Conservative Income

December 2015 Issue No 29

Your Complete Guide to Earning Lifelong Income from Essential Services

In this Issue

Talking Utility Stocks CONTENTS I’m hosting an exclusive online chat for Conrad’s Utility Investor subscribers at 2 p.m. ET Wednesday, Dec. 9. The format is simple: You ask me any questions on Picks and Pans your mind; I stay online until all questions are answered. And don’t worry if you for the New Year 2 can’t stick around for the entirety of this marathon discussion; a transcript of the proceedings will be available the next morning. Endangered Dividends 7 We’ll discuss macro developments or specific stocks covered in my Utility Report Card—whatever’s on your mind. Portfolio: Given the severe downdraft in oil and gas prices since summer 2014, I expect All Eyes on 2016 8 to receive a lot of questions about our outlook for these commodities and mid- Aggressive Income Portfolio stream energy names that own pipelines and other infrastructure. Top 10 DRIPs The indiscriminate selling of these stocks has propelled yields into the strato- Conservative Income Portfolio sphere, reflecting concerns about volumetric and counterparty risks and questions about these companies’ ability to grow or even sustain their distributions. Conservative Income 13 With the debt and equity markets effectively closed for many energy stocks, fund- WEC Energy Group ing remaining growth projects will be a challenge. Although master limited partnerships (MLP) and other midstream operators face Aggressive Income 14 real challenges, the selloff afflicting these names has engulfed survivors whose Exelon Corp growth prospects remain intact. As always, indiscriminate selling creates opportunities for discriminating investors. Utility Report Card 15 This month’s feature article highlights my top pick in each of the nine industry groups tracked in my Utility Report Card as well as names that you should avoid at all costs. We also revisit Kinder Morgan (NYSE: KMI) in the light of the company’s recent press release indicating that the firm will reevaluate its dividend policy for next year. Here are this month’s best buys, with an eye to the year ahead: AmeriGas Partners LP (NYSE: APU)—Buy<52, Dream Buy<30; Aqua America (NYSE: WTR)—Buy<26 or with DRIP, Dream Buy<15; AT&T (NYSE: T)—Buy<37, Dream Buy<22;

Brookfield Renewable Energy Partners LP (NYSE: BEP)—Buy<33, DISCLAIMER Capitalist Times, LLC is a publisher Dream Buy<20; of financial news and opinions and NOT a securities Buckeye Partners LP (NYSE: BPL)—Buy<77, Dream Buy<50; broker/dealer or an investment advisor. You are responsible for your own investment decisions. The Dominion Resources (NYSE: D)—Buy<75, Dream Buy<50; information contained in this report has been carefully Exelon Corp (NYSE: EXC)—Buy<38, Dream Buy<25; compiled from sources believed to be reliable, but its accuracy is not guaranteed. All information contained NRG Yield (NYSE: NYLD)—Buy<18, Dream Buy<10; in our newsletters or on our website(s) should be independently verified with the companies mentioned, Pembina Pipeline Corp (NYSE: PBA)—Buy<42, Dream Buy<20; and and readers should always conduct their own research WEC Energy Group (NYSE: WEC)—Buy<50, Dream Buy<30. and due diligence and consider obtaining professional advice before making any investment decision. Owners, I look forward to talking to everyone on employees and writers may hold positions in the Wednesday. securities that are discussed in our newsletters or on our website. For subscription information go Happy Holidays, to ConradsUtilityInvestor.com or call Sherry at 1-877-302-0749. Our Subscriber Services center is Roger S. Conrad open Monday through Friday, 9:00 a.m. to 5:00 p.m. EST.

Picks and Pans for the New Year

Here are my top essential-service stocks to buy for 2016 and some names investors should avoid at all costs.

Two of the key tenets underpinning our strategy at Conrad’s As always, unfavorable regulatory decisions pose the primary Utility Investor are the importance of diversification and differen- threat to utilities’ earnings in 2016. tiating between individual companies. All the electric utilities in our model Portfolios offer exposure to This focus runs counter to the idea that investors are better off the industry’s biggest growth stories, including large-scale so- buying exchange-traded funds that track sector averages instead lar power and rising demand for natural gas. Equally important, of taking the time and effort to identify the best opportunities. these companies have the balance sheets to take advantage of these opportunities. We focus on identifying best-in-class names from across the spectrum of essential-service industries, buying them at reason- Conservative Income Portfolio holding Dominion Resources able prices and holding to collect a growing stream of dividends. (NYSE: D) boasts the largest midstream gas business of any This month, we review the prospects for the nine essential-ser- electric utility and created Dominion Midstream Partners LP vice groups tracked in our Utility Report Card and highlight our (NYSE: DM) to monetize these assets over the next half-decade. picks and pans for each. The proceeds from this process will help to fund its share of the Atlantic Coast pipeline project, Picks and Pans for 2016 which will supply natural gas to Virginia and the Carolinas. Industry Pick (Exchange: Ticker) Rating Pan (Exchange: Ticker) Rating The appeal of Dominion Electric Utility Dominion Resources Buy<75 Consolidated Edison SELL Midstream Partners’ equity as (NYSE: D) (NYSE: ED) a currency enabled the mas- Energy Distribution AmeriGas Partners LP Buy<52 Ferrellgas Partners LP SELL ter limited partnership (MLP) (NYSE: APU) (NYSE: FGP) to acquire an additional 25.93 Energy Buckeye Partners LP Buy<77 Enable Midstream Partners LP SELL percent interest in Iroquois Gas Transportation (NYSE: BPL) (NYSE: ENBL) Transmission from National Grid (LSE: NG, NYSE: NGG) International Brookfield Renewable Energy Buy<33 RWE (OTC: RWEOY) SELL and New Jersey Resources Partners LP (NYSE: BEP) Corp (NYSE: NJR). This pipe- Energy Sensitive Exelon Corp (NYSE: EXC) Buy<38 SolarCity Corp (NSDQ: SCTY) SELL line system supplies Western Telecommunications AT&T (NYSE: T) Buy<37 CableVision Systems Corp SELL New York with natural gas from (NYSE: CVC) Appalachia’s Marcellus Shale. Water Utility Aqua America (NYSE: WTR) Buy<26 Amer States Water Co SELL Despite solid earnings, an im- (NYSE: AWR) pressive slate of growth projects and salutary relations with Yieldco NRG Yield (NYSE: NYLD) Buy<17 TerraForm Power (NSDQ: TERP) SELL state regulators, Dominion Source: Conrad’s Utility Investor Resources’ stock has underperformed the Dow Jones Utilities Average this year— Electric Utilities perhaps because of concerns about the company’s midstream exposure. Look for this sentiment to reverse once the market Capital spending on regulated systems and investments in gen- focuses on the company’s fundamental advantages and growth eration capacity that operates under term contracts drove earn- opportunities in this business. ings and dividend growth for electric utilities in 2015. Dominion Resources rates a buy up to $75 per share for These factors remain in play for 2016 and the next several years, those who don’t own the stock already. Our dream price for as power generators transition from coal to cleaner forms of en- the stock is $50. ergy and invest to improve system reliability. In fact, early estimates suggest that utilities’ capital expenditures will eclipse last Consolidated Edison’s (NYSE: ED) shares have outperformed year’s total of about $110 billion. the Dow Jones Utilities Average by a narrow margin this year. But

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New York regulators have trained their sights on the company af- Energy Transportation ter a March 2014 gas leak blew up two buildings in East Harlem, killing eight people and injuring 50. Midstream companies that own pipelines and other midstream infrastructure face volumetric and counterparty risk as well as The utility has until Dec. 19 to disprove regulators’ allegation that higher costs of capital, raising questions about their ability to the company failed to properly install and fuse the gas pipeline. fund existing growth projects. Failure to do so could result in a protracted investigation along Conservative Income Portfolio holding Buckeye Partners LP the lines of what PG&E Corp (NYSE: PCG) experienced after a (NYSE: BPL) has held up relatively well this year, but has pulled deadly explosion in California. back to within range of our dream buy price of $50 per unit on a This distraction and expense could stall dividend growth or even few occasions. result in a punitive cut to Consolidated Edison’s allowed return Despite all the carnage in the MLP space, Buckeye Partners re- on equity. Conservative investors shouldn’t wait around to mains a reasonably safe bet for investors because of its exten- see how this story plays out; sell Consolidated Edison. sive network of petroleum product pipelines and storage facilities on the East Coast and in the Midwest. Much of the partnership’s pipelines operate under long-term contracts and involve limited Gas Distribution volumetric risk because they primarily connect to refineries, ter- minals and other downstream assets. Takeover interest from leading electric utilities has propelled gas distributors’ equity valuations to new highs, making these names Down almost 18 percent on the year and yielding 7.7 percent, better candidates for taking profits than for establishing new po- Buckeye Partners LP continues to rate a buy up to $77 per sitions. unit. Propane distributors, on the other hand, have sold off hard with In a year when even Enterprise Products Partners LP (NYSE: the rest of the MLP space, even though most of these names EPD) has given up 36 percent of its value, investors may overlook have zero direct exposure to lower oil and gas prices. In fact, the many smaller MLPs that find themselves in truly dire circum- ultra-depressed propane prices usually encourage consumption. stances. (We have sell ratings on 47 master limited partnerships However, this benefit may be muted if the strong El Nino current in Energy & Income Advisor.) results in a warm winter, which would reduce demand for pro- Consider Enable Midstream Partners LP (NYSE: ENBL), pane. which has given up 60 percent of its value since its spin-off AmeriGas Partners LP’s (NYSE: APU) industry-leading scale from CenterPoint Energy (NYSE: CNP) and OGE Energy Corp enables the MLP to control its costs much better than smaller (NYSE: OGE). rivals, and the company has demonstrated its ability to post solid The heavily shorted MLP’s management team lowered its guid- results whether propane prices skyrocket or plumb new lows. ance yet again in the third quarter, citing weaker throughput vol- Over the 12 months ended Sept. 30, 2015, the partnership grew umes on its gathering assets in the Granite Wash and Mississippi its cylinder-exchange volumes by 14 percent and closed nine ac- Lime. Enable Midstream Partners will face an even bigger chal- quisitions of mom-and-pop distributors, adding an estimated $4 lenge when minimum volume commitments on its assets in million in annual cash flow. All told, AmeriGas Partners covered the Fayetteville Shale, Haynesville Shale and Barnett Shale expire—or are renegotiated by cash-strapped counterparties. Sell its distribution by 1.16 times. Enable Midstream Partners LP. Management’s guidance for the MLP to generate $660 million to $690 million in cash flow in its 2016 fiscal year would support another payout increase of 3 percent to 4 percent next spring. International Essential Services With no debt maturities until 2019, almost $400 million in avail- The international equities in our coverage universe have suffered able capacity on its credit lines and the backing of a strong because of the strong US dollar. general partner, a higher cost of equity capital won’t trouble AmeriGas Partners. Yielding more than 10 percent, AmeriGas Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BEP) pays its distribution in US dollars, though weakness Partners LP’s rates a buy up to $52 per unit. Our dream price in the Canadian dollar will likely continue to weigh on American for the MLP is $30. investors’ returns. Ferrellgas Partners LP’s (NYSE: FGP) stock has outperformed More important, the partnership continues to grow its cash AmeriGas Partners this year and trades at a lofty valuation, de- flow by adding renewable-energy capacity that operates under spite an ill-timed, expensive foray into oil gathering and trans- long-term contracts. And its relationship with Brookfield Asset portation with the acquisition of Bridger Logistics. A lofty valua- Management (TSX: BAM/A, NYSE: BAM) has helped the MLP to tion and an expensive acquisition that promises to generate secure and finance acquisitions. more pain than cash flow make Ferrellgas Partners LP a sell.

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The Canada-based company’s quarterly cash flow will vary with depends on outside funding to survive. And earlier this week, wind and water conditions, but the conservatively run outfit has the company announced the securitization of loans on anoth- put the pieces in place for another 6 percent to 8 percent distri- er 12,000 residential solar-power systems, cannibalizing future bution increase in February 2016. revenue to pay the bills today. The move came just weeks after Elon Musk and other principals threw in another $113 million of With a 6.7 percent yield, Brookfield Renewable Energy funding. Partners LP rates a buy up to US$33 per unit. Our dream price for the stock is US$20. Over the first nine months of the year, SolarCity’s cash from operating activities came in at about negative $500 million—more However, investors who haven’t already sold perennial under- than six times the previous year’s shortfall. performer RWE (Frankfurt: RWE, OTC: RWEOY) should do so to avoid even more pain. The company took several writedowns Nevertheless, SolarCity’s stock continues to trade at almost 10 over the past year, but the worst is yet to come; the German gov- times sales. SolarCity rates a sell, but investors shouldn’t be ernment continues to work out how to share the cost of shutting tempted to short the stock; bets against the company al- down the country’s nuclear power plants by 2022. ready account for 48 percent of its shares in circulation, creating the potential for a massive squeeze. RWE stirred up excitement among some investors with a plan to separate and partially spin off its grid and renewable-energy assets. Management also vowed to triple its investment in wind and solar power. But credit raters quickly threw cold water on the Telecommunications deal, with Fitch Ratings putting RWE on watch for a downgrade. This year’s best-performing telecoms received generous take- Only a change in regulation will enable RWE and fellow German over offers. Cablevision Systems Corp’s (NYSE: CVC) stock, utility E.ON (Frankfurt: EOAN, OTC: EONGY) to turn things for example, surged after the company received a bid from around. We maintain our sell ratings on RWE and E.ON. European pay-tv outfitAltice (Amsterdam: ATC). Cablevision Systems has suspended its dividend until the deal closes or regulators reject the combination; investors who hold Wholesale Energy on until the transaction closes or falls through will miss out on these payments. The regulatory review could also drag on for Ultra-depressed natural-gas prices should ensure that wholesale some time, and approval is far from guaranteed. electricity prices remain soft in 2016. But most of the remaining companies that play in this sandbox have steeled themselves Holding on to capture the slim arbitrage opportunity creat- against these headwinds by cutting costs, adding hedges and ed by the spread between Cablevision Systems’ share price building scale through acquisitions. and Altice’s takeover offer doesn’t strike us as worth the risk. Regulators could reject the deal outright or require harsh con- The institution of capacity-based rates in some markets has im- cessions that might prompt Altice to walk away. In this worst- proved the economics of merchant power operations. Others case scenario, Cablevision Systems’ stock could tumble into the have won regulatory approval to return these plants to their rate high teens. base. And even if the deal goes through, we doubt that the Altice- Nevertheless, elevated inventories and the potential for a warm Cablevision Systems combination will ever deliver another 45 winter could put further pressure on natural-gas prices in coming percent annual gain in a single year. Sell Cablevision Systems months. Corp. Exelon Corp (NYSE: EXC), our top pick from this challenged in- The benefits fromAT&T’s (NYSE: T) acquisition of DirecTV dustry, stands to benefit from the pending acquisition ofPepco showed up in the telecom giant’s third-quarter results and should Holdings (NYSE: POM), which will bolster the proportion of its make an even bigger contribution to the firm’s fourth-quarter revenue that comes from regulated operations. earnings. Exelon Corp rates a buy up to $38 per share for investors AT&T has two long-term advantages: a best-in-class network who don’t own the stock already, though you may want to and the wherewithal to outspend the competition without piling enter this position gradually; the shares trade within range of up date or issuing additional equity. $25, our dream price. These strengths haven’t garnered as much attention in a year SolarCity Corp (NSDQ: SCTY) generates a lot of hype, but los- when takeovers have dominated the headlines. However, when es more money with each incremental dollar of revenue. The merger mania subsides and investors refocus on sustainability, company’s apologists maintain it’s only a matter of time before AT&T should outperform Sprint Corp (NYSE: S) and T-Mobile it gains enough scale to turn a profit and highlight declining unit US (NYSE: TMUS), both of which continue to bleed cash and costs as proof of the firm’s progress. generate more debt (and excuses) than profits.AT&T rates a But each quarter underscores the extent to which SolarCity buy up to $37 per share. Our dream price for the stock is $22.

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Water Utilities Aqua America and American Water Works (NYSE: AWK), which boast a combined market capitalization that amounts to 80 Although only nine water utilities trade publicly in the US, these percent of the total for publicly traded water utilities, will drive companies’ prospects vary widely. much of this consolidation. Both companies have strong balance Names operating in California have underperformed because of sheets and proven track records of successfully integrating ac- concerns that the drought in the state will strain relations be- quisitions. tween utilities and regulators. Thus far, surcharges granted by Legislation supporting buyouts of municipal systems in Illinois, regulators have helped to limit utilities’ exposure to sharp de- Indiana and New Jersey bodes well for Aqua America’s growth clines in water consumption. prospects. But the more consumers pay for water, the more tenuous this ar- Aqua America rates a buy when the stock pulls back to less rangement becomes. Rate lag associated with regulatory delays than $26 per share, though prospective investors should also represents another risk, while elevated valuations for many water consider participating in the company’s dividend reinvest- utilities in California increase the downside potential embedded ment plan. American Water Works would be a worthy addi- in these stocks. tion to your portfolio if the stock retrenches to less than $50 American States Water Co (NYSE: AWR), which has generated per share. a total return of more than 11 percent this year, looks particularly vulnerable. The stock yields about 2 percent and trades at 3.3 times book value; regulators will determine 2016-18 rates later Yieldcos this year and clarify drought policies—potential catalysts for a The Bloomberg North America Power Yieldco Index has given selloff. Sell American States Water Co. up about half of its value since late June, elevating these com- Aqua America (NYSE: WTR), one of our Top 10 Drips, trades panies’ cost of equity capital to levels that have prompted ques- above our buy target of $26 per share. But the stock remains tions about the viability of this business model. the best play on ongoing consolidation in this highly fragmented These companies own generation assets that operate under industry. long-term contracts, providing a highly visible steam of cash flow The need for massive capital expenditures to meet the in these uncertain times. Environmental Protection Agency’s (EPA) clean water standards However, prospective investors should pay close attention to will only fuel the urge to merge. Many of the 69,000 independent- when these contracts expire and whether the yieldcos’ assets ly operated water and wastewater systems in the US will struggle include cash flow from solar-power systems installed on residen- to fund these expansions and improvements. And the municipal tial rooftops. systems that prove 85 percent of US water and 97 percent of wastewater services in the US won’t fare much better. If a Democrat wins next year’s presidential election and the EPA’s

Estimated Capital Spending Needs ($384.2 bil) for US Water Infrastructure

1% 5% Transmission / Distribution

10% Water Treatment 65% Water Storage 19% Source Development

Other

Source: Environmental Protection Agency, Conrad's Utility Investor

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Clean Power Plan becomes the law of the land, investment in renewable energy will accelerate in coming years. But even if a Republican wins and does away with these regulations, utility-scale solar power is here to stay. Like MLPs, yieldcos depend on access to low-cost debt and equity capital to expand their asset bases because they pay out the majority of their cash flow to shareholders in the form of dividends. The recent selloff in the yieldco space will constrain these companies’ ability to pursue acquisitions. NextEra Energy Partners LP (NYSE: NEE) stands out for its supportive sponsor, low cost of capital and midstream natural-gas assets. NextEra Energy Partners LP rates a buy up to $37 per unit. We prefer Aggressive Income Portfolio holding NRG Yield (NYSE: NYLD) for its 6.9 percent yield and ability to grow its dividend by 12 percent to 15 percent annually through 2018. However, NRG Yield’s portfolio includes some exposure to rooftop solar power, a potential point of future weakness. And NRG Energy’s (NYSE: NRG) financial challenges may constrain its ability to support the yieldco, though the resignation of CEO David Crane represents a step in the right direction. NRG Yield rates a buy up to $17 per share for aggressive investors who understand the risks. Investors should steer clear of TerraForm Power (NSDQ: TERP) because of the rapidly deteriorating financial condition of its sponsor, SunEdison (NYSE: SUNE), which faces a mountain of debt and outsized exposure to rooftop solar power. This weakness was on full display earlier this week, when SunEdison walked away from a deal to purchase a 15.87 percent interest in Brazilian renewable-energy outfit Renova. TerraForm Power, a yieldco that SunEdison created to recycle capital and monetize its renewable-energy assets, has amassed a debt burden equivalent to 1.25 times its market capitalization. Hedge fund manager David Tepper recently issued a letter to SunEdison and TerraForm Power’s management team criticizing the propriety of selling rooftop solar assets to the yieldco at inflated valuations.Sell TerraForm Power.

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How Safe Are These Dividends? None of the 215 companies in our Utility Report Card cut divi- Endangered Dividends List. dends last month. However, many yieldcos and master limited Plains All-American Pipeline’s management team has guided for partnerships’ (MLP) stocks have sold off to levels where they offer cash flow from project start-ups to offset the shortfall in distrib- double-digit yields—historically a sign of a dividend that’s under utable cash flow that the MLP has suffered this year. These asset threat. additions and expansions will also need to offset declining vol- The best yieldcos generate electricity from larger-scale renew- umes on the partnership’s oil transportation systems. able-energy installations and sell this output under long-term con- As for funding concerns, Plains All-American Pipeline has almost tracts, shielding their cash flow from the persistently weak whole- $4 billion in available capacity on its credit facilities. A consolida- sale electricity market. tion with its general partner could also be in the cards, though sim- To limit counterparty and re-contracting risk, investors should ilar moves by Kinder Morgan and Targa Resources Corp (NYSE: avoid names without exposure to residential solar-power sys- TRGP) resulted in clandestine distribution cuts for MLP unithold- tems—a business that short seller extraordinaire Jim Chanos lik- ers. (See MLPs: Evolution, Not Extinction.) ened to a wager on subprime loans—and focus on those with truly Plains All-American Pipeline LP rates a Hold for aggressive long-term contracts. investors. MLPs that own pipelines and other midstream infrastructure have Yieldco TerraForm Power (NSDQ: TERP) generates cash flow varying degrees of exposure to commodity prices, depending on from renewable-energy installations and has covered its dividend the type of assets in their portfolios and their underlying contract comfortably thus far. However, a prominent shareholder has criti- structures. Fee-based agreements ensure a solid stream of cash cized SunEdison (NYSE: SUNE) for selling junk assets—especial- flow—as long as throughput volumes hold up. ly rooftop solar-power contracts—to the yieldco at inflated prices. The slowdown in onshore drilling activity has created volumetric Sell TerraForm Power. risk in many markets, though the pain will be felt most acutely in out-of-favor plays such as the Barnett Shale, the Haynesville Shale, the Fayetteville Shale, the Granite Wash and the Mississippi Lime. Security Potential Dividend Quality Rating In some instances, cash-strapped producers have pressured mid- (Exchange: Ticker) Downside Risk Score stream operators to renegotiate agreements with minimum vol- Atlantic Power Corp -33.3% Highest C Hold ume commitments. Thus far, most of these reworked contracts (NYSE: AT) have occurred in the aforementioned marginal plays. BP (NYSE: BP) -50.0% Elevated D SELL These headwinds threaten to pressure cash flow from existing Canoe EIT Income Fund -50.0 Elevated C Hold assets and limit near-term growth opportunities. Meanwhile, the (OTC: ENDTF) massive selloff has raised midstream MLPs’ costs of equity cap- CenturyLink (NYSE: CTL) -50.0 Elevated C SELL ital, making it more difficult to fund their backlogs of growth projects. Enerplus Corp (NYSE: ERF) -50.0 Elevated C Hold Accordingly, midstream giants Kinder Morgan (NYSE: KMI) and E.ON (OTC: EONGY) -25.0 Elevated D SELL Plains All-American Pipeline LP (NYSE: PAA) have scaled back Ferrellgas Partners LP -33.3 Elevated D SELL their guidance for distribution growth. (NYSE: FGP) For MLPs yielding more than 8 percent, the primary driver of Hawaiian Electric Industries -33.3 Elevated B SELL unit prices has shifted from distribution growth to whether these (NYSE: HE) names can maintain their payouts until market conditions improve. Just Energy (NYSE: JE) -33.3 Elevated D SELL Expect to hear more about efforts to reduce expenses, rein in cap- Pepco Holdings (NYSE: POM) -33.3 Elevated C SELL ital expenditures and raise capital by divesting assets. PG&E Corp (NYSE: PCG) -100.0 Reduced C Hold MLPs and yieldcos with the backing of financially strong sponsors stand a better chance of coming through the slaughter. Enbridge Plains All-American -33.0 Elevated B Hold Energy Partners LP (NYSE: EEP), for example, enjoys the support Pipeline LP (NYSE: PAA) of Enbridge (TSX: ENB, NYSE: ENB), which has stepped up to the RWE (OTC: RWEOY) -50.0 Elevated D SELL plate in the past with drop-down transactions and by restructuring TerraForm Power -50.0 Elevated D SELL its incentive distribution rights. And NRG Energy (NYSE: NRG) (NSDQ: TERP) has a plan in place for NRG Yield to deliver on its guidance for TransAlta Corp -33.3 Elevated D SELL double-digit annual dividend growth through 2018. (TSX: TA, NYSE: TAC) Indiscriminate selling of these securities—a painful, but necessary, Windstream Holdings -50.0 Highest D SELL rerating that’s been exacerbated by fund outflows and redemp- (NSDQ: WIN) tions—creates buying opportunities for discriminating investors. For explanation of Quality Grade see Utility Report Card. However, two new names from this cohort have landed on our Source: Conrad’s Utility Investor

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PORTFOLIOS All Eyes on 2016

With only a few weeks remaining in 2015, time is running out for utility stocks to avoid their first down year after exiting January in the green since 1987. We review our macro outlook, highlight a handful of stocks we’d consider adding to our model Portfolios on a pullback and revisit some of our losers.

This year hasn’t been kind to dividend-paying stocks of all near zero and the economy still growing at a lackluster pace, the stripes, thanks in part to the uncertainty created by the Federal Federal Reserve will probably raise rates at a much slower pace Reserve waffling on when it will raise interest rates. than during previous cycles. All signs point to the central bank starting the gradual process of And investors shouldn’t forget that the Dow Jones Utilities normalizing monetary policy later this month. Average’s performance historically has exhibited scant correla- tion to movements in interest rates—instead, these equities Regardless of what you’ve probably heard in the mainstream me- tend to track the broader market. In fact, this basket of 15 utility dia, this tightening cycle hardly sounds the death knell for utility stocks generated a total return in excess of 60 percent between stocks. For one, after an extended period with the fed funds rate June 2004 and June 2006, when the Fed hiked interest rates

AGGRESSIVE INCOME PORTFOLIO This portfolio bets for big gains by taking calculated risks. We typically sell a position when the profit objective is realized.

Security (Exchange: Ticker) Date Added Price Indicated DVD Per Total Return Rating Yield Share Abengoa Yield (NSDQ: ABY) 12/08/14 $14.83 11.60% $0.43 -41.7% Hold AES Corp (NYSE: AES) 07/31/13 9.32 4.29 0.10 -21.3 Buy<15 AGL Energy (OTC: AGLNY) 12/02/13 12.40 3.83 0.24 2.6 Buy<15 CLP Holdings (OTC: CLPHY) 07/31/13 8.48 3.35 0.07 14.0 Buy<9 Columbia Pipeline Group (NYSE: CPGX) 08/11/15 18.81 2.66 0.13 -32.0 Buy<28 Enbridge Energy Partners LP (NYSE: EEP) 07/31/13 22.25 10.48 0.58 -16.0 Buy<22 Energen Corp (NYSE: EGN) 07/31/13 55.41 0.14 0.02 -6.4 Hold Exelon Corp (NYSE: EXC) 07/31/13 26.71 4.64 0.31 -3.7 Buy<38 Frontier Communications 11.125% Conv Pfd 09/14/15 98.65 N/A 2.78 -2.2 Buy<105 06/29/15 (CUSIP: 35906A207) MDU Resources (NYSE: MDU) 07/31/13 17.69 4.24 0.19 -32.6 Buy<18 NRG Yield (NYSE: NYLD) 09/22/15 12.55 6.85 0.22 -12.2 Buy<17 ONEOK (NYSE: OKE) 07/31/13 24.80 9.92 0.62 -40.3 Hold Plains All American Pipeline LP (NYSE: PAA) 12/08/14 21.16 13.23 0.70 -53.1 Hold Suez Environnement (OTC: SZEVY) 04/06/15 9.71 3.73 0.36 15.3 Buy<10 Telefonica (NYSE: TEF) 07/31/13 12.11 7.38 0.38 0.0 Buy<18 UIL Holdings Corp (NYSE: UIL) 03/09/15 49.22 3.51 0.43 1.1 Buy<52 Closed Positions NRG Energy (NYSE: NRG) 07/31/13 15.36 N/A N/A -40.1 Sold 09/23/15 Hawaiian Electric Industries (NYSE: HE) 07/08/14 30.90 N/A N/A 29.6 Sold 06/07/15 CenturyLink (NYSE: CTL) 08/08/14 32.18 N/A N/A -14.5 Sold 06/07/15 Companhia Energetica de Minas Gerais (NYSE: CIG) 11/03/14 4.57 N/A N/A -13.4 Sold 04/06/15 Consolidated Communications (NSDQ: CNSL) 07/31/13 24.89 N/A N/A 54.0 Sold 09/12/14 Windstream Holdings (NSDQ: WIN) 10/01/13 11.46 N/A N/A 52.8 Sold 08/04/14 Enel (OTC: ENLAY) 07/31/13 5.22 N/A N/A 58.2 Sold 03/07/14

As of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor

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from 1 percent to 5.25 percent. Dream Prices for Buy-Rated Stocks However, utility stocks have underperformed in the run-up to past tightening cycles, a trend that has continued this year; de- Company (Exchange: Ticker) Dream 52-Week spite the historical record, fear of the unknown is always worse Price Low than the eventual reality. AES Corp (NYSE: AES) $7 $9.42 The financial infotainment industry’s insistence that rising inter- AGL Energy (ASX: AGL, OTC: AGLNY) 8 10.32 est rates doom utility stocks—a sensational but historically inac- AmeriGas Partners LP (NYSE: APU) 30 36.60 curate claim—doesn’t help matters. And arguments that regulated utilities’ allowed returns on equity increase with long-term Aqua America (NYSE: WTR) 15 24.40 interest rates fall on deaf ears when the nabobs of negativity get to nattering. AT&T (NYSE: T) 22 30.97 Utilities have also had ample opportunity to prepare for higher BCE (TSX: BCE, NYSE: BCE) 24 31.49 interest rates; the Federal Reserve introduced its plan to reverse Brookfield Renewable Energy Partners LP (TSX: 20 24.38 to phase out quantitative easing (buying bonds to reduce long- BEP-U, NYSE: BEP) term interest rates) in May 2013. Buckeye Partners LP (NYSE: BPL) 50 52.91 Even now, high-quality utilities can still issue 30-year bonds at rates as low as 4 percent. And many have improved their returns Chevron Corp (NYSE: CVX) 70 69.58 on investment through automatic rate surcharges, reducing their CLP Holdings (HK: 2, OTC: CLPHY) 6 7.96 need to raise permanent capital. CMS Energy Corp (NYSE: CMS) 20 31.22 Third-quarter earnings season has finally come to an end, with the bad news confined primarily to companies in the energy sec- Columbia Pipeline Group (NYSE: CPGX) 15 17.51 tor. You can find our take on results from outfits that reported Dominion Resources (NYSE: D) 50 65.04 after November issue of Conrad’s Utility Investor in this month’s update to the Utility Report Card. Duke Energy Corp (NYSE: DUK) 50 65.50 After this barrage of earnings and my conversations with execu- Enbridge Energy Partners LP (NYSE: EEP) 20 22.40 tives at the Edison Institute’s 50th Annual Financial Conference Energen Corp (NYSE: EGN) 40 43.75 (check out my summary and exclusive video report), we’re more impressed than ever with how best-in-class power companies Energy Transfer Partners LP (NYSE: ETP) 40 33.84 continue to accelerate their earnings and dividend growth by growing their rate base. Entergy Corp (NYSE: ETR) 60 61.27 Exelon Corp (NYSE: EXC) 25 27.04

Stocks to Buy MDU Resources (NYSE: MDU) 14 16.15 NextEra Energy (NYSE: NEE) 60 93.74 We remain bullish on best-in-class utility stocks and would em- brace a selloff in the broader market as an opportunity to add to New Jersey Resources Corp (NYSE: NJR) 15 26.77 or establish positions. Consider setting a limit order purchase any of these buy-rated Portfolio holdings at the dream prices NRG Yield (NYSE: NYLD) 10 10.79 listed in our table. Pembina Pipeline Corp (TSX: PPL, NYSE: PBA) 20 22.59 Remember that our dream prices don’t represent an effort to pick Southern Company (NYSE: SO) 30 41.40 a bottom in these stocks; rather, our goal is to highlight attractive entry points that would only be reached in extreme circumstanc- Suez Environnement (Paris: SEV, OTC: SZEVY) 7 8.27 es—for example, another flash crash. Provided that the under- Telefonica (Madrid: TEF, NYSE: TEF) 10 11.32 lying company remains solid, entering at these prices eventually should translate into big gains. TransCanada Corp (TSX: TRP, NYSE: TRP) 30 30.48 Investors also shouldn’t view these dream prices as an excuse UIL Holdings Corp (NYSE: UIL) 30 40.51 to overload on one particular stock if it breaches these levels; (NYSE: VZ) 30 38.06 you’re always better off maintaining a diversified portfolio to soft- Verizon Communications en the blow from if anything goes wrong. WEC Energy Group (NYSE: WEC) 30 44.93

Our Utility Report Card includes several high-quality names that Source: Bloomberg, Conrad’s Utility Investor we’d love to add to the model Portfolios at the right price. Sempra Energy (NYSE: SRE) is one name on our watch list. The company’s growing investments in solar power, California’s

9 ConradsUtilityInvestor.com December 2015 | Issue No 29

power grid and gas infrastructure in the US and Mexico continue have sold off hard this fall, reflecting concerns that already el- to fuel robust dividend growth. And management deserves plau- evated oil inventories during a period of seasonally weak de- dits for maintaining friendly relations with California regulators— mand will result in another leg lower for the price of West Texas no mean feat. Sempra Energy rates a buy up to $95 per share, Intermediate. Already depressed natural-gas prices could also but we’d wait for the stock to slip below $90 before adding it to sink further if the El Nino current in the Pacific Ocean results in the Conservative Income Portfolio. a warm winter. Longtime favorite Xcel Energy (NYSE: XEL) has traded at frothy Additional weakness in commodity prices has resulted in further valuations since I left Utility Forecaster to start my own publish- reductions to the onshore rig count, spurring concerns that a ing company and launch Conrad’s Utility Investor. The regulated retrenchment in US oil and gas output will limit growth opportu- utility expects to deliver annual dividend growth in the high sin- nities and translate into lower throughput volumes on pipelines gle digits through investments in the power grid and renewable and other midstream infrastructure. energy, which enjoys popular support in most of its service terri- This headwind has already made itself felt in the Barnett Shale, tory. We’d consider adding Xcel Energy to the Conservative the Fayetteville Shale, the Haynesville Shale and other out-of-fa- Income Portfolio if the stock were to pull back to less than vor basins and likely will extend to other onshore plays. $30 per share. The severe selloff has also dramatically increased MLPs’ cost Aqua America (NYSE: WTR) and/or American Water Works of debt and equity capital, limiting their ability to fund growth (NYSE: AWK) could also find their way into the Conservative projects externally. Income Portfolio if their stock prices pulled back far enough. Plains All-American Pipeline LP (NYSE: PAA) has found itself Comcast Corp (NSDQ: CMCSA) trades at valuations where under the most pressure, thanks to headwinds at its marketing shareholders should consider taking profits if they haven’t al- business and volumetric weakness, primarily on its crude-by- ready. We like Comcast Corp’s scale and combination of me- rail operations. Management has guided for a flat distribution dia properties and broadband networks, though the stock next year and has indicated that project start-ups should help to price would need to retrench into the $30s—only likely in a bridge the cash flow shortage that occurred this year. severe bear market—to pique our interest. Plains All-American Pipeline LP has landed on our Endangered Dividends List and rates a Hold for aggres- What Shall We Do With An Underperformer? sive investors, though the stock could fall further in coming months. Environmental engineering giant Abengoa (Madrid: ABG, NSDQ: ABGP)—Aggressive Income Portfolio holding Abengoa Yield’s Fellow Aggressive Income Portfolio holding Enbridge Energy (NSDQ: ABY) sponsor—has technically defaulted on its debt ob- Partner LP (NYSE: EEP) should benefit from a supportive gen- ligations, setting in motion a complex negotiation with its credi- eral partner and the growing appeal of pipelines over rail trans- tors to keep the company in business. Failure to reach a solution portation to producers in the Bakken Shale. The MLP’s pipelines over the next four months would lead to long, costly litigation also move heavy crude oil from Alberta’s oil sands, where pro- that could end in liquidation. duction levels should remain relatively steady. Despite its protestations to the contrary, Spain’s government Kinder Morgan (NYSE: KMI), ONEOK Partners LP (NYSE: OKS) eventually may heed Abengoa and other distressed companies’ and Energy Transfer Partners LP (NYSE: ETP) covered their pleas and provide some sort of bailout. Abengoa will also proba- payouts in the third quarter when you adjust for one-time items. bly try to sell power plants in the US, Mexico and Spain to raise However, the combination of volumetric risk, tight distribution cash and pay its bills while the firm negotiates for its life. coverage and higher costs of capital could challenge payout The best-case scenario for Abengoa Yield would be for Abengoa growth and safety over the next 12 to 18 months. to sell its 47 percent stake in the yieldco to another sponsor. Energy Transfer Partners LP’s (NYSE: ETP) acquisition of Abengoa Yield reportedly has engaged a tier-one bank to find a Regency Energy Partners LP increased its exposure to commod- suitable buyer. ity risk and volumetric weakness in its gathering and processing In the worst-case scenario, Abengoa would unload its equity in- segment, but the MLP boasts a supportive general partner and terests in Abengoa Yield on the public market, further pressuring has minimal debt maturities next year. the stock and leaving the yieldco without a clear path to add Project start-ups have helped ONEOK Partners LP (NYSE: fee-generating assets. The company would also need to roll over OKS) to offset declining volumes on some legacy assets and its EUR505 million in debt on its own. exposure to weak commodity prices, though we wouldn’t be sur- Given the quality of Abengoa Yield’s underlying assets and the prised if ONEOK (NYSE: OKE) were to take a page out of Kinder length of its contracts relative to other yieldcos, we wouldn’t be Morgan and Targa Resources Corp’s (NYSE: TRGP) playbook surprised if a buyer were to emerge. Abengoa Yield rates a and acquire the MLP. This transaction would likely result in Hold until we have more clarity on the company’s future. ONEOK Partners’ unitholders receiving a reduced quarterly payout. ONEOK rates a Hold for aggressive investors. Our master limited partnerships (MLP) and former MLPs’ stocks

10 ConradsUtilityInvestor.com December 2015 | Issue No 29

Kinder Morgan’s share price plummeted after Moody’s Investors That being said, Kinder Morgan finds itself in a jam and will need Service lowered its outlook for the company’s credit rating to to shore up its balance sheet. Options on the table include di- negative, citing elevated leverage and deteriorating fundamen- vesting noncore assets, seeking joint-venture partners to reduce tals. Of the large-cap midstream outfits, Kinder Morgan faces the near-term capital needs associated with growth projects, press- most near-term refinancing needs. Proceeds from the issuance ing pause on dividend growth and reducing the payout. of convertible preferred shares and capacity on its credit lines We should know more about the company’s plans next week. more than cover the firm’s 2016 debt maturities. Until then, I’m taking this lesson from Kinder Morgan: Avoid dou- However, Kinder Morgan issued a press release indicating that bling down on any stock, no matter how enticing the yield be- the firm would reassess its dividend policy for next year, sug- comes. Odds are that Kinder Morgan’s share price will rebound gesting that management will likely back off its previous guid- eventually. But investors have no reason to bet the farm on one ance for a payout increase or, in the worst-case scenario, reduce stock, especially with plenty of other opportunities out there. the quarterly disbursement to shareholders. In light of this risk, Kinder Morgan rates a Hold; investors should resist the urge to double down on this name. Why hold Kinder Morgan? The company controls many assets that remain vital to the US energy industry and retain long-term value.

T P 10 DRIPS Nothing compounds wealth like reinvesting a rising stream of dividends. This portfolio focuses on dividend reinvestment plans of companies that have grown reliably in all environments, and are set to do so for years to come.

Security (Exchange: Ticker) Minimum Investment Phone Website

Aqua America (NYSE: WTR) $500 800-205-8314 www.aquaamerica.com

AT&T (NYSE: T) $500 800-597-7736 www.att.com

Chevron Corp (NYSE: CVX) $250 800-522-6645 www.chevron.com

Dominion Resources (NYSE: D) $350 800-552-4034 www.dom.com

Enbridge Energy Management LLC (NYSE: KMR) N/A 877-373-6374 www.enbridgemanagement.com

Entergy Corp (NYSE: ETR) $250 855-854-1360 www.entergy.com

MDU Resources (NYSE: MDU) $250 877-536-3553 www.mdu.com

ONEOK (NYSE: OKE) $250 866-235-0232 www.oneok.com

Southern Company (NYSE: SO) $250 800-554-7626 www.southernco.com

Verizon Communications (NYSE: VZ) $250 800-631-2355 www.verizon.com

Source: Company Reports, Conrad’s Utility Investor

11 ConradsUtilityInvestor.com December 2015 | Issue No 29

CONSERVATIVE INCOME PORTFOLIO This portfolio focuses on the strongest companies across a range of industries. Our objective is to buy low and hold while collecting a rising stream of dividends and enjoying some capital appreciation.

Indicated DVD Total Security (Exchange: Ticker) Date Added Price Rating Yield Per Share Return AmeriGas Partners LP (NYSE: APU) 11/01/13 $35.94 10.24% $0.92 -5.0% Buy<52 AT&T (NYSE: T) 07/31/13 34.11 5.51 0.47 9.2 Buy<37 BCE (NYSE: BCE) 11/07/14 42.60 4.56 0.65 0.3 Buy<50 Brookfield Renewable Energy Partners LP (NYSE: BEP) 07/31/13 24.57 6.76 N/A 2.6 Buy<33 Buckeye Partners LP (NYSE: BPL) 10/01/13 60.91 7.72 1.18 5.1 Buy<77 CMS Energy Corp (NYSE: CMS) 06/08/15 34.98 3.32 0.29 12.2 Buy<33 Dominion Resources (NYSE: D) 03/09/15 66.60 3.89 0.65 -1.6 Buy<75 Duke Energy Corp (NYSE: DUK) 10/01/13 67.04 4.92 0.83 9.8 Buy<77 Energy Transfer Partners LP (NYSE: ETP) 02/07/14 33.79 12.48 1.06 -29.3 Buy<65 Entergy Corp (NYSE: ETR) 07/31/13 65.93 5.16 0.85 9.8 Buy<75 Kinder Morgan (NYSE: KMI) 11/27/14 16.82 12.13 0.51 -58.0 Hold New Jersey Resources Corp (NYSE: NJR) 03/07/14 29.67 3.23 0.24 40.4 Buy<28 NextEra Energy (NYSE: NEE) 09/14/15 98.14 3.14 0.77 2.9 Buy<100 Pembina Pipeline Corp (NYSE: PBA) 07/31/13 22.74 6.02 0.15 -19.5 Buy<42 Southern Company (NYSE: SO) 07/31/13 44.83 4.84 0.54 12.6 Buy<47 TransCanada Corp (NYSE: TRP) 07/31/13 31.27 4.98 0.52 -25.4 Buy<50 Verizon Communications (NYSE: VZ) 10/01/13 45.71 4.95 0.57 7.8 Buy<52 WEC Energy Group (NYSE: WEC) 07/08/14 49.45 4.00 0.50 14.8 Buy<50 Closed Positions WGL Holdings (NYSE: WGL) 04/04/14 61.23 N/A N/A 65.0 Sold 10/21/15 iShares Utilities Bond ETF (NYSE: AMPS) 07/31/13 50.04 N/A N/A 11.1 Sold 08/11/15 ONE Gas (NYSE: OGS) 02/07/14 43.29 N/A N/A 36.2 Sold 07/13/15 SCANA Corp (NYSE: SCG) 11/01/13 59.63 N/A N/A 32.9 Sold 12/19/14 Kinder Morgan Energy Partners LP (NYSE: KMP) 07/31/13 80.20 N/A N/A 34.4 Acqd by KMI

Data as of 12/04/15, close. We consider our portfolio to consist of all stocks rated either “buy” or “hold.” Source: Bloomberg, Conrad’s Utility Investor

12 ConradsUtilityInvestor.com December 2015 | Issue No 29

CONSERVATIVE INCOME WEC Energy Group Quality on Sale

On June 30, 2015, Wisconsin Energy Corp completed its acqui- finding alternative investments to pick up the slack—including ad- sition of Integrys Energy Group, becoming WEC Energy Group ditional acquisitions. (NYSE: WEC). Since then, the company has treated investors to Alliant Energy Corp’s (NYSE: LNT) regulated operations in two dividend increases, the latest of which involved a sequential Wisconsin and Iowa and ownership interest in the American bump of 8.2 percent that will take effect with the payment slated Transmission Company make the company a potential take- for March 1, 2016. over target. Pure-play transmission operator ITC Holdings Corp All told, WEC Energy has hiked its payout by more than 17.2 (NYSE: ITC) has also put itself up for sale. percent since the electric utility acquired the gas distributor. And With $2.9 billion in untapped capacity on its credit facilities and a readers who followed our lead and purchased shares of the former yield to maturity of 4.1 percent on its 30-year debt, WEC Energy Wisconsin Energy have enjoyed a 26.9 percent increase in their has ample liquidity. Conservative Income Portfolio holding annual income. WEC Energy Group rates a buy up to $50 per share for those However, the stock itself has rallied only 8.9 percent since our en- who don’t own the stock already. try point in early July 2014 and offers its highest dividend yield since Enron imploded in late 2001. WEC Energy’s shares also trade at their lowest price-to-cash flow ratio since the 2008-09 WEC Energy Group financial crisis. Exchange: Ticker NYSE: WEC This discount won’t last forever: WEC Energy is a well-run elec- Price $48.12 tric and gas utility that operates in states with reasonably healthy economies and favorable regulatory environments. Yield 4.1% After the blockbuster acquisition of Integrys Energy, electric gen- 12-Mo Dvd Growth 17.2% eration and distribution account for about 66 percent of the com- Payout Ratio 69.8% pany’s earnings, with the gas utility contributing 23 percent and S&P Rating (Outlook) A- (stable) a multistate transmission business making up the remaining 11 percent. 6-Mo Change Insider Holdings 21.01% About 70 percent WEC Energy’s assets are located in its home Analyst Opinion 8 buy, 9 hold, 1 sell state of Wisconsin, where the utility earns a superior 12.7 percent Approx. Ex-Dvd Dates F,M,A,N--10 return on equity. Quality Rating (Utility Type) A, Regulated Elec/Gas The beauty of this model is that the company only needs to exe- 2-Yr Debt to Mrkt Cap 2.2% cute its 10-year capital spending plan of $14 billion to $15.5 billion to grow its earnings and dividend per share by 6 percent to 8 All Data as of 12/03/15, close | Source: Bloomberg, Conrad’s Utility Investor percent. Management’s guidance contemplates an annual growth For explanation of Quality Grade see Utility Report Card. rate of 5 percent to 7 percent thereafter. WEC Energy Group (NYSE: WEC), 1-Year Price History WEC Energy will recover much of this investment through automatic surcharges, adding to its rate base without petitioning reg- $60.00 ulators. $58.00 Regulatory risk in Illinois represents the biggest challenge to the $56.00 company realizing this guidance. After dragging its heels on ap- $54.00 proving Wisconsin Energy’s acquisition of Integrys Energy, regu- $52.00 lators have started to investigate whether Peoples Gas withheld $50.00 information about the cost of replacing aging gas distribution $48.00 pipelines in the Chicago area. In the worst-case scenario, WEC $46.00 Energy may need to accept a lower rate of return on the $2 billion $44.00 that the company plans to spend on this project over the next five $42.00 years. $40.00 Although an unfavorable outcome from this investigation would 12/04/14 01/04/15 02/04/15 03/04/15 04/04/15 05/04/15 06/04/15 07/04/15 08/04/15 09/04/15 10/04/15 11/04/15 12/04/15 present a challenge, WEC Energy shouldn’t have any problems Source: Bloomberg, Conrad's Utility Investor

13 ConradsUtilityInvestor.com December 2015 | Issue No 29

AGGRESSIVE INCOME Exelon Corp Cheap and on the Verge of Dividend Growth

Aggressive Income Portfolio holding Exelon Corp’s (NYSE: EXC) who has staunchly opposed the relicensing of Entergy Corp’s proposed acquisition of Pepco Holdings (NYSE: POM) contin- (NYSE: ETR) Indian Point nuclear power plant, to broker a deal ues to inch closer to the finish line. that would keep Exelon’s Robert Emmett Ginna reactor near Under the prodding of District of Columbia Mayor Muriel Bowser, Rochester running. the Public Service Commission is holding hearings on a set- Exelon has consistently run its 24 nuclear reactors at utilization tlement reached after the regulator rejected the initial takeover rates close to 95 percent and has leveraged its scale to keep proposal in August. Thus far, the three commissioners haven’t costs at a fraction of the industry average without concessions to tipped their hands about how they intend to vote when they ren- safety and maintenance. Superior operational metrics and sys- der their decision in the first quarter of 2016. tematic hedging—Exelon has locked in prices on 84 percent of the fleet’s expected output for 2016—have shored up this seg- On the plus side, the US government’s General Services ment’s earnings. Administration withdrew its opposition to the deal. At the Edison Electric Institute’s 50th Annual Financial Conference, Adding Pepco’s electric utility operations in DC, Maryland, management reiterated its guidance for annual earnings growth Delaware and New Jersey to Exelon’s existing franchises in of 3 percent to 5 percent, fueled by an estimated $18 billion Illinois, Maryland and Pennsylvania would increase the propor- worth of planned investments in its power grid over the next five tion of its revenue that comes from regulated businesses to 60 years. The acquisition of Pepco Holdings would increase these percent. potential capital expenditures to $26 billion. This incremental cash flow and a more stable revenue profile Delays in securing regulatory approval for this deal have pushed could enable Exelon to increase its dividend for the first time back the earnings benefits to 2017. But with ample liquidity and since December 2008. earnings that cover its dividend by a better than 2-to-1 margin, Meanwhile, the advent of capacity-based pricing in the regional Exelon doesn’t pose much risk to aggressive investors, espe- grid covering Pennsylvania, New Jersey and Maryland—and the cially with its price-to-earnings, price-to-book and price-to-cash growing likelihood of a similar change in Illinois—has shored up flow ratios at multiyear lows. profitability at Exelon’s wholesale power operations. Exelon Corp rates a buy up to $38 per share for investors The company’s extensive fleet of nuclear power plants provides who don’t own the stock already, though you may want to critical baseload power and doesn’t emit any carbon dioxide. enter this position gradually; the shares trade within range of These characteristics prompted New York Gov. Andrew Cuomo, $25, my dream price.

Exelon Corp Exelon Corp (NYSE: EXC), 1-Year Price History

Exchange: Ticker NYSE: EXC $40.00 Price $27.14 $38.00 $36.00 Yield 4.6% $34.00 12-Mo Dvd Growth 0.0% $32.00 Payout Ratio 49.6% $30.00 S&P Rating (Outlook) BBB (stable) $28.00 6-Mo Change Insider $26.00 1.76% Holdings $24.00 13 buy, 8 $22.00 Analyst Opinion hold, 1 sell $20.00 Approx. Ex-Dvd Dates F,M,A,N--10 B, Diversified 12/04/14 01/04/15 02/04/15 03/04/15 04/04/15 05/04/15 06/04/15 07/04/15 08/04/15 09/04/15 10/04/15 11/04/15 12/04/15 Quality Rating (Utility Type) Utility Source: Bloomberg, Conrad's Utility Investor 2-Yr Debt to Mrkt Cap 12.1%

All Data as of 12/03/15, close | Source: Bloomberg, Conrad’s Utility Investor For explanation of Quality Grade see Utility Report Card.

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Utility Report Card Go online to see additional data, including dividend growth rates, recent returns and other useful metrics.

Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) 8Point3 Energy SELL 12.67 4.97 Next earnings will reflect three months ended November 46.9 C 14.5 Wholesale Partners LP (NSDQ: 30. $191 mil of $500 mil credit line available maturiting Power CAFD) in June 2020. Parents FirstSolar and SunPower have solar sector's lowest cost of equity capital and remain supportive of yieldco, though stock now trades more than 40% below initial public offering price. IPO Lockup expires December 16, could bring price under additional pressure. Cost of equity capital of yieldco still relatively low at 5%. Abengoa Yield Hold 14.83 11.60 Parent and current sponsor Abengoa SA (Spain: ABG, 73.5 B 69.5 Wholesale (NSDQ: ABY) NSDQ: ABGB) files for protection from creditors to gain Power 4 month reprieve and CEO resigns, likely first step in negotiation with debt holders and other lenders. Yieldco working with J.P. Morgan to find buyer for Abengoa SA's 47% stake, preferably a new sponsor to provide future drop downs. Worst case is piece meal sale that leaves yieldco effectively orphaned but full sale looks more likely. Stock likely to languish priced on yield alone until resolution reached but payout still looks well covered by distributable cash flow. Rollover of $532 mil of debt through end of 2017 is a challenge, would be easier with new sponsor. Former Clinton administration cabinet official Bill Richardson sits on the company's international advisory board, a potential plus dealing with US politics in long run. Aegion Corp (NSDQ: Buy<24 21.14 N/A Exposure to oil and gas pipeline repair business will be a 0.0 C 36.9 Utility AEGN) drag on earnings for rest of 2015 and 2016, but is increas- Technology ingly being offset with resurgent growth in infrastructure solutions and corrosion protection operations serving other industries. Expect to see earnings rebound in 2016. Stock cheap on price to book value basis (1.24) and price to sales (0.6 times). Available funds under credit line maturing in 2020 cover all maturities through 2019 by better than 2-to-1 margin.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

Dividend Payout Ratio measures the company’s total dividend obligation as a percentage of quarterly earnings and excludes one-time items that might muddy the results. Quality Grades reflect six financial, operational and regulatory criteria that are important indicators of dividend sustainability. These metrics include: 1. Five years of Reliable Dividend Coverage, which means a payout ratio of less than 80 percent for most companies and 60 percent for those with volatile earnings streams; 2. Reliable Revenue, as demonstrated by generating more than 80 percent of sales from regulated business lines or long-term contracts that have a duration of 10 years or more; 3. Regulatory Stability, a qualitative measure the reflects solid cooperation between regulators and essential-service providers and rate increases that lock in returns on investment; 4. Near-Term Refinancing Risk, or whether the utility’s debt maturities over the next 24 months are less than 5 percent of its market capitalization--a key indicator of financial health;5. Operating Efficiency, which means plant downtime and fuel-cost stability for power companies, customer turnover and operating margins for telecom companies and a declining or stable efficiency ratio for water companies (regardless of the industry, this is the most difficult of criterion for companies to meet);6. Dividend Growth serves as one of the best indicators of a company’s health--we look for names that have grown their payout annually and haven’t cut their disbursement to shareholders over the past 10 years. Only companies that meet all these criteria earn an A. Names that meet 5 criteria get a B. Picking up at least 3 is good enough for a C, 2 for a D and less than two for an F.

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Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) AES Corp (NYSE: Buy<15 9.32 4.29 Dividend increase still likely this month. Will bid on Pacific 32.9 B 73.8 Wholesale AES) Hydro's Latin American power plants. Management guides Power to $1.13 to $1.48 bil free cash flow to fund $450 to $550 mil in reduction in non-recourse level debt. Now operates in 18 countries, none currently in Africa and 81% in the Americas. Completes 10 megawatt battery storage system in Maryland to power grid. Now has 384 MW of energy storage in operation or under construction and late stage development in six countries. 100 MW system under development for 20-year power purchase by Edison International unit in California. Philippines unit to raise $700 mil to build 300 megawatt power plant north of Manila. AGL Energy (OTC: Buy<15 12.40 3.26 Secures long-term gas storage rights for 15 years at Iona 68.1 A 30.6 Foreign Energy AGLNY, ASX: AGL) plant under amicable terms, will support increased usage. Company financing renewable energy with innovative methods with Australian market currently in oversupply, says will move away from natural gas as well by 2050. Independent testing clears company's gas drilling efforts on methane emissions. Strong financial position and retail reach are big advantage in building out new capacity. AGL Resources Buy<62 62.89 3.24 Shareholders vote to approve merger with Southern 68.6 A 56.5 Regulated Elec/ (NYSE: GAS) Company as well as executive compensation following Gas close. Deal still on track to close in second half of 2016. Southern Company management says at Edison Electric Institute 50th annual Financial conference that Illinois regulatory approval is likely to take the longest to achieve. Fitch rates credit outlook positive with merger pending. Q3 net up 78.9%. Management holds 2015 guidance at $2.85 to $3.10 per share. Gas distribution operations in seasonally weak summer period are flat, midstream loss widens slightly, offset by higher retail and wholesale services net. Chief operating officer will manage merger as current CEO to retire at year end. Alaska Hold 1.90 N/A New $25 mil loan from Crystal Financial LLC will refinance 0.0 D 76.3 Communications Communications existing credit facility with upcoming maturity in 2016. Systems (NSDQ: Fiber optic cable to lower 48 US states is a valuable asset. ALSK) Bond maturing in May 2018 trading slightly above par value after solid run higher this year. No debt maturities before 2018. Algonquin Power & Buy<9 7.84 4.92 Completes CD150 mil sale of common shares, proceeds 88.1 A 40.9 Foreign Energy Utilities (OTC: AQUNF, to partially fund growth plans and cut debt. Plans CD4 bil TSX: AQN) in investment over next five years on clean energy and utilities, including CD180 mil on 75 megawatt contracted solar power facility in Maryland to be up and running by end of 2016. 10% ownership stake in Northeast Energy Direct Supply Path pipeline project and expansion of transmission business segment adds USD400 mil accretive growth projects. Weak Canadian dollar keep stock cheap in US dollar terms for now. Dividend is paid in US dollars eliminating currency risk to US investors.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

16 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Allete (NYSE: ALE) Buy<45 49.40 4.09 1.5 cents per share hike in quarterly dividend on tap for 61.2 A 46.1 regulated January declaration. Taconite mine customers nominate electric 80% of full demand for January through April. Company will supply power to Arcelor-Mittal Mine in northern Minnesota through December 2025. Contract is subject to approval by Minnesota regulators, a major plus for industrial sales company depends on. U.S. Water unit buys A&W Technologies for $9 mil to improve expertise in specialty chemicals and engineering for water treatment at data centers, light industrial, institutional and food industries, based on Georgia. Large business is consistently profitable but may discourage takeover offers. Alliant Energy Corp Buy<65 60.35 3.65 Four cents per share increase in quarterly dividend looks 61.6 A 51.9 Regulated Elec/ (NYSE: LNT) likely to be declared in January. Plans robust capital Gas investment in Wisconsin and Iowa based electric utilities over next 10 years, also stake in American Transmission Corp controlled by WEC Group. Projects include new natural gas-fired power plant in Iowa. 2016 guidance maintained at $3.60 to $3.90 per share. Low operating risks and valuable assets make company a likely takeover target even as combination of robust dividend growth and 3.7% yield are attractive on their own. Ameren Corp (NYSE: Hold 43.34 3.92 Illinois electricity returns are tied to 30-year US Treasury 65.4 B 50.4 Regulated Elec/ AEE) bond yield, will rise along with interest rates and potentially Gas offset reduction in transmission system returns allowed by Federal Energy Regulatory Commission. Exit from merchant power enhances predictability of returns. Company issued 5-year bonds at rate of just 2.7%, 11-year bonds at 3.65% demonstrating continued access to low cost debt capital. Tough regulatory climate in Missouri likely precludes high takeover offer, will slow growth. America Movil (NYSE: Buy<20 15.74 1.97 Mexican regulators continue to scrutinize operations for 78.8 B 72.0 Foreign AMX, MM: AMXL) potential market dominance. Company to have equal entry Communications to 2016 Mexican wireless spectrum auction despite ruling from regulators that company is dominant, but will have to reorder existing spectrum. Towers spinoff begins trading on Dec 21. Will write off EU1 bil from Austrian investment. Stock punished on slump in Brazil but still has valuable global assets and now trades at just one times sales and 4.3 times cash flow. American Electric Hold 55.84 4.01 Agreement reached in Ohio to move FirstEnergy power 60.2 A 54.3 Regulated Elec/ Power (NYSE: AEP) plants into rate base bodes well for company's current Gas efforts with regulators to do the same. Move would dramatically reduce risks in state and add to revenues. Rolling out solar investment. Management focuses on opportunities from refurbishment of power grid in presentation to Edison Electric Institute 50th Annual Financial Conference. Company has retired 25% of coal power plants, some with coal-to-gas conversions. Investments include rooftop solar and energy storage. 96% of $13 bil capital spending next three years is in regulated utility business.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

17 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) American States SELL 41.93 2.14 Maintaining solid results and dividend growth rate depends 55.3 A 39.2 Regulated Water Water (NYSE: AWR) on continued support from California regulators as drought increases costs and forces customers to bear a greater burden. Current share price doesn't leave any room for potential setbacks at 12.1 times cash flow and more than 25 times trailing 12 months earnings, yield of barely 2% despite sharp deceleration in dividend growth over past two years. American Tower Corp Hold 97.55 2.01 Dividend increase of two cents per share per quarter this 36.7 B 78.3 Communications (NYSE: AMT) month. Buys 51% interest in Viom to combine with existing wireless tower business in India for $1.2 bil. Venture is allied with Tata, one of country's most powerful and well connected conglomerates, a major plus dealing with sometimes tough regulators. Management still expects to realize much higher growth rate internationally than in US. Deals with large companies to avoid credit risks, beneficiary of global wireless sector consolidation. AT&T is 60% of business in Mexico and its recent expansion there is a plus for company. American Water Hold 58.01 2.34 Company developing test slant well in California after 51.8 A 54.8 Regulated Water Works (NYSE: AWK) receiving permit from California Coastal Commission as seeks more safe water supplies in drought-affected state. State has granted company $1 mil grant for construction to defray costs. Monterey Peninsula Water Supply Project will replace current reliance of region on Carmel River when completed in 2019. Company size and geographic diversification gives it flexibility to function in Golden State despite growing regulatory uncertainty. High price of stock limits further upside but is safe haven for those who own it. AmeriGas Partners Buy<52 35.94 10.24 Guidance for fiscal 2016 is cash flow for $660 to $690 86.4 A 66.2 Propane LP (NYSE: APU) mil (EBITDA excluding one-time items). Management Distribution holds to guidance for distribution increase this spring in neighborhood of 5%. Weather holds back Q4 results with temperatures 32% above levels of last year in September when heating season traditionally kicks off around country, offset by cost controls and expansion of barbeque cylinder exchange. Wholesale propane prices -60% below last year's fiscal Q4. Long run EBITDA growth target of 3% to 4% a year is affirmed. APA Group (OTC: Buy<7.50 6.18 4.84 Increase in Interim Dividend for fiscal year 2015-16 likely 87.5 A 68.0 Foreign Energy APAJF, ASX: APA) this month. Loses bid to build natural gas pipeline from Northern Territory to Chinese firm, disappointing outcome but demonstrates management's capital discipline and ability to tap into other opportunities from expanding Australian natural gas transportation. Weakness in Australian dollar keeps stock in bargain territory for US investors. Aqua America (NYSE: Buy<26 29.55 2.41 Has completed 4 acquisitions of municipal systems thus far 56.5 A 49.7 Regulated Water WTR) in 2015, 11 investor owned water and 3 wastewater systems as company continues to execute same successful consolidation strategy of the past 20 years. Size increases ability to make needed investment in water quality. $1 bil capital spending planned for three years ending 2017. Ancillary activities in line maintenance, etc drive incremental growth.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

18 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) ARC Resources (OTC: Buy<20 13.25 6.79 Low costs, conservative financial policies and disciplined 58.8 B 23.2 Oil/Gas AETUF, TSX: ARX) hedging strategy keep balance sheet healthy in 2015. Production Company continues to have significant quantities of oil and natural gas hedged through 2017, with position in gas in 2018. Producer retains very strong support among analysts with 19 rating the stock buy and only Morningstar Inc hold with no sells. Insiders boost holdings by 16.61% over last six months, buying has accelerated in second half of 2015. Artesian Resources Buy<22 25.74 3.44 Stock trades at 10% higher price-to-cash flow ratio than 65.4 A 49.8 Regulated Water Corp (NSDQ: ARTNA) industry leader American Water Works, too expensive to buy now. Operating risks appear low with steady capital spending and regulatory support funding modest (3%) annual dividend growth for past five years with semi-annual boosts. Next hike due in late March. AT&T (NYSE: T) Buy<37 34.11 5.51 Rolls out aggressive new promotions on entertainment/ 57.0 A 48.6 Communications Internet television side following close of DirecTV merger. Company likely to merge Uverse and DirecTV brands. 4G wireless network expansion plans on track in Mexico. Wireless capital spending drops this year as 4G buildout winds down. Berkshire Hathaway endorses company strategy by taking stake in stock. Faces heavy debt maturities through end of 2017 ($13.594 bil). Debt trades at or above par value so refinancing should be economic, particularly as company generates abundant free cash flow. 31-year debt has yeild to maturity of 5.27%. Atlantic Power Corp Hold 1.92 4.70 Management maintains quarterly dividend at 3 cents NEG C 68.3 Wholesale (NYSE: AT, TSX: ATP) Canadian per share. US Court of Appeals approves stipula- Power tion jointly filed by company and plaintiffs in long-standing US securities class action lawsuit. Appeal of similar favorable ruling in Canada is still under appeal. Yield to maturity on 21-year bonds is less than 8.3%, near term debt trades close to par. Atmos Energy Corp Buy<55 62.25 2.70 Management affirms annual capital spending of $1 to 54.4 A 47.7 Regulated Elec/ (NYSE: ATO) $1.4 bil per year through 2020, 6% to 8% yearly earnings Gas growth to 2020 target of $4.10 to $4.40 per share. Says will do $50 to $100 mil of equity issuance per year. Company fits mold of natural gas distribution company now attracting takeover offers but can grow at a healthy pace independently as well. Spending on system reliability is robust, as company replaces bare steel, cast iron and vintage plastic with systematic investment strategy. Successful offer for company would have to be in 70s, even with stock already trading at nearly 20 times earnings. Avista Corp (NYSE: Hold 34.50 3.83 Look for next dividend boost in February in line with last 67.3 A 52.8 Regulated Elec/ AVA) year's hike. Worst wind storm in company's 126-year Gas history last month, company restores all connections in 10 days in Pacific Northwest, still waiting on repair cost estimates but likely to be recovered in insurance, reserves and rates. Company mails gift cards to customers affected by outage at cost of $461,100 to earnings.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

19 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) BCE (NYSE: BCE, Buy<50 42.60 4.56 Next dividend increase in February. Expense cuts, fiber 59.6 A 56.9 Foreign TSX: BCE) optic buildout, wireless data growth are keys to rising Communications earnings and dividends in 2016. Raises CD750 mil in share sale, proceeds to cut debt. Company is now sole HBO distributor in Canada. Continues to capture high-end, high value customer base in Canada and pulls market share away from cable company competition. 20% of network is now fiber to the home on wireline side, pushing for 90% penetration, accelerating spending to get at least most of the way there by the end of the decade. Black Hills Corp Buy<45 41.70 3.88 Dividend increase announced next month is likely to mirror 55.9 B 54.0 Regulated Elec/ (NYSE: BKH) large boost last year. Over subscribed sale of 6.325 mil Gas shares of stock at discounted rate ($41.25 per share) hurts price but resolves cash needs as company works to complete purchase of SourceGas natural gas utilities. Close expected in first half of 2016 following needed regulatory approvals. Deal in Colorado reached for approval. Company adjusts projected 2016 earnings guidance to range of $2.65 to $2.85 per share from $2.90 to $3.10 to reflect cost of new debt, dilution from new stock and time needed to close the deal. Utility business will contribute 82% of cash flow in 2016, more in 2017 with full year as part of company. Plans to request states in service territory to allow inclusion of natural gas reserves into rate base under cost of service ratemaking to lock in low costs. Stock aggressive until merger closes but well priced for risks. BP (NYSE: BP, LSE: SELL 32.67 7.29 Management continues to affirm intention to pay dividend, NEG D 31.9 Oil/Gas BP) even at cost of undermining future profitabiity with asset Production sales and cost reduction. Company says natural gas pipeline from Azerbaijan to Europe is more than 50% completed. US Supreme Court rejects lawsuit from 3 Mexican states over 2010 Deepwater Horizon oil spill. CEO issues forecast for late 1980s lower for longer oil price environment, but expects to see rising demand at low prices. Will sell Alabama petrochemicals plant as company closes in on asset sales target of $10 bil set in early 2014. Australian regulators order company to revise $710 mil offshore drilling plan. Brookfield Buy<33 24.57 6.76 Dividend increase looks set for February, following release 70.0 A 46.4 Wholesale Renewable Energy of Q4 and full year 2015 results. Close of CD175 mil pre- Power Partners (NYSE: BEP, ferred unit offering demonstrates ability to access capital TSX: BEP-U) market to make investments that are accretive to low risk cash flows from contracted, low cost clean energy power plants. Underwriters exercise option to take maximum purchase amount. Earnings are not at risk to falling oil prices and parent Brookfield Asset Management is strongly supportive of growth. CD1.5 bil in untapped credit lines maturing in 2020 cover all debt due through 2019 by 1.38- to-1 margin.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

20 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) BT Group (NYSE: BT, Hold 72.87 3.53 American Depositary Receipts to be worth five ordinary 42.9 B 92.4 Foreign LSE: BT) shares instead of 10, starting Dec 7. Current holders Communications will get 2 ADRs for every one they now own. Dividend increase on tap later this month. Continues to receive UK government funds for broadband buildout into rural areas. UK regulators propose funding for alternative internet infrastructure. Chief executive of broadband buildout leaves for rival. Close of acquisition of EE wireless unit of DT and Orange nears. Buckeye Partners LP Buy<77 60.91 7.72 Unit price is punished along with rest of master limited 112.4 A 47.4 Energy Pipelines (NYSE: BPL) partnership group but direct exposure to lower energy prices and production volumes is extremely limited. Opportunity to deliver refined products will increase as US refiners take advantage of lower for longer price environment to add capacity. Prices of longer dated bonds have come down but even 29-year debt still has yield to maturity of a little over 7%, 4-year debt is at 4%, demonstrating ability to access relatively low cost debt capital. $1.1 bil in untapped credit lines maturing 2019 covers maturing debt through 2018 by 1.34-to-1 margin providing financial flexibility. Debt/assets just 44%. Bottom line is partnership can maintain yield plus moderate distribution growth even if capital market access is restricted for a while. Cablevision Systems SELL 29.97 2.00 Stock price entirely dependent on success of takeover 93.8 C 208.0 Communications Corp (NYSE: CVC) offer from European cable television firm Altice offer at 34.90 per share in cash. No dividends will be paid as company continues to lose business to tough competition. Management says close of deal will be first half of 2016 but no indication yet whether Federal Communications Commission will sign off. Bondholders hurt by likely loss of credit quality from merger but high coupon yields keep prices above par for now. California Water Hold 22.82 2.94 Insiders reduce holdings by -4.3% over last six months, 67.0 B 44.6 Regulated Water Service (NYSE: CWT) though stock has retreated from its highs in wake of tougher regulatory treatment in California and impact of drought on water supply costs and demand. No immediate risk to dividend but amicable decisions in ongoing California and Hawaii are critical to stock valuation near term and financial health longer term. Calpine Corp (NYSE: Buy<22 13.15 N/A Stock plunges to lowest level in at least four years. 0.0 C 76.7 Wholesale CPN) Company retains access to reasonably priced debt capital Power as most bonds continue to trade at or above par value. Next significant maturities are in 2017, total debt due between now and end of that year is 10.9% of market capitalization. Weak natural gas prices are driving down wholesale electricity prices, prices of unregulated power producers but company is on much stronger position than when gas prices soared in last decade and triggered bankruptcy. Contracts and low costs keep company profitable.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

21 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Canoe EIT Income Hold 8.31 10.80 Pays another month of 10 cents per share Canadian dis- 222.6 C N/A Closed-End Fund Fund (OTC: ENDTF, tribution. 46.5% of issued and outstanding units in closed TSX: EIT-U) end fund are submitted for redemption. Fund accepts 10% of total or 21.5% of units tendered. Discount to net asset value wide at -12.7%. Fund's principal holdings are all US stocks, except Rogers Communications (3.6%) and ARC Resources (2.9%). Most of distribution is return of capital and capital gains as income portion is less than 4% of net asset value. CEMIG (NYSE: CIG, Buy<1.50 1.69 7.82 Management affirms positive outlook for resolution of 25.4 C 54.5 Foreign Energy BZ: CMIG4) dispute over hydro plant licenses at Edison Electric Institute 50th annual Financial conference, has no target date for settlement but says regulation has remained generally solid. Company does win generation concessions to run 18 hydro plants in recent auction. All new generation will go into regulated rate base for 2016, dropping to 70% in 2017. Cash flow up 27% on boost in margins from 13.4% to 13.5%. Venture wins wind concession in northeastern Brazil to start selling power in 2017. CenterPoint Energy Buy<18 16.51 6.00 Dividend increase still likely next month despite concern 92.1 B 66.1 Regulated Elec/ (NYSE: CNP) about slowdown in distribution income from ownership Gas stake in Enable Midstream Partners (NYSE: ENBL). Files rate increase in Arkansas of $35.6 mil to pay for system improvements to boost reliability. Management has maintained 4% to 6% earnings growth guidance through 2018, fueled by continued 2% annual customer growth at core Houston electricity distribution unit. CEO says company doesn't need to participate in mergers and acquisitions but key location and low price (3.9 times cash flow) may attract suitor. Centrica (LSE: CNA, Hold 12.77 3.22 Final fiscal year dividend to be declared in February 2016 NEG C 69.1 UK Energy OTC: CPYYY) likwly to show similar year-over-year decline as Interim Retailer dividend paid in late November. UK regulators likely to fine company for missing target of rolling out advanced meters to all business customers by April 2014. Will overhaul natural gas-fired power plant in UK, restart now partly moth- balled facility in time for start of capacity market contract in October 2018. Buys device-level energy management company Panoramic Power to boost profitability of energy retail arm Direct Energy. CenturyLink (NYSE: SELL 26.71 8.09 Ruling in dispute with class of retirees over benefits will 40.6 C 57.9 Communications CTL) stand after US Supreme Court refuses to hear either petition. Bonus depreciation is lifesaver for company that continues to bleed revenue as broadband doesn't yet compensate for continued erosion of traditional phone business. Interconnection deal with Cogent should be a plus in business market. Former US Senator from Louisiana Mary Landrieu joins board of directors as company seeks connections. Dividend will be under pressure until revenue stabilizes. Chesapeake Utilities Hold 53.67 2.14 Stock looks pricey at 18.6 times earnings, 2.3 times book 40.1 A 46.0 Regulated Elec/ Corp (NYSE: CPK) value. Business mix of regulated natural gas utilities, Gas propane distribution and information technology continues to generate solid and reliable returns but yield of 2.16% plus dividend growth of 6.48% mean much good news is already priced in for company.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

22 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Chevron Corp (NYSE: Hold 89.71 4.77 Dream buy price is still 70, though a revisit to that level 100.0 B 15.1 Oil/Gas CVX) looks less likely now. California refinery operations face Production limited interruption from fire. Still appears on track to bring up production in line with 20% target in 2017 as opening of Gorgon and Wheatstone liquefied natural gas export facilities in Australia still appear on track for 2016. Cost cuts, asset sales and strong balance sheet will limit need to access capital market until conditions improve. Issues 2-year debt at rate of just 1.344%, 3-year debt at 1.79%, 5-year debt at 2.427%, 10-year at 3.326% demonstrating ability to access low cost debt capital. China Mobile (NYSE: Hold 58.70 3.02 Market leader in Chinese wireless market buys assets from 42.9 C 0.7 Foreign CHL, HK: 941) TieTong for 32.9 bil Yuan to add to national broadband Communications "backbone" network. Success of 4G launch continues to pay off with rising data sales likely to give margins a boost in 2016 as it spurred customer additions this year. Rivals unlikely to challenge leading position without a merger. Company is still vulnerable to economic weakness in China, though controlled currency limits risk of US dollar appreciation. China Unicom (NYSE: Hold 12.16 2.42 Much is riding on Chinese wireless company's launch 50.0 C 37.8 Foreign CHU, HK: 762) of 4G service after losing market share to China Mobil, Communications others. Company continues to be target of merger rumors as solution to its problem of lesser scale. Chinese cost controls may help company stablize cash flow margins in 2016 as well but position appears weak now. Has wall of debt coming due between now and end of 2018. Chunghwa Telecom Hold 30.37 3.84 Taiwan based telecom operates as largest provider in 91.0 B 0.7 Foreign (NYSE: CHT, TT: saturated market but also has best-in-class network with Communications 2412) upside from increased connectivity, data sales. Share price in US dollars hurt slightly by rise in US dollar versus free floating Taiwan dollar. Cincinnati Bell (NYSE: Hold 3.69 N/A Reaffirms revenue and cash flow guidance in early 0.0 C 157.1 Communications CBB) December analyst update. Management sticking to multiyear plan to expand Fioptics coverage to 70% to 80% of Cincinnati as rate of return on investment remains in the mid to high 30% range based on average revenue per user, churn, penetration of service and cost to build. Still a very attractive investment both for immediate earnings and for long-term sustainability in highly competitive communications market as a pure wireline company. Bonds look increasingly solid despite junk rating. CLECO Corp (NYSE: SELL 51.28 3.12 Stock price is tied to fate of takeover bid by Macquarie 81.6 B 45.7 Regulated Elec/ CNL) Bank-led consortium. Remaining needed approval is from Gas Louisiana regulators. Post-hearing briefs due Dec 22, reply briefs Jan 12 for Administrative Law Judge recommenda- tion. Final vote by full commission expected by end of Q1. Deal failure would likely send Cleco stock to low 40s, if not mid-to-low 30s where it traded before takeover talk stirred.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

23 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) CLP Holdings (OTC: Buy<9 8.48 2.68 Successfully inks new credit deal in Japanese Yen. 64.5 A 41.3 Foreign Energy CLPHY, HK: 2) Australian unit to cut up to 300 jobs in cost reduction push. Weakness in Australian dollar and slower energy demand in China could hurt 2nd half of fiscal year performance after solid showing in first half of fiscal year. Renewable energy in India, China and thermal power in Vietnam are main focus for company growth. Next dividend increase looks set for late February. Hong Kong dollar peg to US dollar limits currency risk to US investors from owning stock. CMS Energy Corp Buy<33 34.98 3.32 Dividend increase on tap for mid-January. Michigan utility 61.7 A 70.2 Regulated Elec/ (NYSE: CMS) has now deployed half of planned smart meters into Gas system to cut costs and improve reliability, is recovering investment in rates. Fitch affirms credit rating after company issues 10-year bonds at coupon rate of just 3.6%, proving ability to access low cost debt capital. Management affirms 5% to 7% annual rate base, earnings and dividend growth targets in presentation at 50th annual Edison Electric Institute Financial conference, hints numbers are conservative based on utility capital spending projections. Columbia Pipeline Buy<28 18.81 2.66 Pipeline partnership sells for roughly one-third less than at 35.0 A N/A Energy Pipelines Group (NYSE: CPGX) initial public offering in February but still still has relatively low cost of equity capital with yield of 4.6% and $480 mil undrawn on $500 mil revolver loan maturing in 2020. Company itself has $1.257 bil undrawn of $1.5 bil credit line, no debt maturities before June 2018. Cost of equity capital also low at 2.7% yield though share price is down more than 40% from mid-June 2015 high. FERC-regulated pipelines and demand side projects transporting gas to utilities provide considerable visibility for management guidance of 20% annual cash flow and 15% annual div- idned growth through 2020. Marcellus and Utica shales are key regions for new projects to connect to markets. Comcast Corp Hold 60.75 1.65 Expansion of X1 platform and wireless gateway investment 23.4 A 47.1 Communications (NSDQ: CMCSA) (new interactive set top box) triggers 14.5% lift in capital spending in Q3, cable capital spending rises to 16% of cable revenue versus 12% for industry as a whole. US Department of Justice probes company over local cable TV advertising market and potential market power issues. Rolls out streaming cable service in select markets. Company at height of its power but potential upside catalysts for stock from current valuation are not apparent with so much good news priced in. Connecticut Water Hold 35.81 2.99 Earnings in seasonally strong Q3 up 2.6% per share. Water 52.7 A 46.3 Regulated Water Service (NSDQ: activities net is flat with real estate sales providing boost CTWS) in earnings. Operating expenses in quarter higher on cyber security costs and other items. Company continues to replace water mains in Connecticut and Maine and recover investment rate surcharges without going through rate case. Connecticut regulators OK boost to surcharge at start of Q4. Capital spending plan is $65.9 mil for 2016, $22.6 mil for pipeline replacement, $24.6 mil for treatment plant improvements. Looks expensive at 17.3 times earnings and 10.2 times cash flow.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

24 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Consolidated Buy<20 21.60 7.17 Company now has 80% of revenue coming from broadband 54.0 B 80.7 Communications Communications operations. Management says in mid-November presen- (NSDQ: CNSL) tation that company has realized two-thirds of projected synergies from Enventis merger, a little more than one year after close of deal and has raised eventual expectation. Won't rule out another merger in near future, would target company with $100 mil or more in annual revenue but says inflated values are a challenge. Fiber to wireless towers is still a growing business. Capital investment is running 16% to 17% of revenue. Has strengthened capital structure refinancing 10.875% bonds with 6.5% bonds. No major debt maturities until 2020. Consolidated Edison SELL 62.15 4.18 Expect dividend increase in mid-January. S&P cuts credit 65.4 A 50.8 Regulated Elec/ (NYSE: ED) rating outlook to negative from stable, cites risks of fallout Gas from East Harlem natural gas system explosion in 2014 from New York regulation and large capital spending program. Will face hearings charging negligence in accident that killed 8 people and injured 50. Utility must prove incident was not its fault after regulators cite report of failure to properly install and maintain plastic fusion pipes. New York City allowed return on equity is 9.2% for electricity and 9.3% for gas with filing for 2017 rate hike ahead. Issues 30 year bonds at rate of just 4.5% proving still has access to low cost debt capital. Consolidated Water Buy<14 11.55 2.60 Q3 earnings per share drop -7.7% on -14% dip in revenue. 54.5 B 5.9 foreign water (NSDQ: CWCO) Retail sales flat (-1.7%) with drop due to lower electricity price pass through into rates. Bulk water revenue drops in Bahamas and Cayman Islands in large part due to lower pass through of diesel fuel and electricity costs into rates. Gross profit margins rise to 38% of revenue from 33% a year ago, improved operating efficiencies a plus. Project development activities in Mexico continue to add to expenses with no boost in revenue as development proceeds. Negotiations with Cayman Islands over new rate deal ongoing. Mexico project wins approval of Baja California government but company and partners still must submit successful bid. Bulk water sales have take-or-pay compo- nent safeguarding margins. No real surprises in results. Convergys Corp Hold 25.49 1.26 Chief Operating Officer visits India, affirms intent to grow 17.8 C 23.4 Utility (NYSE: CVG) company's seven customer care centers in country. Has Technology increased workforce in India to 15,000 from 13,000 at start of year. Company now has 125,000 employees in 31 countries, positioned to grow as essential services firm seek to cut costs with outsourcing of operations. Stock not expensive trading at 80% of sales. Covanta Holding Hold 16.11 6.21 Weak commodity prices mask positive impact of project 93.5 C 73.9 Wholesale Corp (NYSE: CVA) execution on bottom line, majority of power sales are in Power unregulated markets of Northeast US. Recycled materials prices are also weak. Management company pivoting to waste side of the business with higher growth and more fee-based business. Company benefits from increasingly scarce landfill space globally, management notes in recent update call that government policy is more supportive for efforts in the UK, European Union, Australia and China than in the US, affirms safety of dividend with 85% of revenues contracted or hedged.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

25 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) CPFL Energia (NYSE: Hold 8.29 N/A Company suffers -5.6% drop in overall volumes, paced by 70.6 C 67.1 Foreign Energy CPL, BZ: CPFE3) 5% decline at regualted utility and -5.9% for unregulated sales. Weaker economy hurts as drought elevates price of power, spurring less usage. Industrial consumption down -5,3%. Renewable energy unit a bright spot with revenue up 6.1%. Management indicates during Q3 conference call that it expects less consumption in 2016, following expectation for shrinking GDP in Brazil. Net operating revenue drops -21%, net income -48.6%, cash flow down -47.7% from year earlier levels. Delta Natural Gas Hold 21.10 3.89 Seasonally weak revenue slips for both regulated utility 92.1 B 40.9 Regulated Elec/ (NSDQ: DGAS) (-5%) and non-regulated gas sales (-36.5%), loss expands Gas slightly for quarter. Operations are centered in coal country in central and southeastern Kentucky. Industrial customer sales are subject to local economic ups and downs. Pre- purchases of natural gas to meet non-regulated customers' needs subject company to some commodity price risk if prices should fall sharply from purchase prices. No rate cases at utility in Kentucky. Deutsche Telekom Hold 17.75 3.00 Shuts down ClickandBuy payment system unit in face of 102.0 C 61.8 Foreign (OTC: DTEGY, GR: competition from PayPal. Continues to bankroll cash needs Communications DTE) of US unit T-Mobile USA in subscriber growth push. Test will be how much support is given in upcoming Federal Communications Commission spectrum auction. Improved margins in Germany due to merger of major competitors is a big plus as company invests in best in class network, opposite strategy of T-Mobile USA. Still appears likely to eventually sell unit. Dish Network Corp SELL 61.52 N/A Could face huge fine in telemarketing case with parties 0.0 C 87.6 Communications (NSDQ: DISH) seeking $900 mil to $23.5 bil award. Viacom content deal expires next year, renegotiating amicable deal is critical. CEO opposes Time Warner Cable/Charter Communications merger as anti-competitive, also opposes Bright House deal. Partners in wireless spectrum bidding challenge Federal Communications Commission's disallowance of $3.3 bil in discounts for purchases. Company is third largest US multi channel video programming distributor (14% market share). Q3 revenue up 1.4% from subscribers, earnings per share up 35.5%. Churn rate rises to 1.86% from 1.67% but average revenue per user up 2.3% and company adds some broadband subscribers net. Dominion Midstream Buy<40 28.24 2.48 Parent and general partner Dominion Resources affirms 78.1 A 0.0 Energy Pipelines Partners LP (NYSE: financial support for partnership and ability to fund growth DM) and drop downs without having to issue equity, but may do so anyway with units trading almost 50% above 10/14/14 initial public offering price and with cost of equity capital very low with yield of 2.2%. Partnership is hugely advan- taged for expansion relative to rivals. Insiders add 12.62% to holdings over past six months.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

26 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Dominion Resources Buy<75 66.60 3.89 Another dividend increase of close to 8% is on tap for next 70.0 A 68.5 Regulated Elec/ (NYSE: D) month. New gas compressor starts up in South Carolina. Gas Plans $5.7 bil utility system investment in Virginia though end of 2020. Projects in plan include 2 gas-fired power plants, solar and wind generation, transmission lines and underground wire installation to improve reliability. Buys 80 megawatt solar farm to serve Amazon facility. CFO says LNG facility contracts won't be renegotiated. Issues 5-year debt with 2.8% coupon rate demonstrating continued access to low cost debt capital. DTE Energy (NYSE: Buy<75 80.53 3.63 Company and partner Spectra Energy request Federal 61.1 A 51.9 Regulated Elec/ DTE) Energy Regulatory Commission approval to build pipeline Gas linking southeastern Michigan/northern Ohio/Ontario natural gas markets with Utica and Marcellus shale. Management affirms expected higher earnings growth for 2015 and full-year target of $4.78, with 5% growth for 2016. Dividends expected to grow in tandem with earnings. Sets capital spending target of $13 bil through 2020, $1.5 bil higher than previous five-year plan. Increase due primarily to increasing stake in Nexus project to 50% from previous 33%, meeting Clean Power Plan mandated reductions in carbon dioxide. Duke Energy Corp Buy<77 67.04 4.92 Will build 200 megawatt wind power facility in Oklahoma 71.7 A 51.0 Regulated Elec/ (NYSE: DUK) with 22 year purchase power agreement. North Carolina Gas regulators reject challenge by NC WARN ratepayer group to company's long-term planning strategy. Partners with Google to construct and run 61 MW of solar energy in North Carolina, Google is first participant in company's Green Source Rider program. Wins new 40 year license to run hydro facilities on 225-mile stretch of Catawba River as 3-year negotiation concludes. Completes construction of 2 MW battery for storage usage on power grid. Fitch puts credit rating on watch negative, citing cost of buying Piedmont Natural Gas. Issues 30-year debt at coupon rate of just 4.8% demonstrating continuing ability to access low cost debt capital. Dynegy (NYSE: DYN) Hold 11.44 N/A Company opposes deal between Ohio Public Utilities 0.0 D 70.2 Wholesale Commission staff and FirstEnergy to grant company's Power power plants a guaranteed rate of return. Drop in natural gas prices hurts spot market in wholesale power. Company will retire coal-fired power plant in Illinois in mid-2016, blames faulty market design. Still has 8,000 megawatts of coal capacity in state. Cost cutting, stock buyback and debt reduction are company's key goals following recent spate of acquisitions. Stock is likely to follow energy prices given exposure to wholesale power market conditions, may not have hit bottom.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

27 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) E.ON (OTC: EONGY, SELL 9.56 0.34 Swedish regulators propose 63% boost in decommission- NEG D 42.4 Foreign Energy GR: EOAN) ing fees for nuclear facility owned jointly with Vattenfall, which now plans to shut them by 2020 due to poor economics with wholesale power prices weak. Completes sale of Italian hydro system with capacity of 527 megawatts as retrenchment continues. Plans to reorganize operations into regional units after conventional power plant spinoff. Utility scale solar farm with 28 MW capacity starts up in California. Allies with BMW in electric vehicle venture. Russian earnings drop -37%, company writes down EU8.3 bil in power assets as company posts record Q3 loss ($7.8 bil). Underlying loss not including writedowns doubles to EU203 mil. Management sticks to forecast for 2015. Edison International Hold 60.21 2.78 Sizeable dividend increase on tap for mid-month. California 43.7 B 48.1 Regulated Elec/ (NYSE: EIX) regulators grant company extension to file cost of capital Gas application to April 2017. California regulators say they'll miss state's statutory deadline for setting a rate on power from rooftop solar units (net metering). Company wants a fee for upkeep of grid and net metering rate better reflecting current wholesale rates rather than a higher retail rate. Utility spending on grid is primary driver of long-term growth. El Paso Electric Hold 37.00 3.19 State senator wants El Paso City Council to reject company 52.3 B 54.2 Regulated Elec/ (NYSE: EE) proposal for a fee on rooftop solar users but implies he Gas would not oppose a smaller fee. Review underway this month. Case will go to Texas Public Utility Commission if deal is not reached between utility and Council. Rooftop solar penetration is relatively low in service territory despite availability. Company looks ripe for takeover at less than $1.5 bil in market capitalization but not a cheap stock at 18 times trailing 12 months earnings. Electricite de France Hold 14.70 9.34 Maintains same Interim Dividend as paid since December 70.2 B 57.3 Foreign Energy (OTC: ECIFF, FP: EDF) 2010. Will sell wind power to Google in Oklahoma for 15 year period, 201 MW as continues to expand global renewable energy investment, targets EU2 bil to CU2.5 bil a year to double output by 2030. Now has more than 1,000 MW of French wind generating capacity. Plans to add 5,000 MW more in France and 17,000 MW in Latin America, Asia, the Middle East and Africa. Smart meter deployment in France helps control costs. Emera (OTC: EMRAF, Hold 31.94 4.53 TECO Energy shareholders OK takeover by company. Q3 51.6 A 52.0 Foreign Energy TSX: EMA) earnings per share up 7.1% excluding impact of mark- to-market contract value swings, including cost of TECO Energy merger that will double size of company and add 5% to earnings in first year after close, 10% by third full year (2019) according to management guidance. Nova Scotia Power has lower result on timing of items but utility operations in Maine and the Caribbean produce higher profits, as do pipelines and wholesale generation investments. Management affirms 8% annual dividend growth target through 2019. Company is locking in financing for deal that will not require a formal review from Florida regulators. Federal Energy Regulatory Commission filing made for deal. Target date to close purchase is still June 30, 2016. US Department of Energy approves company ability to export compressed natural gas. New Canadian government likely positive for infrastructure investment, including company's power link with giant Labrador hydro power plant.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

28 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Empire District Hold 22.41 4.64 Concerns about tough Missouri regulation take bite out of 75.6 B 52.0 Regulated Elec/ Electric (NYSE: EDE) stock this year, lack of dividend increase in October indi- Gas cates pressure on earnings from rate lag. Could be easily acquired by a neighboring utility with market capitalization of less than $1 bil and selling for just 1.21 times book value. 7.3% electric rate hike request filed in Missouri in mid October is next major test, though ruling not likely until next September. Enbridge Energy Buy<22 22.25 10.48 Modest distribution increase to be announced in February 61.4 B 44.4 Energy Pipelines Partners LP (NYSE: around the time of Q4 results. Drop off in Bakken crude EEP) oil shipments at Minnesota hub should not reverberate in company system throughputs because of large volume of Canadian oil from long life wells that once in operation will continue to pump. General partner Enbridge Inc raises dividend by 14%, a good sign of management confidence in partnership and Canadian counterpart Enbridge Income Fund. ENEL (OCT: ENLAY, Hold 4.42 1.94 Rollout of smart meters in Spain boosts regulated 11.9 C 52.8 Foreign Energy IM: ENEL) utility profits in tough environment, accounts for 24% of distribution and supply capital spending through 2019. Green Power unit sells all assets in Portugal for EU900 mil. Completes repurchase of green power unit shares company doesn't already own (30.8%) with EU3.1 bil of its own shares. CEO says repurchase of unit is just latest step in becoming global green utility. Plans to invest EU3.4 bil in Brazil by 2019. Expects to sell Slovakia utility stake by end of year. Management affirms 2015 cash flow and net income targets after solid Q3. Energen Corp (NYSE: Hold 55.41 0.14 Management continues to deliver solid production growth 5.6 B 23.3 Oil/Gas EGN) from new oil finds in Permian Basin, expanding takeover Production appeal. Balance sheet kept strong by aggressive price hedging of output in 2015 (90% in Q4) and conservative financial policies. Relative lack of hedging in 2016 will make for challenging comparisons despite Wolfcamp and Spraberry discoveries. Lack of debt is key strength to weathering what should be a difficult year, as company has $1.2 bil in undrawn credit lines maturing in 2019 and only $19 mil in 2017 debt maturities before then. Still likely to attract a merger but investors will have to be patient. Energy Transfer Buy<65 33.79 12.48 Drop in unit price raises investor doubts company can 119.1 A 51.4 Energy Pipelines Partners LP (NYSE: execute on capital spending plans to expand cash ETP) flows and deliver robust distribution growth but risk is exaggerated. General partner Energy Transfer Equity highlights $1 bil annual cash flow benefit from acquisition of Williams Companies, in large part by partnering up assets of Williams Partners with those of Energy Transfer Partners and Sunoco Logistics. Sales of stake in energy distribution assets to Sunoco LP provides $2.23 bil in cash to fund 2016 capital spending, limits need to access equity market next year until conditions improve. Federal Energy Regulatory Commission to rule on Mexican pipeline project by April 3, 2016.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

29 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Enerplus Corp (NYSE: Hold 4.60 5.84 Company December 2015 update reiterates revised 25.6 C 33.8 Oil/Gas ERF) guidance for 106,000 barrels of oil equivalent production, Production reductions in capital spending, operating costs and general and adminstrative expenses. 2016 output guidance is 100,000 to 105,000 BOE/day, slightly higher operating costs per BOE, continued capital efficiencies. Only 34% of oil output expected in 2016 is price hedged, just 9% of natural gas. Has financial flexibility with cash flow expected to cover capital spending plus dividends, no debt maturities until 2018 and $690 mil untapped credit lines. Enersis (NYSE: ENI, Hold 11.93 1.48 Interim Dividend is 49% more than payment a year ago, 35.3 B 30.9 Foreign Energy CI: ENERSIS) bodes well for declaration of year's Final Dividend in April 2016. Chilean courts reject injunction against company's reorganization plans, would separate off stable utility operation in Chile from more aggressive investments elsewhere in Latin America. Cost cutting is key goal after split for both halves of company. Projects 11% compound annual earnings growth rate in Chile, 22% elsewhere but with more risk. Management says process on track in late November update. Shareholder vote on December 18. Engie (OTC: ENGIY, Hold 17.45 5.14 Company gears up for growing importance of US liquefied 97.5 C 40.4 Foreign Energy FP: ENGI) natural imports to European Union starting in 2017. Likely to bid to develop Mexican oil and gas. Will extend life of two Belgian nuclear plants for 10 years with EU700 mil investment after deal with Belgian authorities. Management says it won't bid to take control of former unit Suez Environnement. Wins bid to explore Gulf of Suez for oil and gas. Joint venture with Chinese firm to build first LNG assets in Asia, will own 35% of profit to operate for imports by July 2017, with second phase completed in Feb 2018. Eni (NYSE: E, IM: ENI) Hold 31.80 4.05 Management says it still hasn't seen new Iran oil contracts. NEG B 29.4 Oil/Gas Will develop three oil fields offshore Mexico. Studies new Production energy hub in Egypt, may sell rest of business in Hungary in effort to streamline and pull out of non-core businesses. CEO says strategy is to sell stakes in oil discoveries while retaining 30% to 50% stake, will then recycle capital into exploration of new fields. Congo, Egypt and Gabon are all candidates for sale now, including Zhor gas field off Egyptian coast. Finds will be in demand in Europe, which is dangerously dependent on Russian energy now. Entergy Corp (NYSE: Buy<75 65.93 5.16 Redeems $32 mil of bonds due in 2040 with interest rate 56.7 A 57.6 Regulated Elec/ ETR) of 6%. New York Governor Andrew Cuomo still pushing for Gas closure of Indian Point nuclear plant as Nuclear Regulatory Commission deliberates application to extend license, company wants to run it because of economies of scale and key location, providing more than 25% of New York City's power. Cuomo also wants to force company to keep uneconomic Fitzpatrick nuke running upstate. Stock still trades at a valuation discount to Dow Jones Utility Average (3.5 times cash flow versus 8.8), should close as merchant power exposure diminishes.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

30 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Enterprise Products Buy<40 22.93 6.71 Now trades at highest yield since beginning of bull 76.9 A 52.0 Energy Pipelines Partners LP (NYSE: market in 2009. Signs contracts at liquefied petroleum EPD) gas terminal to export 125 million aggregate barrels over seven year period, facility is now 90% subscribed through 2019. Company nears end of capital spending on facility expansions with construction expected complete by end of year. Partnership has positioned its business to benefit from lower for longer energy price environment with export infrastructure, offsets compression of natural gas processing plant margins. Eversource Energy Buy<50 50.63 3.30 Regulatory approval of series of large transmission projects 59.1 B 49.2 Regulated Elec/ (NYSE: ES) is key potential catalyst for growth. Northern Pass project Gas in New Hampshire is still on target to enter service in 2019. Access Northeast project in natural gas also moves ahead with 2018 target date. Company also focusing on local distribution grid investment and target of 3% annual operating cost reductions annually through 2018. Investment supported by states' desire to improve reliability, boost renewable energy and cut carbon dioxide emissions. Management affirms long-term profit and dividend growth rate of 6% to 8% a year at Edison Electric Institute 50th annual financial conference. Issue of 10-year bonds at rate of just 3.25% demonstrates continued ability to access low cost debt capital, yield of 3.4% means low cost equity capital as well. Exelon Corp (NYSE: Buy<38 26.71 4.64 District of Columbia hearings on Pepco Holdings merger 49.6 B 48.0 Wholesale EXC) underway, with regulators hearing testimony on settlement Power filed between companies, commission staff, DC Mayor Muriel Bowser and others. Decision not likely until early next year. Odds still favor approval given large number of supporters but company should see a slower return to growth even if the deal fails as merchant results improve on new capacity rates. Nuclear Regulatory Commission staff recommends renewing operating license at Braidwood nuclear plant in Illinois for another 20 years, takes into account environmental impact of alternatives. Sells 30 year bonds at rate of just 4.35%, demonstrating continued access to low cost debt capital. ExxonMobil Corp Hold 78.86 3.70 New York Attorney General wants to prosecute company 72.3 A 13.9 Oil/Gas (NYSE: XOM) for previous stance on climate change, unlikely to hurt Production company as it endorses Paris climate talks. As largest gas producer in US, company will benefit from move away from coal-fired power. Refining and chemicals business pro- duces steady income in low price environment. Rumored looking at potential takeover targets in Permian Basin. Has $5 bil in untapped credit lines maturing next year. Debt is just 8.3% of assets, providing financial power to do a big deal. Fairpoint Hold 17.67 N/A Completes mandated upgrades to wireline communications 0.0 D 290.0 Communications Communications network in Vermont. Now offering 1 gigabit-per-second in (NYSE: FRP) New Hampshire for first time. Cutting leverage and returning to positive revenue growth are still tough challenges for company as traditional wireline business continues to evaporate. $903 mil wall of debt maturities in 2019 (nearly twice market capitalization) is key point. Bonds currently trade slightly above par value, promising for rolling over without big interest cost increase. Still a speculation at best.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

31 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Ferrellgas Partners SELL 19.38 10.58 Next earnings are December 9. Impact of weakness in 89.3 D 90.4 Propane LP (NYSE: FGP) newly acquired energy midstream business still hasn't Distribution had time to show up in the bottom line. Potential mild winter could sap partnership of cash when it needs it most. Spends $45.9 mil to buy back shares. Low wholesale propane prices are a positive as they encourage demand but weather will have more important impact. FirstEnergy Corp Hold 32.82 4.39 Announces 16 party settlement in Ohio rates case, includes 53.1 B 63.7 Regulated Elec/ (NYSE: FE) 10.38% return on equity, commitment to cut carbon Gas dioxide emissions by 2045 and capacity payments to keep baseload nuclear and some coal facilities running. Regulators to rule on deal in Q1, still faces opposition from competitor Dynegy, which promises a lawsuit if deal is approved. Settlement is effectively re-regulation, moving 30% of state's merchant capacity to rate of return regulation. Would potentially lift net income 13% from mid-point 2015 earnings forecast. Fortis (OTC: FRTSF, Buy<33 28.00 4.00 Management says it's looking for more acquisitions in US, 62.2 A 55.9 Regulated Elec/ TSX: FTS) likely targets are regulated utilities with market capital- Gas ization of $5 bil or less given past deals by management and likelihood it will offer cash rather than shares of its stock in deal. Affirms 6% annual dividend growth target through 2020 fueled by CD9 bil total capital spending (4.5% compound annual rate base growth). Conditional contract to sell liquefied natural gas to Hawaiian Electric is on hold but imports delayed as governor of state opposes them. First Nations support LNG effort in British Columbia as company's project gets underway with support of provincial government. Fortum (OTC: FOJCF, Hold 15.33 N/A Russian combination heat/power plant unit two commercial 36.6 B 39.0 Foreign Energy FH: FUM1V) operations delayed to early 2016 pending testing, etc. Unit one is already in operation. CEO says company to boost investment in renewable energy over next few years. Fitch cuts credit rating to BBB+ with stable outlook after impact of sale of energy distribution networks in Scandinavia. Management has yet to set a permanent dividend rate after sale of distribution networks, though policy is still ostensibly to pay out 50% to 80% of earnings per share after one-time gains and losses. Frontier Buy<5 5.10 8.24 California Administrative Law Judge issues favorable 46.0 B 72.8 Communications Communications opinion recommending regulators approve purchase of Corp (NSDQ: FTR) Verizon wireline business in state, clears the way for full commission to vote affirmative by end of year and for deal to close in Q1. Next opportunity for dividend increase is February, key will be if Verizon deal closes by then and if trends continue to improve in overall revenue. With Verizon buy, traditional wireline will be less than 20% of total revenue stream, residential broadband data and video 35% or so. Convertible preferred stock has conversion value of $100 per share if Frontier common stock trades at $5.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

32 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) FuelCell Energy Hold 8.05 N/A Will report Q4 and fiscal 2015 year results on December 0.0 C 8.6 Utility (NSDQ: FCEL) 15. CEO says company will be profitable for the first time Technology when sales of fuel cell products exceed 90 megawatts of capacity per year.(current pace is 70 MW per year). Connecticut provides $10 mil loan to raise manufacturing capacity of company facility in state to 200 MW a year. Loan is part one of total $30 mil package. Loan has interest rate of just 2% with option to delay principal payments for 4 years. Should settle questions about solvency provided company can execute on plans. Utilities are principal market with fuel cells providing grid support (60 plus MW utility scale fuel cell parks). Gas Natural (NYSE: SELL 8.65 6.25 Most important news is filing of stipulation and rec- 135.0 C 42.5 Regulated Elec/ EGAS) ommendation agreement with staff of Public Utilities Gas Commission of Ohio in long-standing investigative audit filed by regulators against company operations in the state. Agreement includes 23 separate provisions including permanent changes in accounting for gas costs in rates to ease transparency, monthly updates for sales, visibility on "free gas" sales, a three-step process for documenting, approving and paying invoices, a written gas procurement policy and clear separation between unregulated and regulated sales. The stipulation must still be approved by regulators but doesn't appear to negatively affect spending or dividends for company in a material way. Seasonally weak Q3 loss widens slightly not including one-time items, reflects sale of Wyoming assets. Still waiting on Kentucky and Pennsylvania regulators to OK sales of utilities in those states. Mild weather hurts volumes in first nine months of year. Uncertainty reduced but company looks far away from dividend growth particularly with $31 mil in maturing debt in 2017 (one-third market capitalization). General Hold 21.08 N/A Company appears to have successfully absorbed wireless 0.0 C 70.4 Communications Communications properties formerly owned by wireline rival Alaska (NSDQ: GNCMA) Communications. Has no significant debt maturities until 2018 ensuring financial flexibility. Biggest vulnerability is company would not be able to keep up with capital spending of AT&T and Verizon over the long term. Likely to temper future gains with stock trading at more than 10 times book value. Great Plains Energy Buy<25 26.36 3.98 Takeover speculation grows for company as it continues to 75.0 B 52.7 Regulated Elec/ (NYSE: GXP) produce solid regulated utility results in less than optimal Gas regulatory climate (Missouri) and works to delever balance sheet. Debt to capital ratio down to 52.7%, company has no debt maturities until June 2017, $1.2 bil plus in undrawn credit lines maturing in 2019 (maturing debt in 2017-18 is $754 mil) and 28-year debt has yield to maturity of just 5%, demonstrating access to low cost debt capital with most issues trading well over par value.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

33 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Hawaiian Electric SELL 28.10 4.41 Hawaii regulatory proceedings over NextEra Energy merger 76.1 B 51.2 Regulated Elec/ Industries (NYSE: HE) continue with decision now not expected until June 2016 Gas or later. Regulators don't require executives to testify despite request of state consumer advocate. Reaches new power supply deal with AES, negotiating with independent power producer on Oahu. Restates earnings for March quarter in 2015 and 2014 to reflect impact of unpaid invoices on capital spending. Will finalize liquefied natural gas import contract by 2016 as a replacement for imported oil by 2019, despite opposition of state's governor. Stock and dividend at severe risk of sharp declines should NextEra merger fail. NextEra management indicates it will walk away from deal if conditions imposed by regulators are too onerous. Huaneng Power SELL 35.91 6.13 Low fossil fuel prices a plus for earnings as company 39.6 C 64.6 Foreign Energy NYSE: (HNP, HK: 902) works to transition to renewable power and emissions reductions. Raises HKD5.69 bil in share sale to fund growth. Chinese power market reform appears to be bullish for company, as power generators will now be allowed to ne- gotiate with end users directly over price. Also can now sell power through regional trading platforms. Reaches agreement on six business transactions with parent Huaneng Group for 2016 that provide certainty and aid growth. Hyflux (OTC: HYFXF, Hold 0.42 2.37 Contractor of giant water desalination projects is buying NEG B 45.8 Utility SP: HYF) back stock. Buys 50% of PT Oasis Waters International for Technology SGD50 mil to expand expertise and potential market reach as core business encounters slower growth headwinds with rollback of projects in major oil economies. Company solid financially and able to weather environment but few catalysts for growth in near term other than very low valuation of 59 percent of book value. Iberdrola (OTC: Hold 28.95 0.73 Spanish regulators fine company EU25 mil for allegedly 77.1 B 43.4 Foreign Energy IBDRY, SM: IBE) manipulating power market in late 2013, won't impact capital spending or dividend plans. Connecticut draft order approves UIL merger and creation of new company holding all US assets, deal now needs final OK from Massachusetts to close by end of the year. Bolivia pays company $34 mil as compensation for 2012 nationalization. Expansion in US reflects desire to invest less in Europe for time being. IdaCorp (NYSE: IDA) Buy<58 68.33 2.99 Stock has surged much closer to likely value in a takeover. 53.3 A 45.7 Regulated Elec/ Low risk business plan with potential for robust growth Gas from customer additions (1.8% last 12 months) and little exposure to environmental concerns. Oregon is a tougher regulatory environment but not a large piece of earnings. Management has room to continue at least upper single digit dividend growth over next 3 to 5 years, fueled by earnings growth and move to target payout ratio of 50% to 60%.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

34 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) ITC Holdings Corp Buy<30 38.67 1.94 Stock surges on annoucement of strategic review that 31.3 A 71.1 Regulated Elec/ (NYSE: ITC) may lead to sale of company. Move marks sharp reversal Gas from last few years, when management attempted unsuccessfully to buy transmission system in mid-South from Entergy, likely reflects push back on rates charged to customers and resulting reduction in allowed returns in Federal Energy Regulatory Commission rate cases. National Grid and Iberdrola cited as potential buyers. Others include WEC Energy, majority owner of American Transmission Group, Berkshire Hathaway. Stock not worth chasing after recent spike. Itron (NSDQ: ITRI) Hold 35.45 N/A Technology and products have great long run promise. 0.0 C 31.2 Utility Sales face headwinds from softer global growth trends. Technology Company ramps up water supply network solutions in challenged areas of the world like China. Company generates free cash flow but still posting losses in tough environment. Just Energy (NYSE: SELL 7.17 5.21 Files to issue $1 bil in capital. FYQ2 revenue up 18% on 58.0 D 1794.3 Wholesale JE, TSX: JE) 26% lift in gross margin, keyed by efficiency and service Power initiatives but low power and gas prices are also for now minimizing potential disruptions from volatility in costs and demand. Payout ratio drops to 50% using company's measure of "base funds from continuing operations," down from 78% last year. Long-term debt cut -16% and company boosts credit facility size to CD277.5 mil from CD210 mil on similar terms through September 2018. Affirms guidance for FY2016 cash flow of CD193 to CD203 mil. Chief negatives are 23% boost in selling and marketing expenses, -18% drop in gross customer additions and flat customer base, large portion of revenue gain due to US dollar appreciation rather than business growth, drop in commercial customers and reduced commercial margins due to competition, 5% boost in administrative costs as company expands in UK, 33% rise in bad debt expense and still high attrition rates for all business lines. Attrition rate rises from 15% to 17% across all business lines. Rooftop solar program still small but will be eventual cash drain if scaled up in current industry environment. Company still looks one bad season away from earnings meltdown. Kayne Anderson Hold 10.75 18.05 Closed-end fund holding master limited partnerships taking 122.7 A N/A Closed-End Fund Energy Total Return a whacking as group continues to slip but is tracking net (NYSE: KYE) asset value with discount of just -3.4%. Debt ratios still not an issue despite steep fall in price of fund and net asset value. Large stake in Kinder Morgan hurts this month but distributions are still rising in fund's top 10 holdings, none of which have significant direct exposure in cash flows in energy prices. Managers have been around since 2005 and are not going to panic.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

35 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Kinder Morgan Inc. Hold 16.82 12.13 Moody's revises outlook for barely investment grade credit 100.0 A 54.3 Energy Pipelines (NYSE: KMI) rating (Baa3) to negative, cites company's agreement with unit of Brookfield Asset Management to raise stake in Natural Gas Pipeline of America (NGPL) to 50% from current 20%. Brookfield to retain 50%. Cost is $136 mil but will add $1.5 bil to consolidated debt. Fitch, S&P in contrast say deal is credit neutral. Company says will be immediately accretive to cash flow, now that all higher rate contracts have been rolled over to lower ones reflecting current environment as low-risk growth projects proceed. Take or pay capacity contracts at natural gas transmission pipelines are better than 50% of cash flow. Joint venture for Mexican gas marketing company a plus. Mini-Tender offer from TRC Capital is legal but a ripoff. Korea Electric Power Hold 21.03 0.76 Plans to expand business in Philippines with power plants 11.9 C 53.7 Foreign Energy Corp (NYSE: KEP, KS: as company continues to look around the world for growth 015760) using engineering expertise developed in home market. Risk of model shown with money owed to Nigeria's largest power plant in which company is a technical partner, poor natural gas supplies to facility. Management at Edison Electric Institute 50th annual financial conference says nuclear energy will remain a key focus at home and globally, including new nuclear. Laclede (NYSE: LG) Buy<50 57.71 3.40 Boosts quarterly dividend a more generous than expected 3 61.4 A 58.2 Regulated Elec/ cents per share (6.5%). Fiscal year 2015 (end Sept 30) net Gas economic earnings per share, which factor out one-time items, up 11% from last year. Management sets guidance for FY2014 at $3.34 to $3.44 per share, reflecting target 5% to 8% growth rate. Key is growth of gas utility operation, which now includes assets in Alabama. Gas marketing profit drops on less volatile pricing conditions over past 12 months and in FYQ4 but is still profitable and risk averse. Ramp up of gas system infrastructure upgrades, 1% customer growth, rate hikes will drive growth at utilities and company. Expects $1.6 bil in capital spending over next five years and earnings growth to average 4% to 6%. Landmark Buy<17 14.10 9.01 Insiders appear to step up purchases of shares, with 71.5 B 100.0 Utility Infrastructure major holder filing 13-D showing 5% stake. Successfully Infrastructure Partners LP (NSDQ: completes sixth and seventh drop down transactions LMRK) since IPO under Right of First Offer (ROFO) agreement with sponsor Landmark Dividend LLC. First purchase cost is $30 mil, 42% equity and rest in available cash. Will add to Q4 cash flow. Rents from new properties are 96% from wireless communication sites, average lease is 17 years. Second deal is 79% from wireless sites, 21% from outdoor advertising facilities. Average lease is 22 years and will add to Q4 cash flow. Still has almost half of initial ROFO assets left for drop downs. Level 3 Hold 51.79 N/A $900 mil offering of 9-year debt at coupon interest rate 0.0 C 64.0 Communications Communications of 5.375% demonstrates much improved ability to access (NYSE: LVLT) debt capital on reasonable terms, as proceeds will redeem notes maturing in 2020 with interest rate of 8.625%. Focus is on network and large carriers as company continues to build out fiber optic system globally. Company is now profitable and generated free cash flow over last 12 months. Lack of dividend makes stock less attractive after recent gains though bonds gain strength despite rating of just B+.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

36 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Linn Energy LLC SELL 1.71 N/A Exchange of $2 bil senior bonds for $1 bil second lien debt 0.0 D 69.4 Oil/Gas (NSDQ: LINE) should cut costs and improve odds of survival when oil Production price hedges start to come off in 2017. Moody's considers move a technical default on existing debt. Company allowed to issue $500 mil more second lien debt under current credit agreement, could retire another $1 bil. Second lien notes have coupon interest rate of 12% to maturity in December 2020, will cut annual interest costs by $16 mil, reduce amount of 2019 maturities by 53%. Existing debt continues to trade at an average of 25 cents on the dollar, still likely to be worth far more in a bankruptcy M2 Buy<8 7.01 3.39 Vocus deal continues to move ahead. Company focus on 69.9 A 61.5 Foreign TeleCommunications broadband communications in Australia and New Zealand Communications (OTC: MTCZF, ASX: for homes and businesses is strong niche that should MTU) enable below the radar growth from company's relatively small (7.5%) but rapidly growing share of consumer market. Stock is reasonably priced with yield of 4% and prospective 10% plus annual dividend growth rate going forward. Weak Australian dollar has kept US dollar price low even as stock has surged in local currency terms on strong business news. Magellan Midstream Buy<50 60.24 5.06 Focus on projects further away from wellhead limits direct 74.1 A 61.5 Energy Pipelines Partners LP (NYSE: exposure to weakness in oil and gas prices and cash- MMP) strapped producers. Oklahoma pipeline restarts after spill, demonstrating company's ability to get projects back up and running while minimizing environmental and regulatory fallout. Looking more interesting at yield of 5% plus and still on tap for solid distribution growth in a lower for longer energy price environment. Lack of incentive distribution rights , $1 bil in untapped credit lines maturing in 2020 provides flexibility dealing with $500 mil in maturing debt next year. Debt/Cash flow ratio is among lowest in industry. Manitoba Telecom SELL 22.05 4.39 Finds buyer for Allstream unit in network infrastructure 127.8 C 45.3 Foreign Services (OTC: company Zayo Group Holdings, deal is for CD465 mil in Communications MOBAF, TSX: MBT) cash, subject to closing adjustments taking final price to CD425 mil. Price is slightly above expected proceeds of CD405 mil. Management says it's considering using proceeds for retirement of debt taken on fund spectrum acquisitions and pension prepayments, affirms goal for payout ratio of 70% to 80% of post-tax earnings under nor- mal long-term tax rate, CD100 mil in projected additional free cash flow by end of 2017. Deal expected to close in early 2016 following what should be perfunctory regulatory review in Canada.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

37 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) MDU Resources Buy<18 17.69 4.24 Lifts quarterly dividend by one-half cent (2.7%), same 78.9 B 39.2 Regulated Elec/ (NYSE: MDU) rate of increase as previous five years. Management sets Gas new five-year capital spending forecast, based on "line of sight" investment in "lower risk" businesses. Forecast total is $2.323 billion, 65% on regulated gas and electric utilities, 17% pipelines, balance in construction materials and services. Utility rate base still expected to grow 7% a year through 2020 after assuming slow down in Bakken region from less oil drilling. Spending target does not include Clean Power Plan spending or potential mergers, has solid regulatory support in 8-state service territory. Closing contracted sales of oil and gas properties are key. S&P cut in outlook to negative has not significantly affected still low cost of debt capital, as 22-year debt still has yield to maturity of less than 5%. MGE Energy (NSDQ: Hold 43.19 2.73 Management issues Energy 2030 plan as framework for 54.1 A 38.1 Regulated Elec/ MGEE) strategic moves. Goals include move to 30% renewable Gas energy resources by 2030, with intermediate step of 25% by 2025. Goal is to reduce overall community carbon dioxide emissions by 40% in 2030 from 2005 levels, focus on grid investment to enhance customer control and system efficiency. Plans likely to enjoy strong support from communities served in Wisconsin. Stock expensive at nearly 20 times earnings and yield of 2.7%, growing steady 4% to 5% a year. Middlesex Water Hold 25.57 3.11 Efficiency gains and infrastructure upgrades are primary 65.3 A 44.6 Regulated Water (NSDQ: MSEX) sources of future growth as customer growth and water usage remain stable to slightly declining in New Jersey and Delaware service territories for utility. System management is a potentially growing business and company has some opportunity for mergers. Also a potential takeover target but price of 21.8 times earnings and 10.5 times cash flow is high given modest growth prospects. National Fuel Gas Buy<50 41.57 3.80 Cuts capital spending budget for exploration and produc- 53.2 B 50.7 Integrated (NYSE: NFG) tion operations to range of $200 to $250 mil from previous NatGas $400 to $450 mil. Total capital spending now heavily weighted to areas not directly impacted by lower energy prices for a total of $915 mil to $1.06 bil in fiscal year 2016 (end Sept 30). Rolls back mid point of expected oil and gas production range by about 12%. Cuts FY2016 earnings projection to $2.70 to $3 per share range from previous $2.85 to $3.15. Reaches new financial arrangement in Marcellus shale to jointly develop wells with private capital firm. Moves reflect management expectations for weak commodity prices next year. Valuation of stock now reflects value of utility and pipeline operations, with E&P arguably a negative. National Grid (NYSE: Hold 68.56 3.27 Boosts Interim Dividend by 2% from last year's level. 78.5 B 68.4 Foreign Energy NGG, LSE: NG) Rumored pursuing takeover of US electricity transmission pure play ITC Holdings (NYSE: ITC). Management sticks to target of annual asset growth of 5% to 7% but says planned sale of majority stake in UK natural gas distribution business will "rebalance" growth to higher end of range. First half fiscal year 2015-16 net (end Sept 30) up roughly 20%. Debt attached to US properties is 90% hedged, limiting currency risk. Sale of gas business is a process and isn't expected to be completed until early 2017.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

38 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) New Jersey Buy<30 29.67 3.23 Fiscal 2015 earnings hit top end of guidance range. Fiscal 56.1 A 45.4 Regulated Elec/ Resources Corp 2016 projection set at $1.55 to $1.65 per share. Energy Gas (NYSE: NJR) services are profitable but less so than during fiscal 2014's extreme weather. Clean Energy Ventures net up 58.9%, including a swing to profitability in seasonally weak Q4 (end Sept 30). Midstream net gains 30.4% as investment pays off. Home services up 22.2% as natural gas utility reduces overall seasonality of earnings. Seasonal losses cut by -73%. Management affirms long-term annual earnings growth target of 5% to 9%, with 6% to 8% dividend growth. Heating oil-to-natural gas conversions drive robust 1.6% utility customer growth rate, bode well for upcoming winter season. Low commodity price of gas makes now an ideal time for system investment to drive earnings growth. Company a beneficiary of lower for longer energy price environment. Residential solar program hits 4,000 customers and remains profitable and not a cash drain on company as Clean Energy Ventures unit growth attests. Files $147.6 mil rate hike in New Jersey. NextEra Energy Buy<100 98.14 3.14 Next large dividend increase on tap for March with 55.0 A 59.0 Regulated Elec/ (NYSE: NEE) declaration in mid-February. Wins contract to build 17 MW Gas solar power for US Navy in Hawaii, will build grid storage capacity for PG&E in California. S&P affirms credit rating on "strong" business risk profile, offset by risk of expansion. Cites strength of Florida utility (65% of net) sale of 3,000 megawatts of power production capacity in Texas for $1.59 bil, cutting unregulated generation portfolio by 15% and tilting it further toward renewable energy. Files new bid for utility portion of bankrupt former TXU. Issues 10-year debt at 3.125%, demonstrating ability to access low cost debt capital. Will get a good piece of Hawaii renewables market even if utility merger fails to win regulatory approval. NextEra Energy Buy<37 24.50 4.41 Parent NextEra Energy has opportunity for utility scale 29.2 B 72.1 Wholesale Partners LP (NYSE: buildout in Hawaii if merger with local utility closes, yieldco Power NEP) has potential for drop downs. November conference presentations reaffirm guidance for 12% to 15% annual dividend growth through 2020. Parent will support growth plan if needed, but yieldco trades above 6/26/14 initial public offering price and management says it will be opportunistic in accessing equity market. Cost of equity capital still modest at yield of 4.2%. Nippon Telegraph & Hold 38.41 1.68 Continues to provide best in class wireline and wireless 37.7 B 28.7 Foreign Telecom Corp (NYSE: (DoCoMo) communications networks in Japan. Raised Communications NTT) outlook and share cancellation (7.8%) clearly demonstrate company is benefitting from growth of data traffic. Rollout of 5G network will be a major plus going forward. Debt/assets ratio of just 21.5% is lowest of major global telecoms. Weakness of Japanese yen versus US dollar over the past couple years has masked solid home market performance of stock. NiSource (NYSE: NI) Buy<20 19.10 3.25 Pure play electric (Indiana) and natural gas distribution 57.4 A 61.8 Regulated Elec/ utility remains potential takeover target with strong balance Gas sheet and access to low cost debt and equity capital to fund spending on system in coming years. Should be able to refinance $422 mil in debt maturing in 2016 at much lower coupon rates as 30-year bonds sell at yield to maturity of less than 4.6%.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

39 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Northwest Natural Hold 48.70 3.84 Regulated natural gas utility enjoys strong support of 84.5 B 53.9 Regulated Elec/ Gas (NYSE: NWN) Oregon regulators, demonstrated again by approval of Gas policy of producing own gas for utility to protect customers from future price spikes. Service territory is healthy as is balance sheet with $300 mil in untapped credit lines maturing in 2019 and just $122 mil in debt coming due through end of 2018. Stock is pricey trading at 21.8 times earnings and yield of 3.8%, given dividend growth rate of just 0.5%. Possible merger partner for Portland General. NorthWestern Corp Buy<54 54.60 3.52 Fitch affirms company's BBB+ credit rating with stable 60.5 A 57.0 Regulated Elec/ (NYSE: NWE) outlook, citing healthy local economy, strong assets and Gas "manageable" capital spending as basis for improving financials over next several years. Montana accounts for 84% of earnings, potential regulatory lag for recovering costs as spending peaks in 2016-17 in Montana, South Dakota (16%) regulators OK balanced rate hike this year. Clean Power Plan poses risk to coal power from Colstrip plant. Management affirms robust dividend growth plans at Edison Electric Institute's 50th Annual Financial Conference. Stock looks reasonably priced at 3.5% yield given likely dividend growth. NRG Energy (NYSE: SELL 9.00 6.44 CEO David Crane resigns, chief operating officer takes over 80.6 C 63.0 Wholesale NRG) in shakeup of company that will likely see refocus on core Power merchant power operations. Sells 525 megawatt coal-fired plant in Pennsylvania, 352 MW natural gas plant in Illinois for total of $138 mil, close in Q1 2016. Deal should be cash flow positive on reduced interest costs and as maintenance capital expenditures would have exceeded cash flow from plants by $6.5 mil over next three years. Buyer is private capital firm. Biggest challenge for company is still to find a deep pocketed partner to help grow its cash draining residential rooftop solar business. NRG Yield is shielded from Greenco. NRG Yield (NYSE: Buy<17 12.55 6.85 Management changes announced in late November rein- 33.1 C 73.2 Wholesale NYLD) force the company's shift in strategy to shield yieldco from Power volatility and cash drain of rooftop solar business. Parent NRG Energy still working to find a partner for "GreenCo" rooftop solar operations to provide capital to grow business, could boost yieldco growth if successful. Shares are priced more than one-third below 7/16/13 initial public offering price of $22 per share. Insiders boost holdings by 36.25% in last six months, with solid lift after recent strategic review. Wall Street remains mostly bullish with 10 buys, 4 holds and no sells. NTELOS Holdings SELL 9.17 N/A Shareholders approve buyout by ShenTel for $9.25 per 0.0 D 106.7 Communications Corp (NSDQ: NTLS) share in cash, though 31% of shareholders don't bother to vote. Deal still needs approval of Federal Communications Commission, review process began October 30. Tough to see any issues arising to prevent transaction closing in early 2016. But with no dividend paid, the stock trading for nearly takeout value and bankruptcy the only realistic alternative to the merger, risks far outweigh any potential benefit of continuing to hold on. 2019 maturing credit line is 2.5 times current market capitalization.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

40 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) NTT Docomo Inc Hold 19.65 2.55 Successfully conducting 5G wireless trials in Japan to 62.1 B 7.6 Foreign (NYSE: DCM) maintain technological edge of best in class network. Communications Management says pricing plans and iPhone adoption have ended nearly a decade of customer losses to smaller competitors. Company is priced at 5.6 times cash flow, still more than parent's 4.8 times. NuStar Energy LP Hold 35.49 12.34 Speculation growing that general partner NuStar Holdings 95.2 B 62.5 Energy Pipelines (NYSE: NS) will consolidate partnership to cut incentive distribution rights and other expenses, shore up distribution strength against potential drop in volumes at crude oil pipelines serving Eagle Ford shale region in Texas. Shortage of oil storage capacity in US and overseas boost storage cash flows above expectations in 2015 but management is bracing against likelihood of lower margins in 2016 and beyond. No debt maturities before 2018 a plus but overall leverage is still relatively high at 58.1% of assets and reduction remains a priority for management. Relatively little debt at general partner level at this time, though $50 mil credit line maturing next year is about half drawn. OGE Energy Corp Hold 24.75 4.44 Management maintains slower than anticipated growth in 61.1 A 46.8 Regulated Elec/ (NYSE: OGE) distributions from midstream energy investment in Enable Gas Midstream (NYSE: ENBL) won't impact robust projected dividend growth, due to ramped up utility system capital spending, but regional economic slump in wake of soft oil and natural gas prices may reduce need for new spending and regulatory support for it as well. $1.148 bil in untapped credit lines maturing in 2018 provide financial flexibility. Cost of debt capital still low with 29-year debt yielding just 4.3% to maturity. Oi (Sao Paulo: OIBR4, Hold 0.42 N/A Management holds to cash flow guidance of turnaround 0.0 D 65.0 Telecom NYSE: OIBR) effort during Q3 conference call. Marketing expanded data packages, systematic debt reduction are key goals. Overhaul of Brazil telecommunications regulations should be a positive. Cash flow up 11.4% in Brazil on 3.6 percentage point boost in operating margins as costs cut -7.5%. Net service revenues -1% year-over-year due to weakness of economy and -4.3% decline in number of customers. Upgrade of network and upselling preferred customers also offsets impact of customer losses. ONE Gas (NYSE: SELL 48.44 2.48 Increase of 2 cents per share in quarterly dividend likely 54.3 A 40.9 Regulated Elec/ OGS) next month. Stock valuations back at all time highs and Gas investors bid up gas utilities on takeover appeal and perceived safety of revenue. Yield down to less than 2.5%. Gas utility monopoly franchise insulates company from weakness of oil patch economy as drilling activity slows, though rate increase likely to be more difficult to come by.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

41 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) ONEOK (NYSE: OKE) Hold 24.80 9.92 Speculation grows that company will buy up 58.8% of 80.6 B 67.3 Energy Pipelines ONEOK Partners it doesn't already own, consolidate to eliminate incentive distribution rights and cut costs to pre- serve dividend as energy producer customers slow drilling plans, raising questions about future volumes on company's system. Financial fate depends on health of ONEOK Partners. Insiders increase holdings by 11.37% over last six months, including purchases during stock's most recent decline. Two most recent analyst opinions on stock are buys though support has steadily slipped as energy prices have dropped. Lack of debt maturities until 2022 and $300 mil in untapped credit lines provide flexibility for consolidation transaction with ONEOK Partners. ONEOK Partners LP Hold 26.68 11.84 Distribution increase seems unlikely in January with 109.9 B 53.7 Energy Pipelines (NYSE: OKS) natural gas liquids prices depressed and questions about future system volumes lingering. Mexico projects moving ahead. $1.1 bil in maturing debt in 2016 at risk of being refinanced at higher rate as most of company's bonds trade below par value and 11% common unit yield restricts access to low cost equity capital. Management has some flexibility withtiming of refi thanks to $2.4 bil in untapped credit lines maturing in 2019. Speculation of rollup transaction into parent ONEOK grows. Orange (NYSE: ORAN, Buy<14 16.73 1.95 Management says company is meeting "all financial 149.9 C 52.0 Foreign FP: ORA) objectives" for 2015, won't need to increase reserve Communications for fine in 2008 market power case as regulators near ruling. Company says it's not in discussions to merge with Telecom Italia as it explores opportunities to scale up in Europe. Competition from low cost carriers continues to eat into margins at core French unit. Spanish push may get a lift as regulators order Telefonica SA to allow access to network by rivals. US dollar price of stock pressured by drop in Euro as local market price rises. Stock relatively cheap at 6.4 times cash flow and with debt down to 38.9% of assets. Ormat Technologies Hold 36.52 0.66 Company continues to execute on major geothermal 17.6 C 56.0 Wholesale (NYSE: ORA) projects globally, both as operator/owner and manufac- Power turer/builder. Niche market but growing and is favored by government policies around the world. Wall of debt coming due in 2017 with $276 mil bond maturity but company has relatively low cost of equity capital after robust stock price gains in 2015 and bonds all trade above par value. Biggest impediment for profitable purchases is high price. Otelco (NSDQ: OTEL) SELL 7.20 N/A Rollover of term loan with $100 mil drawn and maturing in 0.0 F 127.2 Communications 2016 is critical to survival of company. Amount is still more than four times company's market capitalization. Little appeal to small telecom that's still losing customers and revenue and is unlikely to pay a dividend any time soon if ever again. Otter Tail Corp SELL 26.21 4.69 Dividend increase still likely for 2016 with management 78.1 B 47.1 Regulated Elec/ (NSDQ: OTTR) affirming guidance but recent acquisitions in non-utility Gas businesses look like a reversal of previous back to basics strategy and increase risk of earnings reversal due in a potential economic downturn over next 12 months. Unregulated operations expansion also diminishes takeover value as combined 12-month dividend growth and yield are just 6.3%.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

42 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Partner SELL 4.71 N/A Company continues to face lawsuits from customers for 0.0 F 75.9 Foreign Communications allegedly violating licenses as Israel legal and regulatory Communications (NSDQ: PTNR, IT: environment remains toxic for telecom service providers. PTNR) Q3 revenue falls -9% on 12% drop in service revenue, partly compensated by 2% better equipment sales, 1% drop in expenses. Operating cash flow plunges -30% not including one-time items, cash flow margins fall to 19% of revenue from 26% as wireless revenue per customer drops -7% and customer base erodes by -5%. Company posts a loss though free cash flow up on halving of investment in network. Churn rate is still astronomical at 10.8%. Stock is now basically a speculation on a possible improvement in regulatory environment before too much debt matures. Pattern Energy Group Hold 17.43 8.54 Share price now nearly -20% below 9/26/13 initial public 124.8 C 56.3 Wholesale (TSX: PEG, NSDQ: offering price. Key vulnerability is large presence in over Power PEGI) supplied Texas market. Restoration of wind power tax credits could be a plus if company is able to access low cost capital with help of sponsor Pattern Development. Yieldco's own cost of equity capital now elevated with current yield of more than 8%. $245 mil drawn on $450 mil credit line maturing in December 2018. Pembina Pipeline Buy<42 22.74 6.02 Announces record capital spending plans for 2016 of 76.7 A 31.1 Energy Pipelines Corp (NYSE: PBA, CD2.1 bil, with CD600 mil in new projects announced so TSX: PPL) far in 2015. Focus in 2016 is on keeping long-term, fee-for- service projects that are underway on track. Will be putting into service a fractionator, two large gas plants, expansion of the Horizon oil sands pipeline system and expansion of Vantage pipeline system and several smaller scale projects. Projects 80% of cash flow in 2016 will be fee-for-service projects, with 60% of total take or pay or cost of service contracts not affected by either energy prices or system volumes. Will have CD5.3 bil spending on secured growth projects left to lift 2018 cash flow by Cd600 to CD950 mil per management guidance. Plan is further affirmation company occupies valuable niche that's holding up under tough conditions in North American energy. Company also continues to access capital markets on an economic basis, including share issue last month. Penn West Petroleum SELL 0.97 N/A Stock still in compliance with NYSE rules as it recovers 18.8 F 27.8 Oil/Gas (NYSE: PWE, TSX: above $1 a share. Ability to avoid bankruptcy looks doubtful Production PWT) unless oil prices rebound quickly in 2016, as CD301 mil in debt maturing by end of 2016 is 60% of market capitalization. Encouragingly, most bond issues are still trading at or above par value, indicating investors see value in Chapter 11 or a possible takeover by a financially stronger player in search of light oil reserves. PEPCO (NYSE: POM) SELL 26.24 4.12 D.C. Public Service Commission opens hearings on 104.5 C 56.7 Regulated Elec/ proposed settlement between company, would-be acquirer Gas Exelon, the PSC staff, D.C. Mayor Muriel Bowser and the vast majority of other intervenors in the original case. Questioning by commissioners is friendly so far though extremely technical. Public record closes Dec 18 with decision expected in first quarter 2016. General Services Administration of US government backs out of proceedings, giving tacit approval. Risk to deal appears to be falling but stock still a sell as price of failure is a likely drop to the low 20s and probably high teens, with dividend cut danger high due to prolonged rate lag.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

43 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Petroleum & Buy<30 18.64 3.00 Income dividend paid in December will be four cents per 100.0 A N/A closed end fund Resources (NYSE: unit above rate paid in September. Company also pays a 94 energy PEO) cents per share long-term capital gain to shareholders of record November 25. Total annual distributions of $1.08 per share exceed minimum annual commitment of 6%, reflects very stable nature of big energy companies in portfolio. ExxonMobil and Chevron together are 27.3% of holdings of closed end fund. Fund trades at -15.6% discount to net asset value. Expense ratio just 0.63% of assets for fund that's a good substitute for holding big energy stocks. PG&E Corp (NYSE: Hold 53.12 3.43 Hires unit of NextEra Energy, others to build 75 megawatts 59.7 C 49.5 Regulated Elec/ PCG) of grid storage capacity, first step in ramping up to 580 MW Gas by 2020 in order to accommodate additions of rooftop solar to grid and prevent destabilization. Investment also adds to rate base, fueling future earnings growth. California net metering rules still up in the air, as regulators say they'll miss the end-year deadline, a good sign of a cooperative approach. Safety review of operations to take up to two years as company fined for inappropriate communications with regulators. Cost of capital application extended another year. Cash concerns may inhibit dividend growth in 2016. Pharol SGPS (OTC: SELL 0.27 N/A Suspending coverage of company after this month. NEG F 0.0 Foreign PTGCY, PL: PHR) Readers can follow company fortunes through coverage Communications of Brazilian wireless communications company Oi SA, minority ownerships of which (13.48%) is company's only source of revenue. Philippine Long Hold 45.63 4.45 Chairman takes over CEO position following retirement of 99.0 C 49.1 Foreign Distance Telephone long-time veteran, won't affect company plans for record Communications (NYSE: PHI, PM: TEL) capital spending on network to ramp up use of data. Rumor is company may cut dividend from current rate of 90% of profits in order to shepherd cash flow for acquisitions and marketing efforts to boost volume of traffic. Share price already likely reflects impact of strategic moves focused on maintaining market dominance in face of rising competition. Piedmont Natural SELL 58.23 2.27 Will report next earnings on or about December 22. Stock 70.6 A 57.6 Regulated Elec/ Gas (NYSE: PNY) continues to trade close to $60 per share all-cash value Gas of Duke Energy takeover offer. North Carolina regulators haven't yet given an indication of how they view the deal, which should clear federal anti-trust review by early next year. Credit raters reviewing deal for possible credit rating cuts, despite arguably lower business risk of combined enterprise, due to concern about debt financing of deal. Upside from here is in best case to $60 a share if deal closes, downside is low $40s or worse in unlikely even deal fails. Pinnacle West Capital Hold 62.38 4.01 Arizona attorney general wants commissioner to resign 64.9 A 44.1 Regulated Elec/ (NYSE: PNW) for alleged conflict of interest in rate cases. Company Gas seeking 400 to 600 megawatts of new generating capacity for startup by June 1, 2020, open to all potential sources. Company should be able to capture rate base gains in solar market with deep pockets, demonstrated demand and support from Arizona regulators. A takeover target at a lower price was dust clears in solar battle.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

44 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Plains All American Hold 21.16 13.23 US regulators order indefinite shutdown of California 82.4 B 55.1 Energy Pipelines Pipeline LP (NYSE: pipeline, California Economic Forecast Director says "best PAA) case" is restart in 18 to 24 months, worst case is up to five years. Justice Department also investigating for potential "violations of federal criminal statutes" as well as Clean Water Act. Company also faces six class action lawsuits and now estimates $257 mil in total costs related to the incident, $92 mil had been incurred as of June 11. Larger threat to distribution is risk of lower pipeline volumes in a lower for longer energy price environment in 2016 and beyond, though company appears to be coping so far. Rationale for holding on is that partnership is pricing in distribution cut already and is well diversified with strong assets and good counterparties. PNM Resources Buy<30 28.96 2.76 Boost of 1.5 cents in quarterly dividend (7.5%) looks likely 50.5 B 53.5 Regulated Elec/ (NYSE: PNM) later this month. Management affirms 2015 earnings Gas guidance in investor meetings of $1.56 to $1.61 per share. New Mexico regulators change future test year definition to be used in rate cases, now begins 13 months following a rate case application. Change is favorable to utility in combatting negative impact of rate lag and improving timely recovery of investment in network. Final vote in San Juan Generation station rate case on Dec 16. Outcome key to 2016 net. New Mexico Supreme Court dismisses petition of environmental group to recuse four of five commissioners in case, a good sign for approval reached by utility and numerous groups for transition at plant to cleaner fuels. Approval of settlement will also increase company's takeover appeal. Portland General Buy<34 36.89 3.25 Reaches deal to join California Independent System 56.5 A 56.7 Regulated Elec/ Electric (NYSE: POR) Operator to participate in west coast grid starting in Gas October 2017. Will need approval of Federal Energy Regulatory Commission to enter. Management has man- date from customer base to invest heavily in renewable energy and grid modifications to accomodate it in coming years, investment will fuel rate base, earnings and dividend growth going forward. Dividend growth rate of 7.1% over last 12 months plus 3.3% yield adds up to 10.4% projected long-term annual returns. 1.45 times book value also a modest valuation for emerging market favorite. PPL Corp (NYSE: PPL) Hold 33.74 4.48 Divestiture of unregulated power generating capacity re- 68.6 A 61.6 Regulated Elec/ duces exposure to soft power market in a lower for longer Gas energy price environment, but raises risk of a regulatory setback in toughening Kentucky. Plans to build utility scale solar facility in state, pending regulatory approval. State is resisting Environmental Protection Agency Clean Power Plan due to reliance on coal-fired electricity, could impede company's ability to adapt. Management sticks to 6% annual earnings growth target through 2017, anchored to $5 bil in rate base growth. Projected transmission investment growth of 19% through 2017 could be up-ended by changes in Federal Energy Regulatory Commission policy. Pennsylvania rate decision this onth should mirror settlement for $124 mil boost. UK forecast is tepid.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

45 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Public Service Hold 38.63 4.04 Cuts rates by another -3.9% on expiration of deregula- 53.8 B 42.9 Regulated Elec/ Enterprise Group tion-related charge, additional charges to expire in 2016. Gas (NYSE: PEG) New Jersey regulators OK $905 mil, 3-year program to replace up to 510 mils of cast iron and unprotected steel pipes at regulated natural gas utility. Plan will improve efficiency and safety, cut costs and reduce methane emissions from system. Net impact on rates is a 1.5% boost annually over four years. Program will expand rate base and company earnings. CEO says company may spin off its competitive power generation unit in the next five to seven years, as ownership of merchant generation in US continues to accelerate. Unit has 11,800 megawatts of generating capacity, with plans to add a 1,000 MW gas- fired plant in 2018. Quebecor (OTC: Hold 25.19 0.42 Management now says it may sell at least a portion of 34.7 B 84.5 Foreign QBCRF, TSX: QBR/B) the CD300 mil of non-Quebec wireless spectrum, further Communications underscoring intent to focus all-communications/media expansion strategy on home market and French speaking market in Canada, though management blames country's "regulatory framework." Debt/asset levels are still high at 63.7%. Debt maturities to end of 2019 of CD148 mil are less than one-fourth of available credit line maturing in 2020. Generates $134 mil in free cash flow after system capital spending in first nine months of 2015. Questar Corp (NYSE: Hold 18.75 4.48 Utah regulators OK addition of $52.7 mil in acquired 65.9 A 56.7 Regulated Elec/ STR) natural gas reserves in southwestern Wyoming to regulated Gas Wexpro unit under cost of service model. Wyoming Office of Consumer Advocate also signs on to the deal, which includes a reduction in allowed rate of return on investment starting in 2016 to 7.64%, sharing of dry hole costs in rate base (customers share limited to 4.5% of total annual development costs), sharing of savings when cost of service is lower than market price and reduction of Wexpro's share of utility gas demand to 55% from 65% in 2020. Changes will allow company to resume drilling in low price environment and have upside to recovery in prices at end of the decade and beyond. Reaves Utility Income Buy<31 26.75 6.79 Closed end fund focused on diversified range of utility 181.2 A N/A Closed-End Fund (NYSE: UTG) sectors including pipelines trades at discount of roughly 7% to net asset value. 2.3% raise in monthly dividend demonstrates high quality of portfolio. Fund issues rights to purchase additional common shares at lesser of 95% of net asset value or market price of shares. Offering expires December 11. Is a good way to pick up additional shares of fund, though a portfolio of individual stocks should outperform over long term both on yield and growth. RGC Resources Buy<20 21.25 3.81 Raises quarterly dividend by a penny a share (5.2%), accel- 74.0 A 36.5 Regulated Elec/ (NSDQ: RGCO) erating from last year's three quarters of a cent boost and Gas one-half cent of prior five years. Fiscal year 2015 (end Sept 30) earnings per share up 8% with Q4 net swinging to gain from loss in seasonally weak quarter. Customer growth and cost control are key catalysts to lift in underlying profitability as results helped by cool weather in February. Dividends raised for 12 consecutive years. Small and solid utility would be a buy at a slightly lower valuation.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

46 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Rogers Buy<40 37.93 3.79 Fitch rates credit outlook negative despite "good asset 67.0 B 74.0 Foreign Communications mix," cites aggressive customer retention and attraction Communications (NYSE: RCI, TSX: efforts and investments as offsets due to execution efforts RCI/B) still falling short, as well as elevated leverage following bidding for Canadian wireless spectrum this year. Issues 10-year bonds at 3.625%, 29-year bonds at 5%, $1 bil total, proving ability to continue accessing low cost debt capital. Company buys Internetworking Atlantic Inc to provide enhanced technology solutions for business and government in Atlantic Canada. Royal Dutch Shell Hold 48.43 6.60 Management says it's looking at $15 bil of assets of part- NEG A 20.9 Oil/Gas (NYSE: RDS/A, LSE: ner Petrobras in Brazil that are likely to come to market by Production RDSA) the end of 2016. BG merger nears closing as wins approval in Australia, now needs only Chinese regulators to sign off as expected. Close still expected in "early 2016." Company will expand chemicals (alpha olefins) plant in Louisiana to take advantage of lower for longer oil and natural gas price environment. Suspends carbon capture and storage project in UK after government cancels EU1.4 bil subsidy for project. Confirms major deepwater Gulf of Mexico gas discovery. RWE (OTC: RWEOY, SELL 12.78 6.16 Dividend cut of at least 50% looks likely for calendar 2016, 64.5 D 61.2 Foreign Energy GR: RWE) pending more certainty on funding for nuclear decommis- sioning. Company will split into two independent entities, following the lead of fellow German electricity giant E.On. Will pool renewables, power grid and unregulated retail operations in to new unit with initial public offering of 10% ownership by end of 2016, pending vote of the Board on December 11. RWE plans to maintain majority stake in company for long term, though that could change given management's previous opposition to any kind of split. Sale will allow company to cut debt, reduce pressure on credit rating provided is successful. Management confirms 2015 forecast despite missing Q3 projections. Net income falls -85.7% from year earlier levels. Management won't rule out further plant closures. SCANA Corp (NYSE: Hold 59.16 3.69 Penalties imposed by South Carolina regulators for nuclear 58.9 B 57.0 Regulated Elec/ SCG) cost overruns are far from fatal, and consolidation of chief Gas contractors for Summer reactors limit future risk. But reduced return on equity under deal is likely to keep dividend growth subdued to end of decade when plant comes on stream and starts cutting into system costs. February payout boost likely to be same 2 cents per quarter rate as last year. Southern Company's larger size makes it a safer bet on new nuclear. Sempra Energy Buy<95 97.67 2.87 Issues 5-year debt at 2.85%, 10-year debt at 3.75%, 58.3 A 54.3 Regulated Elec/ (NYSE: SRE) demonstrating ability to access low cost debt capital to Gas expand investments in solar and natural gas midstream businesses. Utility capital spending is still supported by California regulation and push to increase state's percentage use of renewable energy. Major projects to expand gas transportation in Mexico, liquefied natural gas export facilities in US and Mexico are on track to fire up earnings growth starting in 2018. Stock on my short list of utilities to add on a drop in price.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

47 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Severn Trent (OTC: Hold 34.10 2.55 Interim Dividend is slightly reduced from year earlier level 177.1 B 85.7 Regulated Water STRNY, LN: SVT) (-5%), reflecting immediate cost of 2015-2020 rate deal in UK and as management had been guiding to. Management says it has locked in a deal with UK regulators it can live with. Self-generation of needed electricity reaches 32%, with goal of 50% by 2020. Switch will cut costs and improve cash flows payable for dividends, as management affirms annual growth target at rate of inflation through 2020. FYQ2 underlying basis earnings per share up 11.4%. Regulated sales -1.5% on lower pricing under rate deal, offset by lower bad debt and maintenance expenses. Weakness of British Pound hurts US dollar returns. Shaw Hold 20.70 4.29 Dividend increase looks set to be announced next month. 69.7 A 50.1 Foreign Communications ViaWest unit to buy INetU for $162.5 mil to boost compa- Communications (NYSE: SJR, TSX: ny's capability to handle cloud communciations especially SJR/B) for businesses. Rising earnings will accrue to parent from stand alone entity. Moody's rates outlook of unit as negative but maintains stable outlook for parent's Baa3 rating. S&P rates outlook positive. Weak Canadian dollar holds down US dollar value of stock. Shenandoah SELL 47.74 1.01 NTELOS shareholders approve takeover by company for 31.1 B 46.5 Communications Telecommunications $9.25 per share in cash. Last remaining hurdle to deal (NSDQ: SHEN) is Federal Communications Commission proceedings, on track to be completed in early 2016 with a close soon after. Acquired properties in western Virginia, West Virginia, Maryland, North Carolina, Pennsylvania, Ohio and Kentucky will add to scale and reach, though dependent on financially struggling Sprint as largest wholesale customer for wireless network services. Stock looks expensive at nearly 30 times earnings and yield of just 1 percent in highly competitive market. Also inherits $524 mil in debt maturing by end of 2019, added to $207 mil already on the books coming due by then. Singapore Hold 27.45 3.36 Management holds Interim Dividend flat versus last year's 75.0 B 26.6 Foreign Telecommunications level. Management maintains full-year guidance following Communications (OTC: SGAPY, SP: ST) soft fiscal year 2015-16 second quarter results (end Sept 30), cash flow falls -3% due to weaker Australian dollar, though up 5% factoring out currency erosion. Free cash flow -35% on higher working capital needs to support Optus (Australia) acquisitions and customer retention efforts. Profitability appears to be improving in Australia on better margins. Cuts revenue growth guidance for Singapore wireless operations as country regulators study plans to promote a fourth entrant to the market. SJW Corp (NYSE: SELL 29.88 2.61 Dividend increase on tap for next month likely to be modest 58.6 B 52.5 Regulated Water SJW) due to challenge from California's drought. Stock still looks expensive at 23.5 times trailing 12 months earnings, yield of just 2.6%, at 3% to 4% annual dividend growth rate. High valuation means more downside is likely in a potential bear market, even if California regulation is more supportive than expected.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

48 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) SK Telecom (NYSE: Hold 22.23 0.49 Company asks Korea Communications Commission 37.4 C 30.7 Foreign SKM, KS: 017670) and Fair Trade Commission to approve takeover of CJ Communications HelloVision, would combine pay television company with broadband unit to provide greater entertainment capability over best in class network. Rivals want deal blocked on basis that SK Telecom has 50% plus of wireless market and CJ has 60 percent plus of pay television market in country. Partial tender offer successful. South Korean Won bends against US dollar in 2015 (-5%). SolarCity Corp SELL 35.99 N/A Stock bounce off lows in late November reflect technical 0.0 F 52.9 Wholesale (NSDQ: SCTY) factors related to huge short interest (48.42% of float), Power not positive business developments. CFO will step down in February, replaced by current chief operating officer. Company pulls in another $113 mil from investors, including $10 mil more from Elon Musk. Company says it will reduce required credit score needed to sign rooftop solar contract into sub-prime territory. Move seems to contradict management's recent pledge to pursue profitability at expense of growth. Net metering rule in California is a major risk. Once unanimous Wall Street support continues to erode. South Jersey Hold 20.70 4.29 Boosts quarterly dividend 5%, in line with previous years' 66.3 B 50.1 Regulated Elec/ Industries (NYSE: SJI) boosts and the 17th consecutive annual increase. Move Gas reflects management confidence in growth of gas distribution utility business via customer growth and infrastructure spending to upgrade aging pipes, as well as related unregulated ventures including investment in PennEast pipeline. Company maintains 2020 target of $150 mil in "economic earnings," which exclude one-time items. Steep drop from highs earlier in the year due to challenges in Atlantic City increase potential takeover appeal at 7.7 times 12-month cash flow. Southern Company Buy<47 44.83 4.84 Adds $62 mil to integrated gassification combined cycle/ 77.5 A 53.9 Regulated Elec/ (NYSE: SO) carbon capture coal plant in Mississippi, now at $6.49 bil. Gas Unit reaches agreement with Public Service Commission staff to reduce rate increase to $127 mil from $159 mil ini- tially sought, covers portion of plant now generating power by burning natural gas. Regulators will decide whether to approve, disapprove or attach further conditions. Sells $1 bil in "green bonds" for 2 years and 10 years to fund renewable energy investments. Buy 51% of 157 megawatt solar farm in Texas, on track for startup in Q4 2016 under 20 year contract. Mississippi regulators OK construction of 50 MW solar facility starting in 2016. Georgia Power sells 3-year bonds at rate of just 1.95%, Southern Power 10-year bonds go for 4.15% as company continues to demonstrate ability to access low cost capital to fund growth in solar, nuclear and natural gas.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

49 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Southwest Gas Corp Buy<55 52.20 3.10 Next dividend increase will be declared in February, likely 50.5 A 52.5 Regulated Elec/ (NYSE: SWX) to follow management guidance for 7% to 10% earnings Gas growth in 2016. Weak Canadian dollar, soft conditions in Pennsylvania energy drilling business hurt construction arm but management still expects to see 7% to 10% revenue growth from contracts with utilities improving their infrastructure. Move to a holding company structure would allow more flexibility with unregulated operations, security for purely regulated business. Looks for 6 to 12 month approval process but early signs from regulators are promising. 5.1 times trailing 12 month cash flows is a more takeover friendly valuation as stock finally slips again below buy target. Southwestern Energy Hold 7.74 N/A Stock continues to plummet along with falling oil and 0.0 C 59.9 Oil/Gas (NYSE: SWN) especially natural gas prices. Fitch rates 3-year loan quality Production BBB-, cites strong operating history and credit conscious financial policies. Unhedged netback was negative in Q3 as weak selling prices in key regions more than offset strong production growth (27% in 2015) and cost reduction efforts. Lower capital spending and narrower price spreads are likely to help in 2016. No significant debt maturities until 2018. Spark New Zealand SELL 10.88 6.36 Company sells NZD100 mil in bonds due March 2023 96.9 C 28.0 Foreign (NZ: SPK, OTC: with potential to upsize by NZD50 mil. Total bond and loan Communications NZTCY) maturities in 2016 are NZD250 mil, or nearly one-third total debt at company. Refinance should be an opportunity to cut costs with all company bonds currently trading over par value. Yield is high but payout is semi-annual, variable and vulnerable with competition affecting earnings, despite management affirming FY2016 guidance recently (end June 30). Spectra Energy Corp Hold 23.56 6.28 Need to prop up DCP Midstream Partners likely to limit dis- 111.4 A 57.9 Energy Pipelines (NYSE: SE) tribution growth despite strong growth at main unit Spectra Energy Partners. Chemical leak at British Columbia plant creates uncertainty at already challenged Canadian operations, as regulator orders indefinite shutdown. General partner of SEP offers strong upside and risk is limited from stock's current low valuation. But until there's more clarity on DCP and in Canada, Spectra Energy Partners is the best play for conservative investors on the family. Spectra Energy Buy<55 39.01 6.42 Files to sell $1 bil in common units to fund growth. 69.2 A 35.6 Energy Pipelines Partners LP (NYSE: Expansion focus remains on demand side projects with no SEP) exposure to cash-strapped producers and upside from low prices spurring higher demand for natural gas by utilities and others. Cost of equity capital with yield of 6.1% is below most rivals in midstream energy business and credit rating is solidly investment grade, with yield to maturity on 10-year debt at just 4.5%. Annual distribution growth looks set in upper single digit range for next few years, per management guidance. Spectra Energy (general partner) owns 72.88% of units and is strongly supportive.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

50 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Sprint Corp (NYSE: S) SELL 3.53 N/A Aggressive marketing to hold customers against rivals will 0.0 F 60.9 Communications deepen losses as company continues to spend more on network than it earns in cash flow (-$2.33 bil in first nine months of calendar 2015). $5.481 bil of debt maturities by end of 2017 are more than a third of total market capitalization with little hope of refinancing at lower interest rates, with company's 10-year debt yielding more than 11 percent to maturity. Company couches statement it won't participate in wireless spectrum auction next year as a choice, but is actually a necessity for cash-draining company whose parent SoftBank is also stretched. Management cuts outlook again. Suburban Propane SELL 26.53 13.38 Fiscal 2015 cash flow off slightly (-1.3%) not including a 91.3 B 58.0 Propane Partners LP (NYSE: series of one-time charges related to debt retirement and Distribution SPH) integration of Inergy Propane acquisition. Mild weather in first quarter (end Dec 31, 2014) offset by cooler temperatures in subsequent nine months. Retail propane gallons drop -9.5%, fuel oil/refined fuels drops -14.7%. Latter also affected by secular trend of fuel switching to natural gas heating. Selling prices for propane -52.7% and fuel oil -35.5% from last year. Fuel oil exposure, smaller size make partnership's distribution much riskier long-term than rival Amerigas'. Suez Environnment Buy<10 9.71 2.64 Wins four French energy contracts with value of EU400 79.3 B 58.0 Utility (OTC: SZEVY, FP: SEV) mil. Renews waste to energy alliance in Europe. Starts up Technology pilot portion of energy efficient desalination water plant in Abu Dhabi. Company has 250 plus facilities in operation globally, new process will cut costs and boost opportunity if successfully scaled up. Former owner Engie denies report it's seeking full control of company, continues to hold roughly 34% of ownership in company. SunPower Corp Hold 26.68 N/A Sets solid guidance for revenue and cash flow in 2016. 0.0 C 42.4 Utility (NSDQ: SPWR) Company sponsorship of 50th annual Edison Electric Technology Institute Financial Conference is latest sign of emerging partnership between company and electric utilities in US, the prime source of future funding for solar power expansion in the US, even if tax credits don't expire at the end of 2016. Super oil Total SA continues to own 60% of company and is major customer with joint projects globally. Management maintains support for 8point3 yieldco despite much higher cost of equity capital as deterrent on economics of drop downs. Management forecasts Chile, Mexico and South Africa will become "meaningful contributors" to cash flow by 2017, US and Japan are the two key markets now. Talen Energy Corp Buy<8 6.77 N/A Management states at Edison Electric Institute Annual 0.0 C N/A Wholesale (NYSE: TLN) Financial Conference that it will not grow for growth's Power sake, but will do only accretive deals. Clean Power Plan a long-term threat to revenue at some facilities, notably Colstrip coal plant near Montana/Dakotas border. Focus on Pennsylvania/Jersey/Maryland a plus as capacity rates kick in. Primary strength is management experience, strategy is to optimize assets efficiency and value. Sale of assets to meet regulators' condition for recent asset purchases will provide cash, limit need to access capital market. 4.6% coupon bonds maturing 12/15/21 now have yield to maturity of nearly 9% despite visibility of long term cash flows.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

51 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) TECO Energy (NYSE: SELL 26.55 3.39 Dividend increase looks unlikely as takeover by Emera 82.2 C 59.4 Regulated Elec/ TE) moves ahead. Management says at Edison Electric Institute Gas Annual Conference that New Mexico regulators' approval is primary wild card to closing merger. Company still has roughly nine years left on pledge not to sell New Mexico Gas. With coal unit now finally divested, combination gas and electric utility with operations in Florida and New Mexico faces limited operating risks. Allowed return on equity in NM is 10%. Management sets mid-2006 as target for final close. Telecom Italia (NYSE: Buy<12 12.67 N/A Stock continues to trade on merger rumors, with Orange 0.0 F 61.5 Foreign TI, IM: TIT) SA the latest to deny a deal in the works. Vivendi SA seeks Communications bigger say with board move. International Shareholder Services advises company to vote against Vivendi plans to increase the number of seats, despite company Board rec- ommendation to approve measure. CEO continues to push prospective sale of Argentine unit, as new government replaces former one that rejected deal. Company moves ahead with share simplification. Underlying business continues to gather strength. Telefonica (NYSE: Buy<18 12.11 5.74 Considers creating separate division for wireless towers 78.4 C 66.4 Foreign TEF, SM: TEF) network with possible spinoff, raising cash while keeping Communications assets under control. CEO says he's "not concerned" about debt at this point but must "improve client satisfaction," forecasts sales, cash flow and operating income growth in 2016-2020 forecast. May slow Spanish fiber optic investment after regulators order company to share network with rivals. Stock a value backed by great assets and effective management but headwinds in Brazil and elsewhere will require investor patience. Telefonica Brasil Buy<22 9.63 7.73 Brazilian government debates changes in landline regula- 56.1 C 14.8 Foreign (NYSE: VIV, BZ: VIVT4) tion, may benefit company as large incumbent provider as Communications it integrates broadband in country. Lack of debt maturities until September 2017 is a maor plus with country's economy weakened. Rising bad debt expense a concern but focus on best in class network should make company less vulnerable than rivals are. Telephone & Data SELL 27.98 2.02 Management affirms investing in quality of mostly rural 186.2 B 30.9 Communications Systems (NYSE: TDS) network is foundation of long-term strategy in mid-No- vember presentation to Wells Fargo conference. Says 20% of gross adds to contract customer base are returning users. Still using subsidized equipment model, though non-subsidy plans are gaining popularity as elsewhere in the communications industry accounting for roughly half of new customers. Company sees expansion of roaming opportunities as AT&T/T-Mobile USA type wireless networks become compatible with Verizon's under adoption of VoLTE technology that's emerging.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

52 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Telstra Corp (OTC: Hold 19.93 5.23 Company plans to expand in Asia along the model of its 88.5 B 51.9 Foreign TLSYY, ASX: TLS) past two years' investment in Indonesia, using cloud- Communications based network architecture to speed rollout and target the most valuable portion of markets. Arranges financing for venture in Philippines. Credit Suisse reduces its forecast for company dividend growth to 0.5% a year, well below management guidance on thesis that wireless competition is starting to eat away at results. Next day of reckoning is early February 2016 when management releases semi-annual earnings and declares Interim Dividend for FY2015-16 (end June 30). Telus Corp (NYSE: TU, Buy<34 31.30 4.21 Moody's shifts credit rating outlook to negative, cites 66.7 A 55.8 Foreign TSX: T) management plans to raise dividends and "focus on Communications shareholder returns" offsetting strong operations. Company will buy back 3.75 mil shares. Broadband investment in wireless and wireline networks pushing ahead. Focus will remain on cutting operating costs while keeping up with push of technology. Generates $400 mil in excess cash flow in Q3 after all capital spending, covering dividends by a solid margin with free cash flow. TerraForm Power SELL 8.50 16.43 Raises quarterly dividend by 1.5 cents per share (4.5%) to 39.4 D 51.3 Wholesale (NSDQ: TERP) reflect positive impact of recent drop downs from parent Power SunEdison (NSDQ: SUNE). Hedge fund manager charges recent drop downs were for the "sole benefit" of SunEdison and faults acquisition of Vivint Solar rooftop solar assets as "unfortunate departure from business model," follows resignation of two independent directors. Pop in yieldco share price following Oppenheimer upgrade looks like opportunity to sell after management appears to walk back guidance. Q3 cash available for distribution up 9% sequentially from Q2 and management professes focus on completing acquisitions despite more than -60% drop in share price from initial public offering. Rooftop is 30% of solar capacity, company will expand it with more drop downs from SunEdison as parent sells utility scale assets to third parties. Time Warner Cable SELL 70.61 1.98 No dividend increase this month as company waits for 46.3 B 47.9 Communications (NYSE: TWC) Federal Communications Commission to rule on proposed merger with Charter Communications. Latest projection on decision is March, with US Justice Department review to conclude in the same time frame. California regulators' OK may take until June. Deal would elevate Time Warner much closer to the scale of Comcast, is opposed by DISH Network boss Charlie Ergen on grounds it would hurt online video rivals. Company rumored on verge of taking a stake in Hulu streaming service.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

53 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) T-Mobile US (NYSE: SELL 35.45 N/A Company still posting a per customer loss versus large 0.0 D 61.0 Communications TMUS) profits at AT&T and Verizon. Losses likely to increase in 2016 as company continues to market aggressively with free data for video under the "Binge On" feature as the latest effort. Aggressive bidding in wireless spectrum auction will further increase borrowing as company does not generate free cash flow, also in contrast to the Big Two. Continued financial support of parent and 65.6% owner Deutsche Telekom is essential element in strategy as network spending plus spectrum purchases in first nine months of 2015 exceed operating cash flow by $2.05 bil. Total (NYSE: TOT, Buy<65 47.82 4.89 Asset sales continue with sale of 16.67% in German refin- 52.1 B 37.2 Oil/Gas FP: FP) ery to Russia's Rosneft. Company should be in good shape Production to garner solid share of Iran energy business. Launches $1.2 bil issue of non-dilutive, cash-settled convertible bonds with seven year maturity. Sells shale oil licenses in Russia. Management says it will realize $1.3 to $1.4 bil in operating cost savings in 2015, says would be cash flow neutral in 2019 at $45 per barrel global oil prices. Merger with BG Group nears, with Australia approving deal on Nov 19 and China regulators looking set to do the same this month. Expected close is still "early 2016" says management. TransAlta Corp SELL 3.67 14.68 TransAlta Renewables affiliate issues CD172.5 mil in 40.0 D 51.1 Wholesale (NYSE: TAC, TSX: TA) "subscription receipts" for equity in firm to finance portion Power of CD540 mil investment for 611 megawatt power plants capacity drop down from company. Includes "highly contracted" cogeneration, wind and hydro facilities in Ontario and Quebec. Alberta government policy to eliminate coal-fired power by 2030 will require company to replace a large portion of its generating capacity. Stock gets lift on promise from government that it will receive compensation for closing coal plants but only certainty now is CD1 bil in lost revenues and need to take on more debt to build renewable facilities. TransCanada Corp Buy<50 31.27 4.98 Boost of four cents per share in quarterly dividend on tap 83.9 A 57.9 Energy Pipelines (NYSE: TRP, TSX: TRP) for February as management affirms 8% to 10% annual growth guidance. Reaches rate settlement for key NGTL pipeline with solid 10.2% return on equity through 2017. Completes sale of interest in liquefied natural gas project in Alaska for $64.6 mil, eliminates potential massive future expenditure and allows company to focus on higher percentage projects. Company a likely winner from Alberta low carbon dioxide policies as a developer of renewable energy without exposure to coal power phase out plans. Management plans to buy back up to 3% of shares. US government official rejection of Keystone XL pipeline shifts company focus on Mexico gas pipelines, smaller projects with easier regulatory clearance (CD13 bil to enter service by 2018). Company can use 40% of Keystone equipment in other projects. Still has CD35 bil in larger scale projects to potentially spur future growth.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

54 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Transmissione Hold 15.60 1.86 Interim dividend maintained at same rate paid since fiscal 75.4 A 74.4 Italian Power Elettricita Rete year 2012. Power demand up 1.9% in Italy over first nine Grid Nazionale (OTC: months of calendar 2015, up 6.7% in Q3 on warmer TEZNY, IM: TRN) summer weather. Final decision in Italian transmission rate case still due by end of year. Acquisition of grid serving Italian Railways moving ahead. Q3 revenue up 4.8%, cash flow up 2.3% and net income up 9%, including impact of debt retirement. UGI Corp (NYSE: UGI) Hold 33.50 2.72 Sets guidance for fiscal year 2016 (end Sept 30) or $2.15 45.3 B 52.1 Propane to $2.30 per share, mid-point reflects 11% three-year Distribution compound annual profit growth rate. FY2015 net slips -0.5% after company swings to slight gain in fiscal year Q4. Mild weather more than offset by completion of new infrastructure projects in midstream business, utility customer additions, acquisitions overseas including Total liquefied petroleum gas operations in Hungary completed in September in time for first winter quarter. Amerigas unit hit by mild weather, offset by nine acquisitions of smaller propane distribution companies and growth of cylinder exchange business. Expense controls a high priority as company consolidates growing asset base. UIL Holdings Corp Buy<52 49.22 3.51 Connecticut regulators issue draft order ahead of schedule, 72.8 B 56.9 Regulated Elec/ (NYSE: UIL) approving settlement agreement for company's merger Gas with Iberdrola USA to form new energy distribution and renewable energy generation company. Settles merger litigation to allow shareholder vote to proceed on December 11 as scheduled, will make supplemental disclosures in revised proxy statement in return for end of suit. Still waiting on final approval of Massachusetts regulators but deal looks set to close by end of year. Will build microgrid for town of Woodbridge, Conn in deal with FuelCell Energy. United Utilities (OTC: Hold 28.75 2.64 Interim Dividend raised 2%. Water utility CEO says it will be 92.7 C 73.2 Regulated Water UUGRY, LSE: UU) gouth to hit fiscal year 2015-16 targets (end March 31), but still within reach after first six months of 2015-2020 rate and capital spending plan. Management says it's "locked in a low cost of debt" through 2020 to fund plans. Will stick to policy of raising dividends in line with inflation through 2020. Underlying operating profit dips -10.2% from last year, earnings per share drop -7.1% as company adapts to new pricing and allowed returns under multi-year rate plan. Unitil Corp (NYSE: Hold 35.29 3.97 Dividend boost of one half cent per share in quarterly rate 73.3 A 57.5 Regulated Elec/ UTL) likely to be announced next month, but dividend growth Gas rate plus yield is less than 5.5% as stock has stock continues to trade a high valuation on takeover possibil- ities. Weather a factor in quarterly results but underlying earnings look set to continue rising from system capital spending. Energy services unit USource is small and not a significant risk to overall earnings or dividends.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

55 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Vectren Corp (NYSE: Hold 41.77 3.83 Company repeats 2016 earnings per share guidance of 68.1 B 51.9 Regulated Elec/ VVC) $2 per share, 5% to 7% annual earnings growth through Gas 2020, dividend growth 5% to 7% fueled by utility capital spending, including "heavy" gas infrastructure investment. Non-utility operations now focused on utility pipeline replacement and modernization contracting, energy services following purchase of Chevron Energy Solutions' federal sector energy services operations last year. PIpeline replacement services also contract with water/wastewater companies, oil/gas transmission. Backlog is key indicator for health of business, now stands at $450 mil for infrastructure services, $177 mil for energy services. Veolia Environnment Hold 23.95 2.58 Wins operating and maintenance contract for desalination 102.9 B 55.0 Utility (OTC: VEOEY, FP: VIE) plant at Cerro Lindo mine site in Peru. Seawater intake Technology from Peruvian coast will be transported up 1,850 meters and 40 kilometers and will allow mine to run without inter- fering with adjacent agriculture. Company now serves 96 mil people globally with water and 60 mil with wastewater. CEO says company to balance acquisitions with asset sales, says French water off the table. Wins water contract in Zambia worth $101.6 mil. Verizon Buy<52 45.71 4.95 Improves pricing option for prepaid wireless customers 54.3 A 89.2 Communications Communications in bid to win business for what's still a very small share (NYSE: VZ) or overall users of company network. Management says Federal Communications Commission auction of 600 mega hertz (MHz) wireless spectrum is not a priority, as company currently uses just 40% of spectrum portfolio to support its 4G network that carries 87% of data traffic. Still likely to bid in targeted areas. Management denies rumors that it's considering selling slumping Enterprise services division for $10 bil estimated price. Sale of wireline assets to Frontier nears as California near approval. Vermilion Energy Buy<50 29.34 6.62 New CEO will ensure smooth transition. Q3 output up 9% 57.6 B 38.0 Oil/Gas (NYSE: VET, TSX: VET) as company holds to 2015, 2016 targets. Management Production credits drilling success in Netherlands, higher Australian production. Funds from operations in Q3 flat with Q2 despite 20% sequential drop in oil prices, thanks to selling a plurality of output at much higher European gas prices. Wins emissions license from Irish Environmental Protection Agency for first gas at Corrib field, still needs receipt of Ministerial Consent from Ireland's Department of Communications, Energy and Natural Resources. Startup still expected in Q4. Company will spend 30% of capital budget in Canada next year to take advantage of rich reserves and low cost values. Consolidation of Canada's energy patch remains subdued. Project diversification, high margins, low decline rates and strong capital efficiencies, as well as strong balance sheet should make oil and gas producer a winner in a lower for longer pricing environment. 2016 CAPEX expected to be -25% below 2015 levels, 50% under 2014. Expects to fund all dividends and CAPEX from cash flow in 2016 despite weak global pricing environment. Q3 coverage ratio including Corrib project costs is 1.06-to-1.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

56 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Vestas Wind Systems Hold 66.80 0.83 Wins order for 201 megawatts of wind turbines in US, 36 19.6 D 20.3 Utility (OTC: VWSYF, DC: MW in Germany, 50 MW in China, 20 MW in South Korea Technology VWS) as sales momentum continues. May get lift from extension of wind power tax credits in US under emerging spending bill in US Congress. CEO says company's top priority is to cut costs to boost competitiveness of wind energy without subsidies and tax credits. Company announces 12% increase in productivity of 3 MW wind turbines, starting delivery this quarter. Vodafone (NYSE: Hold 32.88 3.29 Boosts Interim Dividend for fiscal year 2015-16 by 2.2%. 50.0 C 34.1 Foreign VOD, LN: VOD) Company puts $2 bil bond issue on hold after investors de- Communications mand protection against a potential takeover with "change of control" provisions. India regulators order company to pay $300 mil fee for merger. Sued for $14 bil by partner in Democratic Republic of Congo. Posts fifth consecutive quarter of rising services revenue. Data usage up 70% as 4G customer in wireless reaches nearly 30 mil. Enterprise sales up 1.9% as company gains market share. 50% of business now in Euros. Expects positive revenue growth in Germany in second half of fiscal year (ends March 31). Stock responding to takeover rumors. WEC Energy Group Buy<50 49.45 4.00 Issues $250 mil of 3-year debt at coupon rate of just 69.8 A 54.0 Regulated Elec/ (NYSE: WEC) 1.65%, 30-year bonds at rate of just 4.3%, demonstrating Gas continued access to very low cost debt capital. Illinois regulators launch investigation of Peoples Gas unit on projected cost of natural gas main replacement in Chicago and whether company failed to reveal higher costs. 13% of assets are in Illinois as Peoples Gas, 70% in Wisconsin, 14% Federal Energy Regulatory Commission regulated and balance are Minnesota and Michigan. Affirms target of 6% to 8% earnings growth for 2016, 5% to 7% a year thereafter in presentation at Edison Electric Institute Annual Financial Conference. Dividend growth rate to track earnings growth. Primary fuel is $1.4 to $1.55 bil annual capital spending, $250 to $300 mil a year in Illinois. If curtailed could take growth down to 4% to 6% a year. Westar Energy Hold 42.08 3.42 Stock moves to lowest dividend yield in more than 35 years 65.0 B 52.6 Regulated Elec/ (NYSE: WR) as investors speculate on takeover potential. Dividend Gas growth rate less than 3% on a yield of barely 3% as a generous offer price is already reflected. Issues 30-year debt at coupon rate of just 4.25% demonstrating ability to access very low cost debt capital as well as equity capital through high valuation. Drop in insider ownership of -1.79% over past six months, particularly as stock has risen, is a cautionary sign. Underlying business looks solid with regulators in Kansas supporting most initiatives to improve efficiency and meet environmental regulations. Wolf Creek nuclear plant efficiency and safety are key.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

57 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) WGL Holdings (NYSE: SELL 60.71 3.05 Three of six analysts covering natural gas distribution utility 58.5 A 50.6 Regulated Elec/ WGL) downgrade stock on concerns about high valuation. New Gas count is 1 buy, 3 holds and 2 sells. Plans to boost investment in distributed energy systems, mainly solar, to $200 mil for a 50% increase in capacity increase operating risk though company is still mainly a regulated utility and focus is on larger systems rather than conventional rooftop sales that have drained cash from other solar developers. Sets target range for fiscal year 2016 operating earnings to $3 to $3.20 per share (end Sept 30). FYQ4 operating earnings in seasonally weak summer quarter widen slightly to -23 cents from -17 cents a year ago. 1.2% customer growth at nat gas utility last 12 months. Nearly six-fold boost in retail energy marketing operating earnings was key element of FY2015 profit gains. Williams Companies Hold 31.11 8.24 December dividend will be flat with September payout, 66.7 B 51.8 Energy Pipelines (NYSE: WMB) breaking string of 16 consecutive quarterly boosts and highlighting near-term weakness of underlying business in low energy price environment, need to merge with larger and financially stronger entity Energy Transfer Equity. Companies continue to build support for deal, with close still expected in first half of 2016. Williams Partners unit had held distribution in place for three consecutive quarters. Williams Companies' shares would be exchanged for shares of C-Corp rather than partnership units, so event will not have tax consequences for investors. Dividend of C-Corp to mirror that of Energy Transfer Equity (NYSE: ETE) partnership units. Distribution at ETE raised 37.4% over last 12 months. Williams Partners LP Hold 24.97 13.61 Federal Energy Regulatory Commission approves project 93.5 B 48.8 Energy Pipelines (NYSE: WPZ) to expand Transco pipeline system to serve Sabine Pass liquefied natural gas export facility in Louisiana, target in service date is Q1 2017. Exposure to Chesapeake Energy's financial challenges pose a risk if parent Williams Companies fails to complete merger with Energy Transfer Equity (NYSE: ETE). As part of family, partnership will have much stronger parental support and opportunities to partner with other MLPs in Energy Transfer family. Independent, company may have trouble earning distributions going forward despite solid Q3 results posted. Analyst day in mid-November details numerous synergy opportunities. Windstream Holdings SELL 6.31 9.52 Expands network in Florida market with Miami buildout. NEG D 97.5 Communications (NSDQ: WIN) Focus is on carrier business with high capacity facilities, could help stabilize revenue from what's been a declining source in recent quarters. CS&L spinoff reports 6 cents per share in Q3 income, 64 cents per share in funds from operations, with estimates for full year raised to $1.74 to $1.76 per share. Company still owns 20% of CS&L, which was mostly spun off to cut debt at former parent Windstream. Debt maturing between now and end of 2017 is more than 1.7 times current market capitalization. Ability to hold current dividend appears dubious.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

58 ConradsUtilityInvestor.com December 2015 | Issue No 29

Utility Report Card Security Rating Price ($) Yield Comment Payout Quality Debt / Industry (Exchange: Ticker) (%) Ratio Grade Capital (%) (%) Xcel Energy (NYSE: Buy<32 34.97 3.66 Fitch affirms BBB+ credit rating with stable outlook, cites 61.0 A 55.6 Regulated Elec/ XEL) stable earnings and cash flow of regulated businesses Gas with "mostly constructive regulatory environment" except for New Mexico and Texas units. Rate riders back large percentage of $11.6 bil projected capital spending through 2019. Minnesota regulatory risk diminished as capital spending in state peaks in 2015. Texas and Wisconsin decisions this month, Colorado in January. Cost of equity capital low with yield at 3.5% and stock with a few percentage points from all-time high. Would be a buy on a drop to 32 or lower. York Water (NSDQ: Hold 24.16 2.57 Boosts dividend by 4%, roughly in line with expectations. 59.2 A 44.8 Regulated Water YORW) Sum of yield plus dividend growth is still just 6.6%, a high valuation reflecting lack of operating risk for regulated water utility operating in state with supportive regulation (Pennsylvania) and ample opportunity to acquire smaller, financially challenged water systems nearby and to invest in network. Valuation is 16.6 times cash flow, the highest in the water utilities space. York Water (NSDQ: Hold 21.15 2.83 Pennsylvania water utility faces few operating risks and 65.7 A 44.8 Regulated Water YORW) has market cap of just $271 mil. Biggest impediment to prospective takeover is high valuation of 14 times cash flow and 2.53 times book value, 23 times earnings. Valuations much higher than those of most likely buyers Aqua America and American Water.

All data as of 12/04/15, close. Source: Bloomberg, Conrad’s Utility Investor.

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