UTILITY062012-150542.pdf

Please see page 8 for rating definitions, important disclosures and
required analyst certifications
Wells Fargo Securities, LLC does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of the
report and investors should consider this report as only a single factor in
making their investment decision.

June 20, 2012
Equity Research
Regulated Electric Utilities Valuation Update
Updating Valuation Ranges Given Higher Group Multiples

Sector Rating: Integrated Electric & Gas, Market Weight
Sector Rating: Regulated Electric Utilities, Market Weight
FY EPS Valuation Range
Chg. Price Chg. Chg.
Ticker Rating Y/N 06/20/12 2012E Y/N 2013E Y/N Curr Prior
Integrated Electric & Gas
V 2 $29.73 $1.85 $1.95 $30-31 N
Regulated Electric Utilities
CMS 2 23.50 1.54 1.64 $24-25 $23-24
CNL 2 41.56 2.37 2.47 $44-45 $42-43 DU 2 22.83 1.40 1.45 $23-24 $22-23 D 2 61.50 3.75 3.85 $62-64 $60-62 EI 1 45.46 3.40 3.30 $52-53 $49-50 GXP 2 20.95 1.30 1.63 $22-23 $21-22 IDA 1 41.00 3.05 3.20 $45-46 $44-45
IT 1 68.65 4.00 4.90 $90-93 N
LN 1 45.11 2.85 3.15 $48-49 $47-48
NU 1 38.03 2.25 2.55 $42-43 $40-41
NV 2 17.60 1.20 1.25 $18-19 $18-19
NW 1 35.76 2.40 2.50 $39-40 N PCG 2 44.66 3.16 3.16 $45-46 $42-44 PG 2 59.49 3.20 3.40 $60-61 $57-58 PNW 2 51.19 3.34 3.50 $52-54 $48-50 POM 2 19.47 1.18 1.35 $21-22 N PO 2 26.53 1.90 1.95 $27-28 $26-27
SCG 1 47.32 3.12 3.33 $51-52 $50-51
SO 2 46.76 2.70 2.85 $48-49 $47-48
E 2 38.62 2.28 2.35 $39-40 $38-39
1 29.74 1.95 2.00 $31-32 $30-31
XEL 1 28.15 1.78 1.90 $31-32 $29-30

Source: Company data and Wells Fargo Securities, LLC estimates 1= Outperform, 2 = Market Perform, 3 = Underperform, V = Volatile
= Company is on the Priority Stock List NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful

• Summary. We are modestly increasing our valuation ranges on most of our regulated electric utility names (CMS, CNL, DUK, ED, EIX, GXP, IDA, LNT, NU,
NVE, PCG, PGN, PNW, POR, SCG, SO, WEC, WR and XEL) largely reflecting the
recent increase in peer group multiples. We have not made any ratings changes.
While we are finding it increasingly difficult to find highly compelling
opportunities, within the Regulateds we tend to favor the SMID caps. Separately,
we are trimming our EPS estimates for POM and SCG.
• Recommendations. For defensive, yield-oriented investors we continue to
recommend shares of Alliant Energy (LNT), Edison International (EIX),
IDACORP, Inc. (IDA), Northeast Utilities (NU), Northwestern (NWE), SCANA
(SCG), Westar Energy, Inc. (WR) and Xcel Energy (XEL). For growth investors
we continue to recommend shares of ITC Holdings (ITC).

Neil Kalton, CFA, Senior Analyst(314) 875-2051 /
[e-mail]
Sarah Akers, CFA, Senior Analyst
[phone] /
[e-mail]
Jonathan Reeder, Associate Analyst
[phone] /
[e-mail]
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

2

Summary
We are modestly increasing our valuation ranges on most of our regulated electric utility names largely
reflecting the recent increase in peer group multiples. We have not made any ratings changes. While we are
finding it increasingly difficult to find highly compelling opportunities, within the Regulateds we tend to favor
the SMID caps. Please see Figure 1 for a complete summary of our Regulated Electric Utility coverage
universe.

Recent Performance
YTD, the Regulated Electric group has provided a roughly 5.3% total return (vs. the S&P 500 of 9.1%) as the
group continues to hold considerable defensive appeal in what is a persistently uncertain macro-environment.
Keep in mind that in 2011 the Regulated Electrics increased roughly 25% vs. the S&P 500 up 3%.

Valuation Comments
From a valuation perspective the group appears expensive on a relative P/E basis trading at 1.25x the P/E
multiple of the S&P 500 vs. the 10-year median of 0.95x. Interestingly and arguably more importantly, shares
remain inexpensive relative to long-term interest rates as the earnings yield of the group relative to the 10-year
Treasury bond yield is approximately 380% versus the 10-year median of 190% and the dividend yield is 297%
of the 10-year Treasury yield versus the 15-year median of 93%. Please see Figures 2-7.

Fundamental Outlook Remains Strong
The outlook for the Regulated Electric utilities remains strong driven by a major capital spending cycle,
generally constructive regulatory environments and strong financial profiles that provide us confidence in the
safety and outlook for common dividends. While we are mindful of ROE risk given the low interest rate
environment, thus far regulators have been reluctant to materially lower allowed ROEs. We attribute this to a
desire to encourage investment (jobs, tax base, etc.), an acknowledgement that current interest rates could be
temporarily depressed and low power prices which helps mitigate - if not more than offset - the impact of base
rate increases.

Relative Valuations Within The Group
We believe the SMID cap electric utilities – market cap of less than $10B – are more attractively valued than
the Large Caps. The SMID caps trade at 5-7% P/E multiple discounts to the Large Cap Regulated Electrics on
2013 and 2014 earnings. We attribute the discrepancy to the “flight to quality (liquidity)” in light of global
economic concerns. That being said, should the “risk off” trade continue we would expect the Large Cap
premium to persist and potentially expand from the current levels. Recall, in 2008 the premium P/E multiple for Southern Company expanded to over 30% vs. the historical range of 5-15%.

Recommendations
For defensive, yield-oriented investors we continue to recommend shares of Alliant Energy (LNT), Edison
International (EIX), IDACORP, Inc. (IDA), Northeast Utilities (NU), Northwestern (NWE), SCANA (SCG),
Westar Energy, Inc. (WR) and Xcel Energy (XEL). For growth investors we continue to recommend shares of
ITC Holdings (ITC).

WELLS FARGO SECURITIES, LLC
Regulated Electric Utilities Valuation Update EQUITY RESEARCH DEPARTMENT

3

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WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

4

Figures 2-3: Valuation Appears Rich On A P/E Basis…

Source for Figures 2-3: Wells Fargo Securities, LLC and FactSet

WELLS FARGO SECURITIES, LLC
Regulated Electric Utilities Valuation Update EQUITY RESEARCH DEPARTMENT

5

Figures 4-5: …But Cheap Relative To Interest Rates

Source for Figures 4-5: Wells Fargo Securities, LLC and FactSet

WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

6

Figure 6 & 7: Utility Dividend Yields Remain Attractive Versus Treasury Yields
S&P Utilities Dividend Yield vs 10-Year Treasury
Yield (As of June 19, 2012)
40%
90%
140%
190%
240%
290%
340%
Jun-97
Jun
-
9
8
Jun-99
Jun-00
Jun
-
0
1
Jun-02
Jun
-
0
3
Jun
-
0
4
Jun-05
Jun
-
0
6
Jun-07
Jun
-
0
8
Jun
-
0
9
Jun-10
Jun
-
1
1
Jun
-
1
2
15-Year
Median
* Yields are calculated after-tax, assuming a 30% tax rate
** Beginning in May 2003, data is adjusted for 15% tax rate for S&P Utilities dividends.
Ex ensive
Inexpensive

Utility Dividend Yields Vs. Treasury Yields
(As of June 19, 2012)
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Jun-97
Jun-98
Jun
-
9
9
Jun-00
Jun-01
Jun-02
Jun-03
Jun
-
0
4
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun
-
1
2
Median
Dividend
Yield 10-Year Treasury Yield
S&P Utilities
Dividend Yield
Source for Figures 6-7: Wells Fargo Securities, LLC, Baseline and FactSet

WELLS FARGO SECURITIES, LLC
Regulated Electric Utilities Valuation Update EQUITY RESEARCH DEPARTMENT

7

Valuation Range Information:
VVC Basis and Risks: Our valuation range is based on a sum-of-the-parts ($27/share for Utility Holdings
and $3.00-3.50/share for Non-Utility) and dividend discount analysis. Risks include economic weakness,
lower than expected coal sales, and Non-Utility exposure to commodity prices.

CMS Basis and Risks: Our $24-25/sh valuation range is based on a P/E multiple (apply the 13E regulated
electric group median multiple of 15X to our 14E of $1.64) and dividend discount model. Risks to achieving
that valuation include the company's ability to obtain timely and adequate rate relief, meet current and future
environmental standards, maintain reliability, and continue to be profitable in its scaled-down non-utility
businesses.

CNL Basis and Risks: Our valuation is based on a P/E multiple comparison, residual income and dividend
discount analyses. We apply a 16.5X P/E multiple to our 14E EPS of $2.70. Risks include economic weakness
and potential difficulties extracting value from Coughlin.

DUK Basis and Risks: Our $23-24/sh valuation range reflects a P/E multiple (16X our 2013E of $1.45), a
dividend discount model and a residual income analysis. Risks include merger integration risk, regulatory risk,
international exposure and unregulated coal fleet margins.

ED Basis and Risks: We value ED under P/E multiple (apply 16.0x to our 2014E EPS of $3.95) and dividend
discount analysis. Risks to our valuation include regulatory-related risks related to CECONY Electric's
upcoming rate case, higher than expected O&M expense and interest rate sensitivity.

EIX Basis and Risks: Our 12-18 month valuation range of $52-53 per share is primarily based on a sum-of-
the-parts analysis and dividend discount model. We apply the 13E regulated electric group median multiple of
15X to our 2014 EPS estimate for SCE & Parent of $3.50 resulting in a forward price of approximately $52-53
per share. We ascribe no value for EMG. Key risks include a potential deterioration in the CA regulatory
climate and risks around Edison Mission (distraction to management, legal challenges in the event EME
defaults on the company's debt obligations, etc.)

GXP Basis and Risks: Our valuation range is primarily based on a P/E multiple analysis (13.5X our 13E EPS). Key risks include unfavorable rate case outcomes, lack of a full fuel clause at KCP&L-MO and lower than
expected sales.

IDA Basis and Risks: We value IDA under P/E multiple (13.5-14.0X multiple on our 14E EPS of $3.30) and
dividend discount analysis. Risks to our valuation include project delays/cancellations, negative regulatory
developments and economic weakness.

ITC Basis and Risks: Our valuation range is based on P/E and residual income analyses. We apply a
(roughly) 16.0X multiple to our 14E EPS of $ 5.70. The 16X multiple represents what we view to be a
conservative 8% premium relative to the 2013E regulated electric peer group median of 14.8X. We compare
our 2014 estimate with the 2013 median multiple given the forward looking nature of our valuation range.
Risks to our valuation include adverse changes in the FERC's transmission policies, project delays or
cancellations and failure to close the ETR Mid-South transaction.

LNT Basis and Risks: Our valuation range is based on a P/E multiple (15.0X our 14E EPS of $3.25) and
dividend discount analysis. Risks to our valuation include negative regulatory developments in Iowa or
Wisconsin, inability to control operating costs and economic weakness.

NU Basis and Risks: Our $42-43/sh valuation range is premised on a roughly 5% premium to 13E regulated
P/E multiple of 15X to our 14E EPS of $2.70. Risks to our valuation include an adverse outcome in the MA rate
case proceedings, regulatory clawbacks of merger-related cost synergies and project delays/cancellations
related to NEEWS or Northern Pass.

NVE Basis and Risks: Our valuation range is supported by our P/E (14.5X on our 14E EPS), dividend
discount and residual income analyses. Key risks include negative economic developments, higher than
expected O&M expense growth and unsupportive regulatory decisions.

NWE Basis and Risks: Our $39-40/sh valuation range is based on a P/E multiple (apply the 13E regulated
electric group median multiple of 15X to our 14E EPS of $2.70) and dividend discount model. Chief risks
include regulatory risk, a potentially large NOL liability, project timing risk and interest rate risk.

WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

8

PCG Basis and Risks: Our $45-46/sh valuation range is based on a P/E multiple (apply a roughly 10%
discount to the 13E regulated electric median multiple of 15X to our 14E of $3.46) and dividend discount
model. Key risks include unfavorable regulatory outcomes and higher than expected unrecoverable costs
related to the San Bruno explosion.

PGN Basis and Risks: Our valuation range is derived from our $23-24 valuation range for DUK (PGN shareholders will received 2.6125 shares of DUK as consideration in the pending merger). Risks to shares
include merger approval risk, regulatory risk, recessionary risks and rising interest rates.

PNW Basis and Risks: Our valuation range is primarily based on a P/E multiple analysis (15.25X our 13E
EPS). Key risks include unfavorable regulatory developments, weaker than expected customer growth and
unexpected plant outages.

POM Basis and Risks: Our valuation range is based on a combination of our P/E multiple comparison
(apply the 13E regulated electric group median multiple of 15X to our 14E EPS of $1.45), dividend discount and
residual income methodologies. Risks include regulatory risks associated with pending and upcoming rate
filings, transmission project delays and interest rate sensitivity.

POR Basis and Risks: Our valuation range is supported by our P/E (13.5X on our 14E EPS), dividend
discount and residual income analyses. Risks include operating cost increases, a protracted economic
downturn, and adverse RFP outcomes.

SCG Basis and Risks: Our 12-18 month valuation range is based on a P/E multiple (apply '13E mid cap
group median of 14.5X to our '14E of $3.50) and dividend discount analysis. Risks to SCG shares, in our view,
include regulatory risk, construction risk and a slower-than-expected Southeastern economy.

SO Basis and Risks: Our 12-18 month valuation range is based on a P/E multiple (apply a roughly 10%
premium to the regulated '13E median multiple of 14.8X to our 2013E of $3.00) and dividend discount model
analyses. In our view, risks include regulatory risk, construction risk and potential exposure to adverse federal
energy legislation.

WEC Basis and Risks: Our valuation range is based on a P/E multiple (apply a 16.0X multiple to our 14E
estimate of $2.45) and dividend discount model. Risks to our valuation include regulatory risk and the impact
of a protracted recession on sales and costs.

WR Basis and Risks: Our valuation range is based on a P/E multiple (apply a 15X multiple to our 14E EPS
of $2.10) analysis. Risks to our valuation include customer and regulatory pushback to rising costs, lower than
expected sales growth and higher than expected cost inflation.

XEL Basis and Risks: Our Valuation is based on a P/E multiple (16.6X multiple on our 13E EPS of $1.90)
and dividend discount model. Risks include regulatory risks related to pending and upcoming rate cases, a
weaker than expected rebound in sales and cost pressures.

Required Disclosures

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I certify that:
1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or
issuers discussed; and
2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed
by me in this research report.

WELLS FARGO SECURITIES, LLC
Regulated Electric Utilities Valuation Update EQUITY RESEARCH DEPARTMENT

9

ƒ Wells Fargo Securities, LLC maintains a market in the common stock of Duke Energy Corp., Pepco Holdings, Inc., Southern
Company, Westar Energy, Inc., Progress Energy, Inc., SCANA Corp., Alliant Energy Corp., IDACORP, Inc., NV Energy Inc.,
Edison International, CLECO Corp, ITC Holdings, PG&E Corp., Wisconsin Energy Corp., Portland General Electric, Xcel Energy,
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ƒ Wells Fargo Securities, LLC or its affiliates managed or comanaged a public offering of securities for Great Plains Energy,
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Energy, Consolidated Edison, Edison International, Vectren Corp., Pinnacle West Capital Corp., Xcel Energy, Inc., Portland
General Electric, Wisconsin Energy Corp., PG&E Corp., ITC Holdings.
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LLC. Wells Fargo Securities, LLC provided investment banking services to Pinnacle West Capital Corp., Northeast Utilities, Great
Plains Energy, Edison International, SCANA Corp., Progress Energy, Inc., CMS Energy Corp., IDACORP, Inc., Westar Energy,
Inc., Southern Company, Pepco Holdings, Inc., Duke Energy Corp.
ƒ Pepco Holdings, Inc., Westar Energy, Inc., IDACORP, Inc., NV Energy Inc., Progress Energy, Inc., Alliant Energy Corp., Edison
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Xcel Energy, Inc.
ƒ Pinnacle West Capital Corp., Consolidated Edison, Edison International, Great Plains Energy, Alliant Energy Corp., IDACORP,
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Energy Corp., IDACORP, Inc., Westar Energy, Inc., Pepco Holdings, Inc., Duke Energy Corp.
ƒ Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from Duke
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WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

10

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

STOCK RATING
1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the
next 12 months. BUY
2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market
over the next 12 months. HOLD
3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12
months. SELL
SECTOR RATING
O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
VOLATILITY RATING
V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the
analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.
CMS: Risks to achieving that valuation include the company's ability to obtain timely and adequate rate relief, meet current and
future environmental standards, maintain reliability, and continue to be profitable in its scaled-down non-utility businesses.
CNL: Risks include economic weakness and potential difficulties extracting value from Coughlin.
DUK: Risks include merger integration risk, regulatory risk, international exposure and unregulated coal fleet margins.
ED: Risks to our valuation include regulatory-related risks related to CECONY Electric's upcoming rate case, higher than expected
O&M expense and interest rate sensitivity.
EIX: Key risks include a potential deterioration in the CA regulatory climate and risks around Edison Mission (distraction to
management, legal challenges in the event EME defaults on the company's debt obligations, etc.)
GXP: Key risks include unfavorable rate case outcomes, lack of a full fuel clause at KCP&L-MO and lower than expected sales.
IDA: Risks to our valuation include project delays/cancellations, negative regulatory developments and economic weakness.
ITC: Risks to our valuation include adverse changes in the FERC's transmission policies, project delays or cancellations and failure
to close the ETR Mid-South transaction.
LNT: Risks to our valuation include negative regulatory developments in Iowa or Wisconsin, inability to control operating costs
and economic weakness.
NU: Risks to our valuation include an adverse outcome in the MA rate case proceedings, regulatory clawbacks of merger-related
cost synergies and project delays/cancellations related to NEEWS or Northern Pass.
NVE: Key risks include negative economic developments, higher than expected O&M expense growth and unsupportive regulatory
decisions.
NWE: Chief risks include regulatory risk, a potentially large NOL liability, project timing risk and interest rate risk.
PCG: Key risks include unfavorable regulatory outcomes and higher than expected unrecoverable costs related to the San Bruno
explosion.
PGN: Risks to shares include merger approval risk, regulatory risk, recessionary risks and rising interest rates.
PNW: Key risks include unfavorable regulatory developments, weaker than expected customer growth and unexpected plant
outages.
POM: Risks include regulatory risks associated with pending and upcoming rate filings, transmission project delays and interest
rate sensitivity.
POR: Risks include operating cost increases, a protracted economic downturn, and adverse RFP outcomes.
SCG: Risks to SCG shares, in our view, include regulatory risk, construction risk and a slower-than-expected Southeastern economy.
SO: In our view, risks include regulatory risk, construction risk and potential exposure to adverse federal energy legislation.
VVC: Risks include economic weakness, lower than expected coal sales, and Non-Utility exposure to commodity prices.
WEC: Risks to our valuation include regulatory risk and the impact of a protracted recession on sales and costs.
WR: Risks to our valuation include customer and regulatory pushback to rising costs, lower than expected sales growth and higher
than expected cost inflation.
XEL: Risks include regulatory risks related to pending and upcoming rate cases, a weaker than expected rebound in sales and cost
pressures.
WELLS FARGO SECURITIES, LLC
Regulated Electric Utilities Valuation Update EQUITY RESEARCH DEPARTMENT

11

As of: June 20, 2012
49% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Outperform.
Wells Fargo Securities, LLC has provided investment banking
services for 40% of its Equity Research Outperform-rated
companies.
49% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Market Perform. Wells Fargo Securities, LLC has provided investment banking services for 32% of its Equity Research Market Perform-rated
companies.
2% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Underperform.
Wells Fargo Securities, LLC has provided investment banking
services for 21% of its Equity Research Underperform-rated
companies.

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

WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

12