WellsFargo-May-3-2013.pdf

Please see page 11 for rating definitions, important disclosures
and required analyst certifications
All estimates/forecasts are as of 05/03/13 unless otherwise stated.
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.

May 3, 2013
Equity Research
May 2 & 3 EPS Updates & Conf. Call Takeaways

Sector Rating: Diversified Electric Utilities, Market Weight
Sector Rating: Integrated Electric & Gas, Market Weight
Sector Rating: Regulated Electric Utilities, Market Weight
Sector Rating: Water Utilities, Market Weight
FY EPS Valuation Range Chg. Price Chg. Chg.
Ticker Rating Y/N 05/03/13 2013E Y/N 2014E Y/N Curr Prior
Diversified Electric Utilities PPL 2 $32.81 $2.30 $2.25 $34-35 $33-34
Integrated Electric & Gas
V 2 36.82 1.95 2.20 $36-37 N
Regulated Electric Utilities
LN 2 53.29 3.10 3.30 $55-56 $53-54
E 2 36.67 2.15 2.30 $37-38 $36-37 ED 2 63.62 3.75 3.90 $66-67 $65-66 DU 2 74.50 4.35 4.60 $76-77 N IDA 2 48.18 3.27 3.40 $51-53 N NU 1 45.09 2.55 2.75 $50-51 $49-50 NV 2 21.35 1.30 1.35 $22-23 N POM 1 22.39 1.12 1.35 $24-25 $23-24
PCG 2 47.15 2.65 3.10 $48-49 N
PNW 2 61.48 3.60 3.75 $63-64 $62-63
XEL 1 31.23 1.90 2.00 $33-34 N
Water Utilities T 2 31.98 1.42 1.47 $31-32 $29-30 CW 2 20.29 0.84 1.08 $21-22 $20-21

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. Seventeen of our 39 utility companies under coverage reported
earnings in the last day and a half. Highlights from the earnings reports and
conference calls of the following companies are included in this note: AEE, CWT,
DUK, ED, IDA, LNT, NU, NVE, PCG, PNW, POM, PPL, VVC, WTR & XEL. We
are increasing valuation ranges for AEE, CWT, ED, LNT, NU, PNW, POM, PPL & WTR and adjusting EPS estimates for DUK, PNW, PPL and VVC.
• Q1 Trends. While Q1 tends to be a non-event for most utilities, a few trends are
worth noting. (1) Most companies have expressed optimism in local economic
trends and industrial sales continue to lead – but residential and commercial
sales generally remain weak. (2) Capacity factors for coal and gas plants are
reversing from last year in response to higher near-term gas prices (AEP, CMS,
DUK, SO, WEC). (3) Investors continue to focus on rate activity/potential ROE
pressure (pending rate case for CMS, DUK, ED, POM, POR, XEL; upcoming
filings at NVE, NWE, PNY, SO) and rate base growth opportunities (POR RFPs,
NU Northern Pass, NVE NVision, CNL wholesale contract opportunities, PEG
Energy Strong, POM infrastructure hardening, SCG new nuclear, SO new nuclear
& IGCC, etc.). (4) Transmission-heavy utilities (ITC, NU, POM) continue to
expect existing FERC-approved ROEs to be upheld as they remain within reason
and supportive of national policy goals.

Neil Kalton, CFA, Senior Analyst
[phone] /
[e-mail] Akers, CFA, Senior Analyst(314) 875-2040 /
[e-mail]
Jonathan Reeder, Associate Analyst
[phone] /
[e-mail]
Glen F. Pruitt, Associate Analyst
[phone] /
[e-mail]
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

2

May 2 & 3 Earnings Updates & Conference Call Takeaways

Seventeen of our 39 utility companies under coverage reported earnings in the last day and a half. Our EPS
estimates and valuation ranges are outlined in Figure 1 below followed by key takeaways and thoughts from Q1
conference calls for the following companies: AEE, CWT, DUK, ED, IDA, LNT, NU, NVE, PCG, PNW, POM, PPL, VVC, WTR & XEL.

Figured 1: Ratings, Valuation Ranges & EPS Estimates

5/03/2013
Company Ticker Analyst Rating Price ($) New Prior New Prior New Prior New Prior
Regulated Electrics
Alliant Energy Corp. LNT Kalton MP 53.38 55-56 53-54 3.10 3.10 3.30 3.30 3.45 3.45
Ameren Corp. AEE Kalton MP 36.68 37-38 36-37 2.15 2.15 2.30 2.30 2.45 2.42
Consolidated Edison ED Akers MP 63.64 66-67 65-66 3.75 3.75 3.90 3.90 4.02 4.02
Duke Energy DUK Kalton MP 74.69 76-77 76-77 4.35 4.35 4.60 4.65 4.80 4.90
IDACORP, Inc. IDA Akers MP 48.36 51-53 51-53 3.27 3.27 3.40 3.40 3.40 3.40
Northeast Utilities NU Kalton OP 45.37 50-51 49-50 2.55 2.55 2.75 2.75 2.95 2.95
NV Energy NVE Akers MP 21.44 22-23 22-23 1.30 1.30 1.35 1.35 1.42 1.42
Pepco Holdings POM Kalton OP 22.55 24-25 23-24 1.12 1.12 1.35 1.35 1.50 1.50
PG&E Corp. PCG Kalton MP 47.37 48-49 48-49 2.65 2.65 3.10 3.10 3.40 3.40
Pinnacle West Capital PNW Akers MP 61.63 63-64 62-63 3.60 3.55 3.75 3.72 3.85 3.82
Vectren Corp. VVC Akers MP 36.89 36-37 36-37 1.95 2.00 2.20 2.17 2.35 2.28
Xcel Energy XEL Kalton OP 31.38 33-34 33-34 1.90 1.90 2.00 2.00 2.05 2.05
Diversified (IPP/Regulated) Electrics
PPL Corp. PPL Kalton MP 32.95 34-35 33-34 2.30 2.40 2.25 2.20 2.35 2.25
Water Utilities
Aqua America WTR Kalton MP 32.12 31-32 29-30 1.42 1.42 1.47 1.47 1.49 1.49
California Water Service CWT Kalton MP 20.37 21-22 20-21 0.84 0.84 1.08 1.08 1.11 1.11
Rating: OP = Outperform; MP = Market Perform; UP = Underperform
Valuation Range ($) 2013E EPS ($) 2014E EPS ($) 2015E EPS ($)
Source: Wells Fargo Securities, LLC Estimates

Alliant Energy Corp. (LNT/Market Perform) (Kalton)
Reported Q1 EPS: May 3 (before open)
Conference Call: May 3 (9:00am ET)

• Summary. We are reiterating our Market Perform rating and increasing our 12-18 month valuation
range to $55-56/sh from $53-54/sh to reflect higher regulated peer group multiples. Our 2013-17E
EPS estimates remain $3.10, $3.30, $3.45, $3.65, & $3.75, which result in an EPS CAGR of 5% (off
2012 weather-normalized EPS of $2.93). EPS growth is supported by rate base growth including
environmental controls projects and the proposed construction of the Marshalltown Generating
Station (MGS), as well as continued cost control efforts. We consider LNT a high quality regulated
utility and our neutral rating is based solely on valuation considerations. During the Q1 call, LNT
reaffirmed 2013 EPS guidance of $2.95-3.25.

• Regulatory Update. On 4/29, IPL submitted a proposed settlement agreement to the Iowa Utility
Board (IUB) regarding construction of the MGS. The settlement was reached with the Iowa Office of
Consumer Advocate (OCA) and includes an allowed ROE 11.0%; however, parties agreed to address
double leverage in the context of a future rate case (or other proceeding). Construction of MGS is
scheduled to begin in 2014 with a targeted in service date of early 2017. Discussions continue on the
proposed rate stabilization plan in IA in which IPL hopes to extend the current base rate freeze until
early 2017, commensurate with the MGS in service date. The company is proposing the use of Tax
Benefit Rider funds to provide stability to customers while earning reasonable ROEs. In the event an
agreement cannot be reached, the company plans to file a base rate case in early 2014. Separately, on
5/2 WPL received verbal approval from the Public Service Commission of Wisconsin (PSCW) to
install emission control equipment at Edgewater Generating Station Unit 5. We view these
developments as constructive and supportive of our EPS estimates.
WELLS FARGO SECURITIES, LLC
May 2 & 3 EPS Updates & Conf. Call Takeaways EQUITY RESEARCH DEPARTMENT

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Ameren (AEE/Market Perform) (Kalton)
Reported Q1 EPS: May 2
Conference Call: May 2 (10:00am ET)

• EPS Comments. AEE provided initial ’13 EPS guidance for the company’s continuing operations
(excludes the Merchant Generation assets) of $2.00-2.20 comprised of mid-point estimates of $2.30
for the Regulated Utilities and a $0.20 loss for the parent. AEE expects the parent drag to decline to a
run rate of less than $0.10 annually by 2015 driven by the refinancing of an 8.875% $425mm parent
debt issuance in May’14 and cost rationalization. AEE’s guidance is largely consistent with our
assumptions, which already excluded Merchant Generation. No change to our 13-15E EPS of $2.15,
$2.30 & $2.45.

• ISRS Update. On 5/1, the MO legislature debated SB 207 – the Infrastructure Strengthening &
Regulatory Streamlining bill – but did not proceed to a vote. While AEE continues to aggressively
pursue/encourage passage of the bill in the current legislative session, the door is quickly closing as
the session ends on 5/17. We would view passage of the bill highly favorably as it could (1) reduce
regulatory lag and (2) result in a material increase in Ameren Missouri’s CapEx.

• Reiterate Market Perform. Our neutral rating primarily reflects valuation considerations as shares
trade at modest 2-4% P/E multiple discounts on our 13-15E EPS vs. the Regulated Electric peers,
which we believe is reasonable given the historically below average regulatory environments in MO &
IL. We also ascribe a low probability of success to the passage of ISRS – should ISRS pass it would
cause us to rethink our valuation methodology. We are nudging up our 12-18 month valuation range
to $37-38/sh from $36-37 to reflect higher peer group multiples.

Aqua America (WTR/Market Perform) (Kalton)
Reported Q1 EPS: May 1 (after the close)
Conference Call: May 2 (10:00am ET)

• Reiterate Market Perform. We are reiterating our Market Perform rating and modestly increasing
our 12-18 month valuation range to $31-32/sh from $29-30/sh. We are attracted to WTR from a
fundamental perspective – industry leading management, proven EPS growth strategy, lean operator,
strong balance sheet and financial flexibility – however, valuation considerations continue to keep us
on the sidelines. Shares trade at a 15% premium to “larger cap” water utility peers and a more
significant 35% premium to regulated electric utilities on our 2014E EPS.

• EPS Power Largely Unaffected by Repairs Tax Deduction. Management noted on the call that
it is watching two trends right now – the cold, wet Spring in the Midwest and the slow start to
Marcellus drilling this year – which could have an adverse impact on 2013 results if they do not
reverse. Our 2013-15E EPS remain $1.42, $1.47 and $1.49. We forecast a 5-year EPS CAGR of 4% off
2012’s $1.32 base. We expect Aqua-Pennsylvania’s December 2012 adoption of the federal repairs tax
deduction (RTD) to essentially pull forward much of WTR’s EPS growth over the next few years until
underlying rate base growth catches up – necessitating an Aqua-PA rate case filing – as the RTD
benefits accrue to shareholders until the utility’s next rate case. At that point, the lower tax expense
will accrue to ratepayer benefit by decreasing the overall revenue requirement. Thus, while Aqua-
PA’s near-term earnings and cash flows substantially improves from RTD, longer-term earnings
power is largely unchanged. RTD contributed $0.22 of WTR’s 2012 ongoing EPS of $1.32 and is
expected to provide $0.28-0.29 in 2013 and beyond.
• Dividend Growth Announcement Next Week? WTR has one of the industry’s strongest balance
sheets and cash flow profiles and stands ready to enhance shareholder returns through a combination
of dividend increases, share buybacks and opportunistic growth ventures (regulated M&A, shale-
related water pipelines, etc.). Though the Board stayed the course when declaring its $0.175 quarterly
dividend on 5/1, CEO Nicholas DeBenedictis indicated the May 8 Board and Annual meetings will
address the topic. WTR has considerable room to accelerate the pace of its dividend growth while
adhering to a 60% payout ratio. The current $0.70 annual rate represents a low 49% payout ratio on
our 13E. Our model assumes the Board takes multiple bites out of the apple over the next few years –
including a $0.12 or 17% increase in 2013 vs. the $0.04 annual increases that have been declared
since 2007. In addition, if meaningful profitable growth opportunities do not materialize over the
next few years, we believe a higher payout ratio and an enhanced share buyback program may be
pursued to make use of WTR’s strong cash flow position and maintain an equity ratio closer to 45%.

WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

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California Water Service Group (CWT/Market Perform) (Kalton)
Reported Q1 EPS: May 1 (after the close)
Conference Call: May 2 (11:00am ET)

• Reiterate Market Perform. We are reiterating our Market Perform rating and modestly increasing
our 12-18 month valuation range to $21-22/sh from $20-21/sh following CWT’s Q1 EPS report.
Shares of CWT trade in-line with water utility peers based on our 14E & 15E EPS which we believe is
appropriate given similar EPS and DPS growth prospects. We project a 5-year EPS CAGR of 5-6% (off
the 2012 ongoing base of $0.95) as well as a 3% DPS CAGR during the same period. We believe
roughly 100 bps of upside could exist to our EPS CAGR ($0.05-0.07) depending on CWT’s level of
success in improving the earned ROE at its Hawaii systems.

• EPS Outlook Hinges on GRC Outcome. Our 2013-15E EPS remain $0.84, $1.08 & $1.11. Key
aspects of our model include: (1) additional expense headwinds in ‘13 consistent with the net income
guidance of $35.7-$39.9mm that management affirmed on its May 2 call, (2) the March equity
issuance, (3) a 5-year CapEx budget of $720mm and (4) an assumed roughly $15mm net income
benefit in ‘14 from the pending Cal Water general rate case – settlement discussions begin next week,
hearings start June 4 and a final decision is expected by year-end. Our forecast reflects earned utility
ROEs in the 9.2-9.4% range in ‘14 & beyond given the 56 basis point reduction in the water allowed
ROE to 9.43% in 2013.
• Equity Ratio Restored. In late-March, CWT completed a 5.75mm share secondary offering. The
$106mm of net proceeds were used to pay off short-term debt and increase the equity ratio at its
primary subsidiary Cal Water so that it was in-line with the 53.4% ratio authorized in the 2012-14
cost-of-capital order. In addition, CWT pre-funded some future capital investments. We do not
foresee the need for additional external equity until 2017 at the earliest.

Consolidated Edison (ED/Market Perform) (Akers)
Reported Q1 EPS: May 2 (after close)

• 2013 Guidance Intact. ED reported solid Q1 results and affirmed ongoing ’13 EPS guidance of
$3.65-3.85. No change to our ’13-15E EPS of $3.75, $3.90 & $4.02. The pending rate case remains
key to ED’s post-’13 EPS power. Our ‘14E & ‘15E EPS result in earned ROEs at CECONY of
approximately 9.3% assuming 50% equity ratios - we estimate that a 25 bp change in the earned ROE
has a $0.07-0.08 impact on EPS. We are raising our 12-18 month valuation range to $66-67/sh from
$65-66/sh on higher peer group multiples.

• Competitive CapEx Forecast Upped. ED now expects 2013 competitive energy CapEx to be
$375mm vs. $253mm previously to reflect potential investments in renewable generation. We view
these projects favorably as they add to the company’s growth profile and are typically structured in a
low-risk (utility-like) fashion.

Duke Energy (DUK/Market Perform) (Kalton)
Reported Q1 EPS: May 3 (before the open)
Conference Call: May 3 (10:00am ET)

• Regulatory Outcomes Key to EPS Growth. DUK has three key open regulatory items which likely
will significantly impact 2H’13 results and ongoing EPS power. Carolinas – PEC reached a settlement
with the NC Public Staff for a $183mm increase based on a 10.2% allowed ROE and 53% equity ratio.
We expect NCUC approval with new rates effective in June. We consider the agreement favorably as
it demonstrates that DUK is able to work constructively with NC constituents despite the post-merger
drama. We also believe it bodes well for a constructive outcome in the pending DEC rate case. DEC
filed in NC for $446mm and SC for $220mm increases based on 11.25% ROEs and 53% equity ratios.
Hearings are scheduled for July with new rates expected by September. Ohio – DUK expects a mid-
2013 PUCO decision on its request to recover $728mm of capacity costs. On its Q1 conference call,
management indicated a settlement agreement was highly unlikely. The outcome of this proceeding,
as well as expectations for future natural gas prices (which impacts the value of DUK’s underlying coal
and gas plants), will influence DUK’s potential decision to divest of its Midwest generation.

• EPS Outlook Lowered. We have lowered our 14E and 15E EPS to $4.60 and $4.80 from $4.65 and
$4.90. No change to our 13E of $4.35. We project a 5-year EPS CAGR of 3% (vs. 4% previously)
WELLS FARGO SECURITIES, LLC
May 2 & 3 EPS Updates & Conf. Call Takeaways EQUITY RESEARCH DEPARTMENT

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through 2017 (off of 2012’s $4.32 base). We are reiterating our Market Perform rating and 12-18
month valuation range of $76-77/sh.

• Other Tidbits from the Call. New CEO – No news! The Board will make the decision on who will
replace CEO Jim Rogers by year-end. Edwardsport IGCC – Construction is complete and testing is in
the final phase; the plant is expected to be placed in service later this month. Merger integration –
Efforts seem to be progressing in-line with management’s plan. $89mm of fuel and joint dispatch
savings in first nine months – which appears on track to meet the $675mm of savings guaranteed.
Crystal River 3 – FPSC will review DUK’s decision to retire CR3 and the acceptance of $835mm of
total insurance proceeds from NEIL. Intervenor and staff testimony is due in September with
hearings scheduled to begin 10/21.

IDACORP (IDA/Market Perform) (Akers)
Reported Q1 EPS: May 2 (before open)
Conference Call: May 2 (4:30pm ET)

• Strong Q1 – No ADITC Usage Expected in 2013. IDA affirmed 2013 EPS guidance of $3.20-3.35
and revised the expected use of ADITCs to “zero” from “less than $5mm” on the heels of a strong
quarter (both underlying strength and 14% colder than normal weather). No change to our ’13-15E
EPS of $3.27, $3.40 & $3.40. Our ‘15E EPS is premised on traditional rate parameters including the use of average rate base rather than year-end equity – that said, we think it is increasingly likely that
IDA will be able to extend the ADITC plan beyond the year-end 2014 expiration.

• Economic/Sales Update. IDA highlighted improved economic conditions during 2012 and into
2013 including a service area unemployment rate of 6.0% at the end of March (preliminary) which is
down from 8.4% at YE’11 and 6.2% at YE’12. Further, general business customer growth is
accelerating and IDA continues to receive service inquiries from large-load customers.

• Upcoming IRP. IDA expects to file an updated Integrated Resource Plan (IRP) in June. Preliminary
studies indicate that there is no peak-hour load deficit until 2016 excluding demand response. As the
2013 IRP will exclude load growth from potential unidentified large-load customers, we do not
anticipate the plan will include meaningful resource needs in the near-term.

Northeast Utilities (NU/Outperform) (Kalton)
Reported Q1 EPS: May 1 (after the close)
Conference Call: May 2 (9:00am ET)

• Compelling Regulated Growth Story – Reiterate Outperform. We are reiterating our
Outperform rating and increasing our valuation range to $50-51/sh from $49-50/sh on a higher peer
group multiple. Shares trade in-line with peers on our 14E & 15E EPS. We view the relative valuation
as highly compelling given above avg. EPS and DPS growth prospects (~8% vs. peers of 3-5%), a light
regulatory calendar and strong cash flow position. Assuming cost control execution and 0.5-1.0%
annual sales growth – observed Q1 trends lend credence to these assumptions – it is possible that NU
would not need distribution base rate relief upon the expiration of rate plans in CT (late-14), MA
(late-15) and NH (mid-15). This sets NU up nicely to negotiate additional multi-year rate plans and -
for CT - potentially shift away from traditional ratemaking to a performance based plan.

• Northern Pass Route by July? NU maintains that it has a route but continues to work with local
and state constituents to solidify as much support as possible before going public with the route.
Management expects to announce the new route by mid-year (July timeframe) and expressed a high
degree of confidence in the ability to gain siting approval. The expected cost for NPT continues to be
$1.2B with a target in-service date of mid-2017. While we admittedly are a bit surprised that the new
route has yet to be revealed, we are not overly concerned as the siting process is often tricky for large
transmission lines. We take comfort in management’s confidence that the line will get built given (1)
NU’s successful track record of developing other complex transmission projects and (2)
management’s comments that the economics and rationale still support the line and that Hydro-
Quebec is firmly on board. While NPT is a key component of NU’s EPS growth – the project is
expected to contribute ~$0.25 to annual EPS upon completion – we project NU would have cash flow
to support a share buyback program in the unlikely event NPT is not ultimately constructed.

• EPS Outlook. NU affirmed ‘13 EPS guidance of $2.40-2.60 and 6-9% longer-term growth off the
$2.28 ‘12 base. Our 13-16E EPS remain $2.55, $2.75, $2.95 & $3.05.
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

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NV Energy (NVE/Market Perform) (Akers)
Reported Q1 EPS: May 3 (before open)
Conference Call: May 3 (10:00am ET)

• Quiet Q1. NVE reported a solid quarter and maintained 2013 EPS guidance of $1.25-1.35. The
company continues to see a slow, steady economic recovery and remains on-track to keep O&M
expense flat.

• All Eyes on NVision… NVision remains a key topic of conversation given potential rate base growth
opportunities and enhanced regulatory treatment. As amended, key resource provisions of NVision
include the following: retire Reid Gardner 13 (300MW) by 12/31/14 and unit 4 (257MW) by 12/31/17
and replace with 500-550MW of gas generation; divest 11.3% ownership in Navajo by 12/31/19 and
replace with 200-250 of gas by summer 2021; and NVE begin construction of 150MW of renewables
by December '17 to be complete in 2021, in addition to 450MW of renewable RFPs. The bill also
provides tracking of all retirement-related costs and the ability to file for single issue ratemaking for
recovery of investment made under the plan, among other items. The legislature meets every two
years and the current session ends June 3.

• …& Upcoming Regulatory Filing. NVE will likely file an NVE-North rate case and a merger
application in the June time frame. We are particularly interested in the potential ROE debate (and
the read-through to the NVE-South/combined case in ’14).

Pepco Holdings (POM/Outperform) (Kalton)
Reported Q1 EPS: May 3 (before the open)
Conference Call: May 3 (10:00am ET)

• Reiterate Outperform. Reiterating Outperform rating and modestly increasing our 12-18 month
valuation range to $24-25/sh from $23-24/sh on higher peer group multiples. Our positive thesis is
premised on well above peer group average EPS growth prospects driven by a combination of an
assumed improvement in earned ROEs at POM's distribution utilities combined with planned rate
base growth. We project annual EPS growth of 10% through '16 (off the '12 base), which compares
with the peer average of 3-5%.

• Lease Portfolio Liquidation. POM indicated it has liquidated a portion of its cross-border energy
lease portfolio receiving net cash proceeds of $168mm compared to the $185mm carrying value.
Applying the same ratio to the entire $1.2B portfolio would imply gross proceeds of nearly $1.1B. This
represents meaningful upside to our assumed $750mm gross proceeds ($500mm net of the IRS
deposit) and bolsters our belief that new equity needs could be delayed until at least 2016.

• EPS Outlook. POM affirmed 2013 guidance of $1.05-1.20. Our 2013-15E EPS remain $1.12, $1.35 &
$1.50. Our EPS estimates reflect an assumed improvement in earned distribution ROEs to 8.5-9.0%
by '16 vs. 6.5% in '12. Should our earned ROE improvements prove optimistic, we highlight potential
mitigating factors, including (1) POM's 13-17E CapEx budget of $5.9B excludes potential CapEx of
$1B+ related to undergrounding facilities in MD & DC – investment that would not be pursued
without timely recovery; and (2) redeployment of lease proceeds above our assumed $500mm net
amount.

• Reducing Regulatory Lag. 2H’13 will provide greater clarity on POM’s ongoing attempts to improve
the company’s regulatory constructs and bridge the sizeable gap between earned and allowed ROEs.
POM has $260mm of rate cases pending in all of its jurisdictions based on 10.25% ROEs: Pepco-MD
($61mm request; 7/12 decision), Delmarva (gas)-DE ($12mm request; Q3 decision), ACE-NJ
($70mm request; Q4 decision), Pepco-DC ($52mm request; Q4 decision), Delmarva (electric)-DE
($42mm request; Q4 decision) and Delmarva-MD ($23mm request; Q4 decision). POM’s Maryland
filings request a Grid Resiliency Charge to help fund accelerated reliability investments.

PG&E Corp (PCG/Market Perform) (Kalton)
Reported Q1 EPS: May 2 (before open)
Conference Call: May 2 (11:00am ET)

• San Bruno Update. PCG continues to believe that the pending San Bruno proceeding at the CPUC
will likely be fully litigated with a final Commission decision expected by YE’13. In the near-term,
CPUC Staff and other intervenor testimony/recommendations are expected to be filed on 5/6 – the
WELLS FARGO SECURITIES, LLC
May 2 & 3 EPS Updates & Conf. Call Takeaways EQUITY RESEARCH DEPARTMENT

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filings will be the first detailing the intervenors’ suggested penalties. Following additional back-and-
forth filings the record is expected to be closed in June and then proceed to the Administrative law
judges (ALJs) assigned to the proceedings. The ALJs decision is expected during the fall of 2013.
While the ALJ decisions are considered to be final it is our understanding that any party or CPUC
commissioner can request that the CPUC review the outcome. Given the nature of the proceeding and
the numerous parties involved we fully expect that the proceeding will ultimately be reviewed by the CPUC.

• Rights-of-Way Spending. Positively, PCG reiterated the company’s prior estimate for $500mm of
non-recoverable rights-of-way spending during the period ’13-17. However, to date the evaluation
process has largely been focused on rural areas where rights-of-way issues tend to be less contentious.
As the process moves into more urban areas over the next several months there is a risk that the
spending estimate could increase.

• Equity Comments. PCG continues to project ’13 equity issuances totaling $1.0-1.2B, which reflects
$200mm accrued for potential CPUC penalties. Our 13-15E EPS remain $2.65, $3.10 & $3.40 – we
project $1.6B of equity in 2013.

• Reiterate Market Perform. PCG shares trade at 6% & 10% P/E multiple discounts on our 14E &
15E EPS. We believe the current valuation adequately reflects the significant regulatory uncertainty
related to the San Bruno proceeding and lingering questions around the ultimate amount of
unrecoverable CapEx.

Pinnacle West Capital Corp. (PNW/Market Perform) (Akers)
Reported Q1 EPS: May 3 (before open)
Conference Call: May 3 (noon ET)

• Top End of ‘13E Range Expected Following Strong Q1. PNW expects ‘13E EPS go be near the
top end of the $3.45-3.60 range. We are increasing our ’13-15E EPS to/from $3.60/$3.55,
$3.75/$3.72 & $3.85/$3.82. The strong start to ’13 (which reflects execution on cost controls and
modestly better-than-expected sales growth) could support additional upside potential. We continue
to like the PNW story – our Market Perform rating solely reflects valuation considerations as shares
trade at modest premiums to Regulated Electric peers. We are increasing our 12-18 month valuation
range to $63-64/sh from $62-63/sh on both slightly higher EPS and group multiples.

• Sales Growth Picture Brightens. On the heels of two quarter of positive sales growth, PNW raised
the ’13-15 weather-normalized retail electric sales volume growth assumptions to “less than 1%” from
“flat.” Better-than-expected sales growth along with continued execution on cost controls could allow
the company to delay a rate case filing (along with equity issuance) beyond the ’14 time frame.

• Project & Regulatory Updates. PNW continues to target mid-13 to complete the Four Corners
acquisition with rate recovery expected in early 2014. Several regulatory developments are underway
in Arizona, including discussions around net metering and distributed renewable generation, energy
efficiency, and renewable standards.

PPL Corp (PPL/Market Perform) (Kalton)
Reported Q1 EPS: May 2 (before open)
Conference Call: May 2 (8:30am ET)

• EPS Revisions. Our new/old 13-15E EPS are $2.30/$2.40, $2.25/$2.20 and $2.35/$2.25. Lower
13E EPS reflects higher diluted shares outstanding due to accounting rules that required PPL to
effectively accelerate the dilutive impact of the company’s equity units. The accounting change had
no impact on PPL’s projected share count for ’14 & ’15, which included the shares related to the equity
unit conversions. We increased our 14E & 15E EPS to reflect (1) lower assumed interest costs on
upcoming debt issuances, (2) modestly higher power prices vs. our last model update and (3) slightly
lower average share count in ’15 based on PPL’s guidance – the lower share count relates to a
reduction in planned equity issuances of $100mm annually over the next three years.

• RPM Comments. PPL expects PJM’s 2016/17 capacity price auction results - Reliability Price Model-
for the company’s region (MAAC) to be modestly lower than 2015/16. PPL projects a capacity price of
$136-148/MW-Day vs. $168/MW-Day for 2015/16. By our calculations, every $25/MW-Day change
WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

8

in the capacity price has a $0.08, or roughly 3%, impact on annual EPS power. Our 16E & 17E EPS of
$2.50 & $2.65 assume the 2016/17 auction is flat with 2015/16.

• Reiterate Market Perform. While shares appear modestly inexpensive trading at roughly 6-7% P/E
multiple discounts to the Electric Universe on ’14 & ’15 estimates, our neutral rating largely reflects
PPL’s flattish near-term EPS outlook and our still cautious attitude toward power market leveraged
companies – we note that as a result of PPL’s regulated acquisition strategy, the company has greatly
reduced earnings exposure to changes in power and capacity prices (regulated earnings are expected
to comprise 80%+ of overall EPS for the next several years. We are increasing our 12-18 month
valuation range to $34-35/sh from $33-34/sh to reflect higher peer group multiples.

Vectren Corporation (VVC/Market Perform) (Akers)
Reported Q1 EPS: May 1 (after close)
Conference Call: May 2 (2:00pm ET)

• 2013 Guidance Intact…Excluding ProLiance. VVC maintained consolidated 2013 EPS guidance
of $1.90-2.10, which now reflects a slightly worse outlook for Coal Mining on Prosperity cost issues
and a slightly better outlook for Infrastructure Services. Mgmt. elected to exclude ProLiance from
guidance given the lack of visibility and some level of a strategic review (previously included in
guidance at breakeven). Importantly, ProLiance will continue to be reported in ongoing results. We are lowering our ‘13E EPS for the gas marketing business to ($0.05) from breakeven given continued
pressure on spreads – uncertainty around the timing of the recognition of spreads presents additional
downside risk to our estimates.

• EPS Outlook. We are lowering our ‘13E EPS by $0.05 to $1.95 to reflect lower expectations at
ProLiance. We are increasing our ‘14E & ‘15E EPS to/from $2.25/$2.17 & $2.35/$2.28 on a higher
2013 base at Infrastructure Services and an improved outlook for Coal Mining as Prosperity issues
subside and Oaktown 2 ramps – our post-13E EPS continue to reflect no contribution from
ProLiance.

• Coal Update. VVC increased 2013E tons sold to 6.3 million from 5.6 million due, in part, to new
contracts signed for the output of Oaktown 2. The improved sales outlook is more than offset,
however, by a reduction in ‘13E margin which is now projected at negative $1.50/ton ($43 price/ton
and $44.50 cost/ton) vs. negative $0.50/ton previously ($43 price/ton and $43.50 cost/ton) as the
Prosperity mine continues to face difficult mining conditions, which caused the cost/ton to rise to $49
in Q1’13. Mgmt expects an improvement in the cost/ton throughout the rest of 2013 and into 2014 as
Oaktown 2 ramps. Tons sold for 2014 are now 5.5 million vs. 5.8 million previously as 0.3 million
tons are being pulled forward into 2013 – the price/ton remains ~$46 for 2014E including 0.8 million
tons in arbitration.

Xcel Energy Inc. (XEL/Outperform) (Kalton)
Reported Q1 EPS: May 2 (before the open)
Conference Call: May 2 (10:00am ET)

• Summary. We are reiterating our Outperform rating and 12-18 month valuation range of $33-34/sh.
We are maintaining our 13-15E EPS of $1.90, $2.00, & 2.10. Shares trade at P/E multiple discounts
of 2-4% to the Regulated Electric Median on our 13-14E EPS and in-line on our 15E EPS. We think at
least an in-line multiple is warranted given XEL’s 5% 13-17E EPS CAGR (off the ’12 EPS base of
$1.82), constructive regulatory environments, and proven management team.

• EPS Outlook. Our 13-17E EPS remain $1.90, $2.00, $2.10, $2.20, & $2.30. We project annual EPS
growth of 4-5% through 2017 (off the ’12 EPS base of $1.82). Our estimates assume constructive
outcomes in pending rate cases with particular interest in MN, equity issuance totaling $400mm
through ’14 (excluding DRIP), and lower assumed interest costs on recent and upcoming debt
issuances. Other longer term EPS drivers include RFPs issued in CO and MN for additional wind and
gas generation incremental to the existing CapEx forecast – development of additional gas generation
would likely be in the ’16-19 timeframe. On the Q1 earnings call, XEL reiterated ’13 EPS guidance of
$1.85-$1.95/share.

• Regulatory Update. The key item on the agenda remains NSP-MN’s pending electric base rate
request. On 2/28, the Minnesota Department of Commerce (DOC) recommended a rate increase of
$93.6mm (revised to $82.6mm 4/12/13 by DOC) as compared to NSP’s requested $285.5 million
WELLS FARGO SECURITIES, LLC
May 2 & 3 EPS Updates & Conf. Call Takeaways EQUITY RESEARCH DEPARTMENT

9

increase. The DOC recommendation was based on an ROE of 10.24% (lowered to 9.83% in April) as
compared to the requested 10.6% while maintaining the requested 52.56% equity ratio. While we
have been disappointed in the DOC’s initial positions – particularly from a revenue perspective - we
remain of the opinion that a constructive resolution will ultimately be reached. A final MPUC
decision is expected this September. In TX, a settlement was reached between SPS and key customers
in the pending electric rate case on 4/30/13. The parties agreed on a two-step base rate increase totaling $50.1mm with a $37mm increase implemented on 5/1/13 followed by an incremental
$13.1mm increase on 9/1/13. On the Q1 earnings call management also mentioned both sides were
interested in discussing multiyear rate plans prior to the next filing, which we view favorably. Other
pending regulatory activity includes electric rate cases in NM and ND and a multi-year gas rate case in
CO. Our estimates assume reasonable outcomes in all pending rate cases.

WELLS FARGO SECURITIES, LLC
Utilities EQUITY RESEARCH DEPARTMENT

10

Valuation Range Information:
PPL Basis and Risks: We value PPL under a P/E multiple analysis (apply a 5% discount to the 2014 Electric
Power Universe peer group median of 16.0-16.5X - to our 15E of $2.35). Risks include earnings sensitivity to
power prices, regulatory/political risks and generation-related operating risks.

VVC Basis and Risks: Our valuation range is based on a sum-of-the-parts ($30/share for Utility Holdings
and $6-7/share for Non-Utility), dividend discount and residual income analyses. Risks include economic
weakness, lower than expected coal sales, and Non-Utility exposure to commodity prices.

LNT Basis and Risks: Our valuation range is based on a P/E multiple (apply the 2014 Regulated Electric
peer group median of 16.0-16.5X - to our 15E of $3.45) and dividend discount analysis. Risks to our valuation
include negative regulatory developments in Iowa or Wisconsin, inability to control operating costs and
economic weakness.

AEE Basis and Risks: Our valuation range is based on a P/E multiple (apply a 5% discount to the 2014
Regulated Electric peer group median of 16.0-16.5X - to our 15E of $2.45) and dividend discount analysis.
Risks include unfavorable regulatory outcomes, ability to cleanly exit the merchant business, and a material
rise in interest rates.

ED Basis and Risks: We value ED under P/E multiple (apply 16.5x to our 2015E EPS of $4.02), dividend
discount, and residual income analysis. Risks to our valuation include regulatory-related risks related to
CECONY pending rate cases and Sandy-related investigation, higher than expected O&M expense and interest
rate sensitivity.

DUK Basis and Risks: Our $76-77/sh valuation range reflects a P/E multiple (apply the 2014 Regulated
Electric group median of 16.0-16.5X to our 15E of $4.80), a dividend discount model and a residual income
analysis. Risks relate to merger execution, regulatory orders, international ops and unregulated coal fleet
margins.

IDA Basis and Risks: We value IDA under P/E multiple (15.4X multiple on our 15E EPS of $3.40), dividend
discount, and residual income analysis. Risks to our valuation include project delays/cancellations, negative
regulatory developments and economic weakness.
NU Basis and Risks: Our $50-51/sh valuation range is premised on a 5-10% premium to the 14E Regulated
Electric group median of 16.0-16.5X to our 15E EPS of $2.95. Risks include project delays/cancellations related
to Northern Pass and regulatory risks.

NVE Basis and Risks: Our valuation range is supported by our P/E (16X our 15E EPS of $1.42), dividend
discount and residual income analyses. Risks include negative economic developments, unsupportive
regulatory decisions and O&M pressure.

POM Basis and Risks: Our $24-25/sh valuation range is based on a P/E multiple comparison (apply the
14E Regulated Electric group median of 16.0-16.5X to our 15E EPS of $1.50), dividend discount and residual
income methodologies. Risks include regulatory risks associated with pending and upcoming rate filings and
interest rate sensitivity.

PCG Basis and Risks: Our $48-49/sh valuation range is based on a P/E multiple (apply a ~10% discount to
the 14E Regulated Electric group median of 15.5-16.0X to our 15E of $3.40) and dividend discount model
analysis. Key risks include unfavorable regulatory outcomes and higher than expected unrecoverable San
Bruno pipeline explosion costs.

PNW Basis and Risks: Our V.R. is based on P/E multiple (16.5X our 15E EPS of $3.85), dividend discount
and residual income analyses. Risks include unfavorable regulatory developments, weaker than expected
customer growth and cost inflation.

XEL Basis and Risks: Our valuation range is based on a P/E multiple (apply a 0-5% premium to the 2014
Regulated Electric peer group median of 16.0-16.5X - to our 15E of $2.10) 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.

WELLS FARGO SECURITIES, LLC
May 2 & 3 EPS Updates & Conf. Call Takeaways EQUITY RESEARCH DEPARTMENT

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WTR Basis and Risks: Our relative P/E multiple (apply a roughly 10% premium to the 2014E water utility
median of 19.0-19.5X to our 2015E of $1.49) and DDM analyses indicate a 12-18 month valuation range of $31-
32/sh. Risks include regulatory risk, potential undertaking of dilutive growth ventures and deterioration in the
water industry's premium multiple relative to electric utilities.

CWT Basis and Risks: Our relative P/E multiple (apply the 2014E water utility median of 19.0-19.5X to our 2015E of $1.11) and DDM analyses indicate a 12-18 month valuation range of $21-22/sh. Chief risks to CWT
shares include regulatory risk, lack of geographical diversity and a potential material increase in long-term
interest rates.

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
Utilities EQUITY RESEARCH DEPARTMENT

12

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WELLS FARGO SECURITIES, LLC
May 2 & 3 EPS Updates & Conf. Call Takeaways EQUITY RESEARCH DEPARTMENT

13

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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.

As of: May 3, 2013
48% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Outperform.
Wells Fargo Securities, LLC has provided investment banking
services for 46% 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 35% of its Equity Research Market Perform-rated
companies.
3% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Underperform.
Wells Fargo Securities, LLC has provided investment banking
services for 21% of its Equity Research Underperform-rated
companies.

AEE: Risks include unfavorable regulatory outcomes, ability to cleanly exit the merchant business, and a material rise in interest
rates.
CWT: Chief risks to CWT shares include regulatory risk, lack of geographical diversity and a potential material increase in long-
term interest rates.
DUK: Risks relate to merger execution, regulatory orders, international ops and unregulated coal fleet margins.
ED: Risks to our valuation include regulatory-related risks related to CECONY pending rate cases and Sandy-related investigation,
higher than expected O&M expense and interest rate sensitivity.
IDA: Risks to our valuation include project delays/cancellations, negative regulatory developments and economic weakness.
LNT: Risks to our valuation include negative regulatory developments in Iowa or Wisconsin, inability to control operating costs
and economic weakness.
NU: Risks include project delays/cancellations related to Northern Pass and regulatory risks.
NVE: Risks include negative economic developments, unsupportive regulatory decisions and O&M pressure.
PCG: Key risks include unfavorable regulatory outcomes and higher than expected unrecoverable San Bruno pipeline explosion
costs.
PNW: Risks include unfavorable regulatory developments, weaker than expected customer growth and cost inflation.
POM: Risks include regulatory risks associated with pending and upcoming rate filings and interest rate sensitivity.
PPL: Risks include earnings sensitivity to power prices, regulatory/political risks and generation-related operating risks.
VVC: Risks include economic weakness, lower than expected coal sales, and Non-Utility exposure to commodity prices.
WTR: Risks include regulatory risk, potential undertaking of dilutive growth ventures and deterioration in the water industry's
premium multiple relative to electric utilities.
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
Utilities EQUITY RESEARCH DEPARTMENT

14

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