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Home My WebLink AboutUtilities Update 06-20-13.pdf Please refer to page 2 of this report for detailed disclosure and certification information. *D.A. Davidson & Co. makes a market in this security. INDUSTRY UPDATE Institutional Equity Research June 20, 2013 Utilities Update Prices: (6/20/13) Industry: Utilities Michael Bates 503.603.3045 mbates@dadco.com Utility Headwinds Strengthen Following Fed’s Tapering Outlook  Lowering targets. We are reducing price targets across our utility coverage in response to growing conviction that the recent pressure on valuations will continue as investors reevaluate the implications of a potential rise in interest rates. Our changes are listed in the table below.  Tapering to begin by year-end? Fed Chairman Bernanke indicated yesterday that a continued decline in unemployment rates may allow the Fed to begin trimming its current $85 billion per month QE program by year-end 2013, with hopes of ending the program by mid-2014. Most Fed officials anticipate an increase in short-term rates will be appropriate afterward—possibly in 2015.  A treacherous road toward 2015-2016. We expect the sector will see moderate, albeit gradual multiple contraction over the next couple of years. In addition to the potential headwind of a rising interest rate environment, rate base growth appears likely to slow as many environmental projects and investments in new generation will conclude. Regulatory risk is likely to intensify in some jurisdictions, as commissions attempt to mitigate the rate shock associated with recovery of costs and a return of/on the utilities’ investments.  Recommending selective exposure. Despite the aforementioned headwinds over the next few years, we continue to believe a selective approach to the space can yield attractive returns. Specifically, we recommend high-quality regulated firms with visible and long-tailed growth prospects, as well as certain lower- yielding stocks that trade at a discount relative to peers. ALE* B $48.04 $58 ↓$55 18.0 AVA* N $25.93 $28 ↓$27 14.6 BKH* N $46.53 $52 ↓$50 19.6 GXP* N $22.08 $25 ↓$23 14.3 HE* N $24.02 $28 ↓$25 14.4 IDA* B $46.35 $55 ↓$54 15.9 LNT* B $47.95 $60 ↓$55 16.8 MGEE* N $52.90 $57 ↓$54 17.5 NWE* N $38.92 $45 ↓$43 16.3 NWN* N $42.29 $45 ↓$42 17.3 OTTR* N $27.27 $30 ↓$29 18.7 STR* N $23.30 $26 ↓$25 19.5 TEG* N $56.22 $63 ↓$57 15.6 UNS* N $43.30 $52 ↓$47 14.2 WEC* N $39.62 $45 ↓$41 16.1 WR* B $30.65 $40 ↓$37 16.3 XEL* N $28.04 $32 ↓$29 14.8 Symbol Rating Multiple of 2014 EPS Previous Target Revised Target Current Price D.A. Davidson & Co. Two Centerpointe Drive, Suite 400  Lake Oswego, Oregon 97035  (503) 603-3000  (800) 755-7848  www.dadavidson.com Copyright D.A. Davidson & Co., 2013. All rights reserved. 2 Required Disclosures D.A. Davidson & Co. expects to receive, or intends to seek, compensation for investment banking services from the companies mentioned in this report in the next three months. D.A. Davidson & Co. is a full service investment firm that provides both brokerage and investment banking services. Michael Bates, the research analyst principally responsible for the preparation of this report, will receive compensation that is based upon (among other factors) D.A. Davidson & Co.’s investment banking revenue. However, D.A. Davidson & Co.’s analysts are not directly compensated for involvement in specific investment banking transactions. I, Michael Bates, attest that (i) all the views expressed in this research report accurately reflect my personal views about the common stock of the subject company, and (ii) no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Ratings Information D.A. 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