Budgeting & Financial Forecasting Committee Meeting

Newport Beach, CA

Financial State of the Utility Industry

Mark Agnew, EEI

Wednesday, May 24, 2017

2

Financial Highlights as of 03-31-2017

Stock Performance

EEI Index DJIA S&P NASDAQ

YTD 6.1% 5.2% 6.1% 9.8%

1-year 7.5% 19.9% 17.2% 21.4%

5-year 79.3% 77.5% 86.7% 91.2%

10-year 99.9% 117.8% 106.3% 144.1%

Dividends

Credit Ratings

• Yield = 3.4% • All companies paying a dividend • 40 of 44 companies increased dividend in 2016

• Strengthening ‘BBB+’ Average • Outlook 85% Stable or Positive

Source: EEI Finance Department, S&P Global Market Intelligence.

Note: Stock returns are total returns, ending 03-31-2017, (i.e., include dividends) except for NASDAQ, which is price appreciation only.

3

Industry Capital Expenditures

Actuals

Projections (August 2016)

Projections (April 2017)

Source: EEI Finance Department, company reports, S&P Global Market Intelligence (April 2017).

Notes: Total company spending of U.S. Investor-Owned Electric Utilities, consolidated at the parent or appropriate holding company. Projections based on publicly available information and extrapolated for companies reporting fewer than three projected years (0.1% of the industry for 2018 and 2019).

120.8

104.5

96.5

119.7113.8

109.0

74.1

82.877.7

74.378.6

90.3 90.396.1

104.0

112.5

$30 B

$40 B

$50 B

$60 B

$70 B

$80 B

$90 B

$100 B

$110 B

$120 B

$130 B

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

4

$6.2B 6% $4.7B 4%

$5.7B 5%$3.4B 3%

$13.3B 12% $17.9B 15%

$19.3B 18% $20.8B 17%

$28.7B 26%$32.0B 26%

$35.3B 32%

$42.0B 35%

$0 B

$20 B

$40 B

$60 B

$80 B

$100 B

$120 B

Projected Functional CapEx

$108.6 B

as of September 2015 as of August 2016

$120.8 B

Generation

Distribution

Transmission

Gas-Related

Environment

Other

2015P 2016P

Notes: Total company functional spending of U.S. Investor-Owned Electric Utilities. 2015P total does not sum to 100% due to rounding. Projections based on publicly available information and extrapolated for companies not reporting functional detail (1.3% and 0.7% of the industry for 2015 and 2016, respectively).

Source: EEI Finance Department, company reports , S&P Global Market Intelligence (August 2016).

To be updated summer 2017

5

US Electric IOUs Rating History 2002 – 2016

Source: EEI Finance Department.

Average Industry Credit Rating is Increasing BBB BBB+

18%

8%2%

9%21%

10%

25%29%

18%

16%

23%

40%

13%

12%24%

19%

8% 6%

2002 2009 2016

A or higher

A-

BBB+

BBB

BBB-

Below BBB-

6

Shift to More Regulated Strategies

Note: Based on yearend assets.

Source: EEI Finance Department.

52%

69%

5%

11%43%

20%

2002 2016

Other

RegulatedNatural GasCompany

RegulatedElectricCompany

7

Rate Case Activity: Volume and Lag U.S. Investor-Owned Electric Utilities

*Average Regulatory Lag is defined here as the amount of time between the filing of and ruling on a rate case. This does not take into consideration the preparation time leading up to an initial filing. MRQ = Most Recent Quarter. 4Q Avg = Trailing four-quarter average.

01020304050607080

Cases

Number of Electric Rate Cases Filed (Trailing 12 Months)

Source: S&P Global Market Intelligence / Regulatory Research Associates (RRA), EEI Finance Department, EEI Rate Department.

Volatility4Q Avg

MRQ

0

6

12

18

24Months

Average Regulatory Lag (Quarterly)*

8

0

2

4

6

8

10

12

14

0

2

4

6

8

10

Rate Case Activity: Average ROEs Requested ROE vs. 10-Year US Treasury Yield

Spread

10-Year U.S. Treasury Yield*

Requested ROE*

RO

E &

Yie

ld (

%)

*Requested ROE represents the equal-weight average of all electric cases filed during the indicated period. 10-Year U.S. Treasury Yield is the average of daily reported yields during each period.

Source: S&P Global Market Intelligence / Regulatory Research Associates (RRA), EEI Finance Department, EEI Rate Department.

9

8

9

10

11

12

13

14

0.0

0.5

1.0

1.5

2.0

Rate Case Activity: Average ROEs Allowed ROE vs. Corresponding Requested ROE

Spread

Allowed ROE*

Requested ROE*

RO

E (%

)

*The Allowed ROE represents the electric cases settled during the indicated period while the Requested ROE represents the value requested by the company when the cases were initially filed, generally during an earlier period (i.e., the regulatory lag is not factored in). Average returns are equal-weight.

Source: S&P Global Market Intelligence / Regulatory Research Associates (RRA), EEI Finance Department, EEI Rate Department.

10

Actual Average ROE of

Regulated Subsidiaries U.S. Investor-Owned Electric Utilities

Notes: Based on SEC-reported numbers and may differ from results calculated for other regulatory purposes. Company “universe” is static through history and is defined by active regulated subsidiaries of EEI member companies as of 2016 year-end. Average ROE is a weighted average as it equals the total net income of the industry over the total average common equity balances at the beginning and ending of each year for the industry. 10 Source: SNL Financial / Regulatory Research Associates (RRA), EEI Finance Department.

9.2%9.4%9.5%9.2%9.3%

10.2%9.5%

9.1%9.9%

10.5%10.1%

9.7%

12.7%

10.1%

10.9%

14.3%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

2016201520142013201220112010200920082007200620052004200320022001

11

Status of M&A Activity U.S. Investor Owned Electric Utilities, 1995-2016

Source: EEI Finance Department.

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of Transactions

Completed (113 total)

Announced (140 total)

Withdrawn (29 total)

12

Significant electric/gas deals closing in 2016

- Duke Energy / Piedmont Natural Gas

- Southern Co. / AGL Resources

- Dominion Resources / Questar

- Black Hills Corp. / SourceGas Holdings

- DTE Energy / Appalachia Gathering System, Stonewall Gas

Gathering

Record-high premiums

- Supported by low cost capital

International interest remains

Recent regulatory rejection

- Great Plains Energy / Westar Energy

Recent M&A Trends

13

ESG = Environmental, Social & Governance

Investors want relevant and comparable reporting

Several areas of activisim

- Norges Bank

- California Insurance Commission

- SASB (Sustainability Accounting Standards Board)

- Numerous Shareholder proposals

• PPL proposal recently passed

EEI initiatives

Emerging Issue – ESG/Sustainability

14

EEI Tax Reform Principles

Interest Deductibility

State & Local Taxes

Normalization

Excess Deferred Taxes

Dividend Tax Rates

Tax Reform

15

www.EEI.org/QFU

Mark Agnew Director, Financial Analysis

202-508-5049

MAgnew@eei.org

Bill Pfister Manager, Financial Analysis

202-508-5531

BPfister@eei.org

Michael Buckley Financial Analyst

202-508-5614

MBuckley@eei.org

EEI Finance Department Resources

• Financial Review (annual) Incorporates all of the following reports and additional industry material

• Stock Performance Financial market performance (Price, TSR, etc.) of proprietary EEI member index and

equity analyst opinions

• Credit Ratings Holding company ratings & rating agency activity

• Dividends Dividend-related actions of EEI members and relevant issues

• Rate Case Summary Regulatory filings during the quarter and recent / current trends

• Industry Consolidated Financial Statements (SEC and FERC Form 1) • Income Statement • Balance Sheet • Cash Flow Statement

Examples of EEI Finance Public Reports & Data Items updated quarterly unless otherwise indicated

EEI Finance Contacts

Richard McMahon Vice President Energy Supply & Finance 202-508-5574 RMcMahon@eei.org

Mark Agnew Sr. Director, Financial Analysis 202-508-5049 MAgnew@eei.org

Bill Pfister Director, Financial Analysis

202-508-5531 BPfister@eei.org

Michael Buckley Senior Financial Analyst

202-508-5614 MBuckley@eei.org

Appendix

17

State Commission Rankings Regulatory Research Associates (RRA)

Regulatory Environment

Ranking Legend for States Above

1.

Source: S&P Global Market Intelligence / Regulatory Research Associates (RRA), EEI Finance Department, as of May 2017.

Notes: Pending Rate Cases and Rates Cases in Last 3 Years include filings for Electric, Natural Gas, and Steam service types. These cases include both full and limited-issue (e.g., rider update) cases.

TX

RICT

NY

PA

ND

SD

NMAZ

NV

CA

OR

WA

ID

MT

WY

UTKS

NE

OK

MN

WI

MI

IA

MO

AR

LAMS AL GA

FL

SC

NC

VA

IL INOH

KY

TN

WV

ME

MA

NHVT

NJDE

MDDC

CO