ENERGY CAPITAL MARKETS REPORT Stock Performance Sector Evaluations Asset Sales Mergers & Acquisitions Securities Underwriting

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1 ENERGY CAPITAL MARKETS REPORT Stock Performance Sector Evaluations Asset Sales Mergers & Acquisitions Securities Underwriting DECEMBER 2012 UNDERWRITING & FINANCIAL RESTRUCTURING Energy companies went to the bond markets with hefty financial appetites in November. American Electric Power issued $850 million in debt at less than 2% and 3%. Alabama Power issued $350 million in senior notes. DCP Midstream Partners priced a $500 million offering at 2.5%. Entergy Louisiana is selling $200 million in bonds at 3.3%. The AEP unit Indiana-Michigan Power filed a registration statement for the future sale of $900 million in notes; Duke Energy filed a prospectus for the issuance of up to $1 billion in corporate notes; and NGL Energy Partners went to registration for up to $1 billion in equity and debt. MERGERS & ACQUISITIONS Operating units of Entergy bought two gas-fired combined cycle power plants in their service territories for a total of $559 million. Exelon sold three coal-fired power plants in Maryland, formerly owned by Constellation Energy; the sale was required by its merger with Constellation. Targa Resources Partners LP is acquiring a crude oil pipeline, terminal facilities and natural gas midstream facilities in the Bakken Shale area of the Williston Basin in North Dakota. STOCKS & COMMODITIES The Rudden Composite Index of utility stocks lost ground in every category except one in November, finishing down 3.2% overall. The S&P 500 Index outperformed the Rudden Composite, declining by 0.8%. Regulated Electric-Integrated was the weakest sector, down 4%. Electric-Diversified was the only gainer, finishing up 1.8%. For the 52 weeks ended Nov. 30, the Rudden Composite gained 5.5%, while the S&P was up 18.8%. Electric-Merchant was the strongest sector for the 52 weeks, gaining 14.1%. The Dow Jones Industrial Average closed out November at 13,026, down 70 points or 0.5% from the October close of 13,096. For the 52 weeks ended Nov. 30, the DJIA was up 980 points or 8.1%, from the Nov. 30, 2011, close of 12,046. The spot month gold futures contract settled for November delivery at $1,716.50/ounce, up from the October delivery price of $1,707.70/ounce on the New York Mercantile Exchange. November NYMEX copper futures went off the board at $3.5220/pound, up from October s final settlement of $ The NYMEX light sweet crude oil futures contract for December delivery settled at $86.67/barrel, down 2.3% from November s final settlement of $88.73/barrel. NYMEX December natural gas futures priced at Henry Hub settled at $3.70/million British thermal units, up from $3.47/ mmbtu for November. (See a discussion of natural gas pricing on page 6). The Central Appalachian coal futures contract for December delivery had a final settlement of $61.20 /ton or $2.55/ mmbtu, up from $59.20 /ton, $2.47/mmBtu, for November. In this Report: AEP DUK SO AQN VVC ETR TAC NRGM WLT ACI NGL BTU LGCY DPM CHG LNT NEE CU NGLS EXC Samuel Glasser Editor Contact Information: Newsletters@bv.com ext 222

2 Values 11/30/12 Monthly Change from 11/01/12 Annual Change from 11/28/11 52 Week High Change from 52 Week High All-Time High Since 01/03/07 Change from All-Time High S&P 1, (0.80%) 18.8% 1, (3.4%) 1, (9.5%) Rudden Composite Utility Index Master Limited Partnerships (MLPs) Natural Gas T&D (Diversified) Regulated T&D (Gas & Electric) (3.23%) 5.5% (6.0%) (10.6%) (1.47%) 9.0% (4.6%) (4.6%) (3.47%) 5.7% (7.0%) (7.0%) (3.40%) 5.2% (7.5%) (7.5%) Electric (Merchant) (1.68%) 14.1% (6.1%) (50.5%) Regulated Electric (Integrated) (4.02%) 8.2% (6.9%) (6.9%) Electric (Diversified) % 2.0% (4.3%) (28.0%) UNDERWRITING & FINANCIAL RESTRUCTURING AEP American Electric Power Issues New Debt; High-Cost Obligations to Be Retired American Electric Power Co. Inc. issued $850 million of lowinterest five and 10-year debt, which will partially be used to redeem substantially higher cost obligations. The securities were issued on Dec. 3, the company said in an 8-K filing. The new securities are $550 million in principal of 1.65% senior notes, Series E, due 2017 and $300 million of 2.95% senior notes, Series F, due The proceeds will be used for the repayment of short term indebtedness and the redemption of the $242.8 million in outstanding principal of 5.25% senior notes, Series D, due in 2015 and $315 million in outstanding principal of 8.75% junior subordinated debentures due in AEP Midwestern AEP Unit Plans Future Sale of Nearly $1 Billion in Notes Indiana Michigan Power Co., a unit of American Electric Power, issued an S-3 registration statement for $900 million of notes that the company may sell. The filing covers $625 million in new securities and $275 million of unsecured notes remaining unsold under a registration statement issued in January DUK Duke Energy Could Issue Up to $1 Billion of New Debt Duke Energy Corp. (NYSE: DUK) filed a prospectus supplement with the Securities and Exchange Commission (SEC) for the issuance of up to $1 billion in corporate notes with maturities of one to 30 years, the company announced Nov. 14. The notes may be issued with fixed or floating interest rates. The specific terms will be set prior to the time of sale. SO Southern Regulated Utility Unit Issues Bonds Alabama Power Co., a unit of the Southern Co. (NYSE: SO) in late November issued $350 million of 3.8% senior notes, Series 2012C, due in The proceeds, together with other company funds, will be used to pay at maturity $500 million in principal of Alabama Power s Series 2007D 4.85% senior notes due Dec. 15, 2012, the company said. AQN Algonquin Privately Offers Unsecured Debt Securities Algonquin Power & Utilities Corp. (TSX: AQN) entered into several financial transactions in late November. Algonquin s non-regulated generation subsidiary, Algonquin Power Co., offered for sale C$150 million 4.82% senior unsecured debentures due in 2021 under a private placement in Canada and the United States, the company said on Nov. 29. BLACK & VEATCH 2

3 The proceeds will primarily go towards funding a majority interest in a 400-megawatt portfolio of contracted wind farms in the U.S. At the same time, the subsidiary is entering into a cross currency swap to convert the Canadian dollar denominated offering into U.S. dollars, resulting in an effective interest rate for the securities of 4.4%, Algonquin said. Other financial arrangements announced in the week preceding the offering were: The parent company entered into a $30 million senior unsecured revolving credit facility maturing in The company told the holders of its 7% convertible unsecured subordinated debentures, Series 3 due 2017, that it will redeem for equity all of the outstanding debentures, effective Jan. 1, The Algonquin Power Co. subsidiary amended its existing $155 million senior secured credit facility to increase the commitments to $200 million on an unsecured basis. It matures in Algonquin Power & Utilities owns and operates a diversified portfolio of regulated and non-regulated utilities in North America. VVC Vectren Subsidiary Prices Senior Unsecured Notes Vectren Corp. s (NYSE: VVC) Vectren Utility Holdings, Inc. subsidiary priced $125 million of senior unsecured notes to be issued in two tranches of 15 and 30 years. The notes were sold to institutional investors through private placements, the company said on Nov. 28. The issues are $45 million of 3.2% Series A senior notes due in 2028 and $80 million of 4.25% Series B senior notes due in The proceeds will be used to refinance existing indebtedness that matures or is callable in 2013 and for general purposes. The notes are expected to be issued during the first week of June 2013, the company said. ETR Entergy Operating Units Go to the Bond Markets Entergy Louisiana, LLC, is selling $200 million in 3.3% first mortgage bonds due 2022, while Entergy New Orleans, Inc., is offering $30 million of 5% first mortgage bonds due 2052, which are to be listed on the New York Stock Exchange, the company said. TAC TransAlta Files Shelf Registration TransAlta Corp. (NYSE: TAC) said in a shelf registration that it might from time to time offer and issue up to US$2 billion in common shares, first preferred shares, debt securities, subscription receipts and warrants, the company said in a shelf registration filed with the SEC on Nov. 27. NRGM Inergy Announces Private Placement of Senior Notes Inergy Midstream, L.P. (NYSE: NRGM) of Kansas City, Mo., and its subsidiary NRGM Finance Corp. said that they intend to sell $400 million in principal of senior unsecured notes due 2020 to eligible purchasers in a private placement. The debt would mature in Inergy Midstream is a master limited partnership engaged in the development and operation of natural gas and natural gas liquids storage and transportation assets in the northeastern U.S. Canadian Transmission Company Issues Bonds to Repay Debt AltaLink, LP of Calgary, Alta., the province s largest regulated power transmission company, will issue C$275 million of 2.978% Series medium-term notes due in The bonds will be issued through its $2.5 billion medium-term notes program, the company announced. The proceeds will be primarily used to repay outstanding commercial paper, the company said. WLT Walter Energy Closes Senior Notes Offering Walter Energy Inc. (NYSE: WLT) (TSX: WLT) closed on a private offering of $500 million in principal of 9.875% senior notes due 2020, the company said on Nov. 21. Walter will use the funds to repay outstanding indebtedness under its credit facilities and for general purposes. The company is primarily a metallurgical coal producer and also produces thermal coal, anthracite, metallurgical coke and coal bed methane gas from operations in the U.S., Canada and the UK. ACI Arch Coal Arranges Financing; Notes, Loans, Credit Line Arch Coal, Inc. (NYSE: ACI) closed on $375 million in senior unsecured notes and a $250 million incremental secured term loan, the company said on Nov. 21. The incremental term loan will reduce the size of Arch s revolving credit facility to $350 million from $600 million. The loan will carry an interest rate of LIBOR plus 4.5% initially, subject to a LIBOR floor of 1.25%. NGL Energy Partnership Could Issue Up to $1B in Securities NGL Energy Partners LP (NYSE: NGL) filed a registration statement for the offer and sale from time to time of up to $1 billion in NGL Energy Partners common units and debt securities. BLACK & VEATCH 3

4 BTU Major Coal Producer Prepays Debt Peabody Energy (NYSE: BTU) voluntarily prepaid $75 million of term-loan borrowings, bringing debt repayments to more than $380 million through Nov. 19, the company said. LGCY Energy Enterprise Prices Privately Placed Debt Legacy Reserves LP (NASDAQ: LGCY) and its subsidiary Legacy Reserves Finance Corp. priced of a private offering of $300 million of senior notes due 2020, which will bear interest at a rate of 8% annually. Legacy intends to use the proceeds to fund a portion of the $520 million purchase price of its pending acquisition of oil and natural gas properties in the Permian Basin from Concho Resources Inc. DPM DCP Midstream Partners Prices Senior Debt DCP Midstream Partners, LP (NYSE: DPM) said that its subsidiary, DCP Midstream Operating, LP priced an offering of $500 million in principal of 2.5% senior notes due CHG New York Utility Floats Long-Term Bond Issue Central Hudson Gas & Electric Corp., the regulated utility of CH Energy Group (NYSE: CHG), went to market with $24 million in principal of 30-year 4.065% notes due in 2042, the company said. The new issue is Series G. LNT Wisconsin Utility Prices 10-Year Debt Wisconsin Power and Light Co., a subsidiary of Alliant Energy Corp., (NYSE: LNT), priced a public offering of $250 million in principal of 2.25% debentures due in NEE Florida Energy Company Issuing Debt with a 60-Year Maturity NextEra Energy Capital Holdings,Inc., a unit of NextEra Energy, is issuing $500 million in principal of 5.125% Series I Junior Subordinated Debentures due 2072, the company said in an SEC filing. NEE Capital intends to apply to list the securities on the New York Stock Exchange. CU Canadian Utilities Limited Announces Debenture Issue Canadian Utilities Ltd. (TSX: CU) said that it will issue C$200 million of 3.122% debentures, due BLACK & VEATCH 4

5 MERGERS & ACQUISITIONS ETR Entergy Acquires Power Plants; Moves Ahead with Plan to Join MISO Operating units of Entergy Corp. (NYSE: ETR) closed on the purchase of two combined cycle natural gas fired power plants from units of KGen Power Corp. of Houston, Entergy said on Dec. 3. Entergy Arkansas, Inc. completed the purchase of the Hot Spring Energy Facility, a 620-megawatt plant purchased from KGen Hot Spring LLC for $253 million. Entergy Mississippi, Inc. closed on the purchase of the Hinds Energy Facility from KGen Hinds LLC, paying $206 million for the 450-MW plant in Jackson. Entergy announced plans to acquire the two plants in The plants are the only generating assets of KGen Power, a merchant generator, according to KGen s latest quarterly report dated Nov. 14. Entergy also said in an 8-K filing on Nov. 26 that its six utility operating companies have obtained all of the retail regulatory approvals to move forward with their plans to join to the Midwest Independent Transmission System Operator (MISO). The company subsequently said that the utilities submitted transmission owner agreements to MISO. NGLS Targa Resources Expands with Bakken Shale Midstream Acquisition Targa Resources Partners LP (NYSE: NGLS) agreed to acquire all of Saddle Butte Pipeline, LLC s ownership of its Williston Basin crude oil pipeline and terminal system and its natural gas gathering and processing operations for $950 million in cash. The business to be acquired is located in the heart of the oil-rich Bakken Shale play in McKenzie, Dunn and Mountrail counties, North Dakota, Targa said. It includes 155 miles of crude oil pipelines and has 70,000 barrels of crude oil storage capacity. Also included are 95 miles of natural gas gathering pipelines and a natural gas processing plant of 20 million cubic feet/day capacity, which is being expanded to double that amount. Targa is a provider of midstream natural gas and natural gas liquid services, and operates terminals for crude oil and refined products primarily on the U.S. Gulf Coast and in West Texas. EXC Exelon Completes Sale of Maryland Coal Plants Required by Constellation Merger Exelon Corp. (NYSE: EXC) completed the sale of three Maryland coal-fired power plants that were required as part of its merger with Constellation Energy earlier in the year. The purchaser is Raven Power Holdings LLC, a new portfolio company of the private equity firm Riverstone Holdings LLC. The plants, known collectively as Maryland Clean Coal, are: Brandon Shores station 1,273 megawatts with two coal-fired units. C.P. Crane 399 MW, three units fired by coal and oil. H.A. Wagner plant 976 MW with five units using coal, natural gas and oil. The sale was required by the Federal Energy Regulatory Commission, U.S. Department of Justice and the Maryland Public Service Commission, the company said. BLACK & VEATCH 5

6 ENERGY MARKET REVIEW FIGURE 1 CRUDE OIL, NATURAL GAS, COAL SPOT MONTH FUTURES PRICES $28 $26 $24 $22 $20 WTI Crude Oil Natural Gas, Henry Hub CAPP Coal Oil: Jul 14,' 08, $24.90 mmbtu, $145.18/bbl At Jul '08 peak prices, Gas:Oil approx 50% $18 $16 $14 $12 Jul 3, '08, nat gas, $13.58 Dec 24, 08 Gas:Oil =97.5% $10 $8 $6 $4 $2 $0 1/2/07 3/2/07 5/2/07 7/2/07 Coal: Jul 1, '08, $5.97/mmBtu; $143.25/ton 9/2/07 11/2/07 1/2/08 3/2/08 5/2/08 7/2/08 9/2/08 11/2/08 1/2/09 3/2/09 5/2/09 7/2/09 Oil: Dec 19, '08, $33.87/bbl, $6.06/mmBtu 9/2/09 11/2/09 1/2/10 3/2/10 5/2/10 7/2/10 9/2/10 11/2/10 1/2/11 3/2/11 5/2/11 7/2/11 9/2/11 11/2/11 1/2/12 3/2/12 5/2/12 7/2/12 9/2/12 11/2/12 NATURAL GAS PRICES SEEM STALLED BELOW $4 Natural gas futures just can t get over that $4 hurdle. Last month, it appeared as if that might happen when the spot month futures contract showed strengthening in mid-month, flirting as high as $3.90 per million British thermal units right around Thanksgiving. Then the rally seemed to lose headway, with the December delivery contract terminating on the New York Mercantile Exchange at $3.696/mmBtu. During the first few days of trading in the January contract, prices declined further to $ Gas prices have pulled back, said Dean Rogers, a technical market analyst with Kase and Company, Inc. There s a lack of weather; people are saying it s not cold enough in the areas that count, and it s not cold enough for what s already in storage, he said. The U.S. Department of Energy s Energy Information Administration, in its Weekly Gas Storage Report, estimated that working gas in storage was 3,804 billion cubic feet (BCF) as of Nov. 30, representing a net decline of 73 BCF, or almost 2%, from the previous week. Inventories were also 33 BCF less than last year at this time, EIA said, but were 168 BCF above the five-year average of 3,636 BCF for this time of year, up 4.6%. The natural gas market has a lot of ground to make up, Rogers said. Samuel Glasser, Black & Veatch BLACK & VEATCH 6

7 STOCK PERFORMANCE S&P 500 CMRINDEX Rudden Composite Index: Consists of 92 energy companies, which are further organized into six sub-categories as shown in the following graphs. BLACK & VEATCH 7

8 REGULATED ELECTRIC INTEGRATED Index S&P 500 Regulated Electric Integrated: Utilities involved in the generation, transmission and distribution of electricity and natural gas; 80% ormore of their total assets are regulated. ALLETE Inc. ALE NorthWestern Corp. NWE Alliant Energy LNT NV Energy NVE Ameren Corp. AEE PG&E Corp. PCG American Electric Power Co. AEP Pinnacle West Capital Corp. PNW Avista Corp. AVA PNM Resources Inc. PNM Cleco Corp. CNL SCANA Corp. SCG CMS Energy Corp. CMS Southern Co. SO DTE Energy Co. DTE TECO Energy Inc. TE El Paso Electric Co. EE UIL Holdings Corp. UIL Empire District Electric Co. EDE UniSource Energy Corp. UNS Great Plains Energy GXP Vectren Corp. VVC IDACORP Inc. IDA Westar Energy Inc. WR MGE Energy Inc. MGEE Wisconsin Energy Corp. WEC Xcel Energy Inc. XEL BLACK & VEATCH 8

9 ELECTRIC DIVERSIFIED Index S&P 500 Electric Diversified: Companies that are involved in the generation, transmission and distribution of electricity; more than 20% of total assets are unregulated. AES Corp. AES Hawaiian Electric Industries HE Black Hills Corp. BKH Integrys Energy Group Inc. TEG Dominion Resources Inc. D NextEra Energy Inc. NEE Duke Energy Corp. DUK OGE Energy Corp. OGE Edison International EIX Otter Tail Corp. OTTR Entergy Corp. ETR PPL Corp. PPL Exelon Corp. EXC Public Svc Enterprise Group PEG FirstEnergy Corp. FE Sempra Energy SRE BLACK & VEATCH 9

10 ELECTRIC MERCHANT Index S&P 500 Electric Merchant: Companies whose primary activity is the generation of electricity on an unregulated basis. Calpine Corp. Covanta Holding Corp. Dynegy Inc. GenOn Energy Inc NRG Energy Inc. Ormat Technologies Inc. CPN CVA DYN GEN NRG ORA BLACK & VEATCH 10

11 REGULATED T&D (GAS & ELECTRIC) Regulated Transmission & Distribution (Gas & Electric): Companies engaged in the transmission and distribution of natural gas and electricity; 80% or more of total assets are regulated. CH Energy Group Inc. Consolidated Edison Inc. ITC Holdings Corp. Northeast Utilities Pepco Holdings Inc. Unitil Corp. CHG ED ITC NU POM UTL BLACK & VEATCH 11

12 NATURAL GAS T&D (DIVERSIFIED) Index S&P 500 Natural Gas Transmission & Distribution (Diversified): Primary activities are in the natural gas sector; 20% or more of assets are unregulated. AGL Resources GAS NiSource Inc. NI Atmos Energy Corp. ATO Northwest Natural Gas Co. NWN CenterPoint Energy Inc. CNP ONEOK Inc. OKE Chesapeake Utilities Corp. CPK Piedmont Natural Gas Co. PNY Delta Natural Gas Co. DGAS Questar Corp. STR Energen Corp. EGN RGC Resources Inc. RGCO EQT Corp. EQT South Jersey Industries Inc. SJI Laclede Group Inc. LG Southwest Gas Corp. SWX MDU Resources Group Inc. MDU Spectra Energy Corp SE National Fuel Gas Co. NFG UGI Corp. UGI New Jersey Resources Corp. NJR WGL Holdings Inc. WGL Williams Cos. Inc. WMB BLACK & VEATCH 12

13 MASTER LIMITED PARTNERSHIPS (MLPS) Index S&P 500 Master Limited Partnerships: Primarily owners and operators of natural gas pipeline properties with an emphasis on midstream assets. Atlas Pipeline Partners LP Boardwalk Pipeline Partners LP Chesapeake Midstream Partners Copano Energy LLC Crosstex Energy LP DCP Midstream Partners LP El Paso Pipeline Partners LP Energy Transfer Partners LP Enterprise Products Partners Kinder Morgan Energy Partners ONEOK Partners LP Regency Energy Partners LP Spectra Energy Partners LP APL BWP CHKM CPNO XTEX DPM EPB ETP EPD KMP OKS RGP SEP BLACK & VEATCH 13

14 To subscribe without charge to any of the Black & Veatch newsletters, please go to: Descriptions of the free publications are given below: Energy Strategies Report Solutions Magazine ENERGY STRATEGIES REPORT Providing Valuable Strategic Insights to the Energy Industry The Energy Strategies Report is a monthly update on the topics, personalities and events in the energy industry that are (or should be) making headlines. Solutions magazine informs readers of issues relating to the infrastructure arena and promotes innovative thinking and dialogue. Each issue provides insights and answers to complex challenges in the form of solutions that Black & Veatch has implemented for our clients. Energy Capital Markets Report ENERGY CAPITAL MARKETS REPORT Stock Performance Sector Evaluations Asset Sales Mergers & Acquisitions Securities Underwriting The Energy Capital Markets Report aggregates financial activities across the energy industry with a once-a-month review of stock performance, sector evaluations, asset sales, mergers & acquisitions and securities underwriting activities. Copyright 2012, Black & Veatch Holding Company. All rights reserved worldwide. This report is prepared for general circulation and is circulated for general information only. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any security or any option, future or other derivative related to such security. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized advice about investments. Data contained here are obtained from what are considered reliable sources; however, its accuracy, completeness or reliability cannot be guaranteed. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Black & Veatch s management consulting group is among the world s premier strategic, economic and management consulting companies specializing in energy, water, information and government matters. We encourage our professionals to publish individual commentary on key industry issues. Any opinions offered are those of the authors and not necessarily official viewpoints of the company or its other employees. Additional information is available at BLACK & VEATCH 14

Q Stock Performance

Q Stock Performance Q1 2009 Stock Performance HIGHLIGHTS The EEI Index matched the broad market averages in Q1 2009, producing a 11.0% return versus the Dow Jones Industrials 12.5% return and the S&P 500 s 11.0% return. EEI