Consolidation Powers Up

Transcription

1 G.research, LLC One Corporate Center Rye, NY Tel (314) November 17, 2015 Gabelli & Company Utilities U.S. M&A Activity Update Consolidation Powers Up Timothy M. Winter, CFA Nicholas D. Yuelys Eric Guo (314) (914) (914) Please Refer To Important Disclosures On The Last Page Of This Report Gabelli & Company

2 G.research, LLC One Corporate Center Rye, NY Tel (314) Utilities U.S Gabelli & Company M&A Activity Update A new wave of merger activity has overcome the electric and gas utility industry. In recent months, industry leaders, Southern Company (SO-$44.74-NYSE) and Duke Energy (DUK-$67.73-NYSE), separately agreed to acquire their local gas utilities, AGL Resources (GAS-$62.28-NYSE) and Piedmont Natural Gas (PNY-$ NYSE), respectively. In September, ambitious Nova Scotia-based Emera (EMA-C$42.64-TSE) emerged as the winning bidder for highly coveted TECO Energy (TE-$26.50-NYSE). These agreements follow WEC Energy Group s (WEC-$50.37-NYSE) June 29, 2015 purchase of Integrys Energy. Additionally, several other transactions are awaiting regulatory approvals including: Infrastructure fund, Macquarie, and CLECO Energy (CNL-$49.27-NYSE); Spanish utility Iberdrola (IBE-MC Madrid) and UIL Holdings (UIL-$ NYSE), which plan to form a new publicly-traded utility to be called AvanGrid; Black Hills Corp s (BKH- $44.69-NYSE) and privately-owned Source Gas; and NextEra Energy s (NEE-$ NYSE) and Hawaiian Electric (HE-$29.12-NYSE). What is Driving the Current Round of Consolidation? The utility and energy sector is in the midst of one of the more aggressive investment cycles seen in decades, leading to dramatic changes in the way that natural gas is drilled and transported and power is generated, transmitted, and delivered. The EPA s recently finalized Clean Power Plan provides the framework for accelerated investment opportunities and is likely to create a new round of winners and losers. Natural gas and renewable power plants are clear winners, while older, inefficient coal-fired power plants face near-term retirement. Electric utilities with clean power generation portfolios and/or operating in constructive regulatory environments are significantly better-positioned than non-regulated merchant power companies dependent on fossil-fired power plants. We expect natural gas utilities to benefit from low prices, low customer bills, and growing residential, industrial and power generation demand. Electric utilities can improve strategic positions and growth potential by combining with better-positioned electric and gas utilities. With over 80 North American utilities and power companies, we recommend investors purchase a portfolio of small-to-mid-cap utilities with earnings and dividend growth potential. More significant takeover premiums are normally associated with fundamentally sound, reasonably priced, mid cap and small cap utilities. Attractive takeover characteristics include constructive regulatory environments, healthy service areas, transmission growth potential, low-carbon footprints, strategic geographies or a particularly stressful situation. Given the significant long-term demand for natural gas, we consider most gas distribution utilities, particularly those with pending pipeline development projects to be highly-coveted. Hostile takeovers in the regulated utility world are unlikely given the need for regulatory approval. Therefore, the main ingredient to accomplish a merger is a willing seller. Inclusion in our Potential Takeover Candidate list, found below, does not imply that we believe the utility is a willing seller, but simply that it possesses the characteristics that many find attractive. Exhibit 1 Potential Takeover Candidates November 17, 2015 Electric Utilities Ticker Price Mkt. Cap ($B) Gas Utilities Ticker Price Mkt. Cap ($B) YieldCos Ticker Price Mkt. Cap ($B) Allete, Inc. ALE $51.50 $2.5 Atmos Energy ATO $61.11 $6.2 Abengoa Yield ABY $19.39 $1.9 Alliant Energy LNT Chesapeake Utilities CPK NextEra Energy Ptnrs. NEP Atlantic Power AT Corning Natural Gas CNIG NRG Yield NYLD Avista Corp. AVA Delta Natural Gas DGAS Pattern Energy Group PEGI Black Hills Corp. BKH Gas Natural, Inc. EGAS TerraForm Power TERP El Paso Electric EE National Fuel Gas Co NFG Empire District Electric Co. EDE New Jersey Resources NJR Merchant Generators Great Plains Energy GXP NiSource NI Calpine Corp. CPN $14.92 $5.3 IDACORP, Inc. IDA Northwest Natural Gas NWN Dynegy Inc. DYN ITC Holdings ITC ONE Gas OGS NRG Energy Inc. NRG MDU Resources MDU Questar Corp. STR Talen Energy TLN MGE Energy MGEE RGC Resources RGCO Northwestern Corp. NWE South Jersey Ind. SJI OGE Energy OGE Southwest Gas SWX Otter Tail Corp. OTTR Vectren VVC Pinnacle West Corp. PNW WGL Holdings WGL PNM Resources PNM Portland General Elec. POR SCANA Corp. SCG Unitil Corp. UTL Westar Energy WR Source: Thomson One

3 Deals, Deals, and More Deals Future and recent utility transactions have included and will likely continue to include larger domestic utilities (strategic buyers), private investors, infrastructure funds, and foreign utilities. Prominent consolidator Berkshire Energy, a unit of Berkshire Hathaway (BRK B-$ NYSE), has publicly stated that Berkshire Energy would become the biggest utility business in the United States, but has not announced a deal since closing on the purchase of AltaLink in late For several decades, utility companies have acquired other utilities and utility assets for the sake of gaining economies of scale and efficiency. Since 1995, the electric utility sector has experienced nearly 130 acquisition announcements and over 100 completed deals. Consolidation activity peaked from , when it appeared that the industry would deregulate. The same forces that resulted in more than one hundred utility takeover announcements (see Table 1) over the past two decades remain in place, and new forces have come into play that continue to drive this long term trend. Table 1 Historical Electric Utility Merger Activity Date Completed Announced Withdrawn # of Utilities Total Decline Since % Source: Edison Electric Institute In early August, the Environmental Protection Agency (EPA) finalized its long-awaited Clean Power Plan (CPP). The CPP set greenhouse gas (GHG) emission standards for existing power plants, including CO2 emissions reductions of 32% from 2005 levels by 2030 (19% from 2012 levels). The CPP set carbon targets, and the individual states will submit plans to implement and comply with interim targets between 2022 and Given that carbon reduction technology does not exist, compliance plans would involve improved efficiency at existing coal plants, retiring coal units, increasing gas and renewable generation, and improving demand side efficiency. The CPP will lead to a heightened level of activity, including power plant retirements, renewable -2-

4 development, Federal Energy Regulatory Commission (FERC) transmission projects, and corporate restructuring, including mergers. Utilities Offer a Platform for Investment Utility stocks provide a platform for larger entities like infrastructure funds and private equity to earn healthy returns on investment. Regulatory principles have become increasingly constructive and result in healthy and low-risk returns on investment. Utility sector capital investment grew from $41.1 billion in 2004 to $82.8 billion in 2008, with major spending on environmental control equipment, renewable generation, and transmission. In 2013 and 2014, utility capital expenditures were $90.3 billion and $98.1 billion. The Edison Electric Institute (EEI) currently projects industry spending at $108.6 billion in Given pending CPP compliance plans, we expect significant investment for the foreseeable future. Privately-owned entities do not pay taxable dividends and thus reinvest cash flow into regulated utility infrastructure where 9-11% returns are allowed. We believe some of the more recent transactions were partially motivated by the need for infrastructure funds and private equity to earn attractive returns on investment and utilities offer a platform to accomplish that. YieldCo s, MLP s and Merchant Power Plants We also expect to see significant turnover of assets owned by YieldCo s, MLP s and independent power producers. These sectors have experienced significant declines in shareholder value and some may be challenged financially. As such, we expect to see larger wind farms and solar plants owned by YieldCo s, merchant power plants owned by independent power companies and gas storage and midstream pipelines to be purchased by utilities and private equity. We also believe that the depressed state of the all three sectors could lead to the takeover or merger of the entire entity. As such, we have included YieldCos and independent power companies in our takeover map. We have highlighted the more significant deals announced and completed over the past twelve months: On October 26, 2015, Duke Energy (Charlotte, NC) announced an agreement to acquire Piedmont Natural Gas (Charlotte, NC) for $60 per share in cash, a 40% premium to 10/23 closing price. Duke Energy will also assume approximately $1.8 billion in PNY existing net debt, representing a total enterprise value of approximately $6.7 billion. Takeover multiples appear high at 32.1x and 30.8x P/E to 2015 and 2016 EPS and 15.1x and 13.6x EV/EBITDA as well as 338% price-to-book value. Recent utility acquisition multiples have averaged roughly 18-20x forward EPS, 10-11x EV/EBITDA and 2-3x book value. On September 4, 2015, Emera (Halifax, Nova Scotia) announced an agreement to acquire TECO Energy (Tampa, FL) for $10.4 billion (including assumption of $3.9 billion of debt), or $27.55 per share in cash. The price represented a 31% premium to the preannouncement closing price and 10.4x our 2016 TE EBITDA estimate and 23.0x 2016 earnings estimates. The transaction is expected to close in mid On August 24, Southern Company (Atlanta, GA) announced an agreement to acquire AGL Resources (Atlanta, GA) for $12 billion enterprise value, or $66 per share, which represented a 36% premium. We consider the multiples (10.0x EV/EBITDA; 21.0x 2016E EPS) to be reasonable. SO expects the transaction to close in the second half of Some of the pending utility mergers have faced challenges trying to secure regulatory approvals. The state public utility commissions in Hawaii, Connecticut, Maryland and Washington, DC all initially denied merger requests. Maryland, DC and Connecticut appear to have acquiesced following Exelon/POM and UIL/IBE offering significant concessions. In Hawaii, we expect that NEE would terminate the merger agreement should the HPUC s demands become too onerous. Pending transactions include the following: On February 25, 2015, UIL Holdings of New Haven, Connecticut and Iberdrola USA agreed to combine and form a separate publicly traded utility. UIL shareholders would receive one share of the new -3-

5 company for each share held plus $10.50 cash per share. The transaction proposes a total value to UIL of $52.75 per share, a 25% premium to the previous close. The value represented a 21.1x P/E to UIL s 2015 EPS guidance of $2.50 per share and 11.2x EV/2014 EBITDA and 9.8x EV/2015E EBITDA. At closing, UIL will own 81.5% of NEWCO and Iberdrola will own 18.5%. The combination includes Iberdrola USA s utilities (New York State Electric & Gas, Rochester Gas and Electric, and Central Maine Power) and UIL s utilities (The United Illuminating Company, The Southern Connecticut Gas Company, The Connecticut Natural Gas Corporation, and The Berkshire Gas Company). We expect the transaction to close in January of February of On December 3, 2014, Hawaiian Electric Industries (HE) announced an agreement to sell its utility operations to NEE for $4.3 billion (including $1.7 billion of debt) and spin off its banking business, American Savings Bank (ASB), to shareholders. HE shareholders will receive: shares of NEE ($25.19 at NEE closing price), a $0.50 per share special dividend, shares of ASB valued at ~$8.00 (1.75x tangible book of $464 million). The total value at the time of the transaction ($33.69) represents 19.8x our 2015 earnings estimate of $1.70 per share and 8.2x our 2015 EBITDA estimate of $506 million. The $25.69 per share of utility value represented 20.6x our 2015 utility earnings estimate of $1.25 per share (includes allocated parent expenses) and 9.5x our 2015 utility EBITDA estimate of $434 million. We expect the transaction to close in the first half of 2016 subject to Hawaii PUC approval. On October 20, 2014, CLECO Corp. announced an agreement to be purchased for $55.37 per share in cash by Macquarie Infrastructure and Real Assets (group of investors). The purchase price represented a 15% premium to the previous day s close and 10.0x EV/EBITDA. We expect the deal to close in the first quarter of On April 30, 2014, Exelon Corporation (EXC) agreed to acquire Pepco Holdings, Inc. (POM) for $11.9 billion, or $27.25 per share, which represented a 20% premium over the previous day s closing price. Assuming successful approval from the District of Columbia Public Service Commission (Approvals received from NJ, MD, VA, DE, FERC), we expect an early 2016 close. Recently completed deals are as follows: On June 29, 2015, Wisconsin Energy Company completed its acquisition of Integrys Energy Group (TEG). The agreement valued TEG at $9.1 billion enterprise value, and consisted of stock, cash, and the assumption of $3.3 billion of debt. Each TEG share received shares of WEC and $18.58 per share in cash. We also believe that a sale of Texas largest regulated electric utility, Oncor, could occur in the near future. Oncor serves 7.5 million customers in and around Dallas-Fort Worth as well as over 400 communities in east, west and north-central Texas. Hearings are ongoing in the U.S. Bankruptcy Court regarding a restructuring proposal that involves the sale of Oncor to a coalition led by Hunt Consolidated. Conclusion We expect the long history of utility consolidation to continue. For investors interested in taking advantage of the ongoing trend, we recommend purchasing a portfolio of smaller- to mid-cap high quality utilities with independent earnings and dividend growth. We have provided a list on page

6 Exhibit 2 Merger Activity Since 2010 Date Value Premium Multiple Paid Date Announced Target Entity Acquirer ($ Millions) Paid (%) EV/EBITDA (X) Type Closed 10/26/2015 Piedmont Natural Gas Company Duke Energy Group 6, Cash Pending 9/4/2015 TECO Emergy Emera Inc. 10, Cash Pending 8/24/2015 AGL Resources Southern Company 12, Cash Pending 7/12/2015 SourceGas Holdings Black Hills Corp 1,890 NA 11.2 Cash Pending 2/25/2015 UIL Holdings Corp. Iberdrola S.A. 4, Cash/Stock Pending 12/3/2014 Hawaiian Electric Industries NextEra Energy 4, Stock Pending 10/20/2014 CLECO Corp Macquarie 4, Cash Pending 6/23/2014 Integrys Energy Group Wisconsin Energy 9, Cash/Stock 6/29/2015 5/1/2014 AltaLink L.P. Berkshire Hathaway 5,900 NA 13.0 Cash 12/1/2014 4/30/2014 Pepco Holdings, Inc. Exelon 11, Cash Mid /7/2014 Alabama Gas Corporation Laclede Group 1,600 NA 11.3 Cash 8/26/2014 3/3/2014 Philadelphia Gas Works UIL Holdings Corp 1,860 NA NA Cash Terminated 12/11/13 UNS Energy Fortis 4, Cash 8/15/2014 5/29/13 NVE Energy Mid-American 5, Cash 12/19/2013 5/28/13 New Mexico Gas TECO Energy 950 NA 11 Cash 9/3/ /20/12 EQT Distribution Assets Peoples Natural Gas 1,080 NA 9.5 Cash/Assets 12/17/ /17/12 Missouri Gas & New England Gas Laclede Group 1,020 NA 10.8 Cash 9/1/2013 2/21/12 CH Energy Group Fortis Cash 6/27/ /16/11 El Paso Corporation Kinder Morgan 38, Cash/Stock 5/24/2012 7/19/11 Southern Union Gas (a) Energy Transfer Equity 9, Cash/Stock 3/26/2012 6/23/11 Central Vermont P.S. (a) Gaz Metro 695 NMF 10.7 Cash 6/27/2012 4/28/11 Constellation Energy Exelon 10, Stock 3/12/2012 4/20/11 DPL, Inc. AES Corp. 4, Cash 11/28/2011 1/10/11 Progress Energy Duke Energy 25, Stock 7/2/ /15/10 Dynegy, Inc. (a) Icahn Eneterprises 5,000 NA $408/kilowatt Cash/Debt Terminated 12/9/10 Granite State Electric Co. Algonquin Power Cash 7/3/ /5/10 NICOR AGL Resources 3, Cash/Stock 12/9/ /18/10 NSTAR Northeast Utilities 6, Stock 4/10/2012 5/25/10 CT/MA LDCs UIL Holdings Corp 1,296 NA 9.4 Cash 11/16/2010 4/29/10 E.ON US LLC PPL Corp 7,625 NA 9.9 Cash 11/1/2010 4/21/10 Conectiv Energy Fleet Calpine Corp 1,650 NA $427/kilowatt Cash 7/1/2010 4/11/10 Mirant Corp RRI Energy Inc 2,297 4 $228/kilowatt Stock 12/3/2010 3/12/10 Maine & Maritimes Corp Emera Inc Cash 12/21/2010 2/11/10 Allegheny Energy Inc FirstEnergy Corp 8, Stock 2/25/2011 (a) Winning bid Source: Company documents, Gabelli & Company, Inc. estimates -5-

7 Berkshire Hathaway Energy Acquisitions (Year acquired - $billions) 6 1 MidAmerican Energy $2.1 2 Kern River Gas Transmission $ Northern Natural Gas NWN $0.9 4 PacifiCorp $5.1 5 NV Energy $5.6 6 AltaLink $2.9 4 POR AVA IDA STR NWE ALE OTTR BKH MDU 3 1 PEGI SGS WR GXP Utility Acquisition Targets and Recent Acquirers Electric Utilities ($billion) HE 2 5 SWX PNW PNM EE EDE OGS OGE ONC ATO DYN CPN ALE - Allete - $2.5 LNT - Alliant Energy - $6.8 AT - Atlantic Power - $0.2 AVA - Avista Corp - $2.1 BKH - Black Hills Corp. - $2.0 EE - El Paso Electric - $1.6 EDE Empire District Electric - $1.0 GXP - Great Plains Energy - $4.2 HE - Hawaiian Electric Industries - $3.1 IDA - IDACORP - $3.3 ITC - ITC Holdings - $4.9 MDU - MDU Resources - $3.7 MGEE - MGE Energy - $1.5 NWE - Northwestern Corp. - $2.6 OGE - OGE Energy - $5.3 ONC Oncor (Bankruptcy) OTTR - Otter Tail Corp. - $1.0 PNW - Pinnacle West Corp. - $7.0 PNM - PNM Resources - $2.2 POR - Portland General Elec. - $3.2 SCG - SCANA Corp. - $8.6 TE - TECO Energy - $6.2 UIL UIL Holdings - $2.8 UTL - Unitil Corp. - $0.5 WR - Westar Energy - $5.9-6-

8 FTS ABY EMA Utility Acquisition Targets and Recent Acquirers (con t) Gas Utilities ($billion) MGEE LNT NI VVC ITC EGAS DGAS AQN GAS NFG 32 CNIG RGCO SCG 21 AT TLN TERP PNY UTL WGL UIL NJR NRG NYLD SJI CPK ATO - Atmos Energy - $6.2 GAS AGL Resources -$7.5 CPK - Chesapeake Utilities - $0.8 CNIG - Corning Natural Gas - $0.1 DGAS - Delta Natural Gas - $0.1 EGAS - Gas Natural - $0.1 NFG - National Fuel Gas - $4.0 NJR - New Jersey Resources - $2.6 NI - NiSource Inc. - $6.2 NWN - Northwest Nat. Gas - $1.3 OGS - ONE Gas - $2.5 PNY - Piedmont Natural Gas- $4.6 STR - Questar Corp. - $3.3 RGCO - RGC Resources - $0.1 SGS Source Gas (Private) SJI - South Jersey Industries - $1.7 SWX Southwest Gas Corp.- $2.6 VVC - Vectren Corporation - $3.4 WGL - WGL Holdings - $3.0 Canadian Utilities (C$billion) TE NEP AQN-T - Algonquin Power - $2.6 EMA-T - Emera Inc. - $6.2 FTS-T - Fortis Inc. $10.6 YieldCo s/ Merchants ($billion) ABY - Abengoa Yield - $1.9 NEP - NextEra Energy Partners - $0.8 NYLD - NRG Yield - $1.0 PEGI - Pattern Energy Group - $1.4 TERP - TerraForm Power - $1.8 CPN - Calpine Corporation - $5.3 DYN - Dynegy Inc. - $2.1 NRG - NRG Energy - $4.0 TLN - Talen Energy - $1.1-7-

9 Appendix 1 Select Electric Utility Financials Gabelli & Company Market Info. Closing Price Change Market EV/ Price Company Symbol Price YTD Cap. P/E P/E P/E P/E EBITDA Book Wires Companies $ % % % $ X X X X X % CenterPoint Energy, Inc. CNP (26) , Consolidated Edison, Inc. ED (5) 19 (0) 18, ITC Holdings Corp. ITC (22) , Edison International EIX (8) , Eversource Utilities ES (5) , Northwestern Corporation NWE (5) , Pepco Holdings, Inc. POM (2) 41 (2) 6, UIL Holdings Corp. UIL , Unitil Corp. UTL (5) Wires Median (5) Traditional Utilities $ % % % $ X X X X X % Ameren Corporation AEE (5) , ALLETE, Inc. ALE (7) , Alliant Energy Corporation LNT (10) , Avista Corporation AVA (3) , Black Hills Corporation BKH (16) , Cleco Corporation CNL (10) , El Paso Electric EE (2) , Empire District Electric Company EDE (25) Great Plains Energy GXP (5) , Hawaiian Electric Industries, Inc. HE (13) , IDACORP, Inc. IDA , MDU Resources MDU (20) (23) 44 3, MGE Energy, Inc. MGEE (6) , OGE Energy Corp. OGE (25) , Otter Tail Corporation OTTR (15) PG&E Corporation PCG , Pinnacle West Capital Corporation PNW (8) , PNM Resources, Inc. PNM (5) , Portland General Electric Company POR (5) , PPL Corporation PPL (6) , SCANA Corporation SCG (1) , Southern Company SO (9) 19 (4) 40, TECO Energy, Inc. TE , Vectren VVC (10) , Westar Energy, Inc. WR , Wisconsin Energy Corporation WEC (4) , Xcel Energy, Inc. XEL (1) , Traditional Median (6) Traditional/Merchant $ % % % $ X X X X X % American Electric Power Company, Inc. AEP (7) , CMS Energy Corporation CMS , Dominion Resources, Inc. D (10) , DTE Energy Company DTE (6) , Duke Energy Corporation DUK (19) , Entergy Corporation ETR (25) 41 (1) 11, Exelon Corporation EXC (23) 35 (8) 26, FirstEnergy Corp. FE (22) 18 (21) 12, NextEra Energy, Inc. NEE (4) , NiSource Inc. NI N/A , Public Service Enterprise Group Inc. PEG (4) , Sempra Energy SRE (9) , Traditional/Merchant Median (9) Electric Group Median (6) Source: Thomson, Bloomberg, Gabelli & Company estimates -8-

10 Appendix 2 Select Electric Utility Financials (cont.) Gabelli & Company Earnings Per Share Dividends Balance Sheet Payout Div as Book Common S&P Est. Est. Est. TTM Current Ratio % of 1-Year Value Equity Debt Company Symbol ROE Dividend Yield 2015 EPS Book Growth Share Ratio Rating Wires Companies $ $ $ $ $ % $ % % % % $ % CenterPoint Energy, Inc. CNP A- Consolidated Edison, Inc. ED A- ITC Holdings Corp. ITC A- Eversource Utilities ES A Northwestern Corporation NWE BBB Pepco Holdings, Inc. POM BBB+ UIL Holdings Corp. UIL BBB Unitil Corp. UTL BBB+ Wires Median Traditional Utilities Symbol $ $ $ $ $ % $ % % % % $ % Ameren Corporation AEE BBB+ ALLETE, Inc. ALE BBB+ Alliant Energy Corporation LNT A- Avista Corporation AVA BBB Black Hills Corporation BKH BBB Cleco Corporation CNL BBB+ Edison International EIX BBB+ El Paso Electric EE BBB Empire District Electric Company EDE BBB Great Plains Energy GXP BBB+ Hawaiian Electric Industries, Inc. HE BBB- IDACORP, Inc. IDA BBB MDU Resources MDU BBB+ MGE Energy, Inc. MGEE AA- OGE Energy Corp. OGE A- Otter Tail Corporation OTTR BBB PG&E Corporation PCG BBB Pinnacle West Capital Corporation PNW A- PNM Resources, Inc. PNM BBB Portland General Electric Company POR BBB PPL Corporation PPL BBB SCANA Corporation SCG BBB+ Southern Company SO A TECO Energy, Inc. TE BBB+ Vectren VVC A- Westar Energy, Inc. WR BBB+ Wisconsin Energy Corporation WEC A- Xcel Energy, Inc. XEL A- Traditional Median Traditional/Merchant Symbol $ $ $ $ $ % $ % % % % $ % American Electric Power Company, I AEP BBB CMS Energy Corporation CMS BBB+ Dominion Resources, Inc. D A- DTE Energy Company DTE BBB+ Duke Energy Corporation DUK A- Entergy Corporation ETR BBB Exelon Corporation EXC BBB FirstEnergy Corp. FE BBB- NextEra Energy, Inc. NEE A- NiSource Inc. NI N/A BBB- Public Service Enterprise Group Inc. PEG BBB+ Sempra Energy SRE BBB+ Traditional/Merchant Median Group Median Source: Thomson, Bloomberg, Gabelli & Company estimates -9-

11 Appendix 3 Select Electric Utility Financials (cont.) Closing Market Info. Price Change Market EV/ Price Company Symbol Price YTD Cap. P/E P/E P/E P/E EBITDA Book Merchant Generators $ % % % $ X X X X X % AES Corp. AES 9.81 (29) (5) 36 6, Atlantic Power AT 2.04 (25) (22) (70) Calpine CPN (33) , Dynegy DYN N/A N/A 2, NRG Energy NRG (53) (6) 25 3, Talen Energy TLN 8.54 N/A N/A N/A 1, Merchant Generator Median (29) (6) YieldCos $ % % % $ X X X X X % NRG Yield NYLD N/A N/A N/A Nextera Energy Partners NEP (19) N/A N/A Abengoa Yield ABY (29) N/A N/A 1,943 NMF TerraForm TERP (57) N/A N/A 1,843 NMF Pattern Energy PEGI (22) (19) N/A 1,429 NMF Point3 Energy CAFD N/A N/A N/A 933 NMF NMF YieldCo Median (26) (19) Canadian Utilities (CAD) $ % % % $ X X X X % Algonquin Power & Utilities Corp AQN-T , Canadian Utilities Ltd CU-T (15) 15 (1) 6, Emera Inc. EMA-T (12) 6, Fortis FTS-T (3) 28 (11) 10, Canadian Median 4 27 (6) Source: Thomson, Bloomberg, Gabelli & Company estimates Earnings Per Share Dividends Balance Sheet Payout Div as Book Common S&P Est. Est. Est. TTM Current Ratio % of 1-Year Value Equity Debt Company Symbol ROE Dividend Yield 2015 EPS Book Growth Share Ratio Rating Merchant Generators $ $ $ $ $ % $ % % % % $ % AES Corp. AES BB- Atlantic Power AT NMF B Calpine CPN NMF B+ Dynegy DYN NMF CC NRG Energy NRG BB- Talen Energy TLN NMF Median Yield Cos $ $ $ $ $ % $ % % % % $ % NRG Yield NYLD N/A BB+ Nextera Energy Partners NEP N/A N/A Abengoa Yield ABY N/A B- TerraForm TERP N/A BB- Pattern Energy PEGI N/A 8Point3 Energy CAFD N/A N/A Median Canadian Utilities (CAD) $ $ $ $ $ % $ % % % % $ % Algonquin Power & Utilities Corp AQN-T BBB Canadian Utilities Ltd CU-T A Emera Inc. EMA-T BBB+ Fortis FTS-T A- Median Source: Thomson, Bloomberg, Gabelli & Company estimates -10-

12 Appendix 4 Select Gas Utility Statistics Companies Market Info. Closing Price Return 2014 Market Enterprise EV/ Price Symbol Date Y-T-D PX Chg Cap. P/E P/E P/E P/E Value (EV) EBITDA Book Local Distribution Companies $ % % $ X X X X $ X % AGL Resources GAS , , Atmos Energy ATO , , Corning Natural Gas CNIG (21) Chesapeake Utilities Corp CPK , Delta Natural Gas DGAS (2) (5) Gas Natural, Inc. EGAS 8.62 (22) Laclede Group LG , , New Jersey Resources NJR (1) 32 2, , Northwest Natural NWN (6) 17 1, , ONE Gas OGS NA 2, , Piedmont Natural Gas PNY , , RGC Resources, Inc. RGCO (5) South Jersey Industries SJI (19) 5 1, , Southwest Gas Corp. SWX (10) 11 2, , Vectren Corp. VVC (10) 30 3, , WGL Holdings, Inc. WGL , , LDC Average LDC Median (2) Integrated Gas Utilities $ % % $ X X X X $ X % MDU Resources MDU (20) (23) 3, , National Fuel Gas Co. NFG (33) (3) 3, , NiSource NI N/A 29 6, , Questar STR (24) 8 3, , UGI Corp UGI (9) (8) 5, , Integrated Average (14) Integrated Median (20) Gas Group Average (4) Gas Group Median (2) Source: Thomson One, Bloomberg, Gabelli & Company estimates -11-

13 Appendix 5 Select Gas Utility Statistics (cont.) Gabelli & Company Companies EPS Dividends Balance Sheet Payout Div As Book Common S&P Est. Est. Est. TTM Current Ratio % 1-Year Value Equity Debt Symbol ROE Dividend Yield 2015 EPS of Book Growth Share Ratio Rating Local Distribution Companies $ $ $ $ % $ % % % % $ % AGL Resources GAS BBB+ Atmos Energy ATO A- Corning Natural Gas CNIG N/A Chesapeake Utilities Corp CPK N/A Delta Natural Gas DGAS N/A Gas Natural, Inc. EGAS N/A Laclede Group LG A- New Jersey Resources NJR N/A Northwest Natural NWN A+ ONE Gas OGS A- Piedmont Natural Gas PNY A RGC Resources, Inc. RGCO N/A South Jersey Industries SJI BBB+ Southwest Gas Corp. SWX BBB+ Vectren Corp. VVC A- WGL Holdings, Inc. WGL A+ LDC Average LDC Median Integrated Gas Utilities Symbol $ $ $ $ % $ % % % % $ % MDU Resources MDU N/A BBB+ National Fuel Gas Co. NFG BBB New Jersey Resources NJR N/A NiSource NI (39) BBB- Questar STR A UGI Corp UGI (26) N/A Integrated Average Integrated Median Gas Group Average Gas Group Median Source: Thomson One, Bloomberg, Gabelli & Company estimates -12-

14 Companies Mentioned: AbenGoa Yield ABY - (NYSE) Empire District Electric EDE - (NYSE) Pattern Energy Group PEGI - (NASDAQ) AES Corp. AES - " Entergy Coporation ETR - " PG&E Corporation PCG - (NYSE) AGL Resources GAS - " Eversource Energy ES - " Pepco Holdings POM - " Algonquin Power Utilities AQN - (Toronto) Exelon Corporation EXC - " Piedmont Natural Gas PNY - " ALLETE, Inc. AT - (NYSE) First Energy Corp. FE - " Otter Tail Corp. OTTR - (NASDAQ) Alliant Energy Corporation LNT - " Fortis Inc. FTS - (Toronto) Pinnacle West Corp. PNW - (NYSE) Ameren Corporation AEE - " Gas Natural, Inc. EGAS - (AMEX) PNM Resources PNM - " American Electric Power AEP - " Great Plains Energy GXP - (NYSE) Portland General Electric POR - " Atlantic Power ALE - " Hawaiian Electric HE - " PPL Corp. PPL - " Atmos Energy ATO - " Iberdrola IBE - (Spain) Public Service Enterprise Group PEG - " Avista Corp. AVA - " Icahn Enterprises IEP - (NASDAQ) Questar Corp. STR - " Berkshire Hathaway BRK - " IDACORP, Inc. IDA - (NYSE) RGC Resources RGCO - (NASDAQ) Black Hills Corp. BKH - " ITC Holdings ITC - " SCANA Corp. SCG - (NYSE) Calpine Corp. CPN - " Kinder Morgan KMP - " Sempra Energy SRE - " Canadian Utilities CU - (Toronto) Laclede Group LG - " Southern Company SO - " CenterPoint Energy, Inc. CNP - (NYSE) Macquarie Infrastructure MIC - " South Jersey Industries SJI - " Chesapeake Utilities CHK - " MDU Resources MDU - (NYSE) Southwest Gas SWX - " CLECO Corp. CNL - " MGE Energy MGEE - (NASDAQ) Talen Energy TLN - " CMS Energy Corporation CMS - " National Fuel Gas NFG - (NYSE) TECO Energy TE - " Consolidated Edison, Inc. ED - " National Grid NG - (London) TerraForm Power TERP - (NASDAQ) Corning Natural Gas CNIG - (OTC) New Jersey Resources NJR - (NYSE) UGI Corp. UGI - (NYSE) Delta Natural Gas DGAS - (NASDAQ) NextEra Energy NEE - " UIL Holdings UIL - " Dominion Resources D - (NYSE) NextEra Energy Partners NEP - " Unitil Corp. UTL - " DTE Energy Company DTE - " NiSource NI - " Vectren VVC - " Duke Energy DUK - " Northwest Natural Gas NWN - " Westar Energy WR - " Dynergy DYN - " Northwestern Corp. N W E - " WGL Holdings WGL - " Edison International EIX - " NRG Energy Inc. NRG - " Wisconsin Energy WEC - " El Paso Electric EE - " NRG Yield NYLD - " Xcel Energy, Inc. XEL - " Emera Inc. EMA - (Toronto) OGE Energy Corp. OGE - " 8Point3 Energy CAFD - NASDAQ) Energy Transfer Equity ETE - (NYSE) ONE Gas OGS - " We, Tim Winter, CFA, Eric Guo and Nicholas Yuelys, the Research Analysts who prepared this report, hereby certify that the views expressed in this report accurately reflect the analyst s personal views about the subject companies and their securities. The Research Analysts have not been, are not and will not be receiving direct or indirect compensation for expressing the specific recommendation or view in this report. Tim Winter, CFA (314) Nicholas Yuelys (914) Eric Guo (914) Gabelli & Company 2015 ONE CORPORATE CENTER RYE, NY GABELLI & COMPANY TEL (914) FAX (914) Gabelli & Company is the marketing name for the registered broker dealer G.research, LLC, which was formerly known as G.research, Inc., Gabelli & Company ("we" or "us") attempts to provide timely, value-added insights into companies or industry dynamics for institutional investors. Our research reports generally contain a recommendation of "buy," "hold," "sell" or "non-rated. We do not undertake to "upgrade" or "downgrade" ratings after publishing a report. We currently have reports on 532 companies, of which 45%, 37%, 3% and 15% have a recommendation of buy, hold, sell or non-rated, respectively. The percentage of companies so rated for which we provided investment banking services within the past 12 months is 0%, 0%, 0% and less than 1%. Ratings Analysts ratings are largely (but not always) determined by our private market value, or PMV methodology. Our basic goal is to understand in absolute terms what a rational, strategic buyer would pay for an asset in an open, arms-length transaction. At the same time, analysts also look for underlying catalysts that could encourage those private market values to surface. A Buy rated stock is one that in our view is trading at a meaningful discount to our estimated PMV. We could expect a more modest private market value to increase at an accelerated pace, the discount of the public stock price to PMV to narrow through the emergence of a catalyst, or some combination of the two to occur. A Hold is a stock that may be trading at or near our estimated private market value. We may not anticipate a large increase in the PMV, or see some other factors at work. A Sell is a stock that may be trading at or above our estimated PMV. There may be little upside to the value, or limited opportunity to realize the value. Economic or sector risk could also be increasing. We prepared this report as a matter of general information. We do not intend for this report to be a complete description of any security or company and it is not an offer or solicitation to buy or sell any security. All facts and statistics are from sources we believe to be reliable, but we do not guarantee their accuracy. We do not undertake to advise you of changes in our opinion or information. Unless otherwise noted, all stock prices reflect the closing price on the business day immediately prior to the date of this report. We do not use "price targets" predicting future stock performance. We do refer to "private market value" or PMV, which is the price that we believe an informed buyer would pay to acquire 100% of a company. There is no assurance that there are any willing buyers of a company at this price and we do not intend to suggest that any acquisition is likely. Additional information is available on request. As of October 31, 2015 our affiliates beneficially own on behalf of their investment advisory clients or otherwise approximately 17.98% of Corning Natural Gas, 9.29% of El Paso Electric, 8.63% of National Fuel Gas, 7.27% of PNM Resources, 6.09% of Southwest Gas, 5.41% of Delta Natural Gas, 4% of Otter Tail Corp, 4.4% of Cleco Corp., 3.4% of Black Hills, 2.58% of Northwestern Corporation, 2.11% of RGC Resources, 2.04% of Westar Energy, 1.87% of Northwest Natural Gas, 1.54% of Great Plains Energy, 1.49% of MGE Energy, 1.4% of Macquarie Infrastructure, 1.19% of Chesapeake Utilities, 1.33% of Hawaiian Electric, 1.23% of Empire District Electric and less than 1% of all other companies mentioned.. One of our affiliates serves as an investment adviser to American Water Works and Hawaiian Electric or an affiliated entity and has received compensation within the past 12 months for these non-investment banking securities-related services Because the portfolio managers at our affiliates make individual investment decisions with respect to the client accounts they manage, these accounts may have transactions inconsistent with the recommendations in this report. These portfolio managers may know the substance of our research reports prior to their publication as a result of joint participation in research meetings or otherwise. No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. The analysts, who wrote this report, or members of their household, own no shares of the above mentioned companies.