Keybanc-June-5-2012.pdf

I
Energy
Industry Research
Electric Utilities Quarterly 1Q12

1Q12 Earnings Predominantly Lower Due to Mild Winter Weather

Near Term, We Believe the Sector Provides
Regulated Rate Base Growth and Stable Dividends

Long Term, We Believe the Sector Is Poised for
Stable Earnings Growth with Economic Recovery

June 5, 2012

Paul T. Ridzon
[phone]
[e-mail]

Timothy Yee
[phone]
[e-mail]

For important disclosures and certifications,
please refer to page 46 of this document.

KeyBanc Capital Markets Inc.,
Member NYSE/FINRA/SIPC
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 2 of 47
June 2012
Contents
1Q12 RESULTS — BY THE NUMBERS...........................................................................................................................................................................3
Earnings Comparison............................................................................................................................................................................4
Earnings Surprises ................................................................................................................................................................................4
Earnings Adjustments............................................................................................................................................................................4
Stock Price Performance.......................................................................................................................................................................5
Weather.................................................................................................................................................................................................6
1Q12 RATINGS, PRICE TARGET, AND RESEARCH COVERAGE CHANGES...............................................................................................................7
Rating Changes.....................................................................................................................................................................................7
Price Target Changes............................................................................................................................................................................7
Research Coverage Changes ...............................................................................................................................................................7
SECTOR OUTLOOK.........................................................................................................................................................................................................7
Historical Valuations Remain Inconclusive ..........................................................................................................................................10
GROUP INVESTMENT THESIS......................................................................................................................................................................................11
INDUSTRY THEMES ......................................................................................................................................................................................................12
Retreating Commodity Prices and Available Capacity Heat Up Competition.......................................................................................12
Heightened Importance of Regulatory Success...................................................................................................................................13
Comprehensive Energy Reform at an Impasse; EPA Emissions Rules Move Forward.......................................................................13
State Renewable Portfolio Standards..................................................................................................................................................14
Stock Performance Divergence Based on Commodity Exposure........................................................................................................16
Japan Nuclear Crisis Highlights Risks to Nuclear Power Industry.......................................................................................................17
New Generation / Transmission Build to Meet Load Growth ...............................................................................................................18
Cost Escalation in New Generation Build............................................................................................................................................18
Fifteen Percent Dividend Tax Rate Extension .....................................................................................................................................19
M&A ACTIVITY ON THE RISE .......................................................................................................................................................................................20
Possible Acquirees..............................................................................................................................................................................20
Cleco Corporation (CNL-NYSE)...................................................................................................................................................20
NiSource, Inc. (NI-NYSE).............................................................................................................................................................20
TECO Energy, Inc. (TE-NYSE).....................................................................................................................................................20
Possible Acquirers...............................................................................................................................................................................20
Dominion Resources, Inc. (D-NYSE)............................................................................................................................................20
Recent M&A Activity Update................................................................................................................................................................20
Gaz Metro L.P. and Central Vermont Public Service Corporation................................................................................................20
Duke Energy Corporation and Progress Energy, Inc....................................................................................................................20
SHORT INTEREST OVERVIEW .....................................................................................................................................................................................22

CNL: RAISING PRICE TARGET; INTRODUCING 2013 ESTIMATE— reprinted from 05/24/2012 ...............................................................................24
NI – QUICK ALERT: CLOSE TO FINALIZING JV? — reprinted from 05/23/2012 ........................................................................................................27
IDA – QUICK ALERT: CONSTRUCTION HALTS AT LARGE SOLAR PLANT — reprinted from 05/23/2012..............................................................28
PNW – QUICK ALERT: RATE CASE SETTLEMENT APPROVED TARGET — reprinted from 05/16/2012.................................................................29
OTTR: SOLID QUARTER DESPITE MILD WEATHER; RAISING FY12 ESTIMATE — reprinted from 05/09/2012.....................................................30
ENERGY: MULTI-UTILITIES / ELECTRIC UTILITIES ...................................................................................................................................................34
ELECTRIC UTILITIES INDUSTRY: 1Q12 EARNINGS AND WEATHER PREVIEW — reprinted from 04/23/2012 .......................................................34
POM: ANALYST DAY TAKEWAYS — reprinted from 03/29/2012...............................................................................................................................39
CNL – QUICK ALERT: FILING FOR NEW FERC RATES, EARNINGS POSITIVE — reprinted from 03/29/2012 ........................................................41
NI: UPGRADING SHARES AS GROWTH STORY UNFOLDS— reprinted from 03/21/2012........................................................................................42
APPENDIX......................................................................................................................................................................................................................44

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 3 of 47
June 2012
Electric Utilities Quarterly 1Q12
INDUSTRY UPDATE
Paul T. Ridzon: [phone] — [e-mail]
Timothy Yee: [phone] — [e-mail]
1Q12 RESULTS — BY THE NUMBERS

Table 1. Earnings Comparison

Company

Ticker 1Q12E 1Q12A 1Q11A
1Q
Change

2012E 2013E
Ameren Corp. AEE $0.19 $0.22 $0.25 (12.0)% $2.35 $1.95
American Electric Power, Inc. AEP $0.80 $0.80 $0.82 (2.4)% $3.05 $3.10
Avista Corp. AVA $0.69 $0.65 $0.73 (11.0)% $1.75 $1.85
CMS Energy, Inc. CMS $0.36 $0.37 $0.51 (27.5)% $1.55 $1.65
Central Vermont Public Service Corp. CV $0.56 $0.67 $0.62 8.1% $1.75 $1.85
Cleco Corp. CNL $0.44 $0.42 $0.47 (10.6)% $2.40 $2.55
Consolidated Edison, Inc. ED $1.02 $1.00 $0.98 2.0% $3.70 $3.85
DTE Energy Company DTE $0.99 $0.91 $1.11 (18.0)% $3.75 $4.00
Dominion Resources, Inc. D $0.86 $0.85 $0.93 (8.6)% $3.20 $3.40
Duke Energy Corp. DUK $0.35 $0.38 $0.39 (2.6)% $1.40 $1.50
Entergy Corporation ETR $0.43 $0.44 $1.38 (68.1)% $5.25 $5.30
Exelon Corporation EXC $0.86 $0.85 $1.17 (27.4)% $2.95 $3.00
FirstEnergy Corp. a FE $0.82 $0.82 $0.75 9.3% $3.40 $3.25
Great Plains Energy Incorporated b GXP $0.01 ($0.07) $0.01 (800.0)% $1.25 $1.60
IDACORP, Inc. IDA $0.64 $0.50 $0.60 (16.7)% $3.10 $3.20
MDU Resources Group, Inc.c MDU $0.19 $0.19 $0.22 (13.6)% $1.25 $1.40
NextEra Energy, Inc. NEE $0.97 $1.02 $0.94 8.5% $4.50 $4.95
NiSource, Inc. NI $0.69 $0.69 $0.72 (4.2)% $1.45 $1.55
Northwestern Corp. NWE $0.76 $0.88 $0.89 (1.1)% $2.45 $2.55
Otter Tail Corp. OTTR $0.21 $0.26 $0.14 85.7% $1.20 $1.40
PPL Corporation PPL $0.65 $0.70 $0.84 (16.7)% $2.35 $2.35
Pepco Holdings, Inc. POM $0.22 $0.30 $0.27 11.1% $1.25 $1.25
Pinnacle West Capital Corp. PNW ($0.08) ($0.07) ($0.15) 53.3% $3.35 $3.50
Progress Energy, Inc. PGN $0.60 $0.48 $0.69 (30.4)% $3.20 $3.30
Southern Company SO $0.42 $0.42 $0.50 (16.0)% $2.70 $2.80
TECO Energy, Inc. TE $0.21 $0.23 $0.24 (4.2)% $1.35 $1.35
Wisconsin Energy Corp. WEC $0.73 $0.74 $0.72 2.8% $2.30 $2.40
Xcel Energy Inc. XEL $0.37 $0.38 $0.42 (9.5)% $1.75 $1.85
Average (12.4)%

a) FE 1Q11A of $0.69 as originally reported was revised to adopt changes in pension/OPEB accounting methodology and a purchase accounting measurement adjustment.
b GXP earnings and estimates reported as GAAP net income.
c) MDU 1Q11A includes $4 million benefit, or $0.02 EPS, related to the favorable resolution of tax matters.
Source: KeyBanc Capital Markets Inc. and Company reports
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 4 of 47
June 2012
EARNINGS COMPARISON
Overall, companies within our electric utilities coverage universe reported generally lower 1Q12 quarterly results, primarily driven by
mild winter weather impacts and sluggish retail load growth. As indicated in Table 1, aggregate 1Q12 earnings for stocks in the
KeyBanc Capital Markets Inc. Electric Utility Index were down 12.4% on average, compared to the same quarter a year ago. Based on
our quarterly estimates, we had initially anticipated an average quarterly earnings decrease of 12.8%, so 1Q12 results were mostly in
line with our expectations.

EARNINGS SURPRISES
On an individual company basis, there was one notable upside surprise and were four notable downside surprises relative to our
expectations for the quarter. On the upside, Pepco Holdings, Inc. (POM-NYSE; $0.30 vs. $0.27 in 1Q11; our estimate was $0.22,
consensus was $0.24) beat our expectations as new rates and tax adjustments offset milder weather and higher O&M and
depreciation.

On the downside, DTE Energy Company (DTE-NYSE; $0.91 vs. $1.11 in 1Q11; our estimate was $0.99, consensus was $1.08) missed
our downside surprise earnings expectation as mild winter weather had larger impacts than anticipated, the trading business segment
had slightly lower results and the Power and Industrial segment did not see an expected uplift. At Great Plains Energy Incorporated
(GXP-NYSE; $0.07 loss vs. $0.01 in 1Q11; our estimate was $0.01, consensus was $0.00 breakeven), milder weather impact and other
expenses dragged results below expectations. Avista Corporation (AVA-NYSE; $0.65 vs. $0.73 in 1Q11; our estimate was $0.69,
consensus was $0.68) had earnings below expectations primarily due to higher Ecova acquisition integration costs and higher
deprecation of intangibles. Lastly, Progress Energy, Inc. (PGN-NYSE; $0.48 vs. $0.69 in 1Q11; our estimate was $0.60, consensus
was $0.65) missed earnings expectations primarily due to nuclear outage timing and costs driving results lower.

EARNINGS ADJUSTMENTS
Heading into the 1Q12 earnings reporting season, we lowered our 2012 estimates for Central Vermont Public Service Corporation (CV-
NYSE), Entergy Corporation (ETR-NYSE), Exelon Corporation (EXC-NYSE), MDU Resources Group, Inc. (MDU-NYSE) and Xcel
Energy Inc. (XEL-NYSE). For a summary on these estimate changes, please see page 34 for our April 23, 2012 published report titled
“Electric Utilities Industry: 1Q12 Earnings and Weather Preview”.

After digesting 1Q earnings reports, earnings conference calls and investor/analyst meetings, we raised our 2012 estimate for Otter Tail
Corporation (OTTR-NASDAQ) to $1.20 from $1.10 per share primarily driven by better than expected 1Q sales volumes and margins in
the Plastics business segment and improved operational performance in the Wind Energy segment, partially offset by net losses in the
Construction segment due to project cost overruns (see page 30 for our May 9, 2012 published report titled “OTTR: Solid Quarter
Despite Mild Weather; Raising FY12 Estimate”).

Table 1 lists our current 2012 and 2013 earnings estimates for companies under coverage.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 5 of 47
June 2012

STOCK PRICE PERFORMANCE
As shown in Table 2, stock price performance during 1Q12 for current companies under coverage in the KeyBanc Capital Markets Inc.
Electric Utility Index was down, with the index showing a 2.6% price decline on average. Our coverage group’s performance was in line
with the Philadelphia Utility Index (UTY), which was also down 2.6% in 1Q12, while our sector underperformed the broader S&P 500
Index (SPX), which was up 12.0% for the quarter. 2012 year-to-date performance has seen broader market (SPX) returns pull back
from earlier highs in the year to now only up 1.6% for the year, compared to a sector decline of 1.5% (UTY). We believe the more
recent year-to-date pullback in the broader market is attributable to increased European sovereign debt concerns and signs of slowing
growth in the United States.
Table 2. Price Performance

Price Price Price 1Q12 6/1/12
Company Ticker 12/30/11 3/31/12 6/1/12 Change YTD Change
Ameren Corp. AEE 33.13 32.58 32.04 (1.7)% (3.3)%
American Electric Power, Inc. AEP 41.31 38.58 38.39 (6.6)% (7.1)%
Avista Corp. AVA 25.75 25.58 25.40 (0.7)% (1.4)%
CMS Energy, Inc. CMS 22.08 22.00 23.07 (0.4)% 4.5%
Central Vermont Public Service Corp. CV 35.10 35.20 35.07 0.3% (0.1)%
Cleco Corp. CNL 38.10 39.65 40.43 4.1% 6.1%
Consolidated Edison, Inc ED 62.03 58.42 60.29 (5.8)% (2.8)%
DTE Energy Co. DTE 54.45 55.03 56.36 1.1% 3.5%
Dominion Resources, Inc. D 53.08 51.21 51.63 (3.5)% (2.7)%
Duke Energy Corp. DUK 22.00 21.01 22.35 (4.5)% 1.6%
Entergy Corp. ETR 73.05 67.20 64.35 (8.0)% (11.9)%
Exelon Corp EXC 43.37 39.21 36.70 (9.6)% (15.4)%
FirstEnergy Corp FE 44.30 45.59 46.51 2.9% 5.0%
Great Plains Energy, Inc. GXP 21.78 20.27 19.93 (6.9)% (8.5)%
IDACORP, Inc. IDA 42.41 41.12 39.00 (3.0)% (8.0)%
MDU Resources Group, Inc. MDU 21.46 22.39 22.00 4.3% 2.5%
NextEra Energy, Inc. NEE 60.88 61.08 64.59 0.3% 6.1%
NiSource, Inc. NI 23.81 24.35 24.72 2.3% 3.8%
Northwestern Corp. NWE 35.79 35.46 35.34 (0.9)% (1.3)%
Otter Tail Corp. OTTR 22.02 21.70 21.26 (1.5)% (3.5)%
PPL Corp. PPL 29.42 28.26 27.47 (3.9)% (6.6)%
Pepco Holdings, Inc. POM 20.30 18.89 19.24 (6.9)% (5.2)%
Pinnacle West Capital Corp. PNW 48.18 47.90 49.43 (0.6)% 2.6%
Progress Energy, Inc. PGN 56.02 53.11 55.50 (5.2)% (0.9)%
Southern Company SO 46.29 44.93 45.95 (2.9)% (0.7)%
TECO Energy, Inc. TE 19.14 17.55 17.20 (8.3)% (10.1)%
Wisconsin Energy Corp. WEC 34.96 35.18 37.79 0.6% 8.1%
Xcel Energy Inc. XEL 27.64 26.47 27.96 (4.2)% 1.2%
KBCM Electric Utility Index Average (2.6)% (1.7)%

Benchmarks:
Philadelphia Utility Index UTY 481.45 469.09 474.21 (2.6)% (1.5)%
S&P 500 Index SPX 1257.60 1408.47 1,278.04 12.0% 1.6%
Note: Past results cannot and should not be viewed as indicators of future performance.
Source: FactSet
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 6 of 47
June 2012
WEATHER
According to the U.S. National Climatic Data Center, the contiguous (Lower-48) United States experienced record warm winter
temperatures during the first three months of 2012. Twenty-five states east of the Rockies had 1Q12 average temperatures as their
warmest on record, while 16 states had temperatures ranking in their top 10 warmest. No state in the Lower-48 had below-average
temperatures during 1Q12. Regions in the United States that experienced temperature extremes included the Northeast, Upper
Midwest, Ohio Valley, Northern Rockies and Plains, Southeast and South.

Given the record warm winter temperatures experienced across the United States this quarter, we saw significant 1Q12 negative
weather earnings impacts when compared to 1Q11 weather degree days, due to declines in electric load or gas volumes typically used
for winter heating. Table 3 shows the impact of the weather temperatures (primarily on retail delivery) in the quarter compared to our
predictions.

Table 3. 1Q12 Weather Impact — Heating Degree Days

Company Ticker
1Q12 vs.
Normal
1Q12 vs.
1Q11
Estimated
Same Qtr YOY
EPS Impact
Actual
Same Qtr YOY
EPS Impact
Ameren Corp. AEE (32.2)% (31.8)% ($0.08) ($0.13)
American Electric Power, Inc. AEP (31.5)% (34.3)% ($0.09) ($0.12)
CMS Energy Corp. CMS (24.8)% (28.3)% ($0.20) ($0.18)
Central Vermont Public Svc. Corp. CV (18.9)% (20.8)% ($0.04) n/a
Cleco Corp. CNL (45.5)% (45.3)% ($0.05) ($0.05)
DTE Energy Co. DTE (24.9)% (29.3)% ($0.20) ($0.19)
Dominion Resources, Inc. D (26.5)% (28.5)% ($0.12) ($0.11)
Duke Energy DUK (24.5)% (25.4)% ($0.05) ($0.04)
Entergy ETR (41.3)% (41.4)% n/e ($0.28)
Exelon Corp. EXC (26.2)% (26.6)% ($0.06) ($0.06)
Great Plains Energy, Inc. GXP (29.9)% (35.7)% ($0.06) ($0.11)
NiSource, Inc. NI (24.1)% (26.9)% ($0.03) ($0.10)
Northwestern Corp. NWE (18.5)% (25.3)% ($0.13) ($0.15)
Pepco Holdings, Inc. POM (23.0)% (25.8)% ($0.04) ($0.03)
(37.7)% (30.9)%
Pinnacle West Capital Corp. PNW
*42.4% *0.8%
($0.03) ($0.03)
(36.8)% (30.5)%
Progress Energy, Inc. PGN
*152.8% *133.3%
($0.06) ($0.11)
(57.8)% (33.2)%
TECO Energy, Inc. TE
*102.1% *79.2%
($0.06) n/a
(37.4)% (34.5)%Southern Company SO *385.7% *253.8%($0.04) ($0.08)
Wisconsin Energy Corp. WEC (25.4)% (25.9)% ($0.18) ($0.14)
Xcel Energy, Inc. XEL (22.4)% (24.4)% ($0.05) ($0.06)

* Data is Cooling Degree Days Data
n/e – not estimated
n/a – not readily available from company data

Source: National Oceanic and Atmospheric Administration (NOAA), KeyBanc Capital Markets Inc. estimates

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 7 of 47
June 2012

1Q12 RATINGS, PRICE TARGET, AND RESEARCH COVERAGE CHANGES
RATING CHANGES
During 1Q12, we raised our rating on NiSource, Inc. (NI-NYSE) to BUY from HOLD on March 21, 2012 (see page 41 for our published
upgrade report titled “NI: Upgrading Shares as Growth Story Unfolds”).

Our current research for companies under coverage published since our previous Electric Utilities Quarterly through the date of this
publication is provided on pages 24-42.

PRICE TARGET CHANGES
We regularly revisit and adjust our price targets on BUY-rated stocks given changes in peer group average P/E multiples and our
business and economic outlook. Our current price targets on all of our BUY-rated stocks under coverage are outlined in Table 4.

Table 4. Price Target Changes

Symbol
Current
Rating
Current
Target
Previous
Rating
Previous
Target

Date Changed
AEP BUY $42.00 BUY $43.00 02/27/2012
CMS BUY $23.00 BUY $21.50 01/23/2012
CNL BUY $44.00 BUY $42.00 05/24/2012
IDA BUY $44.00 BUY $41.50 01/23/2012
MDU BUY $24.00 BUY $26.50 02/07/2011
NI BUY $26.50 HOLD N/A 03/21/2012
Source: KeyBanc Capital Markets Inc.

RESEARCH COVERAGE CHANGES
During 1Q12, we initiated coverage of Otter Tail Corporation with a HOLD rating on January 17, 2012 (see our previously published
initiation note titled “OTTR: Initiating Coverage with a HOLD Rating”). For additional research and investment analysis on Otter Tail
Corporation, please see our Basic Initiating Coverage Report published under separate cover.

SECTOR OUTLOOK
In the near term we expect utilities will face headwinds relative to the broad market. We believe both the regulated and commodity-
focused subsets of companies face their own challenges. On the regulated side, a more positive sentiment around the overall economy
(domestic and a calming of European concerns) will continue to move investors to “risk on” positions. Additionally, uncertainty on
dividend taxation and continued concerns around ROE pressures from regulators are likely to weigh on shares. The commodity-
focused names have come to offer some of the higher yields, leaving them vulnerable to dividend taxation concerns as well. While strict
EPA regulations and weak power markets have driven plant retirement announcements, which should benefit this group, we believe the
abundant natural gas supply brought about by horizontal drilling and hydrofracturing technology will continue to exert downward
pressure on wholesale power prices. We believe lingering uncertainties around strength and sustainability of domestic and global
economies could drive brief periods of outperformance for the group.

In the intermediate to longer term, we believe the group will appeal to pockets of investors who seek relative yield, earnings stability and
predictable steady growth opportunities around the meaningful capital the group will be spending. The spending opportunities we
foresee include incremental generation capacity (which we envision as predominantly natural gas fired), rebuilding existing aged
transmission, new transmission to more easily move power between regions that the existing transmission system never really
contemplated under the previous more balkanized industry construct, and transmission to move renewable generation to market.

A slow economy back in 2009 impacted electricity sales and pricing, as industrial customers saw reduced demand for their products
and residential/commercial customer classes adjusted their spending accordingly. 2010 year-end results showed continued modest
signs of the economy stabilizing with generally improving electricity sales comparables to the same periods a year ago, particularly for
the industrial customer classes. 2011 continued the trend of flat to modest growth. We remain guarded in our near-term outlook,
however, as year-end earnings conference calls cautioned slow to moderating load growth in 2012, given ongoing unemployment levels
and the delicate state of the economy. On a less macro perspective, the year has started off weakly from a weather perspective, with
several companies’ 1Q12 results having been materially impacted by mild winter weather (although full year guidance has been left
intact).

Much of the intermediate to long-term growth in the sector is tied to large capital growth programs earning regulated returns. During a
prior period of lofty valuations and easy credit, investors viewed these programs positively. Recent market performance has made the
equity financing of these large projects less attractive. Names within our group of covered companies that have focused strategies on
rate base growth (not including current projects) include: Ameren Corporation (AEE-NYSE); CMS Energy Corporation (CMS-NYSE);
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 8 of 47
June 2012
Dominion Resources, Inc. (D-NYSE); DTE Energy Company (DTE-NYSE); Duke Energy Corporation (DUK-NYSE); NorthWestern
Corporation (NWE-NYSE); Pepco Holdings, Inc. (POM-NYSE); Progress Energy, Inc. (PGN-NYSE); and Xcel Energy Inc. (XEL-NYSE).

In 2010, we saw a large number of new bond issuances, long-term refinancing and the terming out of higher cost short-term debt by
utilities attempting to take advantage of record low long-term Treasury rates. The compression of stock price valuation multiples in the
sector negatively impacted the equity financing of capital expenditures, as some names are trading below book value. Credit and
liquidity concerns at the time drove many companies to revisit capital spending plans and reassess operational efficiencies. The primary
response was generally to delay projects, as opposed to outright cancellation. Initially, reductions in capital programs were a function of
lower growth, which eliminated the need for growth-related capital spending on items such as line extensions and new substations.
However, as challenging economic conditions persisted, the cuts grew more extensive, with deferrals in non-core maintenance
spending, re-evaluating the cost-effectiveness of running older inefficient power plants, and pursuing company restructurings or
mergers.

After outperforming the S&P 500 in the five years preceding 2009, the electric utility sector underperformed the market in 2009 and
2010. We believe the underperformance started with the 4Q08 earnings reporting season, as dividend cuts and conservative earnings
guidance highlighted greater risk than was previously factored into the sector. Consumer electric conservation efforts and economic
pressures affecting customer volumes and margins, low commodity pricing, increasingly populist regulatory sentiment, and political
uncertainty around carbon and taxes weighed on our sector throughout 2010.

Chart 1. 2012 YTD Performance of UTY vs. SPX
(December 30, 2011 – June 1, 2012)

Ja
n
-
1
2
Fe
b
-
1
2
Ma
r
-
1
2
Ap
r
-
1
2
Ma
y
-
1
2
-15-15
-10-10
-5-5
00
55
1010
1515
2020
Re
t
u
r
n

%
Re
t
u
r
n

%
UTY vs. S&P 500
Indexed Price Performance - 2012 YTD
S&P 500 (SPX)
PHLX / Utility (UTY)
Source: FactSet

As fears of a double-dip recession were somewhat alleviated before the end of 2010, our industry appeared to fall out of favor as
investors rotated out of the sector in early 2011 in pursuit of higher growth companies in a modestly improving economy. The group’s
stock performance appeared to reflect optimistic economic recovery projections in the broader market, as our sector underperformed
the S&P 500 in 1H11. The Japanese nuclear crisis gave pause to investors in assessing the impact to the global economic recovery,
leading to severe declines in mid-March 2011 for both our sector and the broader market. As companies generally reported in line 1Q11
earnings with still sluggish economies, there appeared to be some movement in May 2011 back toward defensive industries, such as
utilities. This pattern held true into July, with generally in line 2Q11 earnings reports for our sector prior to the entire market falling on
fears again around a double-dip U.S. recession and European sovereign debt. As investors realized broader market recovery would be
longer-dated, more challenged and subject to external shocks (as evidenced by Japan’s natural and nuclear disaster and European
sovereign debt issues), 2H11 stock performance for our group appeared to be driven by investor attractiveness to the safe and
defensive qualities and yield the sector provides relative to the broader market, resulting in 2011 being another year of outperformance.
For 2011, the sector index (UTY) recovered to a 14.1% gain, outperforming the 0.0% flat return in the broader market (SPX).

We expect the group’s stock performance in 2012 will be a function of three primary drivers: commodity pricing; the economy; and
environmental compliance costs/risks. Retreating high commodity prices weigh most heavily on unregulated generators with nuclear
assets and coal-fired plants (with firm intermediate to long-term coal contracts). Low natural gas prices driven by low electric power
demand and increasing shale gas supplies should continue to keep wholesale electricity prices at a depressed level, further
exacerbating the margin woes for unregulated generators. In our view, the companies with the most leverage to unregulated commodity
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 9 of 47
June 2012
pricing are American Electric Power Company, Inc.; Dominion Resources, Inc.; Entergy Corporation; Exelon Corporation; FirstEnergy
Corp.; NextEra Energy, Inc.; and PPL Corporation. Signs of a strong fundamental economic recovery in 2012 or beyond, however,
could lift earnings prospects and price multiples for our entire sector, as evidenced by a rebound for exposed stocks in May 2011 after
PJM’s RPM base residual auction results for the 2014-2015 delivery year generally came in stronger than expected in the Western
pricing zone. Weaker Eastern pricing appeared to have a dampening effect. Finally, EPA environmental regulations and the Japanese
nuclear crisis have led to an increased focus on potential additional compliance costs. We believe how the power industry responds to
new regulations with the public, regulators and politicians will drive stock movement, as well as tax policy and political election
implications in 2012. Conversely, well-positioned unregulated generators (nuclear or clean baseload) stand to benefit from the EPA
regulations as forced retirement of antiquated and high emitting plants will remove capacity and drive a tighter market. We expect the
interplay of low natural gas prices and reduced capacity will be noteworthy.

Since the beginning of 2012, the sector index (UTY) has fallen by 1.5%, underperforming the 1.6% return in the broader market (SPX).
From a 2012E P/E perspective, the group now trades at a 14.8x P/E multiple, compared to a 12.4x P/E multiple on the S&P 500 index.
On a relative basis, the group is around a 19% premium to the S&P 500, compared to more historical discounts of 25-35% (prior to the
Bush tax cuts). We believe our sector’s current premium valuation could rapidly converge even closer to or at a discount to the S&P
500 P/E multiple if investors have broader market confidence in a robust U.S. economy, driving investment into other sectors with
greater potential upside in a more normal economy or if the Bush tax cuts on dividends are permitted to expire. Meanwhile, we attribute
the more recent year-to-date pullback in the broader market to increased European sovereign debt concerns and signs of slowing
growth in the United States. Continued concerns around Asia are likely to sustain a premium given the yield support and perceived
relative safety of the sector.

Chart 2. Price Performance of S&P Electric Companies and 30-Year Treasury Bond Yield

(December 31, 1996 – June 1, 2012)

Ja
n
-
9
7
Ap
r
-
9
7
Ju
l
-
9
7
Oc
t
-
9
7
Ja
n
-
9
8
Ap
r
-
9
8
Ju
l
-
9
8
Oc
t
-
9
8
Ja
n
-
9
9
Ap
r
-
9
9
Ju
l
-
9
9
Oc
t
-
9
9
Ja
n
-
0
0
Ap
r
-
0
0
Ju
l
-
0
0
Oc
t
-
0
0
Ja
n
-
0
1
Ap
r
-
0
1
Ju
l
-
0
1
Oc
t
-
0
1
Ja
n
-
0
2
Ap
r
-
0
2
Ju
l
-
0
2
Oc
t
-
0
2
Ja
n
-
0
3
Ap
r
-
0
3
Ju
l
-
0
3
Oc
t
-
0
3
Ja
n
-
0
4
Ap
r
-
0
4
Ju
l
-
0
4
Oc
t
-
0
4
Ja
n
-
0
5
Ap
r
-
0
5
Ju
l
-
0
5
Oc
t
-
0
5
Ja
n
-
0
6
Ap
r
-
0
6
Ju
l
-
0
6
Oc
t
-
0
6
Ja
n
-
0
7
Ap
r
-
0
7
Ju
l
-
0
7
Oc
t
-
0
7
Ja
n
-
0
8
Ap
r
-
0
8
Ju
l
-
0
8
Oc
t
-
0
8
Ja
n
-
0
9
Ap
r
-
0
9
Ju
l
-
0
9
Oc
t
-
0
9
Ja
n
-
1
0
Ap
r
-
1
0
Ju
l
-
1
0
Oc
t
-
1
0
Ja
n
-
1
1
Ap
r
-
1
1
Ju
l
-
1
1
Oc
t
-
1
1
Ja
n
-
1
2
Ap
r
-
1
2
2%
3%
4%
5%
6%
7%
8%
30
-
Y
r

T
-
B
o
n
d

Y
i
e
l
d

%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
S&
P

E
l
e
c
t
r
i
c

U
t
i
l
i
t
y

I
n
d
e
x

R
e
t
u
r
n

%
UTY vs. S&P 500
Indexed Price Performance
S&P 500 / Electric Utilities -IND (UTY)
United States Treasury Bond (30 Y) Yield
Source: FactSet

Chart 2 is provided to show historical price performance of S&P electric companies compared to the 30-year Treasury bond yield.
Relative to treasuries, the utilities sector has a current average yield of 4.3%, which appears to support a more attractive safety play
when needed. Our discussions with investors in 2010 when there was talk of a potential “double-dip” seem to confirm this market
dynamic and was evidenced again in July 2011 as the broader market fell, while utilities were impacted to a much lesser extent.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 10 of 47
June 2012
HISTORICAL VALUATIONS REMAIN INCONCLUSIVE
The two primary valuation metrics used for the group paint two contradictory pictures. From a relative (to the broad market) P/E
standpoint, the group looks somewhat expensive (see Chart 3), driven by outperformance of the more regulated subset of the utility
sector. We believe this outperformance is a flight to safety in response to heightened concerns about the domestic and global
economies. We also note that earnings estimates for the S&P 500 have historically been somewhat volatile.

Chart 3. P/E and Relative P/E of UTY vs. S&P 500 Indices
(December 31, 2005 – June 1, 2012)

P/E and Relative P/E of
UTY vs. S&P 500 Indices
8.0x
9.0x
10.0x
11.0x
12.0x
13.0x
14.0x
15.0x
16.0x
17.0x
18.0x
19.0x
20.0x
De
c
-
0
5
Ma
r
-
0
6
Ju
n
-
0
6
Se
p
-
0
6
De
c
-
0
6
Ma
r
-
0
7
Ju
n
-
0
7
Se
p
-
0
7
De
c
-
0
7
Ma
r
-
0
8
Ju
n
-
0
8
Se
p
-
0
8
De
c
-
0
8
Ma
r
-
0
9
Ju
n
-
0
9
Se
p
-
0
9
De
c
-
0
9
Ma
r
-
1
0
Ju
n
-
1
0
Se
p
-
1
0
De
c
-
1
0
Ma
r
-
1
1
Ju
n
-
1
1
Se
p
-
1
1
De
c
-
1
1
Ma
r
-
1
2
Ju
n
-
1
2
Date
12
-
m
o

F
o
r
w
a
r
d

P
/
E
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
Re
l
a
t
i
v
e

P
/
E
UTY Index S&P500 Relative P/E

Source: Bloomberg and KeyBanc Capital Markets Inc. research

Alternatively, from a yield spread (vs. U.S. treasuries) perspective, the group continues to look rather attractive (see Chart 4). We
believe this is a function of investor recognition and acceptance of the fact that these are truly extraordinary times and treasury yields
are being held artificially and unsustainably low. We have been asked about the prospects for the group if yields started to rise. In our
view, there would likely be a band of tolerance for treasury yields to rise before there was a corresponding sell-off of the utility group.

In the near to intermediate term, we expect the current valuation metrics to remain somewhat unchanged as uncertainty continues in
the markets. As we gain more clarity on stabilization (or further deterioration) in the European markets, we expect the group would
become less range bound and be revalued.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 11 of 47
June 2012
Chart 4. Yield Spread 10-Yr U.S. Treasury vs S&P Electric Utilities
(June 1, 1993 – June 1, 2012)

Yield Spread Between 10 Year Treasury and S&P Electrics
-400
-300
-200
-100
0
100
200
300
400
6/
1
/
1
9
9
3
6/
1
/
1
9
9
4
6/
1
/
1
9
9
5
5/3
1
/
1
9
9
6
6/
1
/
1
9
9
7
6/
1
/
1
9
9
8
6/
1
/
1
9
9
9
5/3
1
/
2
0
0
0
6/
1
/
2
0
0
1
6/
1
/
2
0
0
2
6/
1
/
2
0
0
3
5/3
1
/
2
0
0
4
6/
1
/
2
0
0
5
6/
1
/
2
0
0
6
6/
1
/
2
0
0
7
5/3
1
/
2
0
0
8
6/
1
/
2
0
0
9
6/
1
/
2
0
1
0
6/
1
/
2
0
1
1
5/3
1
/
2
0
1
2
Date
Yi
e
l
d

S
p
r
e
a
d

(
b
p
)
10 Yr Spread Average Spread
Source: Bloomberg and KeyBanc Capital Markets Inc. research

GROUP INVESTMENT THESIS
Broadly speaking, we believe the long-term fundamentals in the electric utility sector remain essentially intact, as opportunities exist in
tight power markets (with an outlook for pricing to improve as the economy recovers and EPA regulations force some level of plant
retirements and the potential to rate base needed capacity) needing to modernize aging transmission and distribution infrastructure,
meet more environmentally friendly portfolio standards and serve growing demographics. We are generally more conservative in our
long-term growth projections, as the sector historically lags and experiences lower demand growth compared to the broader market.

In an industry that must continue to spend money to make money, regulatory risk is ever present as recovery of capital investment is
never 100% assured and companies must seek advanced or later regulatory blessing on large capital expenses to ultimately recover
their costs and earn a return on investment once the asset is placed into service. Our concern is that, at some point, rising electricity
prices will draw enough political attention that regulators will be pressured to ease the sting on ratepayers, putting the shareholder at
risk. We believe the levers in the regulatory toolbox that may be pulled to lower rates include reassessing allowable returns on equity,
extending depreciation rates, reviewing costs of debt and reassessing appropriate capital structure. These negative regulatory
outcomes had precedence in the 1970s, as high oil pricing and continued nuclear cost overruns prompted regulators to force
shareholders to feel some of the pain. Additionally, U.S. nuclear energy is likely to be further impacted by increased scrutiny and
inspections as a result of the recent Japan nuclear crisis.

The confluence of several factors highlighted below leaves us concerned about increasing regulatory risk impacting the sector in the
coming years. These factors include:
· Potential for Populist Regulatory Sentiment. We believe investors must heighten awareness to political and regulatory risk
as higher electricity (and overall energy) pricing becomes more scrutinized, especially during periods of a weak economy. We
view electricity pricing as being far more exposed to local politics than the pricing of other energy commodities, and there are
always risks to timely and fair recovery of investment dollars, despite prior precedents or assurances.
· Environmental Capital Expenditures. On a consolidated basis, the sector must spend tens of billions of dollars to meet more
stringent environmental regulations that can be subject to changing political winds.
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 12 of 47
June 2012
· Aggressive Rate Base Growth as an Earnings Driver. Given the low organic growth inherent in the sector, we believe some
players may look for a tailwind by growing the rate base as aggressively as possible.
· Additional Cost Pressure Driven by Inflation. We believe a weak dollar and long-term global competition for infrastructure
materials have increased the rate risk on the proposed capital spend, as projects have an ever-escalating price tag.
· Potential for Continued Low Interest Rates. We believe regulatory risk is increased by low treasury yields, as state
regulatory commissions often use a spread over treasuries as an indicator of appropriate equity return levels.

To some degree, our concerns are longer-dated as the confluence of regulatory risk factors highlighted above needs time to
accumulate. In the short term, we believe that necessary infrastructure investments should and will be encouraged by regulators. More
recently, however, the U.S. economic recession has provided support for our more cautious view as evidenced by politicization of past
rate case proceedings in Florida for NextEra Energy and Progress Energy. We emphasize that investors should monitor local regulation
impacting investments for any move toward restrictive outcomes. Chart 5 illustrates the longer-term trend toward lower regulated utility
equity returns authorized by state Commissions; average return on equity (ROE) for electric utilities was 12.7% in 1990 compared to
10.2% in 2011, and for gas utilities was 12.7% in 1990 compared to 9.9% in 2011.

Chart 5. Average Authorized Equity Returns
9.00%
10.00%
11.00%
12.00%
13.00%
19
9
0
19
9
1
19
9
2
19
9
3
19
9
4
19
9
5
19
9
6
19
9
7
19
9
8
19
9
9
20
0
0
20
0
1
20
0
2
20
0
3
20
0
4
20
0
5
20
0
6
20
0
7
20
0
8
20
0
9
20
1
0
20
1
1
Year
RO
E
%
Electric Gas

Source: Regulatory Research Associates, KeyBanc Capital Markets Inc. research

INDUSTRY THEMES
RETREATING COMMODITY PRICES AND AVAILABLE CAPACITY HEAT UP COMPETITION
Natural gas pricing, remaining stubbornly in a thin trading band, continues to drive the marginal clearing price of power in wholesale
markets (see Chart 6). Given available capacity and the sharp decline in wholesale power pricing as natural gas prices remain low, we
remain vigilant over the potential for competitive marketers to undercut pricing in deregulated markets, such as Ohio and Pennsylvania,
as utilities had previously procured supply during periods of significantly higher pricing. We believe competitive marketers could lock in
supply at current low pricing to offer customers a more attractively priced alternative.
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 13 of 47
June 2012
Chart 6. Comparison of Spot, 12-Month and 24-Month Natural Gas Prices
(December 31, 2004 – June 1, 2012)

$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
$11
$12
$13
$14
$15
$16
De
c
-
0
4
Ma
r
-
0
5
Ju
n
-
0
5
Se
p
-
0
5
De
c
-
0
5
Ma
r
-
0
6
Ju
n
-
0
6
Se
p
-
0
6
De
c
-
0
6
Ma
r
-
0
7
Ju
n
-
0
7
Se
p
-
0
7
De
c
-
0
7
Ma
r
-
0
8
Ju
n
-
0
8
Se
p
-
0
8
De
c
-
0
8
Ma
r
-
0
9
Ju
n
-
0
9
Se
p
-
0
9
De
c
-
0
9
Ma
r
-
1
0
Ju
n
-
1
0
Se
p
-
1
0
De
c
-
1
0
Ma
r
-
1
1
Ju
n
-
1
1
Se
p
-
1
1
De
c
-
1
1
Ma
r
-
1
2
Ju
n
-
1
2
Date
$/
M
M
B
T
U
Spot 12 Mo 24 Mo

Source: Bloomberg

HEIGHTENED IMPORTANCE OF REGULATORY SUCCESS
The major focus of many utilities over the past few years has been the “back-to-basics” approach, through which non-strategic
businesses were divested or shuttered, and the business focus returned to the core utility operations. While this scenario has done a
great deal to mitigate risk and exposure to volatile market conditions, future growth plans have also come into focus. In the past,
companies had pursued diversified opportunities to provide additional growth to offset slower growth in the regulated business. In this
new era of focus on the core regulated utility, the importance of regulatory success has come back to the forefront. Companies that are
able to craft innovative solutions to issues, such as quick recovery of environmental expenditures, will likely set the stage for future
growth of the regulated business. We believe the companies that currently have high levels of exposure to regulatory developments
are Ameren, American Electric Power, CMS Energy, DTE Energy, Duke Energy, Exelon, IDACORP, Pepco Holdings and Xcel Energy.
We believe a return of high fuel/commodity and construction materials pricing will likely increase regulatory risk, as regulators seek
ways to minimize the increases in overall customer electric bills, even at the expense of the shareholder.

COMPREHENSIVE ENERGY REFORM AT AN IMPASSE; EPA EMISSIONS RULES MOVE FORWARD
Despite several legislative bills offered over the past several years, we believe that comprehensive energy reform [carbon cap-and-
trade, climate change, federal Renewable Portfolio Standards (RPS), renewable energy qualifying sources and proposals such as
offshore drilling to lessen the U.S. reliance on foreign oil] is unlikely to gain passage under the 2012 Congress in a presidential election
year. An outlook for continued slow economic recovery is likely to prevent the issue from gaining traction over the next few years, in
our view. We do believe there might be renewed attempts in Congress to legislate, restrict or delay EPA authority or funding to regulate
greenhouse gases, including carbon, although overriding a Presidential veto would prove difficult.

In the near term, EPA continues to advance its rules on a host of pollution criterion under the Clean Air Act and Clean Water Act.
Legal challenges add uncertainty around timelines and how aggressively environmental regulations will be implemented, and we
believe the dynamic of how a new Congress, the EPA and the industry work together post-election is something to watch.

We feel it is still important for electric utility investors to become aware of the renewable energy resources available to each utility in
each state, consider the business impact as to how an investor-owned utility would address any state mandates or renewable
standards, and understand the possible implications (favorable and unfavorable) that a potential federal RPS, EPA mandate or other
energy/climate-related (carbon) legislation, if enacted, may have on their utility investments.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 14 of 47
June 2012
STATE RENEWABLE PORTFOLIO STANDARDS

Thirty-six states and the District of Columbia have adopted state RPSs to foster electricity investments in
efficiency and renewable resources. The result is a patchwork of different state standards on several
factors, including: the ultimate amount or level to be targeted; how to measure the initiative (percent of
capacity installed vs. generation output); timeline for implementation; balance between renewables usage
vs. gains from efficiency; which renewable resources are to be included in the RPS; and even whether the
targets being set are voluntary or mandatory.

In Table 5, every state with a date listed has adopted an RPS into law. Six states (Indiana, North Dakota,
South Dakota, Utah, Vermont and Virginia) have set voluntary renewable portfolio goals instead of a
mandatory target. Since 2009, the Florida legislature has not yet ratified RPS draft rules for 20% renewable
generation by 2020. Currently, Louisiana has a pilot renewable program targeting 350 MW of renewable
capacity by the 2012-2013 time frame.
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 15 of 47
June 2012
Table 5. State Renewable Portfolio Standards

State
original RPS law
adoption date
Amt Year Comments State
original RPS law
adoption date
Amt Year Comments
Arizona
2/26/06 15% 2025
2.5% of total electricity sold from renewable energy sources by 2010 and 15% by
2025. 5% of the renewables to come from solar power in 2007, and will ramp up to
a 30% "distributed" energy technology requirement by 2011. Renewable energy
from facilities installed before 1/1/1997 are not eligible.
Nevada
3/15/07 25% 2025
SB 395 on 6/8/09 increased RPS to: 20% by 2015, at least 5% must be generated
from solar energy. Utilities can also earn credit for up to 25% of the RPS through
energy efficiency measures. Resources include biomass, fuel cells, geothermal,
solar, hydro, and wind. On June 8, 2009 RPS was updated to 25% by 2025 (6%
from solar by 2016).
California
9/12/02 33% 2020
Renewable energy resources include biomass, solar thermal, photovoltaics, wind,
geothermal, small hydropower, and ocean-generated power. On 9/15/09 the
Governor signed an executive order increasing the original requirement of 20% by
2010 to 33% by 2020. On 3/29/11, the California Assembly passed Senate-
approved bill X1-2 establishing the 33% by 2020 standard into law rather than
relying on California Air Resources Board regulations.
New Hampshire
5/11/07 25% 2025
25% of state's electricity from renewable resources by 2025 (includes wind, solar,
geothermal, hydrogen fuels, methane gas, ocean-generated, biomass, and existing
small hydroelectric sources).
Colorado
11/2/04 30% 2020
On 3/22/10 HB 1001 increased the RPS standard to 30% by 2020. Requires large
investor-owned utilities serving 40,000 or more customers to generate or purchase
12% of their retail electric sales from eligible renewable energy resources (solar,
wind, geothermal, biomass, and small hydroelectric) by 2010, increasing to 20% by
2015, and 30% by 2020. 3% of these amounts must come from distributable solar-
electric technologies. RECs may be used to satisfy standard
New Jersey
2/9/99 22.5% 2021
AB 3520 on 1/17/10 required 5,316 MW to be generated from in-state solar
generators by 2025. SB 2036 on 8/19/10 is nation's first carve-out offshore wind
requirement calling for 1,000 MW of capacity, details TBD. Resources include solar,
wind, wave, tidal, geothermal, landfill methane gas, fuel cells from renewable fuels,
anaerobic digestion of food waste and sewage sludge at a biomass generating
facility, and hydropower.
Connecticut
7/1/98 27% 2020
On 6/4/07 HB 7432 increased the RPS standard to 20% renewables from "Class I"
(solar, wind, sustainable biomass, ocean-generated, landfill gas, 5MW hydro), 3%
from "Class I" or "Class II" (trash-to-energy, hydro facilities, and other biomass),
and 4% from "Class III" (distributed heat, conservation, waste recovery programs).
New Mexico
3/5/07 20% 2020
20% of an electric utility’s power must come from renewable sources. Resources
include solar, wind, hydropower, geothermal, fuel cells from renewable fuels, and
qualifying biomass. Performance-based financial or other incentives are used to
encourage utilities to exceed annual standards.
District of Columbia
1/19/05 11% 2022
Two-tiered system: "Tier 1" includes solar, wind, biomass, landfill gas, wastewater-
treatment gas, geothermal, ocean-generating, and fuel cells from renewable fuels.
"Tier 2" includes hydropower and municipal solid waste. Additional 0.386% of the
district’s renewable energy to come from solar energy by 2022. On 7/2/10 DC Law
18-0223 amended the RPS so that municipal solid waste incineration may not be
used to meet more than 20% of a Tier 2 requirement. Beginning 2013 municipal
solid waste will no longer be eligible to generate Tier 2 RECs.
New York
9/22/04 29% 2015
On 1/8/10 NY SPC increased RPS to 29% of renewables by 2015. 20.7% of target
from existing facilities and 8.3% from new sources categorized into two-tiers. "Main
Tier", roughly 93% of incremental renewables generation (biogas, biomass, liquid
biofuel, fuel cells, hydroelectric, solar, ocean or tidal power, and wind). "Customer-
Sited Tier" 7% of incremental renewables generation (fuel cells, solar, and wind
resources). An additional 1% to come through voluntary power sales.
Delaware
7/21/05 25% 2025
18% from renewable resources by 2019 (wind, ocean-generated, fuel cells from
renewable fuels, 30MW hydroelectric facilities, sustainable biomass, anaerobic
digestion, and landfill gas). 3.5% of state electricity supply from solar PV by 2025.
North Carolina
8/20/07 12.5% 2021
By 2021, 12.5% of retail sales must come from renewable energy or energy
efficiency for investor-owned utilities. 10% by 2018 for electric cooperatives and
municipal utilities.
Florida
An Executive Order from July 13, 2007 directed the state commission to draft RPS
rules. On Jan. 30, 2009 the Florida Public Service Commission proposed a RPS to
the state Legislature requiring 20% generation from renewable resources by 2020.
Other target dates: 7% by 2013, 12% by 2016 and 18% by 2019. The Florida
Legislature did not act on or ratify the legislation in 2009 or 2010.
North Dakota*
3/21/07 10% 2015 Voluntary RPS passed by legislature of 10% retail electricity sold to come from
renewables by 2015.
Hawaii
6/2/04 25% 2020
10% of net electricity sales to come from renewable sources by 2010, 15% by 2015
(wind, solar, ocean thermal, wave, and biomass). On June 25, 2009, RPS was
increased to 25% by 2020 and 40% by 2030. 30% by 2030 to come from energy
efficiency savings.
Ohio
5/1/08 25% 2025
12.5% electricity sold in the state to come from renewables (wind, solar,
hydropower, geothermal, or biomass), half of which must be generated in Ohio.
Other 12.5% may come from alternative energy resources (nuclear power plants,
fuel cells, energy-efficiency, and clean carbon capture technology). Utilities may
buy, sell, and trade renewable energy credits to comply. 22.5% by 2025 to come
from energy efficiency savings. Electric utilities must reduce peak energy demand
1% in 2009, and an additional 0.75% each year through 2018.
Iowa
10/21/83
105
MW
Not an official RPS, but 1983 Alternative Energy Production state law mandates two
investor-owned utilities (Mid-American and Interstate Power/Light) to own or
contract for 105 MW of renewable power (photovoltaics, landfill gas, wind, biomass,
hydro, municipal solid waste, and anaerobic digestion). Voluntary goal of 1,000 MW
of wind capacity by 2010.
Oregon
6/6/07 25% 2025
25% of utility electric load from new renewable sources by 2025. Resources include
wind, solar, wave, geothermal, biomass, new hydro or upgrades to existing hydro
facilities. On 6/25/09 HB 3039 required 20 MW by 2020 to come from solar
photovoltaic.
Illinois
8/28/07 25% 2025
10% by 2015 and 25% by 2025. 75% of the electricity used to meet the RPS must
come from wind power generation, 6% from new solar photovoltaic by 6/1/2015.
Eligible renewables include solar, biomass, and existing hydropower. Utilities to
implement energy efficiency standard to reduce electric usage by 2% of demand by
2015.
Pennsylvania
12/16/04 18% 2020
Two-tiered resources to meet RPS: 8% from Tier 1 (wind, solar, coalmine methane,
small hydropower, geothermal, and biomass), 10% from Tier 2 (waste coal, demand
side management, large hydropower, municipal solid waste, and IGCC), and 0.5%
must be solar-provided generation (part of Tier 1) by 2020.
Indiana*
5/1/11 10% 2025
SB 251 sets a voluntary Clean Energy Portfolio Standard (CPS) program goal of
10% clean energy by 2025, based on 2010 levels. Qualifying electric utilities (public
utilities) must apply to the Indiana Utility Regulatory Commission (IURC) to be
eligible for incentives in order to pay for projects. 2013 - 2018: at least 4% average;
2019 - 2024: at least 7% average; 2025 - 2025: at least 10% average qualifying
clean energy.
Rhode Island
6/29/04 16% 2019
3% of retail electricity sales must come from renewable energy by 2006, increasing
1% a year through 2020. Existing renewables count for only 2% of RPS, the rest
must be from new renewable production. Resources include direct solar radiation,
wind, ocean-generated, the heat of the earth, small hydroelectric facilities, eligible
biomass, and fuel cells using renewable fuels. The PUC will review/revise the
schedule after 2013.
Kansas
5/22/09 20% 2020
Generate or purchase renewable energy of 10% by 2011, 15% by 2016 and 20% by
2020 and beyond. Generated energy counts as 1.1 MW for each MW. Eligible
sources include wind, solar thermal and photovoltaic, dedicated agricultural or plant
waste, untreated wood, fuel cells, existing hydropower and new hydropower of 10
MW or less.
South Dakota*
2/21/08 10% 2015 Voluntary RPS of 10% retail electricity sold to come from renewables by 2015.
Maine
9/28/99
10%
new 2017
Original standard of 30% by the year 2000. RPS was increased in June 2006 an
additional 10% by 2017 for new renewable sources (fuel cells, tidal power, solar,
wind, geothermal, hydro, biomass, or municipal solid waste recycling) placed into
service after 9/1/05.
Texas
6/18/1999
5,880
MW 2015
On 8/1/05 SB 20 increased RPS to 5,880 MW of new renewable generation to be
built in state (about 5% of the state's electricity demand) by 2015. Goal of 10,000
MW in renewable generation capacity by 2025. 500 MW by 2025 from non-wind
resources.
Maryland
5/26/04 20% 2022
On 4/24/08 the RPS was accelerated to 20% of state’s electricity supply must come
from renewable sources by 2022. At least 2% must come from solar sources and
7.5% from other renewable sources (wind, biomass, anaerobic digestion, landfill
gas, geothermal, ocean-generated, fuel cells from renewable fuels, and small
hydro) by 2022.
Utah*
3/18/08 20% 2025 Voluntary RPS goal of 20% of adjusted retail sales by 2025. Utilities to pursue cost-
effective renewable energy.
Massachusetts
7/2/08 15% 2020
New law updates previous RPS of 4% in 2009 to 15% new renewable electricity
generation by 2020 with 1% increase each subsequent year, with no set expiration.
Renewables include solar, wind, ocean, fuel cells from renewable fuels, landfill gas,
biomass, marine, and geothermal.
Vermont*
6/14/05 10% 2013
Voluntary goal of 10% of 2005 total electric sales to be achieved by 2012, else RPS
will become mandatory in 2013. Renewable resources include wind, solar, large
hydropower, landfill methane gas, anaerobic digesters, and sewage-treatment
facilities excluding municipal solid waste. Vermont utilities can build generation out
of state to comply with RPS. On 3/20/08, new renewable goal of 25% by 2025
emphasizing use of Vermont's farms and forests. On 6/4/10 HB 781 required the
PSB to considering changing state's RPS goals to a full-fledged RPS standard. PSB
report due 10/1/11.
Michigan
10/6/08 10% 2015
Qualifying sources include wind, solar, hydropower, landfill gas, waste combustion
and cogeneration. Advanced fossil fuel technologies and efficiency measures may
be used to cover some of a utility's obligation.
Virginia*
4/11/07 15% 2025
Voluntary RPS goal (updated 4/2/10) of 15% of 2007 base year utility electricity
sales (excluding average nuclear power supply) by 2025. Resources include solar,
wind, geothermal, hydropower, wave, tidal, and biomass energy. Wind and solar
receive a double credit toward RPS goals. Offshore wind receive a triple credit.
Investor-owned utilities are incentivized with increased rate of return to procure a
percentage of the power sold in VA from eligible renewable energy sources.
Minnesota
2/22/07 25% 2025
Xcel Energy (generates about half of the state’s electricity) required to produce 30%
from renewable sources by 2020. "Eligible Renewable Energy Technologies"
include solar, wind, small (<100MW) hydroelectric, hydrogen from renewable
resources, and biomass.
Washington
11/7/06 15% 2020
All utilities in WA serving more than 25,000 people must produce 15% of their
energy using renewable sources by 2020. Resources include water, wind, solar,
geothermal, landfill gas, wave, ocean, tidal power, gas from sewage treatment
facilities, biodiesel fuel not from deforested land and biomass.
Missouri
11/4/08 15% 2021
Voters passed proposition C for state-wide RPS repealing current voluntary
standard. Investor-owned utilities qualify with their own generation or renewable
energy credits (2% from solar sources). 2% by 2011; 5% by 2014; 10% by 2018.
West Virginia
6/17/09 25% 2025
10% by 2015 and 15% by 2020 from alternative or renewable energy sources.
Eligible alternatives include advanced coal technology (e.g., carbon capture and
storage, ultra/supercritical and pressurized fluidized bed technologies), coal bed
methane, natural gas, coal gasification or liquefaction facility-produced fuel,
synthetic gas, IGCC, waste coal, tire-derived fuel, pumped storage hydroelectric,
and recycled energy. Eligible renewables are solar, wind, hydropower, geothermal,
biomass, biofuels, and fuel cells.
Montana
4/28/05 15% 2015
Utilities can meet the standard by entering into long-term purchase contracts for
electricity bundled with renewable energy credits. The law includes cost caps that
limit the additional cost utilities must pay for renewable energy. Resources include
wind, solar, geothermal, existing hydro, landfill or farm-based methane gas,
wastewater-treatment gas, nontoxic biomass, and fuel cells from renewable fuels.
Wisconsin
10/27/99 10% 2015
On 3/17/06 RPS was increased to 10% by 2015. Qualifying renewables include tidal
and wave action, fuel cells using renewable fuels, solar, wind, biomass, geothermal
technology, and hydropower less than 60 MW. Renewable energy generated
outside of Wisconsin is eligible. * Denotes states that have set voluntary goals for adopting renewable energy standards instead of mandatory targets.
Sources: http://www.eere.energy.gov/states/maps/renewable_portfolio_states.cfm; http://www.pewclimate.org/what_s_being_done/in_the_states/rps.cfm
Company data, KeyBanc Capital Markets Inc. research
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 16 of 47
June 2012
STOCK PERFORMANCE DIVERGENCE BASED ON COMMODITY EXPOSURE
The strong (if not volatile) commodity cycle had for years been favorable for companies that have exposure to natural gas and/or coal,
as they have typically outperformed the rest of the group, as depicted in Chart 7. In 2009 and 2010, the commodity subgroup fared the
worst in the economic downturn, as natural gas, coal and power prices have fallen with a sluggish economic outlook. Despite a brief
period of outperformance in spring 2009, any investor enthusiasm in the commodity subgroup has remained somewhat muted.
However, the unregulated generators had recently started to attract interest as investors started to weigh the impact of EPA regulations
on the existing coal fleet. This enthusiasm has waned somewhat as economic concerns have intensified.

We believe that the rapid and pronounced price declines were driven by several factors: the collapse of major banks likely drove forced
liquidation of long commodity positions; reduced demand in light of a slowing global economy (especially China, which had been a
major importer); volatility arising from marketplace assumptions on the effects of various government stimulus programs around the
world; opening of new unconventional natural gas plays (with improving production technology) expanding gas supply; and investor
realization that any economic recovery may be longer-dated and that demand is down due, in part, to a shift in changing consumer
behaviors (conservation). Recent market turmoil (July and August 2011) has driven outperformance by names offering liquidity and
yield, particularly relative to treasuries. Smaller names and unregulated companies have lagged these defensive plays in this period.

Chart 7. Price Performance of Different Utility Subgroups
(December 31, 2006 – June 1, 2012)

-55%
-50%
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
De
c
-
0
6
Ma
r
-
0
7
Ju
n
-
0
7
Se
p
-
0
7
De
c
-
0
7
Ma
r
-
0
8
Ju
n
-
0
8
Se
p
-
0
8
De
c
-
0
8
Ma
r
-
0
9
Ju
n
-
0
9
Se
p
-
0
9
De
c
-
0
9
Ma
r
-
1
0
Ju
n
-
1
0
Se
p
-
1
0
De
c
-
1
0
Ma
r
-
1
1
Ju
n
-
1
1
Se
p
-
1
1
De
c
-
1
1
Ma
r
-
1
2
Ju
n
-
1
2
Date
Re
t
u
r
n
Small Vertical
T&D Only
Large Vertical
S&P 500
Commodity

Source: FactSet

The 2011 performance for commodity-focused nuclear names took a severe drop in mid-March during the Japanese nuclear crisis as
risk-averse investors avoided these generators. Commodity-focused names never truly recovered as weak power prices and global
economic concerns continued throughout the year. Smaller vertically integrated names showed meaningful outperformance in 2011,
which we attribute to any enthusiasm around M&A activity and the April and May announcements of the acquisitions of DPL and
Central Vermont, respectively. Broader market index outperformance earlier in the year lost its ground against integrated utilities at
year-end as investors took profits and sought safety in our sector while assessing the strength of global economic recovery.

Early 2012 saw the broader market outperform all electric utility segments (see Chart 8) as investors gained confidence in broader
market recovery, only to see that enthusiasm pull back year-to-date due to reappearing European sovereign debt concerns and signs of
slowing growth in the United States.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 17 of 47
June 2012
Chart 8. Year-to-Date S&P 500 vs. KBCM Electric Utility Segment Performance
(December 30, 2011 – June 1, 2012)

-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
De
c
-
1
1
Ja
n
-
1
2
Fe
b
-
1
2
Ma
r
-
1
2
Ap
r
-
1
2
Ma
y
-
1
2
Date
Re
t
u
r
n
S&P 500
Large Vertical
Small Vertical
T&D Only
Commodity

Source: FactSet

JAPAN NUCLEAR CRISIS HIGHLIGHTS RISKS TO NUCLEAR POWER INDUSTRY
The sharp decline in mid-March 2011 for all equity segments, including the broader market, arose from concerns about the Fukushima
nuclear power complex in Japan that was severely damaged and leaking radiation due to the combination of an earthquake and
tsunami. With 20% of U.S. power derived from nuclear energy, we do not envision a knee-jerk reaction in the United States to impact
nuclear power. However, we do believe U.S. nuclear energy is likely to be impacted by increased scrutiny, inspections and
considerations of specific reactor designs, as well as the sufficiency of backup systems in the event of station blackout conditions.

The situation is also likely to fuel increased opposition to nuclear power, as did the Three Mile Island and Chernobyl incidents. Three
Mile Island is considered to have been a major factor in the end of U.S. nuclear construction already hindered by construction delays
and cost overruns. Existing plants on the public perception bubble (Vermont Yankee, for example) and others up for licensing renewals
could face further public scrutiny.

New nuclear construction, which has already been delayed by the recession, is likely to see higher opposition. Proponents of nuclear
will argue that modern plants are simpler in design and designed to shut themselves down in emergencies. Opponents will cite another
occurrence of an event that design redundancies would supposedly prevent from happening. The Japanese accident is likely to further
drive incremental generation capacity decision making to favor natural gas, which could impact diversity and drive power pricing
volatility. Public and political perceptions around nuclear energy will contribute to policy discussions.

An August 23 earthquake on the U.S. East Coast drove a short-lived negative investor reaction as companies with nuclear exposure
saw a brief sell-off. However, as news started to flow that the plants suffered no damage and all systems reacted as designed to,
market concerns were alleviated. Nuclear proponents touted the incident as an example of the safety of the U.S. nuclear fleet.

On February 9, 2012, Southern Company’s combined construction and operating license for Vogtle 3 and 4 new nuclear units was
approved by the U.S. Nuclear Regulatory Commission (NRC), clearing the way for the Company to proceed with full construction of
major reactor components. In a four-to-one vote, dissenting Chairman Gregory Jaczko favored safety enhancements be made at the
plant as a result of lessons learned at Fukushima and in general feels that the implementation timeline for compliance for the nation’s
nuclear plants in response to Fukushima should be sped up, particularly for seismic risks, which have the potential to be the most
expensive and complicated of the changes.
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 18 of 47
June 2012
NEW GENERATION / TRANSMISSION BUILD TO MEET LOAD GROWTH
On the supply side, the industry has worked off much of the capacity glut that resulted from a late 1990s building frenzy, which was
fueled by cheap natural gas, robust economic growth and optimistic investors. Regionally, several parts of the country have recognized
the fact that long construction lead times (particularly for baseload generation) suggest a sense of urgency around planning for new
capacity. The recent economic slowdown, however, has temporarily slowed demand growth, while new capacity projects were already
underway, thus improving load margins in the intermediate forecast term (see Chart 9).

Chart 9. Historical and Forecasted U.S. Electric Supply and Demand
(Summer)

0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
1100000
1200000
19
8
9
19
9
0
19
9
1
19
9
2
19
9
3
19
9
4
19
9
5
19
9
6
19
9
7
19
9
8
19
9
9
20
0
0
20
0
1
20
0
2
20
0
3
20
0
4
20
0
5
20
0
6
20
0
7
20
0
8
20
0
9
20
1
0
20
1
1
F
20
1
2
F
20
1
3
F
20
1
4
F
20
1
5
F
20
1
6
F
Date
Lo
a
d

(
M
W
)
0%
5%
10%
15%
20%
25%
30%
Ma
r
g
i
n
Demand
Supply
Margin

Source: North American Electric Reliability Corp

COST ESCALATION IN NEW GENERATION BUILD
While recent prices may have come off of their earlier highs due to the global economic crisis slowing construction demand, we believe
the long-term trend of rising construction materials costs could resume as the global economy rebounds. The cost of building new
generation remains a moving target, as worldwide demand for construction materials commodities (steel, concrete and copper), labor
and components (turbines and boilers) would remain fundamentally strong, driven by a rebound in the U.S. and Chinese economies
and required compliance with future U.S. environmental regulations. We believe this presents challenges to both unregulated and
regulated investment in new generation plants. In particular, on the regulated side, there exists a chicken-and-egg problem in that
securing pricing without a regulatory buy-in is as difficult as receiving regulatory pre-approval without firm pricing. For example, in order
to secure the project’s expected final approval, Southern Company subsidiary Mississippi Power agreed to a cost cap on its 582MW
Kemper County IGCC plant at $2.88 billion to allow the Commission to protect and assure customers against uncontrolled cost
increases from its original $2.7 billion estimate. In addition to this regulatory quagmire is uncertainty around the cost to achieve yet to
be determined environmental controls to mitigate carbon output.

Chart 10 illustrates the upward pressure on construction commodities, with the global economic slowdown affecting prices in the near
term and some recent indications and forecasts of price stabilization and increases. As an example of longer-dated cost escalation on
new generation build, Progress Energy had estimated the cost of building two new nuclear plants, with necessary transmission, at $17
billion, more than twice initial estimates.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 19 of 47
June 2012
Chart 10. Construction Materials Indexed Pricing
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
250
260
270
280
290
1Q
0
5
2Q
0
5
3Q
0
5
4Q
0
5
1Q
0
6
2Q
0
6
3Q
0
6
4Q
0
6
1Q
0
7
2Q
0
7
3Q
0
7
4Q
0
7
1Q
0
8
2Q
0
8
3Q
0
8
4Q
0
8
1Q
0
9
2Q
0
9
3Q
0
9
4Q
0
9
1Q
1
0
2Q
1
0
3Q
1
0
4Q
1
0
1Q
1
1
2Q
1
1
3Q
1
1
4Q
1
1
1Q
1
2
2Q
1
2
E
Date
Re
l
a
t
i
v
e

P
r
i
c
e

%
Steel Rebar Concrete Copper

Source: Bureau of Labor Statistics and Steel Business Briefing (as of June 1, 2012).

The long-term trend of rising costs increasingly necessitates the need for rate-making mechanisms, such as Construction Work In
Progress (CWIP), to allow utilities to undertake construction without significantly weakening their balance sheet, cash flow and credit
metrics. Additional cost pressures on ratepayers pose the risk of regulators authorizing lower ROEs in future rate proceedings to offer
some rate relief.

FIFTEEN PERCENT DIVIDEND TAX RATE EXTENSION
A reduced 15% tax rate on corporate dividends (same as the long-term capital gains tax rate) provided a positive catalyst for continued
investment in higher-yielding stocks when it was introduced in 2003 under former President Bush. As expiration of the Bush tax rates
loomed toward the end of 2010, President Obama signed into law the Tax Relief Unemployment Insurance Reauthorization and Job
Creation Act of 2010 on December 17 (after compromising with congressional Republican leaders), which extended the lower dividend
and capital gains tax rates for two years through 2012. We believe our sector will remain particularly sensitive to news on dividend
taxes as it is likely to again experience similar circumstances of political debate over lower dividend tax rate expiration in 2012. We
expect current federal budget concerns and presidential election year politics will make the discussion more contentious than in the
past.

President Obama’s 2013 budget proposes letting the tax rate increase to 20% from 15% on long-term capital gains and to treat
dividends as ordinary income for individuals making above $200,000 and for married couples making above $250,000 (subject to their
pre-Bush tax cut top income tax rate of 39.6%). There would be no change in capital gains or dividend tax rates for those making below
those thresholds. Without any Congressional action or by letting current Bush tax rates expire, the dividend tax would revert back to
marginal income tax rates of up to 39.6% for the highest earners, in addition to a 3.8% passive income tax that was put in place with the
Health Care and Education Affordability Reconciliation Act of 2010 (resulting in a stealth tax increase on dividends totaling up to 43.4%
on highest income thresholds).

We believe that 1.0-1.5x P/E multiple points of the group’s valuation expansion over the past years were attributable to these lower
taxes and the 2010 extension prevented a negative catalyst for the utility group. Currently, our coverage universe averages a 4.3%
dividend yield vs. 2.1% for the S&P 500 index. While our sector generally offers higher yields than the broad market, we expect that, on
a relative basis, more highly regulated names with higher payout ratios and yields would underperform, as income-focused investors
started to discount expectations, lowering aftertax yields from these companies relative to opportunities in the bond market.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 20 of 47
June 2012
M&A ACTIVITY ON THE RISE
We expect that many utility executives are looking at the potential synergies of a strategic and well-executed merger with great interest,
particularly with the recent pick-up in M&A activity (see Table 6). Companies with substantial unregulated operations would most likely
be able to realize the greatest amount of synergies, as these savings are generally outside the reach of regulators. With balance sheets
generally repaired (and the potential for all-stock deals to offer further improvement), we consider additional consolidation to be likely in
the long term. The outlook for an extended period of low power prices may accelerate M&A to achieve cost synergies. We would expect
larger players to look for opportunities to gain scale to endure weakened markets and capital needs through a greater unregulated
presence or through the addition more stable regulated operations. On the regulated side, we believe smaller, single-state utilities make
attractive targets.

POSSIBLE ACQUIREES
Cleco Corporation (CNL-NYSE)
As a small, single-state regulated utility in Louisiana with a service territory next to Entergy, we believe Cleco Corporation is a
potential acquisition target. We expect forecast free cash generation could be attractive to acquirers.

NiSource, Inc. (NI-NYSE)
We believe NiSource, Inc. is perceived as an acquisition target. The announced acquisition and bidding war for Southern Union
Company (SUG-NYSE) has served to fuel this view. Recent (February 2012) rumors of an attractive cash offer have further stoked
speculation. However, we believe a presence in several jurisdictions would present considerable risk of achieving reasonable
approvals across the board. Further, we believe current management is keen to continue executing on its strategic initiatives.

TECO Energy, Inc. (TE-NYSE)
As a small, single-state regulated utility in Florida, we believe TECO Energy, Inc. is a potential acquisition target and an attractive
candidate for a contiguous merger. TECO’s coal assets could make it an intriguing name as well.

POSSIBLE ACQUIRERS
Dominion Resources, Inc. (D-NYSE)
Dominion was rumored to have been interested in acquiring Progress Energy away from Duke Energy. Since then, the Company
has stated that it continues to focus on its organic growth plan and on achieving a 5-6% long-term earnings growth target. We
believe that the Company would consider any opportunities that were accretive to earnings and shareholder value.

RECENT M&A ACTIVITY UPDATE
Gaz Metro L.P. and Central Vermont Public Service Corporation
On July 12, 2011, Central Vermont Public Service Corporation (CV-NYSE) announced it had accepted a superior unsolicited offer
to be acquired by Canadian firm Gaz Metro Limited Partnership at $35.25 per common share. Gaz Metro also owns Central
Vermont’s neighboring utility Green Mountain Power. This deal terminated a previous agreement Central Vermont had reached
with Fortis Inc. on May 30, 2011 at $35.10 per share (with a $19.5 million breakup free paid to Fortis). Central Vermont indicated
that superior benefits drove the decision to accept the unsolicited offer, given $144 million in customer benefits over 10 years, a
donation to a Vermont trust of a share of the transmission company VELCO and full dividend payments to shareholders until the
deal closes. The sale is targeted to be completed in June 2012 and subject to regulatory approval by the Vermont Public Service
Board and Federal Energy Regulatory Commission (FERC).

Duke Energy Corporation and Progress Energy, Inc.
On January 10, 2011, Duke Energy Corporation (DUK-NYSE) announced its plans to merge with Progress Energy, Inc. (PGN-
NYSE) in a stock-for-stock transaction valued at $25.7 billion. The combined company will be the country’s largest utility, having
about 57 GW of domestic generating capacity serving approximately 7.1 million electric customers in the six states of North
Carolina, South Carolina, Florida, Indiana, Kentucky and Ohio.

Progress Energy shareholders will receive 2.6125 shares of common stock in Duke Energy (January 7 Progress Energy closing
price of $46.48 implies $13.7 billion equity value) and Duke Energy will assume about $12.2 billion of Progress Energy net debt.
The companies are targeting a close by July 1, 2012, subject to regulatory approvals from Federal Energy Regulatory Commission
(FERC), Nuclear Regulatory Commission (NRC), North Carolina Utilities Commission (NCUC) and South Carolina Public Service
Commission (SCPSC). Recently, the companies have been addressing power mitigation concerns with FERC to remedy any
adverse effects on competition.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 21 of 47
June 2012
Table 6. Recent Utility M&A Activity

Date
Announced Acquirer Acquiree Consideration
Offer Price
per Share
Implied Value at
Announcement1
Premium at
Announcement2
2/21/12 Fortis Inc. CH Energy Group 100% Cash $65.00 $1.5 billion 10.5%
7/12/11 Gaz Metro L.P Central Vermont Public Service Corp. 100% Cash $35.25 $704.1 million 44.9%4
4/28/11 Exelon Corporation Constellation Energy Group, Inc. 100% Stock 0.930 shares $10.6 billion 12.5%
4/20/11 AES Corporation DPL Inc. 100% Cash $30.00 $4.7 billion 8.7%
3/2/11 PPL Corporation Central Networks (from E.ON UK plc) 100% Cash N/A $6.40 billion N/A – Subsidiary
1/10/11 Duke Energy Corporation Progress Energy, Inc. 100% Stock 2.6125 shares $25.7 billion 3.9%; [6.4%] 3
12/7/10 AGL Resources Inc. Nicor Inc. 40% Cash and
60% Stock
$21.20 and
0.8382 shares $3.1 billion 13.3%
10/18/10 Northeast Utilities NSTAR 100% Stock 1.312 shares $7.56 billion 1.9%
8/13/10 Blackstone Group, L.P. Dynegy Inc. 100% Cash
(Failed)
$4.50 at annc.
($5.00 final) $4.6 billion 61.8%
4/28/10 PPL Corporation E.ON U.S. (Louisville Gas & Electric
and Kentucky Utilities) 100% Cash N/A $7.63 billion N/A - Private
4/21/10 Calpine Corporation Conectiv Energy Holding Co. 100% Cash N/A $1.65 billion N/A - Subsidiary
4/11/10 Mirant Corporation RRI Energy, Inc. 100% Stock 0.353 shares $1.63 billion 4.4%
2/11/10 FirstEnergy Corporation Allegheny Energy, Inc. 100% Stock 0.667 shares $8.5 billion 31.6%
10/20/08 Exelon Corporation NRG Energy, Inc. 100% Stock
(Failed) 0.485 shares $6.15 billion 36.7%
10/26/07 Macquarie Consortium Puget Energy, Inc. 100% Cash $30.00 $7.4 billion 25.3%
6/25/07 Iberdrola SA Energy East Corporation 100% Cash $28.50 $8.50 billion 27.4%
2/26/07 KKR TXU Corp. 100% Cash $69.25 $44.16 billion 15.4%
2/7/07 Great Plains Energy Inc. Aquila Inc. 55% Cash and
45% Stock
$1.80 and
0.0856 shares $2.8 billion -2.7%
7/8/06 MDU Resources Group Cascade Natural Gas Corp. 100% Cash $26.50 $471.2 million 23.5%
7/5/06 Macquarie Consortium Duquesne Light Holdings Inc. 100% Cash $20.00 $2.59 billion 21.7%
4/25/06 Babcock & Brown NorthWestern Corporation 100% Cash
(Failed) $37.00 $2.23 billion 15.3%
12/19/05 FPL Group, Inc. Constellation Energy Group, Inc. 100% Stock
(Failed) $62.02 $14.42 billion 0.65%; [15.0%] 3
Notes:
Deals currently pending in italics
1) Deal transaction value (includes debt assumed)
2) 1-day closing stock price premium
3) [20-day average closing stock price premium]
4) Prior to previous agreement announced on May 30, 2011
Source: Company data, KeyBanc Capital Markets Inc. estimates
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 22 of 47
June 2012

SHORT INTEREST OVERVIEW
Toward the end of 2010, sector concerns of a longer-dated U.S. economic recovery (dampening electric demand), weak initial outlooks
by some companies heading into a new year, challenged power prices for merchant generators and questions around dividend security
all contributed to the group trading at a discount to the S&P 500. We believe that many of these topics of concern were addressed by
company managements during the 1H11 earnings seasons, leading to renewed confidence in the stability of our industry and
subsequent sector outperformance in 2H11 (see Chart 11) as a defensive play amid broader market concern of a slower global
economic recovery. A pick-up in M&A activity, double-dip U.S. recession fears and European sovereign debt issues appear to have
dampened any enthusiasm for a quicker or stronger than expected economic recovery, and led to sharp broader market declines in July
2011.

Chart 11. Forward P/E Comparison of KBCM Utility Coverage vs. S&P 500
(December 31, 2010 – June 1, 2012)

10.5x
11.0x
11.5x
12.0x
12.5x
13.0x
13.5x
14.0x
14.5x
15.0x
De
c
-
1
0
Ja
n
-
1
1
Fe
b
-
1
1
Ma
r
-
1
1
Ap
r
-
1
1
Ma
y
-
1
1
Ju
n
-
1
1
Ju
l
-
1
1
Au
g
-
1
1
Se
p
-
1
1
Oc
t
-
1
1
No
v
-
1
1
De
c
-
1
1
Ja
n
-
1
2
Fe
b
-
1
2
Ma
r
-
1
2
Ap
r
-
1
2
Ma
y
-
1
2
Date
12

m
o

F
w
d

P
/
E
0.88
0.92
0.96
1.00
1.04
1.08
1.12
1.16
1.20
1.24
Re
l
a
t
i
v
e

P
/
E
KBCM Utility Index S&P500 Relative P/E
Source: FactSet

Historically, underperformance in our sector has provided opportunities for investors to cover their short positions. Short positions were
built up in 2010 likely due to less optimistic views around merchant exposure, as a sluggish economy and sustained weakness in
natural gas pricing appear to have dampened expectations around a recovery in power pricing. Arbitrage activity around M&A appeared
to have also contributed to higher short interest in 2010. Heading into 2011, sector underperformance allowed investors to cover their
short positions as evidenced by the declines through March 2011. Short interest modestly increased through 4Q11, likely from
increased shares and positioning due to M&A related activity, as well as our sector having outperformed the broader market. The
beginning of 2012 allowed investors to again cover their short positions, as our sector has underperformed while the broader market
recovers based on renewed confidence of a U.S. economic recovery. The March 2012 uptick in total short position for our group was
mostly due to an increased short position in Pepco Holdings, Inc. in connection with its March 5, 2012 forward sale agreement. Short
interest has held mostly at steady levels since then (see Table 7).

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 23 of 47
June 2012
Table 7. Monthly Short Interest

(days) (shares in millions)
Shares Current 2012 2011 2010
Company Ticker Out Short Ratio May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan Dec
Ameren Corp. AEE 242.6 3.2 4.5 4.3 4.4 3.5 3.2 3.7 4.7 4.6 7.2 5.5 4.2 5.1 5.5 6.0 5.5 7.4 9.1 7.7
American Electric Power Co. AEP 484.3 1.4 4.6 4.4 3.4 4.1 4.9 5.6 4.8 6.3 5.9 8.5 4.3 5.5 7.3 5.0 3.8 4.8 4.8 4.0
Avista Corp. AVA 58.7 6.7 2.2 2.2 2.1 1.9 2.2 2.4 2.1 2.0 2.4 2.5 2.1 1.9 1.6 1.5 1.5 1.4 1.3 1.5
CMS Energy Corp. CMS 261.6 1.9 4.8 4.2 10.3 10.1 13.5 11.4 13.5 17.6 15.0 15.8 16.6 13.0 12.5 17.1 10.4 13.2 11.3 13.9
Central Vermont Public Svc. Corp. CV 13.7 25.3 1.0 1.1 1.0 1.0 0.8 0.5 0.6 0.6 0.6 0.5 0.3 0.4 0.4 0.4 0.4 0.3 0.3 0.3
Cleco Corp. CNL 60.9 5.6 2.5 2.5 2.8 3.0 2.5 2.7 3.5 3.4 3.8 3.8 3.6 3.7 4.0 4.4 2.8 2.3 2.4 3.4
Consolidated Edison, Inc ED 292.9 5.8 6.8 7.0 7.8 7.2 8.2 11.3 10.7 11.2 11.9 13.5 14.1 13.1 11.8 9.5 7.3 7.7 7.2 7.0
DTE Energy Co. DTE 170.1 1.7 1.5 1.9 1.2 1.0 1.0 1.6 1.7 2.2 2.0 2.4 1.8 2.3 3.4 2.7 2.2 1.5 1.6 1.8
Dominion Resources, Inc. D 571.5 2.8 4.4 4.1 4.5 5.0 4.6 5.4 7.1 7.9 10.9 11.4 12.5 13.7 13.3 11.4 10.6 10.2 8.1 8.1
Duke Energy Corp. DUK 1,338.1 4.4 78.9 79.1 58.8 56.2 51.3 52.0 52.0 48.5 51.6 48.6 44.0 38.4 31.8 29.9 23.8 23.0 26.2 21.9
Entergy Corp. ETR 177.2 2.6 2.9 3.1 2.8 2.8 3.1 3.5 4.1 3.2 3.3 3.5 2.9 3.5 3.7 3.8 2.6 2.8 2.5 1.8
Exelon Corp. EXC 852.4 1.4 9.3 10.1 47.1 43.2 40.4 38.3 36.6 31.2 26.0 23.0 19.7 19.5 16.9 13.1 12.6 14.6 14.3 15.0
FirstEnergy Corp FE 418.2 2.4 7.1 7.4 5.1 5.9 7.4 4.0 3.7 4.1 5.2 4.4 3.1 4.4 4.7 7.5 5.8 30.1 30.4 30.4
Great Plains Energy, Inc. GXP 136.3 7.3 8.9 8.3 7.3 6.3 5.9 5.8 5.7 6.7 6.3 5.3 5.2 5.4 6.2 6.2 5.5 4.7 5.2 6.0
IDACORP, Inc. IDA 50.1 5.9 1.4 1.3 1.3 1.2 1.4 1.5 1.8 1.7 2.0 2.0 1.6 1.9 1.7 1.8 1.4 1.3 1.2 1.2
MDU Resources Group, Inc. MDU 188.8 3.7 2.8 2.4 2.4 2.7 1.9 1.8 1.8 1.4 1.3 1.6 1.8 2.3 2.7 2.3 2.1 1.1 1.5 1.2
NextEra Energy, Inc. NEE 417.1 3.8 8.7 6.9 5.9 6.1 8.1 11.2 7.1 6.0 5.6 5.6 5.1 4.9 4.4 5.0 3.9 3.9 4.3 3.3
NiSource, Inc. NI 284.1 1.6 4.5 4.9 5.8 6.6 4.1 4.5 5.0 3.9 4.4 6.1 8.1 6.1 8.0 5.6 5.2 6.2 5.9 5.1
NorthWestern Corp. NWE 36.4 4.6 1.0 0.9 0.9 0.8 1.0 1.1 1.4 1.6 1.7 1.8 1.7 1.5 1.4 1.1 1.0 0.9 0.9 0.9
Otter Tail Corp. OTTR 36.2 13.9 1.5 1.4 1.4 1.4 1.4 1.6 2.0 1.9 1.9 1.6 1.4 1.5 1.6 1.4 1.4 1.3 1.4 1.4
PPL Corp. PPL 580.0 5.0 18.9 17.4 8.6 8.6 8.1 9.8 12.9 14.6 16.5 14.6 14.1 12.2 13.4 14.5 7.9 7.1 7.1 5.4
Pepco Holdings, Inc. POM 228.3 9.7 22.3 22.9 23.0 8.8 8.6 9.0 9.2 8.1 9.9 11.4 11.5 12.0 14.1 10.4 13.2 11.7 11.6 10.4
Pinnacle West Capital Corp. PNW 109.5 2.0 1.6 1.1 0.8 1.0 1.1 1.4 1.9 1.8 1.9 2.2 1.9 1.7 1.2 1.3 1.1 1.2 1.5 1.6
Progress Energy, Inc. PGN 296.0 1.1 3.9 4.7 2.8 2.8 1.9 2.4 2.2 2.7 4.3 4.4 3.5 3.0 3.1 3.2 3.3 3.4 4.4 4.3
Southern Company SO 868.7 2.5 10.3 12.4 10.2 10.6 11.7 13.7 13.9 13.3 15.2 12.2 10.2 8.9 7.6 6.7 6.8 6.8 6.3 9.6
TECO Energy, Inc. TE 215.7 5.0 8.9 8.0 8.8 8.7 8.5 7.8 7.9 6.9 7.5 6.9 4.4 4.9 6.7 4.1 2.2 1.9 3.2 4.9
Wisconsin Energy Corp. WEC 230.5 4.5 6.7 6.0 5.3 4.1 4.3 5.9 6.4 6.5 7.1 7.2 7.0 5.5 5.0 5.5 5.7 5.4 6.9 6.2
Xcel Energy Inc. XEL 486.9 2.3 5.7 4.2 3.3 3.3 3.6 4.3 5.1 4.8 6.4 6.0 4.7 5.1 5.4 6.4 4.7 4.4 3.4 5.4
Total 9,106.7 237.7 234.3 238.8 218.2 214.9 224.2 229.2 224.6 237.7 232.1 211.2 201.4 199.3 187.7 154.6 180.6 184.3 183.9

Notes: 1) OTTR research coverage initiated January 17, 2012. Historical information provided for comparison purposes.
2) Historical share counts adjusted for WEC 2:1 stock split on March 1, 2011
Source: Bloomberg, as of June 4, 2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 24 of 47
June 2012
CLECO CORPORATION
CNL: RAISING PRICE TARGET; INTRODUCING 2013 ESTIMATE— reprinted from 05/24/2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 25 of 47
June 2012
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 26 of 47
June 2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 27 of 47
June 2012

NISOURCE, INC.
NI – QUICK ALERT: CLOSE TO FINALIZING JV? — reprinted from 05/23/2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 28 of 47
June 2012

IDACORP, INC.
IDA – QUICK ALERT: CONSTRUCTION HALTS AT LARGE SOLAR PLANT — reprinted from
05/23/2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 29 of 47
June 2012

PINNACLE WEST CAPITAL CORPORATION
PNW – QUICK ALERT: RATE CASE SETTLEMENT APPROVED TARGET — reprinted from
05/16/2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 30 of 47
June 2012

OTTER TAIL CORPORATION
OTTR: SOLID QUARTER DESPITE MILD WEATHER; RAISING FY12 ESTIMATE — reprinted from
05/09/2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 31 of 47
June 2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 32 of 47
June 2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 33 of 47
June 2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 34 of 47
June 2012

ELECTRIC UTILITIES INDUSTRY:
1Q12 EARNINGS AND WEATHER PREVIEW — reprinted from 04/23/2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 35 of 47
June 2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 36 of 47
June 2012
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 37 of 47
June 2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 38 of 47
June 2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 39 of 47
June 2012
PEPCO HOLDINGS, INC.
POM: ANALYST DAY TAKEWAYS — reprinted from 03/29/2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 40 of 47
June 2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 41 of 47
June 2012

CLECO CORPORATION
CNL – QUICK ALERT: FILING FOR NEW FERC RATES, EARNINGS POSITIVE — reprinted from
03/29/2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 42 of 47
June 2012
NISOURCE, INC.
NI: UPGRADING SHARES AS GROWTH STORY UNFOLDS— reprinted from 03/21/2012

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 43 of 47
June 2012
KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 44 of 47
June 2012

APPENDIX
Table 8. Water Supply Forecast
(% of Average)

2010 2011 2012
Runoff Period (April - Sept.) Jan Feb Mar Apr May Jun July Jan Feb Mar Apr May Jun July Jan Feb Mar Apr May Jun July

Snowpack
Idaho
Upper Snake River Basin 56 63 57 56 58 87 NA 129 113 106 119 161 283 NA 73 86 89 83 64 63
Panhandle Region Basin 60 58 52 55 60 65 NA 91 95 105 112 142 200 NA 84 97 96 118 112 131
Oregon
Upper John Day Basin 72 80 84 76 66 NA NA 143 98 79 125 217 NA NA 44 81 72 81 17 NA
Upper Deschutes Basin 90 71 60 67 85 123 NA 149 101 109 137 164 273 NA 49 67 74 106 89 69
Washington
Spokane River Basin 56 57 52 51 54 51 NA 91 89 96 114 167 277 NA 68 79 92 117 107 105

Precipitation
Idaho
Upper Snake River Basin 75 38 57 140 120 221 43 86 76 163 201 158 149 77 110 94 98 100 95 NA
Panhandle Region Basin 64 43 85 133 134 197 63 126 107 165 244 138 107 40 95 96 230 141 98 NA
Oregon
Upper John Day Basin 102 59 59 109 169 222 50 85 87 160 135 208 138 35 117 62 150 123 61 NA
Upper Deschutes Basin 81 53 83 129 127 234 47 76 84 169 141 144 356 107 140 78 183 101 92 NA
Washington
Spokane River Basin 64 46 78 139 139 207 52 140 110 167 241 147 125 28 101 108 215 139 100 NA

Reservoir Storage
Idaho
Upper Snake River Basin 115 115 120 126 106 113 106 100 98 98 89 85 104 136 115 114 116 122 109 NA
Panhandle Region Basin 103 106 111 118 105 102 101 121 113 111 91 77 105 102 80 71 108 148 89 NA
Oregon
Upper Deschutes Basin 110 107 106 105 102 109 106 112 111 106 108 113 121 132 121 114 113 113 114 NA
Washington
Spokane River Basin 47 41 55 73 85 101 100 182 60 105 81 155 97 104 43 57 179 196 76 NA

Stream Flow
Avista Corp. (AVA)*
Clark Fork River (75%) - Whitehorse Rapids 77 70 64 60 61 66 74 102 108 113 124 140 157 159 86 88 98 108 110 NA
Spokane River (25%) 83 57 53 52 55 65 76 101 101 109 126 151 170 176 99 108 133 143 139 NA
Idacorp (IDA)
Snake River-Brownlee Reservoir 60 56 49 51 52 61 72 112 99 91 115 133 159 153 84 83 102 99 86 NA
Note: NA - not available.
*AVA-owned hydroelectric generation is split approximately 75%/25% along Clark Fork/Spokane rivers.
Sources: Northwest River Forecast Center (NRFC), National Water and Climate Center (NWCC), U.S. Dept. of Agriculture Natural Resources and Conservation Service (NRCS)
as of June 4, 2012.

Using observed and estimated sample data input into statistical regression models, a water supply forecast attempts to predict a volume of streamflow that might pass a point
on a river stream, typically during the spring and summer seasons. In the western United States, snowfall accumulation (or snowpack) in the mountains during winter and
early spring becomes the source of much of the water run-off into riverstreams during the spring and summer snowmelt season. On certain mountain slopes in the Cascades
or Rocky Mountains, however, future precipitation may be a more dominant driver of actual streamflow than snowmelt, thus making forecasting more difficult. While no
prediction or model is perfect, streamflow forecasts can be important to operational river users (such as hydroelectric dam operators, fishermen or even white-water rafters)
who make decisions based on projected river conditions.

As a service to our clients, we track the April through September streamflow forecast issued by the Northwest River Forecast Center for companies under coverage (Avista
and IDACORP) that have large exposure to hydrological river conditions throughout the year. We believe investors may find incremental value in these forecasts as a possible
variable of earnings for the year, offset by any fuel/power supply cost adjustment mechanisms each utility may have to address hydrology variability. The percent-of-average
number listed in the table above is only a "probable" forecast within a forecasted range assuming unobstructed upstream influences to the natural seasonal flow of water. In
reality, water is stored in reservoirs as it flows down the river basin, where the force of falling water is used to generate electricity. Unknown or unpredictable weather
variables, uncertainty in the regression models, and unforeseen changes are other factors to consider that could affect the accuracy of the water supply forecast.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 45 of 47
June 2012
Table 9. Domestic Generation Capacity for KBCM Utilities Coverage List

Oper. Capacity Generating Plants by Fuel Type Capacity
Company Ticker (MW) Coal Nuclear Gas Oil Hydro Wind Other Reported
Owned: 59% 7% 27% 3% 5% 0% 0% 100% Ameren Corp. AEE 17,256 Used: 84% 12% 1% 0% 2% 0% 0%
Owned: 66% 6% 26% 0% 2% 1% 0% 96% American Electric Power, Inc. AEP 40,739 Used: 78% 10% 11% 0% 1% 1% 0%
Owned: 11% 0% 30% 0% 56% 0% 3% 100% Avista Corp. AVA 1,931 Used: 20% 0% 10% 0% 65% 0% 4%
Owned: 41% 0% 44% 0% 14% 0% 1% 97% CMS Energy, Inc. CMS 7,874 Used: 73% 0% 19% 0% 7% 0% 1%
Owned: 0% 19% 0% 34% 38% 0% 9% 86% Central Vermont Public Service
Corp. CV 132 Used: 0% 37% 0% 0% 52% 0% 11%
Owned: 24% 0% 76% 0% 0% 0% 0% 100% Cleco Corp. CNL 4,624 Used: 64% 0% 36% 0% 0% 0% 0%
Owned: 0% 0% 46% 54% 0% 0% 0% 97% Consolidated Edison, Inc ED 831 Used: 0% 0% 73% 27% 0% 0% 0%
Owned: 61% 9% 20% 3% 8% 0% 0% 99% DTE Energy Co. DTE 12,346 Used: 77% 19% 1% 0% 2% 0% 0%
Owned: 27% 21% 29% 13% 8% 2% 0% 100% Dominion Resources, Inc. D 27,991 Used: 32% 43% 19% 2% 3% 1% 0%
Owned: 44% 14% 29% 2% 9% 2% 0% 98% Duke Energy Corp. DUK 38,461 Used: 57% 28% 10% 0% 3% 2% 0%
Owned: 8% 33% 59% 0% 0% 0% 0% 99% Entergy Corp. ETR 31,439 Used: 12% 63% 25% 0% 0% 0% 0%
Owned: 6% 66% 13% 7% 6% 1% 0% 96% Exelon Corp. EXC 27,021 Used: 3% 92% 1% 0% 3% 1% 0%
Owned: 66% 18% 7% 1% 8% 0% 0% 97% FirstEnergy Corp FE 22,817 Used: 70% 28% 0% 0% 2% 0% 0%
Owned: 57% 8% 25% 8% 0% 1% 0% 99% Great Plains Energy, Inc. GXP 6,697 Used: 84% 13% 1% 0% 0% 1% 0%
Owned: 29% 0% 14% 0% 57% 0% 0% 99% IDACORP, Inc. IDA 3,537 Used: 33% 0% 1% 0% 66% 0% 0%
Owned: 70% 0% 22% 0% 0% 9% 0% 99% MDU Resources Group, Inc. MDU 576 Used: 93% 0% 1% 0% 0% 6% 0%
Owned: 2% 11% 51% 19% 0% 17% 0% 94% NextEra Energy, Inc. NEE 45,793 Used: 3% 20% 59% 4% 0% 13% 0%
Owned: 77% 0% 22% 0% 0% 0% 0% 100% NiSource Inc. NI 3,334 Used: 85% 0% 15% 0% 0% 0% 0%
Owned: 61% 0% 32% 7% 0% 0% 0% 100% Northwestern Corp. NWE 710 Used: 89% 0% 11% 0% 0% 0% 0%
Owned: 72% 0% 6% 9% 1% 12% 0% 100% OtterTail Corp. OTTR 754 Used: 85% 0% 1% 0% 1% 13% 0%
Owned: 54% 13% 21% 9% 4% 0% 0% 96% PPL Corp. PPL 19,582 Used: 71% 19% 5% 1% 4% 0% 0%
Owned: 0% 0% 0% 100% 0% 0% 0% 98% Pepco Holdings, Inc. POM 803 Used: 0% 0% 0% 100% 0% 0% 0%
Owned: 33% 16% 50% 0% 0% 0% 1% 100% Pinnacle West PNW 7,058 Used: 52% 29% 18% 0% 0% 0% 0%
Owned: 30% 16% 40% 12% 1% 0% 0% 100% Progress Energy, Inc. PGN 24,478 Used: 36% 29% 32% 2% 1% 0% 0%
Owned: 47% 8% 34% 5% 6% 0% 0% 100% Southern Company SO 45,111 Used: 51% 16% 30% 0% 3% 0% 0%
Owned: 38% 0% 61% 1% 0% 0% 0% 100% TECO Energy, Inc. TE 4,720 Used: 60% 0% 40% 0% 0% 0% 0%
Owned: 61% 0% 29% 5% 1% 5% 0% 99% Wisconsin Energy Corp. WEC 6,867 Used: 86% 0% 11% 0% 1% 2% 0%
Owned: 42% 9% 42% 1% 3% 2% 1% 100% Xcel Energy Inc. XEL 18,878 Used: 62% 16% 19% 0% 2% 1% 1%
Owned: 39% 10% 30% 10% 8% 2% 1% Total Capacity & Fuel Mix Averages 422,362 Used: 52% 17% 16% 5% 8% 1% 1%
Owned % = Operating Capacity (MW); Used % = Net Generation (MWh)
Note: Data as of 2011 based on current ownership, rounded to nearest whole percentage. Totals may not sum to 100% due to rounding.
Source: SNL Power; Company data, KeyBanc Capital Markets Inc.

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 46 of 47
June 2012

Table 10. Nuclear Outage Days by Company

1Q11 1Q12 Difference
Company Ticker Units Total Units Total Units Total
Ameren Corporation AEE 1 0.7 1 1.0 0.4
American Electric Power Company, Inc. AEP 2 7.7 2 13.6 6.0
DTE Energy Company DTE 1 25.7 1 7.3 (18.4)
Dominion Resources, Inc. D 7 48.6 7 24.1 (24.4)
Duke Energy Corporation DUK 7 55.6 7 23.2 (32.4)
Entergy Corporation ETR 11 117.4 11 103.3 (14.1)
Exelon Corporation* EXC 17 71.0 22* 164.7 5 93.8
First Energy Corp. FE 4 34.9 4 7.4 (27.4)
Great Plains Energy GXP 1 13.0 1 75.5 62.5
NextEra Energy, Inc. NEE 8 140.4 8 148.0 7.6
PPL Corporation PPL 2 18.7 2 3.7 (15.0)
Pinnacle West Capital Corp. PNW 3 6.2 3 21.5 15.2
Progress Energy, Inc. PGN 5 117.2 5 202.0 84.8
Southern Company SO 6 41.8 6 51.1 9.4
Xcel Energy Inc. XEL 3 27.1 3 43.5 16.4
Other Companies Not Covered -- 26 177.1 21 390.5 (5) 213.4
Total 104 902.8 104 1,280.4 0 377.7

*On March 12, 2012, EXC completed its merger with Constellation Energy Group (CEG-NYSE; not covered) that owned 5 units.
Source: U.S. Nuclear Regulatory Commission (as of March 31, 2012), KeyBanc Capital Markets Inc. estimates

KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC
Equity Research

Page 47 of 47
June 2012

KeyBanc Capital Markets Inc. Disclosures and Certifications

Important disclosures for the companies mentioned in this report can be found at https://key2.bluematrix.com/sellside/Disclosures.action.

Reg A/C Certification
The research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressed in this research report accurately
reflect the research analyst's personal views about any and all of the subject securities or issuers; and (2) no part of the research analyst's
compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this
research report.

Rating System:
BUY - The security is expected to outperform the market over the next six to 12 months; investors should consider adding the security to their holdings
opportunistically, subject to their overall diversification requirements.

HOLD - The security is expected to perform in line with general market indices over the next six to 12 months; no buy or sell action is recommended at
this time.

UNDERWEIGHT - The security is expected to underperform the market over the next six to 12 months; investors should reduce their holdings
opportunistically.

The information contained in this report is based on sources considered to be reliable but is not represented to be complete and its accuracy is not
guaranteed. The opinions expressed reflect the judgment of the author as of the date of publication and are subject to change without notice. This
report does not constitute an offer to sell or a solicitation of an offer to buy any securities. Our company policy prohibits research analysts and members
of their families from owning securities of any company followed by that analyst, unless otherwise disclosed. Our officers, directors, shareholders and
other employees, and members of their families may have positions in these securities and may, as principal or agent, buy and sell such securities
before, after or concurrently with the publication of this report. In some instances, such investments may be inconsistent with the opinions expressed
herein. One or more of our employees, other than the research analyst responsible for the preparation of this report, may be a member of the Board of
Directors of any company referred to in this report. The research analyst responsible for the preparation of this report is compensated based on various
factors, including the analyst’s productivity, the quality of the analyst’s research and stock recommendations, ratings from investor clients, competitive
factors and overall Firm revenues, which include revenues derived from, among other business activities, the Firm’s performance of investment banking
services. In accordance with industry practices, our analysts are prohibited from soliciting investment banking business for our Firm.

Investors should assume that we are seeking or will seek investment banking or other business relationships with the company described in this report.

Please refer to the analysts' recently published reports for company-specific valuation and risks.

Rating Disclosures
Distribution of Ratings/IB Services Firmwide and by Sector
KeyBanc Capital Markets
IB Serv./Past 12 Mos.
Rating Count Percent Count Percent

BUY [BUY] 226 44.14 46 20.35
HOLD [HOLD] 275 53.71 53 19.27
SELL [UND] 11 2.15 4 36.36

ENERGY
IB Serv./Past 12 Mos.
Rating Count Percent Count Percent

BUY [BUY] 38 48.10 16 42.11
HOLD [HOLD] 41 51.90 19 46.34
SELL [UND] 0 0.00 0 0.00