
in ’11 and $706mm in ’12. This should allow the company to adopt a more aggressive dividend policy,
which will be reviewed at WEC’s December Board meeting. We think the targeted payout ratios (40-45%
in '10-11 & 45-50% beginning in '12) could see modest upward adjustments and ultimately trend toward
60%. Other potential uses of cash are delevering the holding company and share buybacks.

• CapEx Opportunities – WEC identified additional rate base growth opportunities including
environmental-related plant retrofits and/or conversions and transmission investments through
American Transmission Company (ATC). Because of ATC’s strong cash flows, WEC’s funding needs are
limited.
Xcel Energy (XEL/$24.18/Outperform) (Kalton)

• 2011 Guidance – XEL’s 2011 EPS guidance of $1.65-1.75 reflects uncertainty related to pending (CO
wholesale, MN gas, MN electric, TX electric and WI reopener) and planned (CO gas, NM electric and WI
gas and electric) rate cases. We remain comfortable with our $1.75 estimate.

• Rate Base Growth – Management highlighted XEL’s organic growth opportunities, particularly those
related to transmission. The company’s footprint in the Upper Midwest positions the company very well
to participate in the MISO build-out and XEL’s SPS territories in the Texas panhandle and New Mexico
are also conducive to transmission investment.

• Analyst Day – XEL plans to provide additional details on transmission opportunities, the company’s
generation portfolio (position relative to EPA rules, etc.) and financing plans at its Analyst Day on
December 1.

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IPP/REGULATED (INTEGRATED) UTILITIES

Ameren Corp. (AEE/$29.68/Market Perform) (Kalton)

• Merchant Strategy – AEE’s current strategy for the merchant fleet is to cut discretionary expenditures,
continue its hedging program and look for additional opportunities to add margin by marketing to large
customers. Management said that the company will not comment on whether they “would or wouldn’t” or
“are or aren’t” selling the merchant fleet. The company did not dismiss reregulation in Illinois, but
believes this would be a difficult nut to crack. Finally, the company explained that the Midwest
Independent System Operator (MISO) has the ability to administer reliability must run (RMR) contracts,
but has never done so.

• Regulated Tidbits – AEE is looking at the possibility of seeking a forward test year in IL. While we
would view this favorably, we wonder how receptive the Illinois Commission would be, particularly in light
of the recent onerous rate outcome for AEE’s IL utilities. Separately, Ameren plans to file an Integrated
Resource Plan (IRP) in Missouri in February 2011.

Dominion Resources (D/$43.25/Market Perform) (Bolte)

• EPS Growth - Even without an improvement in current 2012 forward commodity prices, Dominion
remains comfortable with its expectations for an average annual operating EPS growth rate of 5-6%
beginning in 2012.

• CapEx Outlook - From 2011-2015, Dominion expects growth capital expenditures on regulated
infrastructure to exceed $10B with another nearly $2B of potential spending on environmental retrofits at
its utility generation fleet. Management noted that these environmental retrofits are eligible for a 100
basis point incentive adder on top of the utility’s base ROE (currently set at 11.3%).

Entergy (ETR/$75.20/Outperform) (Kalton)

• Capital Return – ETR specified that the mid-point of the $4-5B of capital return plans through
dividends and share repurchases during the period 2010-2014 reflects the incremental $500mm share
repurchase program announced on 10/29. In addition, management reiterated that the capital return
program remains flexible and is subject to other investment opportunities at both the regulated utilities
and supply business.

• Vermont Yankee –At EEI management indicated the company is working to get a purchased power
agreement (PPA) with local utilities and seeking greater clarity around decommissioning. The company
affirmed that the current EBITDA outlook assumes Vermont Yankee goes to market in 2012. On 11/4 ETR
announced it is exploring the sale of Vermont Yankee, while continuing to pursue a license extension and
negotiate PPAs. We would view a sale favorably as it would reduce the risk associated with the plant and
preserve some shareholder value. That said, there appear to be a number of impediments to a sale
including uncertainty regarding the plant’s future (relicensing, PPA, etc.) and the current supply of hydro
that is being bid into the region by Hydro-Quebec.

Exelon Corp. (EXC/$41.16/Underperform) (Kalton)

• 2013 Disclosures – EXC provided 2013 hedging disclosures, which show an aggregate 31-34% hedged
position and an implied gross margin of $5.7B, largely consistent with our estimate. This compares with
2013 open gross margin of $5.3B.

• Dividend – EXC affirmed a strong commitment to the dividend. Internal stress tests support investment
grade credit metrics, such as FFO/Debt, without the need to cut the dividend.

• Impact of Environmental Regulations on Capacity and Power Prices – EXC is projecting a $40-
80/MW-Day increase in PJM capacity prices in the 2014/2015 auction. One of the factors driving the
projected increase is the initial impact of higher environmental compliance costs, which is likely to lead to
coal retirements. EXC also believes that forward power prices are beginning to reflect the impact of likely
coal retirements, but on a discounted basis. Management estimates that forwards are pricing in 30-40%
of total likely retirements.

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NextEra Energy (NEE/$54.40/Outperform) (Kalton)

• Wind Dynamics – Given low gas prices, a weakened demand outlook and a relatively long runway until
the PTC expires (2012), states and utilities are feeling no pressure to enter into PPAs for wind. That said,
equipment prices for turbines are coming down and smaller players continue to fall out of the market.
Management commented that the economics for wind investment have been average in 2010 and are
expected to be above average in 2011.

• Politics – The victory of Republican Rick Scott in the Florida governor race could be a positive for FP&L’s
solar opportunities. While Democrat Alex Sink was pro-renewables, having a democratic governor with a
republican congress could have halted progress. According to NEE, Mr. Scott is intrigued by the job
creation opportunities associated with solar projects. Separately, the new governor may wish to appoint
his own Commissioners to the Florida PSC. While Commissioners Brise and Graham are likely to remain,
Eduardo Balbis and Julie Brown could be replaced.

Public Service Enterprise Group (PEG/$32.95/Outperform) (Kalton)

• Capacity Auction – It remains unclear how plant owners can bid into the 2014/2015 capacity auction
without clarity on the environmental rules out of the EPA. PEG believes the costs and potential
retirements associated with EPA restrictions could begin to have an impact on capacity prices in the
2014/2015 auction, but will be more in play in the following auction for 2015/2016. Generally speaking,
the company does not see any major negative drivers versus the previous auction.

• PSE&G – PSE&G aligned its capital and operating budget with the recent rate order in New Jersey. As a
result, and due to automatic recovery mechanisms (transmission, stimulus, renewables), the company
believes it can earn close to the 10.3% allowed ROE through 2013 without the need for additional base rate
relief.

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by me in this research report.

ƒ Wells Fargo Securities, LLC maintains a market in the common stock of American Electric Power Company, Inc., CLECO Corp,
Duke Energy Corp., Exelon Corporation, ITC Holdings, NorthWestern Corporation, Pepco Holdings, Inc., SCANA Corp.,
Southern Company, Wisconsin Energy Corp.
ƒ Wells Fargo Securities, LLC or its affiliates managed or comanaged a public offering of securities for CMS Energy Corp., Entergy
Corp., IDACORP, Inc., NextEra Energy, Inc., NSTAR, Pinnacle West Capital Corp., SCANA Corp. within the past 12 months.
ƒ Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next three months from American Electric Power Company, Inc., CLECO Corp, CMS Energy Corp., Dominion Resources, Inc.,
Duke Energy Corp., Entergy Corp., Exelon Corporation, Great Plains Energy, IDACORP, Inc., ITC Holdings, NextEra Energy,
Inc., Northeast Utilities, NSTAR, Pepco Holdings, Inc., Pinnacle West Capital Corp., Portland General Electric, Progress Energy,
Inc., Public Service Enterprise Group Inc., SCANA Corp., Southern Company, Westar Energy, Inc., Wisconsin Energy Corp., Xcel
Energy, Inc.
ƒ Wells Fargo Securities, LLC or its affiliates received compensation for investment banking services from American Electric Power
Company, Inc., CMS Energy Corp., Dominion Resources, Inc., Duke Energy Corp., Entergy Corp., Exelon Corporation, IDACORP,
Inc., NextEra Energy, Inc., Northeast Utilities, NSTAR, Pepco Holdings, Inc., Pinnacle West Capital Corp., Portland General
Electric, Public Service Enterprise Group Inc., SCANA Corp., Southern Company, Westar Energy, Inc., Wisconsin Energy Corp. in
the past 12 months.
ƒ Wells Fargo Securities, LLC and/or its affiliates, have beneficial ownership of 1% or more of any class of the common stock of
Dominion Resources, Inc., Great Plains Energy, NorthWestern Corporation, Portland General Electric, SCANA Corp., Westar
Energy, Inc.
ƒ American Electric Power Company, Inc., CMS Energy Corp., Dominion Resources, Inc., Duke Energy Corp., Entergy Corp.,
Exelon Corporation, IDACORP, Inc., NextEra Energy, Inc., Northeast Utilities, NSTAR, Pepco Holdings, Inc., Pinnacle West
Capital Corp., Portland General Electric, Public Service Enterprise Group Inc., SCANA Corp., Southern Company, Westar Energy,
Inc., Wisconsin Energy Corp. currently is, or during the 12-month period preceding the date of distribution of the research report
was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to American
Electric Power Company, Inc., CMS Energy Corp., Dominion Resources, Inc., Duke Energy Corp., Entergy Corp., Exelon
Corporation, IDACORP, Inc., NextEra Energy, Inc., Northeast Utilities, NSTAR, Pepco Holdings, Inc., Pinnacle West Capital
Corp., Portland General Electric, Public Service Enterprise Group Inc., SCANA Corp., Southern Company, Westar Energy, Inc.,
Wisconsin Energy Corp.
ƒ Dominion Resources, Inc., Duke Energy Corp., IDACORP, Inc., Portland General Electric, Xcel Energy, Inc. currently is, or
during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC.
Wells Fargo Securities, LLC provided noninvestment banking securities-related services to Dominion Resources, Inc., Duke
Energy Corp., IDACORP, Inc., Portland General Electric, Xcel Energy, Inc.
ƒ Dominion Resources, Inc., Great Plains Energy, Northeast Utilities, Pinnacle West Capital Corp. currently is, or during the 12-
month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo
Securities, LLC provided nonsecurities services to Dominion Resources, Inc., Great Plains Energy, Northeast Utilities, Pinnacle
West Capital Corp.
ƒ Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from
Dominion Resources, Inc., Duke Energy Corp., Great Plains Energy, IDACORP, Inc., Northeast Utilities, Pinnacle West Capital
Corp., Portland General Electric, Xcel Energy, Inc. in the past 12 months.
ƒ A director or officer of Wells Fargo & Company serves on the board of directors of Progress Energy, Inc., Southern Company.
Wells Fargo & Company is the parent of Wells Fargo Securities, LLC.
ƒ Wells Fargo Securities, LLC or its affiliates may have a significant financial interest in Ameren Corp., American Electric Power
Company, Inc., CLECO Corp, CMS Energy Corp., Dominion Resources, Inc., Duke Energy Corp., Entergy Corp., Exelon
Corporation, Great Plains Energy, IDACORP, Inc., ITC Holdings, NextEra Energy, Inc., Northeast Utilities, NorthWestern
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

10

Corporation, NSTAR, Pepco Holdings, Inc., Pinnacle West Capital Corp., Portland General Electric, Progress Energy, Inc., Public
Service Enterprise Group Inc., SCANA Corp., Southern Company, Westar Energy, Inc., Wisconsin Energy Corp., Xcel Energy, Inc.

Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions.
Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability
and revenue of the firm, which includes, but is not limited to investment banking revenue.

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
AEE: Risks to our valuation include unfavorable regulatory outcomes, a further deterioration in power prices and a material rise in
interest rates.
AEP: Risks include regulatory risks related to pending rate proceedings, potential regulatory pushback related to mandated
environmental spend and cost increases, and economic-related risks.
CMS: Risks to achieving that valuation include the company's ability to obtain timely and adequate rate relief, meet current and
future environmental standards, maintain reliability, and continue to be profitable in its scaled-down non-utility businesses.
CNL: Risks to our valuation include further economic weakness and risk that the Acadia transaction is not approved.
D: Key risks include a decline in energy prices, weaker than expected utility sales, unplanned plant outages or rising interest rates.
DUK: Risks to our range include international exposure, regulatory risk, industrial sales exposure, unregulated coal fleet margins and environmental risks.
ETR: Risks to our valuation range include commodity price sensitivity, nuclear relicensing and operational risks, and regulatory
risks.
EXC: Risks to our valuation include a material improvement in forward power prices and earlier or more stringent carbon
restrictions versus our expectations.
GXP: Key risks include unfavorable rate case outcomes, lack of a traditional fuel clause at KCP&L Missouri and lower than
expected utility sales.
IDA: Risks to our valuation include project delays/cancellations, negative regulatory developments and consistently below average
hydro conditions.
ITC: Risks to our valuation include adverse changes in the FERC's transmission policies and project delays or cancellations.
NEE: Risks include the ability to deliver on wind development plans, FL economic and regulatory concerns and, to a lesser degree,
commodity price risk.
NST: Risks to our valuation include a slower and weaker than expected economic recovery on sales, O&M cost pressures,
transmission project delays or cancellations and interest rate sensitivity.
NU: Risks to our valuation include adverse regulatory decisions and project delays/cancellations related to NEEWS or Northern
Pass.
NWE: Chief risks include regulatory risk, a potentially large NOL liability, transmission project timing risk and interest rate risk.
PEG: Risks to our valuation include earnings sensitivity to commodity prices, operational risks and unfavorable
regulatory/political developments.
PGN: Risks to shares include regulatory risk, customer growth and usage trend deterioration and rising interest rates.
PNW: Key risks include turnover at the AZ regulatory commission, lower than expected plant performance, weaker than expected
utility sales and execution risk on delivering targeted cost savings. POM: Risks include regulatory risks associated with pending rate filings and a likely active regulatory scheduled going forward and
a material delay in the MAPP transmission project.
POR: Risks include adverse regulatory outcomes and a protracted economic downturn.
SCG: Chief risks to SCG shares, in our view, include regulatory-related risk, construction risk and a slower-than-expected
Southeastern economy.
SO: In our view, risks include regulatory risk, construction risk, potential to pursue large M&A that may prove dilutive and
potential exposure to adverse federal energy legislation.
WEC: Risks to our valuation include regulatory risk and the impact of a protracted recession on sales and costs, such as pension
and bad debt expense.
WR: Risks to our valuation include customer and regulatory pushback to rising costs, risk related to the upcoming rate case and
risk of an economic slowdown.
XEL: Risks to our valuation include regulatory risks related to pending and upcoming rate cases, a weaker than expected rebound
in sales and cost pressures.
WELLS FARGO SECURITIES, LLC
EEI Conference Wrap-Up EQUITY RESEARCH DEPARTMENT

11

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: November 5, 2010
44% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Outperform.
Wells Fargo Securities, LLC has provided investment banking
services for 44% of its Equity Research Outperform-rated
companies.
53% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Market Perform.
Wells Fargo Securities, LLC has provided investment banking
services for 45% 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 48% of its Equity Research Underperform-rated
companies.

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WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

12

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