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HomeMy WebLinkAboutDADCO-June-2013-Monthly.pdf Please refer to page 16 of this report for detailed disclosure and certification information. INDUSTRY UPDATE Institutional Equity Research June 7, 2013 Utility Monthly Prices: (6/6/13) Industry: Utilities Michael Bates 503.603.3045 mbates@dadco.com Heading Toward Another Scorching Summer?  Expecting another hot summer. NWS is forecasting above-normal temperatures for much of the continental United States from July through August. If accurate, the warmer than average summer weather should support strong 3Q power demand and healthy utility earnings, when compared to historical averages. If realized, this would be the fourth consecutive year of hotter than normal weather for names we cover in the Midwest. With that said, the record high temperatures set in 2012 should be a difficult comparison.  Temperatures in 2Q’13 have been a bit of a mixed bag through the first two months. Temperatures in April were generally below average and colder than last year, while May produced slightly higher temperatures than long-term averages. Assuming current predictions for a slightly warmer than normal June are accurate, we do not expect abnormal weather to significantly impact 2Q utility earnings.  May rainfall was far below average in much of the Northwest. Despite experiencing a very wet start to this year’s precipitation season, forecasted streamflows in key drainages for hydro-generation in the Pacific Northwest are relatively weak.  Two guidance revisions. Hawaiian Electric and Portland General Electric lowered their 2013 EPS guidances recently.  Three dividend increases. POR, STR and XEL recently announced dividend increases.  POR project news. Portland General Electric revealed the winning bids related to last year’s baseload and renewable generation RFPs, as well as disclosed a decision to suspend work on the Cascade Crossing transmission project.  MDU project news. MDU revealed plans for a 400-mile natural gas pipeline from the Bakken into the neighboring region to the east.  NWE project news. NorthWestern announced an agreement to purchase natural gas production interests from Devon Energy Production Company, L.P. D.A. Davidson & Co. 2 As displayed in Figures 1 and 2, temperatures in most regions served by our utility group were far colder in May than the same month one year ago, and generally warmer than long term averages. 2Q to date has produced weather much colder than last year and slightly cooler than average, which should bolster 2Q gas margins. Westar and Great Plains saw the largest positive deviations from long-term averages (25% more heating degree days), while IDACORP, Portland General Electric and Northwest Natural were left standing with the largest negative deviations. Figure 3 displays the weather outlook for the remainder of 2Q, which is expected to see above normal temperatures in the west and roughly average temperatures in the rest of the U.S. As displayed in Figure 4, the National Weather Service is forecasting warmer than normal temperatures in almost all portions of the continental United States through the third quarter. If accurate, the warmer than average summer weather should support strong 3Q power demand and healthy utility earnings, when compared to historical averages. If realized, this would be the fourth consecutive year of hotter than normal weather for names we cover in the Midwest. With that said, the record high temperatures set in 2012 should be a difficult comparison. Hydro power is a substantial electric resource for Avista Corp., IDACORP, Inc. and Portland General Electric Co. As noted in Figures 6 and 7, aggregate precipitation levels in much of the Pacific Northwest have been below long-term averages in the current precipitation year (which began in October 2012). May continued the recent trend of extremely dry months in the Northwest. The past few dry months offset the extremely wet start to the current precipitation year. The Northwest River Forecast Center’s projection calls for below-normal streamflows in all of the six important drainages in the Northwest (Figure 5). Most utility-scale hydro- generation resources can operate at a healthy level with streamflows as low as 80% of normal. POR’s coverage territory saw streamflow expectations nudged upward slightly in May compared to April, while IDA’s estimate received another downward revision and AVA experienced a mixed bag, including one upward and one downward revision. Current conditions have kept our 2013 hydro-generation outlook near normal for AVA and POR. Runoff into IDA’s Brownlee Reservoir is forecasted to be just 57% of normal. State regulators have implemented rate mechanisms to limit the utilities’ financial exposure to swings in hydrogeneration (summarized below). From our observations, and under their current mechanisms, results at POR tend to be the most sensitive to variation in streamflow conditions, while IDA’s earnings are the most insulated.  Idaho - Power Cost Adjustment (PCA) mechanism shares 95% of the swing in costs with ratepayers and 5% with the utility.  Oregon - PCA mechanism provides a 90%/10% refund/surcharge after an asymmetrical deadband (+$30 million/-$15 million) and after applying an annual earnings test.  Washington - Energy Recovery Mechanism (ERM) shares’ annual power supply cost variability after a symmetrical deadband is $0-$4 million. If power costs are $4-$10 million above the amount built into rates, there is 50%-50% sharing between ratepayers and shareholders. If power costs are $4-$10 million below the amount built into rates, there is 75%-25% sharing between ratepayers and shareholders. Above or below $10 million of annual power supply cost variability, 90% of the swing in costs goes to ratepayers and 10% goes to the company. Weathe Updates May Warmer than Average, 2Q Still Cooler in Aggregate Hot Summer Still Expected 2013 Precipitation and Streamflows D.A. Davidson & Co. 3 HE management has lowered its 2013 EPS guidance from $1.58-$1.68 to $1.52-$1.62. The revised guidance incorporates the $7.8 million lower expected annual revenues due to the finalized D&O. Included in the news about the discontinuation of the Cascade Crossing project, POR’s management reduced its 2013 EPS guidance by $0.50 (now $1.35-$1.50) to reflect the 2Q’13 impairment ($31 million after the tax write-down associated with Cascade Crossing) and an unrelated customer refund ($5 million after tax). On May 22nd, POR increased its quarterly dividend from $0.27 to $0.275 per share, in line with our expectations. This marks the seventh consecutive annual dividend increase for the company. POR continues to target a long term dividend payout ratio of 50%-70%. On May 10th, STR announced a 6% increase in its quarterly dividend from $0.17 to $0.18 per share, in line with our estimate. Including this increase, Questar has increased its dividend 41 times in the last 41 years and has paid the dividend for 274 consecutive quarters On May 21st, XEL announced a 3.7% raise in its quarterly dividend from $0.27 to $0.28 per share, in line with our model. This compares with XEL’s dividend increase of 3.8% (or $0.26 to $0.27 per share) in Q2 2012. The company also announced on May 20th the issuance of $400 million of 2.60% first mortgage bonds due in 2023. On May 31st, the PUC issued a final D&O approving an annual revenue increase of $5.3 million at Maui Electric Company, Limited (MECO), $7.8 million less than the interim increase that took effect on June 1, 2012. The final D&O includes a 9.0% ROACE, an equity layer of 56.86%, and a return on average rate base of 7.34%. This compares to the interim D&O inclusion of a 10.0% ROACE, an equity layer of 56.86%, and a return on average rate base of 7.91%. The PUC also approved the revised annual decoupling filings for tariffed rates that will be effective from June 1, 2013 through May 31, 2014. Guidance Changes Hawaiian Electric Industries, Inc. (HE - NEUTRAL - $28 Target) Portland General Electric Co. (POR - BUY - $37 Target) Dividend Increases Portland General Electric Co. (POR - BUY - $37 Target) Questar Corp. (STR - NEUTRAL - $26 Target) Xcel Energy, Inc. (XEL - NEUTRAL - $32 Target) Regulatory Developments Hawaiian Electric Industries, Inc. (HE - NEUTRAL - $28 Target) D.A. Davidson & Co. 4 Utility capital expenditures will remain elevated through at least 2015, driven largely by spending for environmental upgrades, distribution system improvements, and transmission expansions. Figure 8 depicts the aggregate capital spending of investor-owned electric utilities from 2005-2014. Figure 9 depicts capex relative to current market capitalization. On May 30th, MDU Resources Group unveiled plans for a 400-mile natural gas pipeline from the Bakken into the neighboring region to the east. Construction is expected to begin in early 2016 and be completed in late 2016, but it is contingent on sufficient long-term capacity commitments during an open season late this summer, as well as various permits and regulatory approvals. The project is expected to cost $650-$700 million and MDU has not yet disclosed how it plans to finance the project. The project will likely boost the company’s need to tap the equity markets in the 2014-2015 timeframe. On May 28th, NorthWestern announced an agreement to purchase natural gas production interests in northern Montana’s Bear Paw Basin from Devon Energy Production Company, L.P. The proposition is to acquire an interest in 916 producing wells and connected gathering systems. The deal would include over 82 miles of transmission line, 576 miles of gathering lines, and 21 compressors. The estimated natural gas production from this acquisition is expected to be 28% of NorthWestern’s current annual natural gas load in Montana, bringing the utility’s total owned gas production resources up to 38%. The deal is worth ~$70 million, which compares to our forecast of two $40 million investments in each of 2013 and 2014. We believe the remaining 12% of the gas supply the company could purchase in the next 18 months (to reach its targeted supply level of 50%) appears likely to translate to an investment of $10-$15 million at current market prices; this aligns well with our expectations. On June 3rd,Portland General Electric disclosed the winning bids related to last year’s baseload and renewable generation RFPs. Results indicate both projects will be owned and operated by the utility, and will support solid rate base and earnings growth over the next five years. Renewable Asset - POR has acquired development rights for the 267 MW Snake River Phase 2 wind farm in eastern Washington from Puget Sound Energy, with capital spending expected to total $520-$535 million. Baseload Asset – The 440 MW gas-fired Carty plant will be built on a site adjacent to POR’s Boardman Station and will cost $440-$455 million. We expect capex related to these projects (as well as Port Westward 2, which is now in the very early stages of construction) will increase and accelerate POR’s need for a secondary equity offering. We are currently forecasting $275-$325 million (9-10 million shares) of incremental equity by year-end 2015, but note the firm has not made any explicit forecast of the time and size of a future offering. The utility also disclosed a decision to suspend work on the Cascade Crossing transmission project in response to significant shifts in the region’s power market needs and available capacity. POR is currently in negotiations to collaborate with BPA and jointly develop and/or own other transmission assets, but few details are available. The investment in Cascade Crossing will be written down in 2Q’13. Capital Projects MDU Resources Group, Inc. (MDU - BUY - $30 Target) NorthWestern Corporation (NWE - NEUTRAL - $45 Target) Portland General Electric Co. (POR - BUY - $37 Target) D.A. Davidson & Co. 5 As noted in Figure 10, several utilities under our coverage announced equity offerings in 1Q’13, and we expect to see additional moves to tap the capital markets this year as capital expenditures remain high and utilities seek to maintain their mandated capital structures. Many firms under our coverage have mitigated and/or delayed secondary equity issuances, despite a rise in capital spending in recent years, due to the benefits of bonus tax depreciation and NOL carryforwards. Please refer to our recent reports for company-specific capex and financing forecasts. As shown in Figure 15, utilities and other interest rate-sensitive securities underperformed dramatically in May. Not a single stock in our coverage group posted a positive return for the month, while the S&P 500 returned a negative 1.0%. Utilities struggled primarily due to speculation of rising interest rates and a tapering of the Fed’s quantitative easing strategy. As the weakness in the utilities sector was driven by the worry of increasing interest rates, utilities with the largest yields took the hardest hits. OTTR and HE were the most affected in the group, declining 10.6% and 10.2%, respectively. OTTR has a current yield of 4.3%, while HE has a current yield of 5.0%. IDA and BKH escaped with relatively modest declines, falling 0.7% and 1.7%, respectively. Both stocks have a relatively low current yield of 3.2%. Utility stocks have been helped by prolonged quantitative easing and lower interest rates, as investors have joined the space looking for larger yields. Despite the recent correction, the small- and mid-cap utilities under our coverage have performed relatively well year-to-date, with a median total return of 12.7% that compares to +12.2% from the S&P 500 and +7.7% from the XLU. Shares of BKH have posted the strongest performance year-to-date, rising 31.5%. BKH has experienced a nice uptick in its stock price as the market grows increasingly excited about the potential gas reserves in its arsenal. STR has been the second best performing stock YTD under our coverage (+22.8%), as investors continue to value its future growth prospects. Shares of NWN have posted the weakest performance year-to-date, falling 1.1%. Shares have been under pressure since receiving an unfavorable rate case decision late last year, and have struggled to zero in on a strong potential catalyst for recovery. The second weakest performer in our group is HE which was hit particularly hard in last month’s yield rout. Equities in the sector currently trade at 15.1x expected 2014 earnings, which represents a ~13% premium P/E valuation relative to the S&P 500. Current valuation levels are well above the 10-year average of 13.8x, which would be just a 3% premium P/E valuation relative to the 10-year average P/E of the S&P 500. For several years now the group has seen higher demand from investors seeking relatively low risk profile investments, steady dividend growth, and attractive yields. In our view the recent correction in sector valuations was warranted. Although we see compelling opportunities in select names at current prices, we continue to urge investors to be selective in their approach. The sector carries an average dividend yield of 3.8%, slightly above the long term average comparing favorably to the average yield on S&P 500 equities and 10-year U.S. Treasuries as shown in Figure 14. Financing Outlook Sector Performance & Valuation Recent Performance Sector Valuations D.A. Davidson & Co. 6 Figure 1: Heating Degree Day Data (HDD) –May and 2Q’13 QTD Source: National Weather Service’s Climate Prediction Center May % Dev % Dev 2Q'13 % Dev % Dev HDD v. Avg v. 2012 Total v. Avg v. 2012 Duluth, MN 472 12% 48% 1380 14% 39% Cedar Rapids, IA 186 3% 127% 747 13% 51% Madison, WI 215 -18% 78% 843 1% 34% Spokane, WA 266 -21% -22% 819 -8% -1% Colorado Springs, CO 272 -13% 55% 927 4% 71% Lincoln, NE 184 19% 167% 746 29% 108% Rapid City, SD 301 -4% 5% 1139 25% 58% Kansas City, MO 155 25% 417% 614 35% 154% Boise, ID 161 -34% -25% 601 -14% 12% Pocatello, ID 297 -16% -11% 915 -2% 13% Tri Cities, WA 140 -27% -34% 508 -10% -7% Boise, ID 161 -34% -25% 601 -14% 12% Bismarck, ND 323 6% 7% 1229 27% 48% Madison, WI 215 -18% 78% 843 1% 34% Great Falls, MT 382 -7% -13% 1124 5% 22% Sioux Falls, SD 274 13% 80% 1043 29% 86% Portland, OR 168 -31% -24% 531 -17% -6% Jamestown, ND 318 9% 32% 1318 37% 65% Fergus Falls, MN 472 12% 48% 1380 14% 39% Portland, OR 168 -31% -24% 531 -17% -6% Salt Lake City, UT 136 -37% -11% 586 -12% 18% Chicago, IL 192 -17% 86% 733 -2% 39% Green Bay, WI 295 -2% 81% 1009 7% 41% Rochester, MN 312 11% 174% 1048 18% 79% Tucson, AZ 0 -100% n.m. 27 -67% -45% Milwaukee, WI 301 -5% 70% 942 1% 29% Topeka, KS 132 25% 725% 572 29% 206% Denver, CO 249 -7% 46% 936 18% 84% Minneapolis, MN 250 13% 123% 966 24% 74% Eau Claire, WI 308 17% 101% 1109 28% 64% Westar Energy WR Xcel Energy XEL Otter Tail OTTR Portland General Electric POR Questar STR Integrys Energy Group TEG UNS Energy UNS Wisconsin Energy WEC Great Plains Energy GXP IDACORP IDA MDU Resources Group MDU MGE Energy MGEE NorthWestern NWE Northwest Natural Gas NWN Stock Location ALLETE ALE Alliant Energy LNT Avista AVA Black Hills BKH D.A. Davidson & Co. 7 Figure 2: Cooling Degree Day Data (CDD) –May and 2Q’13 QTD Source: National Weather Service’s Climate Prediction Center Ma % Dev % Dev 2Q'12 % Dev % Dev CDD v. Avg v. 2012 QTD v. Avg v. 2012 Duluth, MN 1 -86% -94% 1 -86% -94% Cedar Rapids, IA 63 7% -34% 74 21% -22% Madison, WI 45 36% -44% 53 36% -35% Spokane, WA 31 182% 244% 31 158% 182% Colorado Springs, CO 22 340% -12% 22 267% -19% Lincoln, NE 82 46% -40% 86 25% -48% Rapid City, SD 10 -23% -44% 10 -33% -63% Kansas City, MO 92 -9% -49% 105 -7% -52% Honolulu, HI 374 -1% -6% 707 1% -4% Hilo, HI 322 20% 21% 581 18% 20% Kahului, HI 400 21% 23% 717 18% 16% Boise, ID 48 55% 45% 48 41% -19% Pocatello, ID 8 167% 100% 8 167% 100% Tri Cities, WA 68 134% 258% 70 112% 159% Boise, ID 48 55% 45% 48 41% -19% Bismarck, ND 12 -33% 140% 12 -40% 140% Madison, WI 45 36% -44% 53 36% -35% Great Falls, MT 5 -29% 150% 5 -38% -17% Sioux Falls, SD 38 9% -34% 42 5% -42% Portland, OR 15 7% 36% 15 0% -6% Jamestown, ND 11 -68% -15% 11 -70% -15% Fergus Falls, MN 1 -86% -94% 1 -86% -94% Portland, OR 15 7% 36% 15 0% -6% Salt Lake City, UT 71 109% 37% 71 87% -7% Chicago, IL 77 60% -40% 85 49% -36% Green Bay, WI 33 38% -35% 38 41% -25% Rochester, MN 30 0% -56% 30 -3% -56% Tucson, AZ 440 47% -1% 626 54% -3% Milwaukee, WI 37 37% -37% 40 25% -33% Topeka, KS 127 49% -43% 143 34% -46% Denver, CO 42 83% -13% 42 68% -22% Minneapolis, MN 50 22% -38% 53 18% -34% Eau Claire, WI 29 -34% -52% 32 -29% -47% Wisconsin Energy WEC Westar Energy WR Xcel Energy XEL Northwest Natural Gas NWN Otter Tail OTTR Portland General Electric POR Questar STR Integrys Energy Group TEG UNS Energy UNS Great Plains Energy GXP Hawaiian Electric Industries HE IDACORP IDA MDU Resources Group MDU MGE Energy MGEE NorthWestern NWE Stock Location ALLETE ALE Alliant Energy LNT Avista AVA Black Hills BKH D.A. Davidson & Co. 8 Figure 3: June ’13 Temperature Forecast Figure 4: July ’13 – August ‘13 Temperature Forecast Source: National Weather Service Climate Prediction Center D.A. Davidson & Co. 9 Figure 5: Streamflow Projections for Key Hydro Locations Source: National Weather Service Northwest River Forecast Center % of Forecast Average Normal Coeur d'Alene Lake Inflow APR-SEP 2,177 2,468 88% Cabinet Gorge Dam APR-SEP 10,764 11,376 95% IDACORP IDA Brownlee Reservoir Inflow APR-SEP 3,932 6,853 57% Clackamas River APR-SEP 698 732 95% Deschutes River APR-SEP 1,816 1,916 95% The Dalles APR-SEP 89,018 92,704 96% Portland General Electric POR Stock Location Time Period Runoff Forecast - KAF Avista AVA D.A. Davidson & Co. 10 Figure 6: Accumulated Northwestern Precipitation October 2012 – May 2013 Source: National Weather Service Northwest River Forecast Center Figure 7: Accumulated Northwestern Precipitation – May 2013 Source: National Weather Service Northwest River Forecast Center D.A. Davidson & Co. 11 Figure 8: Utility Capital Spending 2005-2014 (billions $) Source: SNL Energy Figure 9: Projected Capex % of MC 2013-2015 Source: D.A. Davidson & Co. estimates, company reports 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E WECMGEE STR IDA AVA LNT MDUNWN HE GXP OTTR ITC XEL NWE WR BKH ALE TEG UNS POR 0% 10% 20% 30% 40% 50% 60% 70% 80% D.A. Davidson & Co. 12 Figure 10: Announced Equity Issuances * D.A. Davidson & Co. makes a market in this security Source: D.A. Davidson & Co. estimates, company reports Figure 11: Utility Forward P/E Source: Capital IQ Figure 12: Utility Forward P/E Relative to S&P 500 Source: Capital IQ Symbol Announced Issuance Structure Timing Proceeds $m Shares (m) % Dilution ALE* 8/3/12 Equity Issuance Program 2013 $40 0.9 2.0% AVA* 12/31/12 Sales Agency Agreement 2013 $47 1.8 3.1% HE* 3/18/13 Forward Equity Sale 2013-2014 $163 6.1 6.2% LNT* 3/14/13 Preferred Stock 3/14/13 $200 8.0 7.2% NWE* 12/31/12 Equity Distribution Agreement 2013 $70 2.0 4.6% WR* 12/31/12 Forward Equity Sale 2013-2014 $50 1.8 1.1% XEL* 3/5/13 At the Market Offering 2013 $400 13.0 2.6% D.A. Davidson & Co. 13 Figure 13: Utility Dividend Yields Source: Capital IQ Figure 14: Utility Dividend Yields Relative to S&P 500 and 10-Year Treasuries Source: Capital IQ D.A. Davidson & Co. 14 Figure 15: D.A. Davidson Utility Coverage – 1-Month Performance Source: Capital IQ Figure 16: D.A. Davidson Utility Coverage – 2013 Stock Performance YTD Source: Capital IQ OTTR, ‐10.6% HE, ‐10.2% WR, ‐8.2% LNT, ‐7.6% XLU, ‐7.5% TEG, ‐7.2% XEL, ‐7.2% WEC, ‐7.1% UNS, ‐7.0% AVA, ‐5.2% GXP, ‐5.0% ALE, ‐5.0% MDU, ‐4.8% POR, ‐4.5% NWE, ‐3.9% STR, ‐3.8% NWN, ‐3.7% MGEE, ‐2.8% ITC, ‐2.5% BKH, ‐1.7% S&P 500, ‐1.0% IDA, ‐0.7% ‐12.0%‐10.0%‐8.0%‐6.0%‐4.0%‐2.0% 0.0% NWN, ‐1.1% HE, 1.1% MGEE, 6.9% XEL, 7.6% XLU, 7.7% TEG, 9.8% WR, 10.0% IDA, 10.3% UNS, 10.3% WEC, 11.4% OTTR, 11.8% GXP, 12.2% S&P 500, 12.2% LNT, 12.7% AVA, 12.8% POR, 13.2% ITC, 14.0% NWE, 18.3% ALE, 18.6% MDU, 19.1% STR, 22.8% BKH, 31.5% ‐5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% D.A. Davidson & Co. 15 Figure 17: D.A. Davidson & Co. Utilities Coverage 1D.A. Davidson & Co. makes a market in this security. 2Results exclude the impact of nonrecurring items and discontinued operations. Source: D.A. Davidson & Co. estimates, company reports, and Capital IQ Price MC EV ROE ROA 6/6/13 ($B) ($B) 2012 2013e 2014e 2012 2013e 2014e 2012 2013e 2014e (ttm) (ttm) ALE1,2 ALLETE Inc. B $48.06 $58.00 $1.9 $2.8 4.0% 68% $2.58 $2.78 $3.06 18.6 17.3 15.7 10.8 9.2 8.2 7.1% 2.7% 45% GXP1,2 Great Plains Energy Inc. N $22.61 $25.00 $3.5 $7.4 3.9% 57% $1.35 $1.55 $1.61 16.7 14.6 14.1 9.1 8.5 8.3 6.7% 2.3% 53% IDA1 IDACORP Inc. B $47.94 $55.00 $2.4 $4.0 3.2% 49% $3.37 $3.33 $3.40 14.2 14.4 14.1 10.4 9.6 9.4 7.2% 2.4% 48% ITC1,2 ITC Holdings Corp. B $88.35 $105.00 $4.6 $7.9 1.7% 34% $4.14 $4.95 $5.80 21.3 17.9 15.2 13.8 11.5 10.0 13.1% 3.3% 70% POR1 Portland General Electric C B $31.05 $37.00 $2.3 $4.0 3.6% 48% $1.87 $1.45 $2.03 16.6 21.5 15.3 7.2 7.3 6.8 7.4% 2.3% 48% UNS1 UNS Energy Corp. N $46.59 $52.00 $1.9 $3.7 3.8% 65% $2.30 $2.70 $3.30 20.3 17.3 14.1 8.7 8.0 7.2 9.0% 2.2% 63% WR1,2 Westar Energy Inc. B $31.18 $40.00 $4.0 $7.4 4.4% 64%$2.15 $2.15 $2.27 14.5 14.5 13.7 9.0 8.5 8.1 9.4% 2.9% 54% Group Average $2.9 $5.3 3.5% 55% 17.5 16.8 14.6 9.9 8.9 8.3 8.6% 2.6% 54% Multi-Utilities Price MC EV ROE ROA 6/6/13 ($B) ($B) 2012 2013e 2014e 2012 2013e 2014e 2012 2013e 2014e (ttm) (ttm) AVA1 Avista Corp. N $26.90 $28.00 $1.6 $3.0 4.6% 67% $1.32 $1.80 $1.85 20.4 14.9 14.5 8.7 7.9 7.7 6.8% 2.0% 52% LNT1,2 Alliant Energy Corp. B $49.03 $60.00 $5.4 $9.0 3.9% 62% $3.05 $3.17 $3.27 16.1 15.5 15.0 10.0 9.5 8.8 8.6% 2.5% 50% MGEE1,2 MGE Energy Inc. N $53.81 $57.00 $1.2 $1.6 2.9% 54% $2.79 $3.02 $3.09 19.3 17.8 17.4 9.5 9.1 8.9 12.0% 4.5% 39% NWE1,2 NorthWestern Corp. N $41.26 $45.00 $1.5 $2.7 3.7% 61% $2.37 $2.55 $2.64 17.4 16.2 15.6 10.1 9.3 8.6 9.2% 2.6% 54% TEG1,2 Integrys Energy Group Inc. N $56.76 $63.00 $4.4 $7.4 4.9%79% $3.26 $3.47 $3.65 17.4 16.3 15.5 10.2 10.6 9.7 11.5% 3.4% 48% WEC1,2 Wisconsin Energy Corp. N $40.96 $45.00 $9.4 $14.5 3.4% 55%$2.35 $2.45 $2.55 17.4 16.7 16.0 10.6 10.2 9.8 12.8% 3.8% 55% XEL1,2 Xcel Energy Inc. N $28.91 $32.00 $14.4 $25.3 3.9% 59%$1.83 $1.88 $1.95 15.8 15.4 14.8 9.1 8.7 8.1 9.9% 3.1% 55% Group Average $5.4 $9.1 3.9% 63% 17.7 16.1 15.6 9.8 9.3 8.8 10.1% 3.1% 50% Diversified Utilities Price MC EV ROE ROA 6/6/13 ($B) ($B) 2012 2013e 2014e 2012 2013e 2014e 2012 2013e 2014e (ttm) (ttm) BKH1,2 Black Hills Corp. N $47.59 $52.00 $2.1 $3.5 3.2% 65% $2.09 $2.43 $2.55 22.8 19.6 18.6 8.9 8.7 8.2 7.2% 2.4% 52% HE1 Hawaiian Electric Industries N $25.02 $28.00 $2.5 $4.0 5.0% 75% $1.68 $1.62 $1.73 14.9 15.5 14.5 8.7 8.5 8.0 8.1% 1.3% 52% MDU1,2 MDU Resources Group Inc. B $25.32 $30.00 $4.8 $6.6 2.7%50% $1.15 $1.40 $1.55 22.0 18.1 16.3 10.2 7.6 7.5 8.9% 3.5% 41% OTTR1,2 Otter Tail Corp. N $27.91 $30.00 $1.0 $1.4 4.3% 84% $1.31 $1.43 $1.55 21.2 19.5 18.0 10.1 9.0 8.2 7.7% 2.6% 45% Group Average $2.6 $3.9 3.8% 68% 20.2 18.2 16.8 9.5 8.4 8.0 8.0% 2.4% 48% Gas Utilities Price MC EV ROE ROA 6/6/13 ($B) ($B) 2012 2013e 2014e 2012 2013e 2014e 2012 2013e 2014e (ttm) (ttm) NWN1,2 Northwest Natural Gas Co. N $42.99 $45.00 $1.2 $2.0 4.2%81% $2.31 $2.26 $2.42 18.6 19.1 17.7 8.8 8.9 8.6 8.2% 2.2% 52% STR1,2 Questar Corp. N $24.14 $26.00 $4.2 $5.6 3.0% 59% $1.19 $1.18 $1.29 20.2 20.5 18.8 10.0 9.7 9.3 19.0% 5.5% 55% Group Average $2.7 $3.8 3.6% 70% 19.4 19.8 18.3 9.4 9.3 9.0 13.6% 3.9% 54% Industry Average $18.6 $33.2 3.8% 59% 17.1 16.3 15.4 9.8 9.1 8.6 8.6% 2.3% 55% Dividend Yield Payout 2013e Dividend Yield Payout 2013e EV / EBITDA EPS P/E EV / EBITDASymbol Company Name Rating Target Symbol Company Name Rating Target EPS P/E Payout 2013eSymbol EPSDividend Yield Payout 2013e Dividend YieldCompany Name Rating Target Symbol Company Name Rating Target Debt / Capital Debt / Capital Debt / Capital Debt / Capital P/E EV / EBITDA EPS P/E EV / EBITDA D.A. Davidson & Co. Two Centerpointe Drive, Suite 400  Lake Oswego, Oregon 97035  (503) 603-3000  (800) 755-7848  www.dadavidson.com Copyright D.A. Davidson & Co., 2013. All rights reserved. 16 Required Disclosures D.A. 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