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  1. 1. EQUITY RESEARCH Daniel F. Ford, CFA +1 212 526 0836 Power & Utilities dan.ford@barcap.com AGA/EEI Accounting Leadership Conference The Good Times May Be Ending! June 2009 Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Customers of Barclays Capital in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.lehmanlive.com or can call 1-800-253-4626 to request a copy of this research. Investors should consider this report as only a single factor in making their investment decision. PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 35.
  2. 2. What the Market is Focused On: 2H’09: The Power & Utilities Landscape 2
  3. 3. 2H’09 – What Now?  The recession, which began in 4Q07, caused an unwind of the long power/short regulated utility trade. Power regained leadership in April. Two questions remain: Is it too late to buy defensive regulated utilities? Is it too early to buy power? Cumulative Relative Performance vs. UTY (2001 - Present) 70.0% 60.0% 50.0% 40.0% Utes Power 30.0% Power leads lead leads? 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% 2Q01 2Q02 2Q03 2Q04 2Q05 2Q06 2Q07 2Q08 May-09 Regulated Power Source: FactSet, Barclays Capital estimates 3
  4. 4. Too Late For Utilities? Is the Recession Over?  Historically, regulated utilities begin to outperform six months prior to, and then throughout, recessions. Barclays Capital believes the recession ends in 3Q09. Utility Performance Through Recessions 8.0% 6.0% 5.5% 4.0% 3.4% 2.4% 1.9% 2.0% 1.5% 0.0% -2.0% -4.0% -6.0% -5.4% -6.7% -8.0% -8.0% -10.0% 6 Months Prior 3 Months Prior 3 Months In 6 Months In Span of 3 Months After 6 Months After 12 Months Recession After Absolute Relative to S&P 500 Source: FactSet, Barclays Capital estimates 4
  5. 5. What Regulated Utilities Work Late in Recessions?  Historically, the market has paid up for quality going into, and in the early stages of, a recession Lower quality, smaller names usually outperform as we emerge Historical Relative Performance, Lower Quality vs. Higher Quality 15.0% Relative Performance: Lower Quality vs. Higher Quality 10.0% 6.0% 5.0% 4.0% 2.0% 0.0% 0.0% -2.0% -5.0% -4.0% -6.0% -10.0% -8.0% -10.0% -15.0% 8 8 8 8 8 9 9 9 9 9 08 08 08 /0 /0 /0 /0 /0 /0 /2 /0 /0 /0 6 Mo. Prior to 3 3 Mo. Prior to 3 3 Mo. In to 6 6 Mo. In to Trough to 3 1/ 0/ 1/ 31 30 31 30 30 31 28 31 24 28 /3 /3 /3 5/ 6/ 7/ 8/ 9/ 1/ 2/ 3/ 4/ 5/ Mo. Prior Mo. In Mo. In Trough Months After 10 11 12 Note: Higher quality includes: DUK, ED, NST, PCG, PGN, SO, WEC, XEL Lower quality includes: LNT, AEP, CMS, DPL, DTE, HE, NI, NU, NVE, PNM, PNW, POM, POR, SRE, TE, WR Includes all US recessions since 1970. Source: Factset, Barclays Capital. 5
  6. 6. Regulated Utilities – Recommendation Now  Market performance has been diverging from the “big cap safety” trade for the last three months  Historically, changes in leadership tend to occur as we emerge from recessions A similar theme may be playing out now  Lower quality names now more attractively valued based on: Earnings multiples P/B ratios Dividend yields Group 2010 P/E Current P/BV Dividend Yield Payout Ratio Higher Quality 10.9x 1.4x 5.6% 64.8% Lower Quality 9.5x 1.1x 5.9% 57.7% Source: FactSet, Barclays Capital estimates. Note: Higher quality includes: DUK, ED, NST, PCG, PGN, SO, WEC, XEL Lower quality includes: LNT, AEP, CMS, DPL, DTE, HE, NI, NU, NVE, PNM, PNW, POM, POR, SRE, TE, WR 6
  7. 7. Is It Too Early for Power?  We believe the inflection in two key Power catalysts have taken place. Natural Gas prices have likely bottomed High yield credit spreads have likely bottomed  Significant uncertainty remains in two other drivers needed to confirm a sustainable recovery Supply/demand conditions still deteriorating Policy uncertainty still great for polluters 7
  8. 8. Gas Bottoms by Summer’s End; Surprise Bias for 2010/11 Is Up y/y y/y y/y change change change 2008 2009 2010 US Aggregate Supply and Demand Bcf/d Bcf/d Bcf/d (Bcf/d) US Supply 3.99 0.29 -3.58 65 Supply Demand 64 Canadian -0.81 -1.13 -0.50 63 exports to 62 US 61 LNG -1.15 1.18 1.08 60 59 58 Total 1.80 0.43 -3.00 Supply 57 56 Total 0.35 -1.53 0.32 2006 2007 2008 2009 2010 demand Price outlook $8.90 $4.10 $6.50 Source: EIA, Barclays Capital 8
  9. 9. 100 200 300 400 500 600 700 800 900 1000 1100 0 Sep-03 Nov-03 Jan-04 Mar-04 May-04 Jul-04 Sep-04 High Grade Power Nov-04 Source: LehmanLive, Barclays Capital. Jan-05 Mar-05 May-05 Jul-05 Sep-05 Low Grade Power Nov-05 Jan-06 Mar-06 May-06 Jul-06 Regulated Sep-06 Nov-06 Jan-07 Mar-07 May-07 Average CDS Spreads by Grouping Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 High Yield Credit Has Improved Dramatically – Leading IPP Higher Sep-08 Nov-08 Jan-09 Mar-09 May-09 9
  10. 10. Industrial Load Still a Challenge Industrial Capacity Note A 170,000 Note B 160,000 150,000 GWs 140,000 130,000 120,000 110,000 100,000 J-73 J-76 J-79 J-82 J-85 J-88 J-91 J-94 J-97 J-00 J-03 J-06 J-09 J-12 J-15 J-18 J-21 Note A: 23 years (1999-2022) until return to all-time peak Note B: 11 years (2007-2018) until reutrn to pre-recession peak Reserve Margin Changes 26.0% 24.0% Overbuilt above 20% 22.0% 20.0% 18.0% 16.0% 14.0% Recession impact 12.0% Underbuilt below 15% 10.0% 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: EIA, EEI, Barclays Capital 10
  11. 11. Possible Impacts of Federal Cap and Trade – Waxman / Markey Impacts of Federal Carbon Regulation Total Transition Year Open Estimated Current Estimated Ticker 2013 Total Production - Unregulated Mkts, by Fuel (MMWh) (M Tons) Upside Upside Per Share 5/29/2009 % of Price Coal Gas / Oil Nuclear Hydro CO2 Produced EPS EPS Open NPV Stock Price Open NPV EXC 10.8 2.3 138.0 1.0 12.9 $1.39 $1.39 $8.90 $48.16 18.5% CPN 0.0 86.1 0.0 5.7 35.7 ($0.29) $0.38 $2.43 $13.72 17.7% FE 57.2 2.7 28.4 0.6 63.2 $0.87 $0.87 $5.55 $37.56 14.8% DYN 23.7 8.5 0.0 0.0 30.0 ($0.14) $0.05 $0.30 $2.12 14.1% CEG 19.7 0.3 16.3 0.0 21.4 $0.60 $0.60 $3.82 $27.23 14.0% ETR 0.0 0.0 40.9 0.0 0.0 $1.44 $1.44 $9.19 $74.19 12.4% NRG 43.6 9.9 9.3 0.0 52.2 $0.38 $0.38 $2.41 $22.22 10.9% PEG 13.3 30.2 28.8 1.8 29.9 $0.50 $0.50 $3.17 $31.36 10.1% PPL 28.6 2.5 16.4 3.1 32.2 $0.40 $0.40 $2.58 $32.29 8.0% RRI 22.6 4.8 0.0 0.0 26.9 $0.07 $0.07 $0.42 $5.70 7.3% ORA 0.0 0.0 0.0 3.2 0.0 $0.05 $0.45 $2.89 $40.00 7.2% MIR 16.3 11.0 0.0 0.0 23.2 $0.17 $0.17 $1.06 $15.60 6.8% AEP 77.4 0.2 0.0 0.2 83.7 $0.25 $0.25 $1.63 $26.22 6.2% AEE 30.2 0.7 0.0 0.0 33.0 $0.18 $0.18 $1.13 $23.14 4.9% D 21.9 3.6 16.8 0.0 25.6 $0.21 $0.21 $1.35 $31.48 4.3% EIX 41.2 6.2 0.0 0.0 47.7 $0.20 $0.20 $1.25 $29.13 4.3% AYE 31.9 0.7 0.0 0.9 40.0 ($0.92) $0.16 $1.05 $24.89 4.2% DUK 71.0 6.9 0.0 0.4 80.2 $0.08 $0.08 $0.52 $14.13 3.7% FPL 0.3 0.0 8.3 3.6 0.3 $0.18 $0.18 $1.15 $56.24 2.0% PNM 2.1 0.0 0.0 0.0 2.3 $0.02 $0.02 $0.15 $9.25 1.6% POM 1.8 3.5 0.0 0.0 3.8 $0.03 $0.03 $0.19 $12.96 1.4% SRE 0.0 11.9 0.0 0.0 6.1 $0.06 $0.06 $0.38 $45.39 0.8% DPL 0.0 0.1 0.0 0.0 0.0 $0.00 $0.00 $0.01 $21.70 0.0% AES 8.8 0.0 0.0 0.0 9.6 ($0.00) ($0.00) ($0.01) $9.77 -0.1% Total 522.4 192.0 303.2 20.5 659.9 Notes: Renewable energy sources such as geothermal, solar and wind are excluded to avoid double-counting of PTC benefits Transitional effects reflect hedges currently in place, while "Open" figures ignore extant contracts Allowance Cost ($/ton) $10.00 Proportion Auctioned 60% 2010 Integrated Multiple 8.5x Discount Factor 10% Years Discounted 3 Proportion NPV Included 100% Source: Barclays Capital estimates 11
  12. 12. Spreads Are Contracting, but Nuclear Fares Best $60.00 CEG, CVA, D, ETR, EXC, FPL, ORA, PEG $50.00 AEP, AES, AYE, DYN, $40.00 EIX, FE, MIR, PPL, RRI $30.00 $20.00 CPN $10.00 $0.00 ($10.00) 2007 2008 2009 2010 2011 2012 2013 2014 Spark Spread Dark Spread Quark Spread 2007 2008 2009 2010 2011 2012 2013 2014 Spark Spread $13.22 $15.00 $7.44 $7.36 $7.22 $9.23 $10.96 $11.41 Dark Spread $19.57 $16.37 ($1.78) $14.09 $23.41 $26.12 $31.34 $40.04 Quark Spread $43.71 $54.41 $25.87 $40.51 $43.78 $48.71 $53.57 $53.90 Source: Barclays Capital estimates. 12
  13. 13. Longer Term Fundamentals Regulated Utilities 13
  14. 14. Trading Rally Near Term; Challenge Long Term  We believe longer-term capital expenditure cycle will likely lead to Regulated Utility performance differentiation based on strength of balance sheet, quality of regulatory jurisdiction and focus of strategy. 14
  15. 15. Long Term: Capital Cycle May Have Negative Consequences  A robust capital spending program for regulated utilities is underway and will likely introduce multi-year cash flow issues.  We believe the need for external capital funding is likely to stay at a heightened level.  Rate Case frequency and sizing of requests should increase, which will likely cause a squeeze in returns and increase problems with lag.  Strong balance sheets, favorable regulatory jurisdictions and focused strategy will likely outperform, in our view. 15
  16. 16. CapEx and Rate Base Growing Capital Expenditure Projections Shareholder Owned Regulated Utilities ($ in millions) 2006 2007 2008 2009E 2010E 2011E 2012E 2013E Total Maintenance / Distribution $28,528 $32,120 $33,161 $35,917 $37,536 $167,263 Generation 16,087 13,916 13,356 12,741 12,408 $68,508 Environmental 5,081 3,400 3,653 2,063 2,123 $16,320 Transmission 8,597 10,967 12,372 13,004 11,148 $56,088 Total $46,827 $55,258 $63,154 $58,293 $60,403 $62,542 $63,726 $63,214 $308,179 Y/Y Increase 18.0% 14.3% -7.7% 3.6% 3.5% 1.9% -0.8% Note: Figures reflect Barclays Capital utility coverage scaled up by a factor of 1.08x to reflect companies not in Barclays coverage universe. Source: Company filings, Barclays Capital estimates. Rate Base Growth Projections Shareholder Owned Regulated Utilities ($ in millions) 2006 2007 2008 2009E 2010E 2011E 2012E Rate Base $435,724 $416,406 $452,887 $492,211 $524,342 $556,167 $587,629 Capital Expenditures $55,258 $63,154 $58,293 $60,403 $62,542 $63,726 D&A $23,527 $23,831 $26,162 $28,578 $31,080 $33,629 Rate Base Additions $31,731 $39,324 $32,131 $31,825 $31,462 $30,097 Rate Base Growth % 7.3% 9.4% 7.1% 6.5% 6.0% 5.4% Source: Company filings, Edison Electric Institute, Barclays Capital estimates.  Environmental compliance, renewables and transmission spending appear to be driving investment.  Spending will likely remain elevated into the next decade. 16
  17. 17. Negative FCF Will Likely Require Heightened Debt/Equity Funding Capital and Cash Flow Projections Shareholder Owned Regulated Utilities ($ in millions) 2008E 2009E 2010E 2011E 2012E 2013E Debt $320,507 $337,552 $355,950 $374,048 $389,529 $401,624 Equity $252,380 $267,311 $281,743 $296,677 $311,511 $325,498 Total Capital $572,887 $604,863 $637,693 $670,725 $701,040 $727,122 Equity % 44% 44% 44% 44% 44% 45% Cash from Operations $45,550 $46,730 $48,197 $51,148 $56,013 $59,853 CapEx ($63,335) ($58,251) ($59,653) ($61,882) ($63,120) ($62,360) Dividends ($10,879) ($11,205) ($11,541) ($11,888) ($12,244) ($12,611) Free Cash, Post Div. ($28,664) ($22,726) ($22,998) ($22,622) ($19,352) ($15,118) Debt Issued (Retired) $22,931 $17,045 $18,399 $18,097 $15,482 $12,095 Equity Issued (Retired) $5,733 $5,682 $4,600 $4,524 $3,870 $3,024 Assumptions / Drivers Retained Earnings Growth 9.5% 7.1% 6.3% 5.9% 5.3% 0.0% Cash from Operations Change 2.6% 3.1% 6.1% 9.5% 6.9% CapEx Change 14.4% -8.0% 2.4% 3.7% 2.0% -1.2% Dividend Growth 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Proportion Returned to (Drawn from) Debt 80% 75% 80% 80% 80% 80% Proportion Returned to (Drawn from) Equity 20% 25% 20% 20% 20% 20% Note: Figures reflect Barclays Capital utility coverage scaled up by a factor of 1.08x to reflect companies not in Barclays coverage universe. Source: Edison Electric Institute, FactSet, Barclays Capital.  Assuming mild near-term growth in CFO and 3% growth in dividends, FCF should stay negative through 2012. As balance sheets are stretched, equity issuance will likely return to the fore. 17
  18. 18. Regulated Utility Balance Sheets Are Relatively Weak  Balance sheets are not nearly as strong as at the beginning of the last capital cycle, in our analysis. S&P Long-Term Debt Ratings 1970 1980 1990 2000 2007 AAA 14.0% 0.0% 0.0% 0.0% 0.1% AA 65.6% 32.9% 27.4% 14.1% 1.7% A 17.4% 43.8% 34.2% 54.6% 28.8% BBB 3.0% 21.9% 34.3% 26.6% 42.4% BB or lower 0.0% 1.4% 4.1% 4.7% 27.1% Proportion by Grouping AAA & AA 79.6% 32.9% 27.4% 14.1% 1.8% BBB or lower 3.0% 23.3% 38.4% 31.3% 69.4% Source: America's Electric Utilities: Past, Present, & Future, 8th Edition, by Hyman, Robert C..; Andrew S.; and Leonard S. Table 37.5, page 432, Barclays Capital estimates. 18
  19. 19. Pricing Increases Will Likely Cause Consumer Level Inflation % of Consumer Wallet Spent on Electricity 2.30% 2.20% 2.10% 2.00% 1.97% with $30 / ton CO2 1.90% 1.76% with $10 / ton CO2 1.80% 1.70% Estimates 1.60% 1.50% 1.40% 1.30% 1.20% 1.10% 1.00% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 Source: Bureau of Economic Analysis, Energy Information Administration, Barclays Capital estimates. 19
  20. 20. Short-Term Inflation Reprieve May Lead to Better Regulatory Outcomes  Capital requirements should increase the number of rate cases, causing greater lag.  Longer term, outcomes still likely impacted by less rosy inflation scenario ROE Spread vs. Pre-Dividend FCF $25,000 1.5% $20,000 1.0% 0.5% $15,000 0.0% $10,000 -0.5% zero spread $5,000 -1.0% $0 -1.5% -2.0% ($5,000) -2.5% ($10,000) Pre-Div FCFin 2008 $'s -3.0% ($15,000) Actual less Allowed ROE -3.5% ($20,000) -4.0% 2009E 2011E 2013E 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Note: Figures reflect Barclays Capital utility coverage scaled up by a factor of 1.08x to reflect companies not in the Barclays Capital coverage universe. Units are in millions Source: FactSet and Barclays Capital estimates. 20
  21. 21. …While the Market Will Likely Demand Higher Returns  Due to the myriad risks resulting from a capital cycle, a higher risk premium should apply. Free Cash versus Equity Risk Premium XEL Equity: 487 bps risk prem. $25,000 16.00% to 10-Yr. (9/9/08) $20,000 14.00% POM Equity: $15,000 12.00% 921 bps risk prem. to 10-Yr. (11/6/08) 10.00% $10,000 8.00% PGN Equity: $5,000 736 bps risk prem. 6.00% to 10-Yr. (1/7/09) $0 4.00% POR Equity: ($5,000) 947 bps risk prem. 2.00% to 10-Yr. (3/5/09) ($10,000) 0.00% Pre-Div FCF in 2008 $'s NU Equity: ($15,000) -2.00% 620 bps risk prem. Implied Equity Risk Premium to 10-Yr. (3/16/09) ($20,000) -4.00% 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009E 2011E 2013E AEP Equity: 921 bps risk prem. to 10-Yr. (4/1/09) Note: Figures reflect Barclays Capital utility coverage scaled up by a factor of 1.08x to reflect companies not in the Barclays Capital coverage universe and units are in millions Source: FactSet and Barclays Capital estimates 21
  22. 22. Quality of Regulation a Likely Differentiator  Below are the results of our quantitative and qualitative ranking of state and federal regulators: Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Lowest Cost Highest Cost Of Capital of Capital Arkansas FERC Delaware District of Columbia Hawaii Illinois Alabama Indiana Louisiana California Kansas Maine Colorado Massachusetts Mississippi Georgia Oregon Missouri Arizona Florida Michigan South Carolina Nevada Connecticut Idaho Minnesota Utah New Hampshire Maryland Iowa North Dakota Virginia New Jersey Montana Kentucky Ohio Washington Pennsylvania New Mexico North Carolina Oklahoma West Virginia South Dakota New York Wyoming Texas Wisconsin Vermont Rhode Island Source: Barclays Capital, Regulatory Research Associates. 22
  23. 23. The Virtuous Circle  Money should flow to the best locations – we believe companies with highest customer satisfaction results also generally enjoy the best relative values versus the group. Relative Price-Book Valuation of Electric Utilities by Region (1986-Current, weekly) Customer Satisfaction by Quintile Price/Book Relative State Ranking Avg. JD Power Ranking Region Ratio P/B Value Quintiles (out of 1,000) Southeast 1.67x 12.0% 1st Quintile 704 Mid-Atlantic 1.68x 11.6% 2nd Quintile 684 Midwest 1.67x 11.4% 3rd Quintile 666 Plains 1.52x 3.1% 4th Quintile 661 West 1.50x 1.3% 5th Quintile 655 New England 1.33x -10.6% Source: JD Power & Associates, Barclays Capital Southwest 1.07x -28.8% Source: FactSet, Barclays Capital. 23
  24. 24. Longer Term Power Conditions Power 24
  25. 25. Pause and Effect – Is it Too Early for Power? Three of five drivers to Power bull market taking a breather  Three drivers in hibernation or in decline:  Marginal fuel rates for coal  Supply/demand balance  Direction of new entry costs  Two showing signs of recovery:  Marginal fuel rates for natural gas  Government policy on pollutants/CO2 25
  26. 26. The Fundamental Forecast  Forecast shows heat rate declines in 2008-2010, before rising through end of forecast  Weak US economy prime driver to forecast change  Higher than previously anticipated wind additions exacerbate situation  New reserve margin and fuels outlook skew leaders and laggards  New power plants needed beyond 2015 versus 2010/12 previously  Spark spread negatively impacted  Midwest region looks challenging for some time  Relative strong outlook for natural gas versus coal price through 2011  Expands dark spread  Quark spread holds up well in our outlook 26
  27. 27. US Economy in Recession Electrically  Demand weakened in most regions through May 09 – soft economy, cost inflation combine to curb growth. Weather Adj. Output Changes - Quarterly by Region Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 (2 mo.) 9.5% 7.5% 5.5% 3.5% 1.5% -0.5% -2.5% -4.5% -6.5% Central Ind US Total Pacific N'West Pacific S'West New England Rocky Mtn South Central South East Mid-Atlantic West Central Source: Edison Electric Institute. 27
  28. 28. Natural Gas Outlook Natural Gas Forward Estimates $8.00 $7.50 $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 2009 2010 2011 2012 2013 NYMEX Strip Barcap Power & Utilities Research Market Implied (Spark Spread Quarterly) 2009 2010 2011 2012 2013 NYMEX Strip $4.29 $6.15 $7.07 $7.35 $7.44 Barcap Power & Utilities Research $4.10 $6.50 $7.00 $7.50 $8.00 Market Implied (Spark Spread Quarterly) $6.91 $6.91 $6.91 $6.91 $6.91 Source: Bloomberg, Barclays Capital estimates. 28
  29. 29. Regional Differences in Spread Forecasts ERCOT Spreads PJM Spreads $50.00 $60.00 $40.00 $45.00 ($/MWh) ($/MWh) $30.00 $30.00 $20.00 $15.00 $10.00 $- $- $(15.00) 2009 2010 2011 2009 2010 2011 Spark Dark Quark Spark Dark Quark NI Hub Spreads NEPOOL Spreads $30.00 $60.00 $45.00 ($/MWh) ($/MWh) $15.00 $30.00 $- $15.00 $(15.00) $- 2009 2010 2011 2009 2010 2011 Spark Dark Quark Spark Dark Quark Source: Bloomberg, Barclays Capital estimates. 29
  30. 30. Power Worth Less  Open EBITDA at 7.9x, above mid-cycle 7.1x  Open EBITDA below hedged EBITDA  Coal generators have exposure to Dark Spread compression and environmental policy shift  DCF of plant margins shows 17.6% decline in values from September 2008 update  Peaker values down most (31% on average)  Coal values not far behind (down 27% on average)  Nuclear and renewables down 11-12% 30
  31. 31. Asset Value Summary Per KW of Capacity Valuations at 2/2009 Quartile % Change Fuel 1st 2nd 3rd 4th Average Since 9/08 Nuclear $3,205 $2,769 $2,383 $2,079 $2,609 -11.3% Coal $1,119 $1,013 $611 $115 $715 -27.4% Load Following $613 $452 $352 $159 $394 -16.1% Peaker $546 $396 $245 $50 $309 -30.7% Hydro $3,299 $2,154 $1,946 $242 $1,910 -3.0% Geothermal $3,293 $2,027 $1,054 $551 $1,731 -18.5% Wind $1,751 $1,431 $1,157 $770 $1,277 -15.9% Per KW of Capacity Valuations at 9/2008 Quartile Fuel 1st 2nd 3rd 4th Average Nuclear $3,591 $3,109 $2,740 $2,323 $2,941 Coal $2,044 $1,212 $620 $61 $984 Load Following $880 $410 $385 $205 $470 Peaker $734 $588 $346 $118 $447 Hydro $3,182 $2,300 $1,857 $539 $1,969 Geothermal $3,848 $2,410 $1,426 $809 $2,123 Wind $2,134 $1,584 $1,396 $962 $1,519 Source: Barclays Capital estimates. 31
  32. 32. New Build Costs vs. Forward Prices  Market prices do not appear high enough to give new build incentives, in our view; weak heat rate forecasts suggest this condition will likely persist in the medium term. Excluding PTC / ITC / REC Including PTC / ITC / REC Barclays Price Required Market % Premium to Required Market % Premium to Plant Type Forecast ($/MWh) Price ($/MWh) BCS Forecast Price ($/MWh) BCS Forecast Geothermal $68.66 $111.54 62% $65.54 -5% Wind $63.16 $120.07 90% $74.07 17% Nuclear $64.55 $180.81 180% $105.34 63% CCGT $68.66 $110.70 61% $110.70 61% Coal $68.66 $139.06 103% $139.06 103% Solar $86.38 $327.58 279% $185.40 115% Source: Barclays Capital estimates, Moody’s, SNL Financial. 32
  33. 33. Solar & Wind Resource Potential Source: U.S. Department of Energy, AWEA, Barclays Capital 33
  34. 34. New Transmission Lines Required Source: U.S. Department of Energy, AWEA, Barclays Capital 2 34
  35. 35. Analyst Certification and Important Disclosures Analyst Certification: I, Daniel Ford, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Important Disclosures Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Customers of Barclays Capital in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.lehmanlive.com or can call 1-800-253-4626 to request a copy of this research. Investors should consider this communication as only a single factor in making their investment decision. The analysts responsible for preparing this report have received compensation based upon various factors including the Firm's total revenues, a portion of which is generated by investment banking activities. For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to the firm's disclosure website at www.lehman.com/disclosures. On September 20, 2008, Barclays Capital acquired Lehman Brothers' North American investment banking, capital markets, and private investment management businesses. We have endeavored to provide conflicts of interest disclosures on a combined basis. All ratings and price targets prior to the acquisition date relate to coverage under Lehman Brothers Inc. Other Material Conflicts: Dynegy: Barclays Capital is acting as financial advisor to Dynegy on the potential sale of two non-core power plants. Exelon: Barclays Capital is acting as financial advisor to Exelon Corporation (EXC) in its offer to acquire NRG Energy Inc (NRG). Guide to Barclays Capital Fundamental Equity Research Rating System Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2- Equal weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (“the sector coverage universe”). To see a list of companies that comprise a particular sector coverage universe, please go to www.lehman.com/disclosures. In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3-Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone. 35
  36. 36. Important Disclosures (Cont’d) Stock Rating 1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. 2-Equal weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. 3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including when Barclays Capital is acting in an advisory capacity in a merger or strategic transaction involving the company. Sector View 1-Positive - sector coverage universe fundamentals are improving. 2-Neutral - sector coverage universe fundamentals are steady, neither improving nor deteriorating. 3-Negative - sector coverage universe fundamentals are deteriorating. Distribution of Ratings: Barclays Capital Equity Research has 1217 companies under coverage. 36% have been assigned a 1-Overweight rating which, for purposes of mandatory disclosures, is classified as a Buy rating, 39% of companies with this rating are investment banking clients of the Firm. 48% have been assigned a 2-Equal weight rating which, for purposes of mandatory disclosures,is classified as a Hold rating, 32% of companies with this rating are investment banking clients of the Firm. 14% have been assigned a 3-Underweight rating which, for purposes of mandatory disclosures, is classified as a Sell rating, 23% of companies with this rating are investment banking clients of the Firm. Barclays Capital offices involved in the production of Equity Research: London Barclays Capital, the investment banking division of Barclays Bank Plc (Barclays Capital, London) New York Barclays Capital Inc. (BCI, New York) Tokyo Barclays Capital Japan Limited (BCJL, Tokyo) São Paulo Banco Barclays S.A. (BBSA, São Paulo) 36
  37. 37. Important Disclosures (Cont’d) This publication has been prepared by Barclays Capital; the investment banking division of Barclays Bank PLC, and/or one or more of its affiliates as provided below. This publication is provided to you for information purposes only. Prices shown in this publication are indicative and Barclays Capital is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. Other than disclosures relating to Barclays Capital, the information contained in this publication has been obtained from sources that Barclays Capital believes to be reliable, but Barclays Capital does not represent or warrant that it is accurate or complete. The views in this publication are those of Barclays Capital and are subject to change, and Barclays Capital has no obligation to update its opinions or the information in this publication. Barclays Capital and its affiliates and their respective officers, directors, partners and employees, including persons involved in the preparation or issuance of this document, may from time to time act as manager, co- manager or underwriter of a public offering or otherwise, in the capacity of principal or agent, deal in, hold or act as market-makers or advisors, brokers or commercial and/or investment bankers in relation to the securities or related derivatives which are the subject of this publication. The analyst recommendations in this report reflect solely and exclusively those of the author(s), and such opinions were prepared independently of any other interests, including those of Barclays Capital and/or its affiliates. Neither Barclays Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. The securities discussed in this publication may not be suitable for all investors. Barclays Capital recommends that investors independently evaluate each issuer, security or instrument discussed in this publication and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information in this publication is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. This communication is being made available in the UK and Europe to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion Order) 2005. It is directed at, and therefore should only be relied upon by, persons who have professional experience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered into only with such persons. Barclays Capital is authorized and regulated by the Financial Services Authority („FSA‟) and member of the London Stock Exchange. Barclays Capital Inc., US registered broker/dealer and member of FINRA (www.finra.org), is distributing this material in the United States and, in connection therewith accepts responsibility for its contents. Any U.S. person wishing to effect a transaction in any security discussed herein should do so only by contacting a representative of Barclays Capital Inc. in the U.S. at 745 Seventh Avenue, New York, New York 10019. Subject to the conditions of this publication as set out above, ABSA CAPITAL, the Investment Banking Division of ABSA Bank Limited, an authorised financial services provider (Registration No.: 1986/004794/06), is distributing this material in South Africa. Any South African person or entity wishing to effect a transaction in any security discussed herein should do so only by contacting a representative of ABSA Capital in South Africa, 15 ALICE LANE, SANDTON, JOHANNESBURG, GAUTENG, 2196. ABSA CAPITAL IS AN AFFILIATE OF BARCLAYS CAPITAL. Non-U.S. persons should contact and execute transactions through a Barclays Bank PLC branch or affiliate in their home jurisdiction unless local regulations permit otherwise. In Japan, this report is being distributed by Barclays Capital Japan Limited to institutional investors only. Barclays Capital Japan Limited is a joint-stock company incorporated in Japan with registered office of 2-2-2, Otemachi, Chiyoda-ku, Tokyo 100-0004, Japan. It is a subsidiary of Barclays Bank PLC and a registered financial instruments firm regulated by the Financial Services Agency of Japan. Registered Number: Kanto Zaimukyokucho (kinsho) No. 143. Barclays Bank PLC Frankfurt Branch is distributing this material in Germany under the supervision of Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). IRS Circular 230 Prepared Materials Disclaimer: Barclays Capital and its affiliates do not provide tax advice and nothing contained herein should be construed to be tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended or written to be used, and cannot be used, by you for the purpose of avoiding U.S. tax-related penalties; and (ii) was written to support the promotion or marketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. © Copyright Barclays Bank PLC (2009). All rights reserved. No part of this publication may be reproduced in any manner without the prior written permission of Barclays Capital or any of its affiliates. Barclays Bank PLC is registered in England No. 1026167. Registered office 1 Churchill Place, London, E14 5HP. Additional information regarding this publication will be furnished upon request. 37

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