Balance Sheet Q3 2008 FINANCIAL UPDATE QUARTERLY REPORT OF THE U.S. SHAREHOLDER-OWNED ELECTRIC UTILITY INDUSTRY
About EEI The Edison Electric Institute is the association of U.S. shareholderowned electric companies. Our members serve 95% of the ultimate customers in the shareholder-owned segment of the industry, and represent approximately 70% of the U.S. electric power industry. We also have 79 international electric companies as Affiliate members and more than 190 industry suppliers and related organizations as Associate members. About EEI s Quarterly Financial Updates EEI s quarterly financial updates present industry trend analyses and financial data covering 69 U.S. shareholder-owned electric utility companies. These 69 companies include 59 electric utility holding companies whose stocks are traded on major U.S. stock exchanges and ten electric utilities who are subsidiaries of nonutility or foreign companies. Financial updates are published for the following topics: We Welcome Your Feedback EEI is interested in ensuring that our financial publications and industry data sets best address the needs of member companies and the financial community. We welcome your comments, suggestions and inquiries. Contact: Mark Agnew Manager, Financial Analysis (202) 508-5049, magnew@eei.org Future EEI Finance Meetings EEI International Utility Conference March 15-17, 2009 London Hilton on Park Lane London, United Kingdom Dividends Stock Performance Credit Ratings Construction Rate Case Summary Fuel Income Statement Balance Sheet Cash Flow Statement Business Segmentation For more information about EEI Finance Meetings, please contact Debra Henry, (202) 508-5496, dhenry@eei.org For EEI Member Companies The EEI Finance and Accounting Division is developing current year and historical data sets that cover a wide range of industry financial and operating metrics. We look forward to serving as a resource for member companies who wish to produce customized industry financial data and trend analyses for use in: Investor relations studies and presentations Internal company presentations Performance benchmarking Peer group analyses Annual and quarterly reports to shareholders Edison Electric Institute 701 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2696 202-508-5000 www.eei.org
The 69 U.S. Shareholder-Owned Electric Utilities The companies listed below all serve a regulated distribution territory. Other utilities, such as transmission provider ITC Holdings, are not shown below because they do not serve a regulated distribution territory. However, their financial information is included in relevant EEI data sets, such as transmission-related construction spending. Allegheny Energy, Inc. (AYE) ALLETE, Inc. (ALE) Alliant Energy Corporation (LNT) Ameren Corporation (AEE) American Electric Power Company, Inc. (AEP) Avista Corporation (AVA) Black Hills Corporation (BKH) CenterPoint Energy, Inc. (CNP) Central Vermont Public Service Corporation (CV) CH Energy Group, Inc. (CHG) Cleco Corporation (CNL) CMS Energy Corporation (CMS) Consolidated Edison, Inc. (ED) Constellation Energy Group, Inc. (CEG) Dominion Resources, Inc. (D) DPL, Inc. (DPL) DTE Energy Company (DTE) Duke Energy Corporation (DUK) Duquesne Light Holdings, Inc. Edison International (EIX) El Paso Electric Company (EE) Empire District Electric Company (EDE) Energy East Corporation Energy Future Holdings Corp. (formerly TXU Corp.)^ Entergy Corporation (ETR) Exelon Corporation (EXC) FirstEnergy Corp. (FE) FPL Group, Inc. (FPL) Great Plains Energy Incorporated (GXP) Green Mountain Power Corporation Hawaiian Electric Industries, Inc. (HE) IDACORP, Inc. (IDA) Ipalco Enterprises, Inc. Integrys Energy Group, Inc. (TEG) Kentucky Utilities ** KeySpan Corporation (KSE) Louisville Gas and Electric ** Maine & Maritimes Corporation (MAM) MDU Resources Group, Inc. (MDU) MGE Energy, Inc. (MGEE) MidAmerican Energy Company Niagra Mohawk Power Corporation NiSource Inc. (NI) Northeast Utilities (NU) NorthWestern Corporation (NWEC) NSTAR (NST) OGE Energy Corp. (OGE) Otter Tail Corporation (OTTR) Pepco Holdings, Inc. (POM) PG&E Corporation (PCG) Pinnacle West Capital Corporation (PNW) PNM Resources, Inc. (PNM) Portland General Electric Company (POR)* PPL Corporation (PPL) Progress Energy (PGN) Public Service Enterprise Group Inc. (PEG) Puget Energy, Inc. (PSD) SCANA Corporation (SCG) Sempra Energy (SRE) Sierra Pacific Resources (SRP) Southern Company (SO) TECO Energy, Inc. (TE) UIL Holdings Corporation (UIL) UniSource Energy Corporation (UNS) Unitil Corporation (UTL) Vectren Corporation (VVC) Westar Energy, Inc. (WR) Wisconsin Energy Corporation (WEC) Xcel Energy, Inc. (XEL) Note: Includes the 59 shareholder-owned electric utility holding companies plus an additional 10 electric utilities (shown in italics) that are not listed on U.S. stock exchanges for one of the following reasons i. they are a subsidiary of an independent power producer, ii. they are a subsidiary of a foreignowned company, or iii. they were acquired by an investment firm. Stock symbols are shown in parentheses. *Portland General transitioned from private ownership to become a publicly traded company on April 3, 2006. The EEI Index includes Portland General beginning on January 1, 2007. **Kentucky Utilities and Louisville Gas and Electric, both subsidiaries of E.ON AG, were added to the EEI coverage universe effective January 1, 2007. EEI s historical industry financial data now includes their results. ^TXU (now Energy Future Holdings Corp.) was acquired by the Texas Energy Future Holdings Limited Partnership (TEF) on 10/10/2007. TEF was formed by a group of investors led by Kohlberg Kravis Roberts and Texas Pacific Group to facilitate the merger.
Companies Listed by Category (as of 12/31/07) Please refer to the Quarterly Financial Updates webpage for previous years lists. iven the diversity of utility holding company corporate G strategies, no single company categorization approach will be useful for all EEI members and utility industry analysts. Never-theless, we believe the following classification provides an informative framework for tracking financial trends and the capital markets response to business strategies as companies depart from the traditional regulated utility model. Regulated Mostly Regulated Diversified 80%+ of total assets are regulated 50% to 80% of total assets are regulated Less than 50% of total assets are regulated Categorization of the 59 publicly traded utility holding companies is based on year-end business segmentation data presented in 10Ks, supplemented by discussions with company IR departments. Categorization of the 10 non-publicly traded companies (shown in italics) is based on estimates derived from FERC Form 1 data and information provided by parent company IR departments. The EEI Finance and Accounting Division continues to evaluate our approach to company categorization and business segmentation. In addition, we can produce customized categorization and peer group analyses in response to member company requests. We welcome comments, suggestions and feedback from EEI member companies and the financial community. Regulated (43 of 69) ALLETE, Inc. Ameren Corporation American Electric Power Company, Inc. Avista Corporation Central Vermont Public Service Corporation CH Energy Group, Inc. Cleco Corporation CMS Energy Corporation Consolidated Edison, Inc. DPL, Inc. Duquesne Light Holdings, Inc. El Paso Electric Company Empire District Electric Company Energy East Corporation Great Plains Energy Incorporated Green Mountain Power Corporation IDACORP, Inc. IPALCO Enterprises, Inc. Kentucky Utilities KeySpan Corporation Louisville Gas and Electric Maine & Maritimes Corporation MGE Energy, Inc. Niagara Mohawk Power Corporation Northeast Utilities NorthWestern Energy NSTAR PG&E Corporation Pinnacle West Capital Corporation PNM Resources, Inc. Portland General Electric Company Progress Energy Puget Energy, Inc. Sierra Pacific Resources Southern Company TECO Energy, Inc. UIL Holdings Corporation UniSource Energy Corporation Unitil Corporation Vectren Corporation Westar Energy, Inc. Wisconsin Energy Corporation Xcel Energy, Inc. Mostly Regulated (19 of 69) Alliant Energy Corporation CenterPoint Energy, Inc. Dominion Resources, Inc. DTE Energy Company Duke Energy Corporation Edison International Entergy Corporation Exelon Corporation First Energy Corp. FPL Group, Inc. Integrys Energy Group MidAmerican Energy Holdings NiSource Inc. OGE Energy Corp. Otter Tail Corporation Pepco Holdings, Inc. PPL Corporation Public Service Enterprise Group, Inc. SCANA Corporation Diversified (7 of 69) Allegheny Energy, Inc. Black Hills Corporation Constellation Energy Group, Inc. Energy Future Holdings * Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. Sempra Energy Note: Based on assets at 12/31/07 * TXU (now Energy Future Holdings Corp.) was acquired by the Texas Energy Future Holdings Limited Partnership (TEF) on 10/10/2007. TEF was formed by a group of investors led by Kohlberg Kravis Roberts and Texas Pacific Group to facilitate the merger.
Q3 2008 Balance Sheet COMMENTARY HIGHLIGHTS nthe industry s consolidated balance sheet remained strong in Q3 2008, supported by generally healthy net income and the maintenance of conservative business strategies across the industry. nthe industry s recent capex surge has led to rising debt and leverage, but over half of the jump in total longterm debt over the past 21 months from $302.9 billion at December 31, 2006 to $353.3 billion at September 30, 2008 relates to the October 10, 2007 close of the buyout of TXU (subsequently renamed Energy Future Holdings Company) by a group of private equity investors. Approximately $27 billion in long-term debt was taken on to fund the deal. nrising capital spending across the industry is evident in the 13.9% rise in property, plant and equipment (PPE) on the industry s consolidated balance sheet from yearend 2005 through Q3 2008. The industry s consolidated balance sheet remained stable during the first nine months of 2008, benefitting from generally healthy net income in recent years and conservative business strategies across the industry that emphasize core regulated operations and competitive power generation at the industry s more diversified companies. However, as shown in Table I, long-term debt and leverage is beginning to climb, with consolidated long-term debt up from $302.9 billion at yearend 2006 to $353.3 billion at September 30, 2008, a 17% increase. The rise is due in part I. Capitalization Structure () 9/30 12/31 12/31 12/31 12/31 12/31 2008 2007 2006 2005 2004 2003 Common Equity 281.1 270.1 257.1 231.0 221.6 207.2 Preferred Equity 0.6 0.6 0.6 2.0 2.5 2.7 Long-Term Debt 353.3 330.1 302.9 302.6 310.1 333.0 Total Capitalization 634.9 600.7 560.5 535.6 534.2 542.9 Common Equity % 44.3% 45.0% 45.9% 43.1% 41.5% 38.2% Preferred Equity % 0.1% 0.1% 0.1% 0.4% 0.5% 0.5% Long-term Debt % 55.6% 54.9% 54.0% 56.5% 58.1% 61.3% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Note: Securitization amounts removed from long-term debt (2008, 2007, 2006 and 2005: $20.2 bil.; 2004: $19.7 bil.; 2003: $18.1 bil.); For year-end 2002, long-term debt was adjusted to reflect SFAS No. 150. Long-term debt total includes current and non-current portions. Source: SNL Financial, EEI Finance Department, Bear Stearns & Co. II. Debt-to-Capitalization Change 9/30/2008 vs. 12/31/2007 12/31/2007 vs. 12/31/2006 Change in Debt-to-Cap Number Percent Number Percent Number Percent Lower 20 29.0% 36 51.4% 39 55.7% No Change 28 40.6% 17 24.3% 15 21.4% Higher 21 30.4% 17 24.3% 16 22.9% Total 69 100.0% 70 100.0% 70 100.0% Source: SNL Financial, EEI Finance Department, Bear Stearns & Co. Note: Below +/- 1% = No Change 12/31/2006 vs. 12/31/2005 to the strong growth in capital spending since 2005. Industry-wide capex totaled $77.8 billion for the 12-month period 1 EEI Q3 2008 Financial Update
2 BALANCE SHEET 70.0 60.0 50.0 40.0 30.0 20.0-60.1 43.6 III. Short-Term Debt 28.5 11.1 11.6 Note: At 12/31, unless noted. 18.8 21.5 24.4 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q3 35.4 400.0 300.0 200.0 100.0 - IV. Long-Term Debt 373.5 351.2 350.3 316.6 329.8 322.9 323.1 289.5 260.2 Note: At 12/31, unless noted. 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q3 V. Net Change in Long-Term Debt 15.0 5.0 0.0-5.0 - -15.0 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 14.0 12.0 8.0 6.0 4.0 2.0 0.0 6.6 13.1 VI. Common Equity Issuance 9.8 8.3 2001 2002 2003 2004 2005 2006 2007r Note: At 12/31, unless noted. 4.8 0.6 1.3 2007 Q3 2008 Q3 ending September 30, 2008, nearly double the $40.2 billion spent during 12-month period ending September 30, 2004, which marked the cyclical low following the competitive generation build-out earlier this decade. Companies have boosted spending in recent years on environmental compliance, transmission and distribution upgrades, and generation projects in many power markets to ensure adequate reserve margins over the long term. In addition to companies strategic decisions to boost capital spending, capex has also been impacted by construction material cost inflation. Not all of the jump in long-term debt is capex-related however. About $27 billion of the $50.4 billion total increase resulted from the October 10, 2007 closing of the buyout of TXU (renamed Energy Future Holdings Company) by a group of private equity investors that included Kohlberg Kravis Roberts & Co. (KKR), Texas Pacific Group (TPG) 20.0 13.0 13.3 12.3 13.1 15.0 16.6 17.0 15.0 4.1 4.2 5.0 0.0 2001 2002 VII. Common Stock Dividends 2003 2004 2005 2006 2007 2007 Q3 2008 Q3 EEI Q3 2008 Financial Update
BALANCE SHEET 3 VIII. Consolidated Balance Sheet ($Millions) 9/30/2008 12/31/2007 $ Change % Change 12/31/2006 $ Change % Change PP&E in Service, Gross 929,230 872,331 6.5% 56,899 852,824 9.0% 76,405 Accumulated depreciation 318,418 305,854 4.1% 12,564 305,115 4.4% 13,303 Net property in service 610,812 566,477 7.8% 44,335 547,710 11.5% 63,102 Construction work in progress 41,692 47,233 11.7% (5,541) 33,841 23.2% 7,850 Net nuclear fuel 5,787 7,336 21.1% (1,549) 5,876 1.5% (89) Other property 1,732 2,239 22.7% (508) 1,400 23.6% 331 Net property & equipment 660,022 623,285 5.9% 36,737 588,828 12.1% 71,195 Cash & cash equivalents 21,616 14,199 52.2% 7,417 15,282 41.5% 6,334 Accounts receivable 49,299 46,391 6.3% 2,908 43,058 14.5% 6,240 Inventories 28,626 23,566 21.5% 5,061 23,382 22.4% 5,244 Other current assets 47,196 52,347 9.8% (5,151) 65,113 27.5% (17,917) Total current assets 146,737 136,503 7.5% 10,234 146,836 0.1% (98) Total investments 65,308 69,022 5.4% (3,715) 68,466 4.6% (3,158) Other assets 201,916 198,759 1.6% 3,157 180,155 12.1% 21,762 Total Assets 1,073,984 1,027,570 4.5% 46,414 984,284 9.1% 89,700 Common equity 281,059 270,110 4.1% 10,949 257,073 9.3% 23,986 Preferred equity 565 566 0.2% (1) 596 5.2% (31) Total equity 281,624 270,676 4.0% 10,948 257,669 9.3% 23,955 Short-term debt 35,441 24,418 45.1% 11,023 21,509 64.8% 13,932 Current portion of long-term debt 20,898 26,402 20.8% (5,504) 27,333 23.5% (6,435) Short-term and current long-term debt 56,339 50,820 10.9% 5,519 48,843 15.3% 7,496 Accounts payable 62,019 61,693 0.5% 326 62,838 1.3% (819) Other current liabilities 39,589 42,824 7.6% (3,234) 51,158 22.6% (11,569) Current liabilities 157,948 155,336 1.7% 2,611 162,839 3.0% (4,892) Deferred taxes 95,813 102,263 6.3% (6,450) 101,294 5.4% (5,481) Non-current portion of long-term debt 352,596 323,894 8.9% 28,702 295,772 19.2% 56,823 Other liabilities 179,537 168,943 6.3% 10,593 160,039 12.2% 19,498 Total liabilities 785,893 750,436 4.7% 35,456 719,944 9.2% 65,949 Minority interest 1,163 1,145 1.5% 18 1,617 28.1% (454) Subsidiary preferred 5,301 5,307 0.1% (7) 5,048 5.0% 253 Total minority interest 6,463 6,452 0.2% 11 6,664 3.0% (201) Other mezzanine 3 5 34.6% (2) 7 48.8% (3) Total mezzanine level 6,467 6,457 0.1% 9 6,671 3.1% (204) Total Liabilities and Owner's Equity 1,073,984 1,027,570 4.5% 46,414 984,284 9.1% 89,700 EEI Q3 2008 Financial Update
4 BALANCE SHEET and Goldman Sachs Capital Partners. TXU shareholders approved the merger at the company s annual meeting on September 7, 2007. The buyout was financed in part by the assumption of approximately $27 billion in debt, reflected on Energy Future Holdings year-end 2007 10K and subsequent financials but not in TXU s year-end 2006 figures. Before being taken private, TXU was the industry s second largest company by market capitalization ($31.4 billion at 9/30/07), trailing only Exelon ($50.9 billion market cap at 9/30/07). Rising Capex The result of rising capex has become evident in the industry s consolidated balance sheet. Total property, plant and equipment in service (PPE in Service, Gross), has jumped nearly 14% since year-end 2005, as follows: Date PPE, Gross ($ mil.) % Change from 12-31-05 9/30/2008 $929,230 13.9% 6/30/2008 $916,598 12.3% 3/31/2008 $899,310 10.2% 12/31/2007 $872,331 6.9% 12/31/2006 $852,824 4.5% 12/31/2005 $815,941 0.0% Construction work-in-progress is less reliable an indicator of ongoing capex because 20 of 70 companies do not break this line item out in their reported financials, and this group includes several of the industry s larger players. to stay at a high level well into the future. A 2008 study by the Brattle Group projects that capital spending by the entire power industry (including public power and IPPs) could total $1.5 trillion from 2010-2030, and that s without incorporating the effects of likely climate legislation. In order to attract this capital, the prospective returns on new investment must be adequate compensation for the associated risk. For this to happen, the industry s profit outlook must remain reasonably healthy. Rising fuel costs in recent years forced up wholesale power prices and retail rates in some jurisdictions, and regulatory relationships have become crucially important arbiters of longer-term financial health for the industry. Utilities, politicians and regulators must work together to make sure rate payers understand that global economic forces impact fuel prices and plant construction costs. And the transition to competitive markets in some states should avoid the potentially strained politics that can sour Wall Street s confidence in the merits of new utility investment. The industry must also have the wherewithal to fund dividends, a key strategic tool for attracting capital on terms favorable to both shareholders and ratepayers. The nearcertainty of carbon regulation adds another potential longterm capex need to the list, should carbon capture and sequestration become the most economically viable way of complying with future carbon limits. In short, the balance sheet improvements achieved since the last cyclical low point for financial strength in 2002 cannot be taken for granted. The Need for Capital Unless the financial crisis and slowing demand growth radically reshapes current expectations, industry capex is forecast EEI Q3 2008 Financial Update