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					Business Strategies
    Business Segmentation                        2007. These developments illustrate the                Natural Gas Distribution revenue
                                                 overall industry trend toward a more               increased by $3.9 billion, or 7.4%,
   Revenues grew in each of the indus-           regulated asset base.                              during 2008. About one-fourth of the
try’s five primary business lines in 2008                                                           increase, $923 million, was driven by
and declined in the Other category. As-           2008 Revenues by Segment                          the Integrys merger (in which WPS
sets grew across every category except              Regulated Electric segment rev-                 Resources acquired Peoples Energy and
Competitive Energy. Regulated Electric,          enue rose by $18.7 billion, or 7.7%,               its gas distribution operations). If this
which grew to a 61.2% share of the in-           to $259.9 billion in 2008 from $241.2              is removed for comparative purposes,
dustry’s assets and 57.2% of revenues,           billion in 2007.The segment’s share                Natural Gas Distribution revenue rose
provided most of the industry’s growth           of total industry revenue edged up to              by $3.0 billion, or 5.9%.
in these areas during 2008. Competitive          57.2% in 2008 from 56.7% in 2007,                     Total regulated revenue—the sum
Energy declined 1.3% from year-end               well above the 52.1% of 2005.                      of the Regulated Electric and Natural



                                       Business Segmentation — Revenues
                                            U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES

        ($ Millions)                                            2008                2007r              Difference        % Change

        Regulated Electric                                   259,883               241,219               18,664              7.7%
        Competitive Energy                                   113,190               106,799                6,390              6.0%
        Natural Gas Distribution                              56,377                52,496                3,881              7.4%
        Natural Gas Pipeline                                   5,342                 5,115                  228              4.4%
        Natural Gas and Oil Exploration                        1,993                 1,530                  463             30.3%
          & Processing
        Other                                                  17,441               18,616                (1,174)           -6.3%
        Eliminations/Reconciling Items                        (20,418)             (20,398)                  (20)            0.1%

         Total Revenues                                      433,808               405,376               28,432              7.0%

        r = revised
        Note: Difference and Percent Change columns may reflect rounding. Totals may reflect rounding.
        Source: Based on segment reporting from SEC filings of 69 U.S. Shareholder-Owned Electric Utilities




                                                                                                         EEI 2008 FINANCIAL REVIEW        39
BuSineSS StRategieS



                                            Business Segmentation — Assets
                                               U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES

         ($ Millions)                                   12/31/08        12/31/2007r            Difference         % Change

         Regulated Electric                            730,555              648,393               82,162             12.7%
         Competitive Energy                            203,348              205,960               (2,611)            -1.3%
         Natural Gas Distribution                       98,775               92,546                6,229              6.7%
         Natural Gas Pipeline                           23,853               20,438                3,415             16.7%
         Natural Gas and Oil Exploration                   5,435               4,745                  690            14.5%
           & Processing
         Other                                         130,813              119,332               11,481              9.6%
         Eliminations/Reconciling Items                (74,788)             (65,345)              (9,443)            14.5%

         Total Assets                                1,117,991           1,026,068                91,923              9.0%

         r = revised
         Note: Difference and Percent Change columns may reflect rounding. Totals may reflect rounding.
         Source: Based on segment reporting from SEC filings of 69 U.S. Shareholder-Owned Electric Utilities




Gas Distribution segments—increased               over the year-end 2007 level. All other              Electric segment’s 7.7% revenue increase
by $22.5 billion, or 7.7%, to $316.3              categories, except for Competitive En-               was spread throughout 2008, with sig-
billion during 2008. In comparison,               ergy, had solid asset growth but mini-               nificant year-to-year growth occurring
total regulated revenues increased by             mal change in their share of total as-               in both the first and second halves of
$14.4 billion, or 5.2%, in 2007 rela-             sets. Competitive Energy assets fell by              the year. A 5% year-to-year increase in
tive to 2006. Regulated operations                $2.6 billion, or 1.3%.                               heating degree days helped counteract
accounted for nearly 70% of total in-                                                                  weakening demand from the economic
                                                     Total regulated assets (Regulated
dustry revenue in 2008, just above the                                                                 recession that developed during the year.
                                                  Electric plus Natural Gas Distribu-
69.0% and 68.9% levels in 2007 and                                                                     Although cooling degree days were down
                                                  tion) accounted for 69.5% of total
2006 respectively, up from 65.3% in                                                                    10% given 2007’s very hot summer
                                                  industry assets at year-end 2008, up
2005. The chart Business Segmenta-                                                                     months, 2008’s cooling degree days were
                                                  from 67.9% on December 31, 2007.
tion–Revenues presents the industry’s                                                                  5% above the norm.
                                                  This aggregate measure has steadily
revenue breakdown by business seg-
                                                  grown from 61.6% at the end of 2002,                    In addition to weather, there were
ment. Eliminations and reconciling
                                                  underscoring the significant rate base               several other drivers that affected
items were added back to total rev-
                                                  growth in recent years and the fact that             Regulated Electric revenues in 2007.
enues to arrive at the denominator for
                                                  several companies sold off non-core                  Improved pricing, the impact of rate
the segment percentage calculations
                                                  businesses during the period, often us-              relief over the past year, and rate base
shown in the charts Revenue Break-
                                                  ing proceeds to pay down debt.                       growth resulting from system upgrades
down 2008 and 2007r.
                                                                                                       and expansions more than offset the
                                                  Regulated electric                                   year’s 0.9% decline in output (which
2008 assets by Segment
                                                      Regulated Electric segment opera-                includes all power placed on the grid
   Regulated Electric assets increased                                                                 by electric utilities, IPPs and public
                                                  tions include the generation, transmis-
from 59.4% of total industry assets at                                                                 power authorities).
                                                  sion and distribution of regulated elec-
December 31, 2007 to 61.2% at De-
                                                  tricity to residential, commercial and                 During 2007, 72% of the com-
cember 31, 2008, as Regulated Electric
                                                  industrial customers. The Regulated                  panies increased regulated assets as a
assets grew by $82.2 billion, or 12.7%,



40      EEI 2008 FINANCIAL REVIEW
                                                                                                                 BuSineSS StRategieS



              Revenue Breakdown               2008                                 Revenue Breakdown                    2007r
      U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES                              U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES




                            Competitive                                                         Competitive
                              Energy                                                              Energy
                              24.9%                                                               25.1%


                 Natural Gas                                                          Natural Gas
                 Distribution                Regulated                                                              Regulated
                                                                                      Distribution
                    12.4%                     Electric                                                               Electric
                                                                                        12.3%
                                               57.2%                                                                  56.6%
  Natural Gas                                                        Natural Gas
   Pipeline                                                           Pipeline
     1.2%                                                               1.2%

 Natural Gas and                                                    Natural Gas and
 Oil Exploration Other                                              Oil Exploration
  & Processing 3.9%                                                  & Processing       Other
      0.4%                                                               0.4%           4.4%


r = revised

Source: EEI Finance Department and company annual reports



percent of total assets (or maintained         Competitive energy                               of new generation facilities, wholesale
a 100% regulated structure). Black                                                              energy sales and purchases, commod-
                                                  Competitive Energy segment rev-
Hills increased this ratio from 33.6%                                                           ity risk management and trading, and
                                               enues rose by 6.0% in 2008, increas-
at the end of 2007 to 65.6% at the                                                              retail electricity sales to residential and
                                               ing by $6.4 billion to $113.2 billion
close of 2008. The gain is mostly due                                                           business customers, all largely in Texas.
                                               from $106.8 billion in 2007. Com-
to the company’s completed asset pur-
                                               petitive Energy covers the generation
chase and merger with Aquila in July                                                            natural gas Distribution
                                               and/or re-sale of electricity in competi-
2008. Aquila’s natural gas and electric                                                            Natural Gas Distribution revenue
                                               tive markets, including both wholesale
utilities in Colorado, Iowa, Kansas                                                             rose by $3.9 billion, or 7.4%, in 2008,
                                               and retail transactions. Wholesale buy-
and Nebraska were acquired by Black                                                             due primarily to colder weather during
                                               ers are typically electric utilities seek-
Hills. Aquila’s Missouri electric utili-                                                        the heating months and partially to the
                                               ing to supplement generation capacity,
ties, stock and other corporate assets                                                          merger that formed Integrys Energy
                                               along with regional power pools and
were acquired by Great Plains Energy.                                                           (formerly WPS Resources). Heating
                                               large industrial customers. Competi-
    Sempra Energy’s regulated mix              tive Energy also includes the trading            degree days rose by 5% in 2008, but
rose to 62% at year-end 2008 from              and marketing of natural gas. Of the             were 1.0% below normal. The months
49% at year-end 2007. The increase             42 companies with Competitive assets             of March and October provided the
is largely the result of Sempra’s com-         at the beginning of 2008, 20 showed a            biggest impact in terms of additional
pleted joint venture with Royal Bank           year-to-year decline.                            heating degree days in 2008 relative to
of Scotland in April 2008, form-                                                                2007. Integrys was created when WPS
                                                  Energy Future Holdings (EFH),
ing the commodities joint venture                                                               acquired Peoples Energy on February
                                               formerly TXU, had the industry’s larg-
of RBS Sempra Commodities and                                                                   21, 2007. Integrys increased its Natu-
                                               est amount of Competitive Energy as-
greatly reducing the Commodities                                                                ral Gas Distribution revenues by $923
                                               sets, $43.1 billion, at year-end 2008.
assets that appear as a separate busi-                                                          million, or 44%, from $2.1 billion in
                                               EFH’s competitive segment engages
ness segment for Sempra Energy.                                                                 2007 to $3.0 billion in 2008. Over-
                                               in electricity generation, construction



                                                                                                     EEI 2008 FINANCIAL REVIEW          41
BuSineSS StRategieS



                       Asset Breakdown                                                    Asset Breakdown
                    As of December 31, 2008                                            As of December 31, 2007r
         U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES                         U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES




                          Competitive                                                       Competitive
     Natural Gas            Energy                                                            Energy
     Distribution           17.0%                                                             18.9%
         8.3%                                                           Natural Gas
                                                                        Distribution
                                             Regulated                      8.5%                                    Regulated
                                              Electric                                                               Electric
Natural Gas                                    61.2%                                                                  59.4%
 Pipeline                 Other                                       Natural Gas
   2.0%                  11.0%                                         Pipeline
                                                                                              Other
     Natural Gas and                                                     1.9%
                                                                                             10.9%
     Oil Exploration                                                   Natural Gas and
      & Processing                                                      Oil Exploration
          0.5%                                                           & Processing
                                                                             0.4%
r = revised

Source: EEI Finance Department and company annual reports



all, 31 of the 35 companies (89%)             Natural Gas E&P showed the highest                We use assets rather than revenue for
that report Natural Gas Distribution          revenue growth, at 30.3%, in 2008.            determining categories because we think
revenues showed year-to-year revenue          Of the five companies in our electric         assets provide a clearer picture of strate-
gains in 2008.                                utility universe with operations in this      gic trends. In recent years, soaring natu-
                                              segment, Oklahoma City’s OGE En-              ral gas prices impacted revenue so greatly
   Natural Gas Distribution includes
                                              ergy was the largest contributor, with        that some companies’ strategic approach
the delivery of natural gas to homes,
                                              2008 revenue growth of $254 million,          to business segmentation was distorted
businesses and industrial customers
                                              or 32%.                                       by reliance on revenue data alone.
throughout the United States, while
the Natural Gas Pipeline business                                                              Comparing the list of companies
                                              2007 Year-end List of Companies
concentrates on the transmission and                                                        from year to year reveals company
                                              By Category
storage of natural gas for local dis-                                                       migrations between categories and
tribution companies, marketers and               Early each calendar year, we create a      indicates the general trend in indus-
traders, electric power generators and        new list of shareholder-owned electric        try business models. We also base our
natural gas producers. Added togeth-          utility holding companies by business         quarterly category financial data dur-
er, Natural Gas Distribution, Natu-           category based on year-end business           ing the year on this list at the previous
ral Gas Pipeline, and Exploration &           segmentation data presented in 10Ks           year end.
Processing (E&P) activities produced          and supplemented by discussions with
                                                                                               The Regulated and Mostly Regu-
$63.7 billion of the industry’s rev-          parent companies. Our category defi-
                                                                                            lated groups totaled 44 and 19 com-
enues in 2008, up from $59.1 billion          nitions are as follows: Regulated (80%
                                                                                            panies, respectively, at year-end 2008,
in the year-ago period. In percent-           of holding company assets are regulat-
                                                                                            the same as at year-end 2007. The Di-
age terms, the revenue contribution           ed); Mostly Regulated (50%-79% of
                                                                                            versified group totaled six companies,
from natural gas activities remained          holding company assets are regulated);
                                                                                            down from seven at year-end 2007,
relatively unchanged, rising from             Diversified (less than 50% of holding
                                                                                            nine at year-end 2006 and 11 at year-
13.9% in 2007 to 14.0% in 2008.               company assets are regulated).
                                                                                            end 2005.



42          EEI 2008 FINANCIAL REVIEW
                                                                                                                   BuSineSS StRategieS


   Companies that moved into the               Indeed, the primary driving force                   Macquarie representative was quoted
Regulated category included Alliant         on the M&A front in 2008 was the                       in the energy press in October 2008
Energy and DTE Energy. Aquila was           larger global financial crisis. And what               as acknowledging that financing for its
removed from the Regulated group            did not occur was more indicative of                   acquisition of Puget Energy could not
due to its completed acquisition by         changing trends than what did. There                   have been arranged at that point due to
Great Plains Energy and Black Hills.        were no big strategic blockbuster deals                credit market stress following Lehman
Companies that moved to the Mostly          given sharply lower stock prices and                   Brothers’ September bankruptcy.
Regulated category were Black Hills         significantly impaired access to debt
                                                                                                      While frozen credit markets froze
and Sempra Energy from the Diversi-         financing. There were no additional
                                                                                                   much deal activity, the structural forces
fied group and MGE Energy from the          bids for regulated utilities by private
                                                                                                   in the utility industry that have driven
Regulated Group. The Diversified cat-       equity or infrastructure investors,
                                                                                                   M&A in recent years remained very
egory lost two companies and gained         who were seen in 2007 as a potential
                                                                                                   much in place, according to industry
PPL from the Mostly Regulated Cate-         new source of capital for utilities fac-
                                                                                                   analysts. Even though near-term capex
gory. The movement of companies was         ing large capital spending programs.
                                                                                                   budgets at many utilities were cut late
due to strategic business transactions      Depressed stock prices made strategic
                                                                                                   in 2008 due to the credit crisis, the
and the fact that some straddled the        buyers reluctant to bid with what ap-
                                                                                                   industry’s long-term capital spending
50% and 80% regulated asset cut-off         peared to be undervalued shares and
                                                                                                   needs will likely pressure the balance
points between categories, where small      also made targets reluctant to accept
                                                                                                   sheets of smaller utilities and lead to
percentage changes create category          what seemed to be undervalued bids.
                                                                                                   strategic combinations with larger
jumps. Two notable moves that were          And while beaten down stocks made
                                                                                                   firms once markets recover. Financially
caused by strategic transactions were       financial deals all the more attractive,
                                                                                                   strong European utilities remained in-
Black Hills acquisition of Aquila and       the inability to raise financing closed
                                                                                                   terested in the U.S. market and have
Sempra Energy’s joint venture with          off these possibilities too. In fact, a
                                                                                                   few M&A options at home due to
Royal Bank of Scotland related to its
Commodities business.
                                                             List of Companies by Category at December 31, 2008
                                              Regulated (44)
  Mergers and acquisitions                    Allete                           Great Plains Energy             Portland General Electric
                                              Alliant Energy                   Green Mountain Power            Progress Energy
                                              Ameren                           IDACORP                         Puget Energy
   The pace of utility M&A activity,          American Electric Power          IPALCO Enterprises              Southern
                                              Avista                           Kentucky Utilities              TECO Energy
when defined as mergers or acquisi-
                                              Central Vermont Public Service   KeySpan                         UIL Holdings
tions of whole operating companies,           CH Energy Group                  Louisville G&E                  UniSource
appeared to quicken in 2008 with six          Cleco                            Maine and Maritimes             Unitil
                                              CMS Energy                       Niagara Mohawk Power            Vectren
announced deals. Four of these were           Consolidated Edison              Northeast Utilities             Westar Energy
completed during the year and two             DPL                              NorthWestern Energy             Wisconsin Energy
                                              DTE Energy                       NSTAR                           Xcel Energy
were withdrawn. But the seemingly             Duquesne Light Holdings          NV Energy
robust numbers mask more impor-               El Paso Electric                 PG&E
                                              Empire District Electric         Pinnacle West Capital
tant trends. The deals were generally         Energy East                      PNM Resources
tiny—all but one was valued at under          Mostly Regulated (19)
$500 million. And the largest, Mid-           Black Hills                      FirstEnergy                     Otter Tail Power
                                              CenterPoint Energy               FPL Group                       Pepco Holdings
American’s bid for Constellation En-          Dominion Resources               Integrys Energy Group           Public Service Enterprise Group
ergy Group (subsequently rejected as          Duke Energy                      MGE Energy                      SCANA
                                              Edison International             MidAmerican Energy Holdings     Sempra Energy
too low), was the product of severe li-       Entergy                          NiSource
quidity crisis at Constellation resulting     Exelon                           OGE Energy
from its exposure to bankrupt Lehman          Diversified (6)
                                              Allegheny Energy                 Hawaiian Electric
Brothers and the lack of financing            Constellation Energy             MDU Resources
alternatives in what were essentially         Energy Future Holdings           PPL

shut-down credit markets.


                                                                                                       EEI 2008 FINANCIAL REVIEW                 43
BuSineSS StRategieS


                                                                                                 Cap Rock Energy (an electric distribu-
                        Status of Mergers & Acquisitions 1993–2008
                                                                                                 tion and transmission company serv-
                                 U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES
(Number of Mergers & Acquisitions)
                                                                                                 ing approximately 36,000 customers
30                                                                                               in 28 counties in north, west and cen-
                                                                                                 tral Texas) for $202.5 million. PNM
                                                                       Completed (91 total)      said it would use the net proceeds to
25
                                                                       Announced (117 total)     retire debt, fund future electric capital
                                                                       Withdrawn (28 total)      expenditures and for other corporate
20
                                                                                                 purposes. The company added that
                                                                                                 the planned sale of the gas utility is
15                                                                                               one of several moves to strengthen its
                                                                                                 financial position during an era of ris-
10                                                                                               ing costs, growing power demand and
                                                                                                 significant capital investment needs.
                                                                                                 Continental terminated the deal on
 5
                                                                                                 July 22, 2008 and agreed to pay PNM
                                                                                                 a $15 million termination fee. The sale
 0
     1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008             of PNM’s gas operations proceeded
                                                                                                 and closed in January 2009 for $640
     Source: EEI Finance Department                                                              million. PNM also said the sale allows
                                                                                                 it to focus on generation and delivery
                                                                                                 of electricity and on obtaining better
consolidation there. And it remains                   nent mergers announced in 2007. On
                                                                                                 regulatory treatment for its Texas and
easier for many utilities that need new               July 14, Black Hills and Great Plains
                                                                                                 New Mexico electric utilities.
generation to buy assets rather than                  Energy closed on their February 2007
build them, given the regulatory and                  buyouts of Aquila’s assets. On Sep-            On December 1, Unitil completed
political challenges that often come                  tember 16, Spanish utility Iberdrola       the purchase of Northern Utilities
with building new generation, unless it               completed its June 2007 announced          and Granite State Gas Transmission
is renewable generation. State renew-                 acquisition of Energy East, defying        from NiSource, announced on Febru-
able mandates are also a potential spur               predictions that the deal would fail.      ary 19, 2008, after gaining approvals
to M&A for companies facing renew-                    And, while not technically a 2008 clo-     from state regulators in Maine, New
able portfolio standards and uncer-                   sure, Macquarie successfully navigated     Hampshire and Massachusetts. The
tain means of achieving them. Duke’s                  state regulatory politics in 2008 and      acquisition added 52,000 natural gas
September 2008 acquisition of wind                    closed its acquisition of Puget Energy     distribution customers to the Unitil
energy developer Catamount Energy                     on February 6, 2009.                       system, about a 40% increase. The
is one example of a deal driven by the                                                           purchase price was $160 million, plus
desire to boost the renewable portfo-                 a Year of Small Deals                      $41.6 million for working capital, in-
lio. The potential for more stringent                                                            cluding approximately $33.9 million
                                                         Five deals valued at under $500 mil-
environmental regulations and a car-                                                             of natural gas storage inventory. There
                                                      lion were announced in 2008 and four
bon regime under the new Obama ad-                                                               was no acquisition premium. Unitil’s
                                                      of these were completed during the year.
ministration throw another wild card                                                             New Hampshire electric distribution
into the mix of potential M&A driv-                      The year’s first proposed deal was      operations share many customers and
ers, depending on the eventual shape                  the only of the five to be withdrawn.      communities with Northern and Unit-
of regulations.                                       On January 12, PNM Resources an-           il described Northern Utilities as a nat-
                                                      nounced the intention to sell its nat-     ural fit. The acquisition underscored
  Despite the absence of large deal                   ural gas operations to a subsidiary of     Unitil’s commitment to the region, ac-
announcements, 2008 did see the                       Continental Energy Systems for $620        cording to the company.
completion of several of the promi-                   million and to acquire Continental’s



44           EEI 2008 FINANCIAL REVIEW
                                                                                                                  BuSineSS StRategieS


                                                                                               growing its regulated utility. The deal
            Status of Announced Mergers & Acquisitions                                         closed on October 1.
                                        1993–2008
                                                                                                  On July 15, Sempra Energy an-
                     U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES                                 nounced the intent to acquire Mobile,
                                                                                               Ala.-based EnergySouth for $510 mil-
            Year               Completed       Announced           Withdrawn
                                                                                               lion in cash. Central to the transaction
            1993                    2                3                 1
            1994                                                       0
                                                                                               was Sempra’s interest in the assets of
                                    1                5
            1995                    2                8                 4                       EnergySouth’s subsidiary, EnergySouth
            1996                    1               13                 3                       Midstream, which included majority
            1997                   13               11                 3
                                                                                               ownership in two large, high-cycle un-
            1998                    9               10                 ––
            1999                   10               26                 2                       derground natural gas storage facilities.
            2000                   23                9                 1                       When fully developed, these will offer
            2001                    6                5                 4
                                                                                               57 billion cubic feet (Bcf ) of capacity
            2002                    5                2                 3
            2003                    1                2                 1                       in the nation’s fastest-growing natural
            2004                    1                3                 1                       gas markets. Sempra Energy also ac-
            2005                    1                3                 0                       quired Mobile Gas Service Corp., an
            2006                    3                7                 2
            2007                    6                4                 1                       Alabama natural gas distribution util-
            2008                    7                6                 2                       ity owned by EnergySouth. Mobile
                                                                                               Gas serves approximately 93,000 cus-
            Totals                 91               117                28
                                                                                               tomers in southwest Alabama, a region
          Source: EEI Finance Department
                                                                                               that stands to benefit from strong eco-
                                                                                               nomic development within its service
   Duke Energy on June 25 an-                an agreement to acquire Intermountain             territory. Sempra said the acquisition
nounced its intent to acquire Cata-          Gas Company, a wholly-owned subsid-               supports its natural gas strategy by
mount Energy, a transaction designed         iary of privately held Intermountain In-          expanding its Gulf Coast operations
to significantly increase Duke’s wind        dustries, Inc. The transaction was valued         to key markets where gas demand
energy operations and advance its            at approximately $328 million
carbon emissions reduction plans.            including debt. Intermoun-
Catamount develops wind projects in          tain Gas, headquartered in
                                                                                             Merger Impacts 1995–2008
the U.S. and United Kingdom and              Boise, Idaho, serves more
                                                                                   U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES
has approximately 300 megawatts of           than 300,000 customers in
                                                                                          Date             No. of Utilities Change
renewable energy in operation, in-           74 communities in Idaho.
                                                                                       12/31/95                 98               N/A
cluding an interest in the Sweetwater        MDU called Intermoun-
                                                                                       12/31/97                 96          (2.04%)
project in Nolan County, Texas, one of       tain’s service territory and              12/31/99                 83         (13.54%)
the largest wind projects in the world.      culture a great long-term                 12/31/00                 71         (14.46%)
Catamount had approximately 1,750            strategic fit. MDU’s regu-                12/31/01                 69          (2.82%)
megawatts of development interests in        lated operations territory                12/31/02                 65          (5.80%)
several states and the U.K. at the time      stretches from Minnesota to               12/31/03                 65             –
the deal was announced. The transac-         the Pacific Northwest while               12/31/04                 65             –
tion, which included a $240 million          Intermountain operates in                 12/31/05                 65             –
purchase price plus $80 million of as-       a high-growth area with                   12/31/06                 64          (1.54%)
sumed debt, closed on September 15.          recent customer growth                    12/31/07                 61          (4.69%)
                                                                                       12/31/08                 59          (3.28%)
                                             of approximately 4.5 per-
   Two natural gas focused acquisitions                                             Number of Companies Declined by 40% since Dec.’95
                                             cent annually. MDU said
were announced in July and each closed                                              Note: Based on completed mergers in the EEI Index group
                                             the acquisition advances               of electric utilities.
on October 1. On July 1, MDU Re-
                                             its long-term objective of             Source: EEI Finance Department
sources Group announced it entered into



                                                                                                     EEI 2008 FINANCIAL REVIEW                45
                                             Mergers & acquisitions announcements                                              updated through December 31, 2008
                                                                                       U.S. ShAREhoLdER-oWNEd ELECtRIC UtILItIES
                                                                                                 new        Date         Months to
ann’cd      Buyer                           Seller/acquired/Merged               Status        Company      Completed    Complete    Bus.   terms                                                                     trans. Val. ($M)
17-Sep-08 Berkshire hathaway                Constellation Energy Group Inc.        W                        17-dec-08    3           PE     $1.2 bill cash + $6.0 bill debt + $1.9 bill inventory & post ret. ben.            9,152.5
25-Jul-08   Sempra Energy                   EnergySouth Inc.                       C                        1-oct-08     3           EG     $499 million cash + 283 million debt                                                771.9
1-Jul-08    MdU Resources Group, Inc.       Intermountain Gas Co.                  C                        1-oct-08     3           EG     $245 million cash + $82 million debt                                                327.0
25-Jun-08 duke Energy                       Catamount Energy Corp.                 C                        12-Sep-08    3           EP     $240 million cash + $80 million assumed debt                                        320.0
15-Feb-08 Unitil Corp.                      Northern Utilities, Inc./ Granite                               1-dec-08     10          EG     $160 million cash                                                                   160.0
                                            State Gas transmission, Inc.           C
12-Jan-08   PNM Resources, Inc.             Cap Rock holding Corp.                 W                        22-Jul-08    6           EE                                                                                         202.5
26-oct-07   Macquarie Consortium            Puget Energy                           P                                                 EE     $3.5 bill. cash + $3.02 bil. net debt                                             6,520.2
25-Jun-07 Iberdrola S.A.                    Energy East Corp.                      C                        16-Sep-08    15          EE     $4.5 bill. cash + $4.1 bil. net debt                                              8,600.0
26-Feb-07 KKR & texas Pacific Group         tXU Corp.1                             C      Energy Future     10-oct-07    8           PE     $31.8 bill. cash + $12.1 bill. net debt                                          43,882.0
                                                                                          holdings Corp.
7-Feb-07    Black hills Corp.               Aquila Inc. (Co elec. util. + Co,      C                                                 EG     $940 million cash + working capital and other adjustments                           940.0
                                            KS NE, IA gas utils.)                                           14-Jul-08    17
7-Feb-07    Great Plains Energy Inc.        Aquila Inc. (Mo electric util.         C                                                 EE     $1.7 billion cash and stock + $1.0 billion assumed debt                          2,700.00
                                            assets)                                                         14-Jul-08    17
8-Jul-06    MdU Resources Group, Inc.       Cascade Natural Gas Corp.              C                        2-Jul-07     12          EG     $305.2 mm in cash + ($173.6 in debt - $13.0 in cash equivalents)                    465.8
8-Jul-06    WPS Resources Corporation       Peoples Energy Corporation             C      Integrys Energy   21-Feb-07    7           EG     $2.47 bill.                                                                       2,472.4
5-Jul-06    Macquarie Consortium            duquesne Light holdings                C                        31-May-07    10          EE     $1.59 bill. cash + $1.17 bill. total debt                                         2,766.0
22-Jun-06   Gaz Metro LP                    Green Mountain Power Corp.             C                        12-Apr-07    10          EE     $187 million in cash + ($100.8 debt - $9.1 mm in cash equivalents)                  279.5
11-May-06 ItC holdings Corp                 Michigan Electric transmission Co.     C                        10-oct-06    5           EE     $485.6 mm cash + $70 mm common stock + $311 mm assumed debt                         866.6
25-Apr-06   Babcock and Brown Infrastructure NorthWestern Corp.                    W                        24-Jul-07                EE     $2.2 bill. cash                                                                   2,200.0
27-Feb-06 National Grid                     KeySpan Corp.                          C                        24-Aug-07    18          EE     $7.4 bill. cash + $4.5 bill. long-term debt                                      11,877.5
19-dec-05 FPL Group Inc.                    Constellation Energy Inc.              W                        25-oct-06                EE     $11.3 bill. equity + $4.1 bill. net debt and pension liabilities                 15,311.5
24-May-05 MidAmerican Energy holdings Co. Pacificorp                               C                        21-Mar-06    10          EE     $5.1 bill. cash + $4.2 bill. net debt and preferred stock                         9,300.0
9-May-05    duke Energy Corp.               Cinergy Corp.                          C                        3-Apr-06     11          EE     $9.1 bill. equity + $5.5 bill. net debt and pension liabilities                  14,600.0
20-dec-04 Exelon Corp.                      Public Service Enterprise Group        W                        14-Sept-06               EE     $12.3 bill. in equity + $13.4 bill. in net debt and pension liabilities          25,700.0
25-Jul-04   PNM Resources                   tNP Enterprises                        C                        6-Jun-05     12          EE     $189 mm cash and equity + $835 mm net debt                                        1,024.0
3-Feb-04    Ameren Corp                     Illinois Power1                        C                        1-oct-04     8           EE     $400 mm cash + $1.9 bill. net debt and preferred stock                            2,300.0
24-Nov-03 Saguaro Utility Group L.P.        UniSource Energy                       W                        30-dec-04                PE     $850 mm cash + $2 bill. in debt                                                   2,850.0
3-Nov-03    Exelon Corp.                    Illinois Power                         W                        22-Nov-03                EE     $275 mm cash + $150 mm promissory note + $1.8 bill. in debt                       2,225.0
30-Apr-02   Aquila Inc                      Cogentrix Energy Inc                   W                        2-Aug-02                 EIPP   $415 mm cash + $1.125 bill. net debt                                              1,540.0
29-Apr-02   Ameren Corp                     CILCoRP2                               C                        31-Jan-03    9           EE     $541 mm cash + $41 mm pref. stock + $781 mm net debt                              1,363.0
8-oct-01    Northwest Natural Gas           Portland General                       W                        16-May-02                GE     $1.55 bill. cash + $250 mm equity + $75 mm assumed liab.                          1,875.0
20-Sep-01 duke Energy                       Westcoast Energy                       C                        14-Mar-02    6           EG     Equity + cash valued at $27.90 per Westcoast share                                8,500.0
10-Sep-01 dominion Resources                Louis dreyfus Natural Gas              C                        1-Nov-01     2           EG     $890 mm cash + $900 million stock + $505 mm debt                                  2,295.0
20-Feb-01 Energy East                       RGS Energy                             C                        28-Jun-02    16          EE     $1.4 bill. cash & equity + $1.0 bill. net debt                                    2,400.0
12-Feb-01 PEPCo                             Conectiv                               C                        1-Aug-02     18          EE     $2.2 bill. cash & equity + $2.8 bill. net debt                                    5,000.0
09-Nov-00 PNM                               Western Resources3                     W                        8-Jan-02                 EE     Stock transfer                                                                    4,442.0
02-oct-00   NorthWestern                    Montana Power4                         C                        15-Feb-02    16          EE     $1.1 bill. in cash                                                                1,100.0
5-Sep-00    National Grid Group             Niagara Mohawk                         C                        31-Jan-02    16          EE     $19 per share                                                                     8,900.0
8-Aug-00    FirstEnergy                     GPU Inc.                               C                        7-Nov-01     15          EE     $35.60 per share                                                                 12,000.0
31-Jul-00   FPL Group                       Entergy                                W                        2-Apr-01                 EE     1/1 - FPL, 0.585/1 - EtR                                                         27,000.0
17-Jul-00   AES Corporation                 IPALCo                                 C                        27-Mar-01    8           IPPE   $25 per share                                                                     3,040.0
    30-Jun-00     NS Power                            Bangor hydro                           C   Emera                 10-oct-01      16           EE      $26.50 per share                                                          206.0
    30-May-00 WPS Resources                           Wisconsin Fuel and Light               C                         2-Apr-01       11           EG      1.73 shares of WPSR                                                           55.0
    28-Feb-00 PowerGen plc                            LG&E                                   C                         11-dec-00      10           EE      $24.85 per share                                                        5,400.0
    10-Nov-99 Energy East                             Berkshire Energy Resources             C                         01-Sep-00      10           EG      $38 per share                                                             136.0
    08-Nov-99 Sierra Pacific Resources                Portland General                       W                         26-Apr-01                   EE      $2.1 bill.                                                              3,100.0
    04-Nov-99 KeySpan                                 Eastern Enterprises                    C                         09-Nov-00      12           EG      $64 per share                                                           2,500.0
    25-oct-99     Berkshire hathaway                  MidAmerican Energy                     C                         14-Mar-00      5            PE      $35.05 per share                                                        9,000.0
    13-oct-99     Consolidated Edison                 Northeast Utilities                    W                         15-Mar-01                   EE      $25 per share                                                           7,500.0
    05-oct-99     dtE Energy                          MCN Energy                             C                         31-May-01      19           EG      $28.50 per share                                                        4,600.0
    23-Sep-99 Peco Energy Co.                         Unicom Corp.                           C   Exelon                23-oct-00      13           EE      0.95/1 - UCM, 1/1 - PE                                                 31,800.0
    09-Sep-99 Allegheny Energy                        West Virginia Power                    C                         04-Jan-00      4            EE      $75 million                                                                   75.0
    23-Aug-99 Carolina Power & Light                  Florida Progress                       C   Progress Energy       30-Nov-00      15           EE      $54 per share                                                           8,000.0
    30-Jun-99     Energy East                         CtG Resources                          C                         01-Sep-00      15           EG      $41 per share                                                             575.0
    28-Jun-99     Wisconsin Energy Corp.              Wicor Inc.                             C                         26-Apr-00      10           EG      $31.50 per share                                                        1,275.0
    15-Jun-99     Energy East                         CMP Group, Inc.                        C                         01-Sep-00      15           EE      $29.50 per share                                                        1,228.0
    15-Jun-99     Northeast Utilities                 Yankee Gas                             C                         01-Mar-00      9            EG      $45 per share                                                             679.0
    14-Jun-99     dynegy                              Illinova                               C                         02-Feb-00      7            IPPE    0.69/1 - dYN, 1/1 - ILN                                                 2,000.0
    14-Jun-99     Indiana Energy                      SigCorp                                C   Vectren               31-Mar-00      9            GE      1.33/1 - SIG, 1/1- IEI                                                  1,900.0
    07-Jun-99     Nisource Inc.                       Columbia Energy                        C                         01-Nov-00      17           EG      $74 per share                                                           6,200.0
    25-May-99 S.W. Acquisition Corp.                  tNP Corporation                        C                         07-Apr-00      11           PE      $74 per share                                                             100.0
    17-May-99 oGE Energy                              transok LLC                            C                         01-Jul-99      2            EG      $701 million                                                              701.0
    11-May-99 Utilicorp United                        Empire district Electric               W                         03-Jan-01                   EE      $29.50 per share in cash or stock                                         765.0
    23-Apr-99     Energy East                         Connecticut Energy                     C                         09-Feb-00      9            EG      $42 per share, 50% cash and 1.43-1.82/1 - CNE                             617.0
    25-Mar-99 Northern States Power                   New Century Energies                   C   Xcel Energy           17-Aug-00      17           EE      1.55/1 - NCE, 1/1 - NSP                                                 6,000.0
    05-Mar-99 Utilicorp United                        St. Joseph Power & Light Co.           C                         29-dec-00      21           EE      $23 per share                                                             277.0
    22-Feb-99 dominion Resources                      Consolidated Natural Gas Co.           C                         28-Jan-00      11           EG      $66.60 per share                                                        6,400.0
    17-Feb-99 SCANA Corp                              PSC of North Carolina                  C                         10-Feb-00      12           EG      $33 per share or 1.02-1.45 shares of SCG                                9,000.0
    01-Feb-99 National Grid USA/NEES                  Eastern Utilities Associates           C                         19-Apr-00      14           EE      $31 per share in cash                                                     634.0
    01-Feb-99 Sempra Energy                           KN Energy                              W                         01-Jun-99                   EG      $25 per share                                                                  6.0
    17-dec-98 Scottish Power                          Pacificorp                             C                         29-Nov-99      11           EE      0.58 AdRs of SPI                                                        7,900.0
    14-dec-98 National Grid Group Plc                 New England Electric Systems           C   National Grid USA 22-Mar-00          15           EE      $54.207 per share in cash                                               3,200.0
    01-dec-98 BEC Energy                              Commonwealth Energy System             C   NStAR                 26-Aug-99      9            EE      1.05/1 - CES, 1/1 - BEC                                                   950.0
    01-Nov-98 AES Corporation                         Cilcorp                                C                         18-oct-99      11           IPPE    $65 per share in cash                                                     885.0
    01-Nov-98 CP&L                                    North Carolina Natural Gas Corp.       C                         01-Jul-99      9            EG      $35 per share in CPL common stock                                         354.0
                                                      Equitable Res.
    01-Sep-98 AEP Resources                           (Mid-stream Gas opr.)                  C                         01-dec-98      4            EG
    01-Aug-98 CalEnergy                               Mid-American Energy                    C                         12-Mar-99      7            IPPE    $27.15 per share in cash                                                2,480.0
    01-May-98 Consolidated Edison                     orange & Rockland Utilities            C                         08-Jul-99      14           EE      $58.50 per share in cash                                                  790.0
    01-Apr-98     Sierra Pacific Resources            Nevada Power                           C                         July-28-99     15           EE      1.44/1 - SRP, 1/1 - NVP                                                 4,000.0

1                                                                                                  4
    tXU (now Energy Future holdings Corp.) was acquired by the texas Energy Future holdings            PNM purchased Western Resources’ electric operations including generation,
    Limited Partnership (tEF) on 10/10/2007.                                                           transmission, and distribution.                                                            C = Completed   o = oil
    tEF was formed by a group of investors led by Kohlberg Kravis Roberts and texas Pacific                                                                                                       W = Withdrawn   IPP = Independent
                                                                                                   5
    Group to facilitate the merger.                                                                    NorthWestern Corporation purchased Montana Power’s electric and natural gas transmission                         Power Producer
                                                                                                       and distribution assets.
                                                                                                                                                                                                  PN = Pending
2                                                                                                                                                                                                 E = Electric    P = Privatized
    Ameren purchased Illinois Power from dynegy Corporation. dynegy Corp acquired Illinois
    Power in February 2000.                                                                                                                                                                       G = Gas
                                                                                                   NA= Acquired company privately held or no data available
3
    Ameren purchased CILCoRP from AES Corporation. AES Corp acquired CILCoRP in                    Source: EEI Finance department and SNL Financial
    october 1999.
BuSineSS StRategieS


outpaces the national average. The           gation of future rate increases along         Energy and its wholly-owned utility
transaction was expected to be slightly      with reduced recovery of transaction          subsidiary Puget Sound Energy, for
accretive to earnings in 2009 and con-       costs, which led to the deal’s approval       $30 a share. The deal, announced in
tribute up to $0.30 per share in 2012.       by the Missouri commission in a two           October 2007, encountered some re-
Sempra Energy funded the transaction         to one vote on July 1.                        sistance from intervenors, including
from operating cash flow and debt.                                                         the Washington State Attorney Gen-
                                                 Iberdrola and Energy East also navi-
                                                                                           eral’s office, who expressed concern
                                             gated at-times turbulent regulatory
2007 Vintage Deals get                                                                     that high leverage posed too much risk
                                             politics to gain New York regulatory ap-
Perfect Score                                                                              for rate payers and questioned whether
                                             proval on September 3, 2008 for their
   Five transactions were announced in                                                     Macquarie’s ownership would deliver
                                             proposed transaction, which was com-
2007. The largest of these, TXU’s buy-                                                     lower financing costs than the utility
                                             pleted on September 16. FERC and
out by private equity investors, was com-                                                  could get on its own. Puget stock fell
                                             regulators from Connecticut, Maine and
pleted in October 2007. The four oth-                                                      $2 on June 19 as word of the testimony
                                             New Hampshire approved the deal but
ers were navigating regulatory approval                                                    spread. Washington State regulators,
                                             New York regulators were concerned
as 2008 began and all were successfully                                                    however, approved the deal in a two to
                                             about vertical market power in the state
completed in 2008 or early in 2009.                                                        one vote on December 31, 2008 and
                                             and recommended the transaction be
                                                                                           said the merger offered clear benefits to
    On July 14 Black Hills and Great         rejected. The merger, however, received
                                                                                           ratepayers and to the region. Indeed,
Plains Energy completed their acqui-         support from prominent New York poli-
                                                                                           on January 16, after both Macquarie
sitions of Aquila’s assets, a deal an-       ticians including Governor David Patter-
                                                                                           and Puget Sound Energy accepted the
nounced in February 2007. In the two-        son, U.S. Senator Charles Schumer and
                                                                                           Washington Utilities and Transporta-
part transaction, Black Hills acquired       State Senator Joseph Bruno, who were
                                                                                           tion Commission merger approval or-
Aquila’s electric utility in Colorado        pleased with Iberdrola’s goal publicized
                                                                                           der, Standard & Poor’s increased PSE’s
and Aquila’s four natural gas utilities in   in June to invest $2 billion in renewable
                                                                                           corporate credit rating to BBB from
Colorado, Iowa, Kansas and Nebraska.         energy in New York State over the next
                                                                                           BBB- and its secured bond rating to A-
Great Plains Energy acquired Aquila’s        five years if regulators approve the deal.
                                                                                           from BBB+. The ratings upgrade pro-
outstanding shares along with its Mis-       The New York PSC conditionally ap-
                                                                                           duced savings for PSE customers due
souri electric utility assets. Black Hills   proved the merger on September 3, but
                                                                                           to reduced borrowing costs. Puget said
cited the broadening of its regional         only with a long list of provisions that it
                                                                                           the transaction will enable it to contin-
presence and retail utility base as driv-    said were designed to enhance ratepayer
                                                                                           ue to make significant investments in
ers of its interest in the deal. Great       financial benefits, mitigate vertical mar-
                                                                                           renewable resources to meet evolving
Plains cited improved operational and        ket power, protect the utilities’ finan-
                                                                                           green energy requirements and in its
scale efficiencies resulting from the        cial condition, improve transmission
                                                                                           natural gas and electricity distribution
companies’ adjacent service territories,     and distribution system reliability, and
                                                                                           system. And at a time of tremendous
reduced overhead expenses, more ef-          strengthen service quality. The merger’s
                                                                                           strain in credit markets, the merger
ficient procurement and investments          approval process highlighted a trend that
                                                                                           enabled PSE to enter into new credit
in infrastructure and energy efficiency.     appears to be gaining impetus in merger
                                                                                           facilities with five-year terms. Macqua-
The Great Plains side of the transac-        negotiations—the citing of environ-
                                                                                           rie also offers the utility access to up to
tion encountered some resistance from        mental-related benefits as a deal driver,
                                                                                           $1 billion a year in new capital for the
shareholders and the Missouri Public         similar to the cancellation of TXU’s
                                                                                           next five years.
Service Commission Staff, who recom-         coal plant construction plans that led to
mended that the PSC reject the deal          Texas’ approval of the TXU buyout by
                                                                                           Credit Crisis Hits
due to concerns that it would hurt the       private equity investors in 2007.
                                                                                           Constellation energy
company’s credit rating and not ben-            Australia-based global infrastruc-
                                                                                              The year’s only proposed deal that
efit rate payers. Great Plains modified      ture investor Macquarie Group on
                                                                                           envisioned the acquisition of a large,
deal terms in February 2008 to include       February 6, 2009 completed its $7.4
                                                                                           stand-alone utility holding company—
earlier savings to customers and miti-       billion merger transaction with Puget
                                                                                           MidAmerican’s $4.7 billion or $26.50



48       EEI 2008 FINANCIAL REVIEW
                                                                                                        BuSineSS StRategieS


per share offer on September 17 for         immediate $1 billion cash investment        2008, and by late February 2009 NRG
Constellation Energy—was a direct           in Constellation, to be credited against    shareholders had tendered over 51% of
result of the credit crisis and not, like   the purchase price, and entered into an     the outstanding shares of NRG com-
blockbuster deals of previous years,        agreement to allow Constellation to         mon stock. Exelon subsequently ex-
motivated primarily by a strategic vi-      sell EDF up to $2 billion in non-nu-        tended its offer until June 26, giving it
sion of scope, scale and synergies lead-    clear generation assets over a two-year     time to seek regulatory approval for the
ing to increased operating efficiencies     period as an insurance against further      transaction and solicitation of proxies
and a larger footprint in nationwide        liquidity pressures.                        for the election of NRG directors at the
energy markets. Constellation’s stock                                                   NRG annual meeting, likely in May.
had been driven from near $60/share         exelon Bids for nRg
down to $24 in a matter of days fol-            Finally, in another proposed deal,
lowing the September bankruptcy             Exelon on October 19 offered to ac-
                                                                                                   Construction
of Lehman Brothers due to concerns          quire independent power producer
about Constellation’s exposure to           NRG in an all-stock transaction valued      generation
Lehman and general fears about li-          at $26.43 for each NRG common share
quidity at Constellation’s energy trad-                                                 New Capacity Online
                                            (a 37% premium to NRG’s October
ing business. Constellation viewed          17 closing price), representing a total        After two years of declining capac-
Warren Buffet’s MidAmerican as an           equity value of approximately $6.2 bil-     ity additions, shareholder-owned elec-
ideal suitor who could offer the capi-      lion based on Exelon’s $54.50 closing       tric utilities brought 8,852 MW of
tal strength necessary for immediate        price on October 17. Exelon said the        new capacity into operation in 2008,
financial stability and a track record      combination would geographically di-        70% more than in 2007. New plants
of successful M&A, evidenced most           versify its generation portfolio and cre-   accounted for 3,263 MW and expan-
recently in MidAmerican’s 2006 acqui-       ate immediate earnings and cash flow        sions 5,590 MW. The U.S. power in-
sition of PacifiCorp. The withdrawal        accretion. The proposal, made possible      dustry as a whole increased total capac-
of Constellation’s planned merger with      in part by the decline in NRG’s share       ity by only 17% in 2008.
FPL Group in March 2006 after a diffi-      price from near $40 in late August to           Even more than 2007, 2008 was the
cult year-long navigation of Maryland       the mid-teens by mid-October fol-           year of new wind farms. Wind capacity
regulatory politics underscored the ap-     lowing Lehman’s bankruptcy and the          additions broke a new record and, for the
peal of PacifiCorp’s successful M&A         freezing of credit markets, offered a       first time, the entire power sector added
record. The proposed merger ran into        number of benefits to the combined          as much wind capacity as natural gas ca-
immediate resistance from sharehold-        companies, according to Exelon. These       pacity. Wind accounted for 68% of total
ers who thought the price underval-         included enhanced scope and scale (the      megawatts from new plants placed into
ued Constellation’s generation assets       combination would create the largest        operation by shareholder-owned electrics
and prompted a $35 per share offer          power company in the U.S.), increased       and 60% of new plants brought online
on September 19 by French nuclear           generation efficiency with combined         by the broader industry—surpassing,
giant EDF Group (owner of 9.5% of           nuclear operations, fuel diversifica-       in both cases, the relative contribution
Constellation’s stock) along with pri-      tion for both companies, substantial        from all other fuel types. The prolifera-
vate equity investors Kohlberg, Kra-        operating synergies, and Exelon’s fi-       tion of state renewable energy standards
vis, Roberts & Co. and TPG Group.           nancial strength in support of NRG’s        (RES) and wind’s lack of fuel cost have
Negotiations continued through the          more leveraged balance sheet. NRG           helped make it an increasingly popular
fall and resulted in a December 17          rejected the proposal, asserting that       generation choice in windy parts of the
announcement by Constellation that          it undervalued the company given its        country.
it would cancel the planned merger          depressed stock price, although NRG
with MidAmerican, remain an inde-                                                          FPL Group remained the leader
                                            acknowledged the logic of a strategic
pendent company and sell 49.99% of                                                      in new wind investment nationwide.
                                            fit between the two companies. Exelon
its nuclear-generation operations to                                                    FPL was responsible for a third of total
                                            brought its exchange offer directly to
EDF for $4.5 billion. EDF made an                                                       wind additions by the U.S. power sec-
                                            NRG shareholders on November 12,



                                                                                            EEI 2008 FINANCIAL REVIEW         49
BuSineSS StRategieS


tor in 2008 and almost 60% of the to-       announcements                                        8,000 MW in Q2 to 1,700 in Q3 to 1,300
tal added by shareholder-owned elec-                                                             MW in Q4. All fuel sources except wind
                                                The entire electric industry announced
trics. Texas continues to lead all states                                                        showed declines.
                                            over 113,000 MW of new capacity during
in wind capacity, with over 7,500 MW
                                            2008. Not only was this the highest level               Shareholder-owned utilities have
(7% of the U.S. total) in place and
                                            since 2001, but 87,000 MW were renew-                traditionally been the nation’s core
another 17,500 MW in the proposal
                                            able projects (of which 32 GW were hydro             suppliers of baseload power and they
stage. Iowa has become the state with
                                            and 44 GW were wind projects), reflecting            built most of the country’s coal-fired,
the largest percentage of wind in its en-
                                            the rising prominence of renewable gen-              combined cycle and nuclear plants.
ergy mix, at 18% of installed capacity.
                                            eration. Shareholder-owned electrics, how-           The pattern seen since late-summer
                                            ever, were responsible for only 13% of the           2008, however, shows an almost ex-
Cancellations
                                            total 113,000 MW, and announced 40%                  clusive interest in renewable energy by
   At just under 5,000 MW, cancella-        less new capacity in 2008 than in 2007. Af-          all segments of the industry. It is too
tions by the shareholder-owned utili-       ter 2007’s wave of coal cancellations, share-        early to tell if this will be a long-term
ties in 2008 were one-third the level       holder-owned utilities announced only one            trend that impacts the way the power
in 2007. Unlike 2007, when a large          coal project in 2008 (the expansion of an            sector ensures reliability for a growing
number of coal-fired projects were can-     existing AES plant in Oklahoma) which                demand base.
celled, shareholder-owned electrics did     was cancelled in February 2009. In fact,                Shareholder-owned utilities have
not cancel any major projects last year.    new capacity announcements fell dramati-             over 90,000 MW of projects in the
The coal-fired capacity that was can-       cally as the year progressed, from almost            pipeline, of which 80,000 MW are
celled came largely from three projects
—postponements by Pinnacle (1,200
MW in Arizona) and AEP (630 MW                             New Capacity Online (MW) 2004-2008
in Ohio) and one cancellation by PNM
(630 MW in Texas). FPL’s postponed                                                          U.S. Shareholder-
                                                                                             Owned Electric             Entire
Tesla natural gas project in California                  2008p                                   Utilities             Industry
accounted for almost all gas-fired ca-                   New plant                                3,263                11,005
pacity cancelled or postponed during                     Plant expansions                         5,590                 8,619
the year. The broad industry also fol-                   Total                                    8,852                19,624
lowed a similar pattern by cancelling
                                                         2007r
only about half as much as in 2007.                      New plant                                  2,003              11,517
                                                         Plant expansions                           3,201               5,290
   The financial crisis that worsened
                                                         Total                                      5,204              16,807
during 2008’s fourth quarter did not
appear to have an immediate effect on                    2006
additions or cancellations. Some pre-                    New plant                                  2,642               6,901
liminary evidence, however, suggested                    Plant expansions                           3,049               6,274
                                                         Total                                      5,691              13,175
that smaller renewable development
was being constrained by unavailable                     2005
or more expensive financing. And the                     New plant                                 3,976                9,396
delays that have affected an increasing                  Plant expansions                          6,309               11,131
                                                         Total                                    10,284               20,526
number of big renewable and fossil-
fueled projects seemed driven by re-                     2004
ductions in expected electricity de-                     New plant                                  6,305              18,986
mand growth in addition to a higher                      Plant expansions                           2,136               7,885
                                                         Total                                      8,441              26,871
cost of capital.
                                                         Note: Totals may reflect rounding. Historical data subject to revision.

                                                         Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department




50       EEI 2008 FINANCIAL REVIEW
                                                                                                                                                     BuSineSS StRategieS



                                         New Capacity Online by Fuel Type 2004-2008

         (MW)
            30,000
                                                                                                                                                  Coal
                                                                                                                                                  Natural Gas
            25,000
                                                                                                                                                  Nuclear
                                                                                                                                                  Wind
            20,000                                                                                                                                Other


            15,000



            10,000



             5,000



                 0
                       Shareholder- Entire       Shareholder-         Entire      Shareholder-    Entire         Shareholder-     Entire      Shareholder-          Entire
                        Owned       Industry       Owned             Industry       Owned        Industry          Owned         Industry       Owned              Industry
                         2004        2004           2005              2005           2006         2006              2007          2007          2008p               2008p



                                       U.S. Shareholder-Owned Elecric Utilities                                                   Entire Industry
     Fuel Type                Online           Online     Online    Online              Online       Online             Online         Online             Online        Online
                              2004             2005       2006       2007               2008p        2004               2005           2006               2007r         2008p
     Coal                         —              —          110                 479       790          670                329               534           2,091         1,390
     Natural Gas              8,054            9,255      4,126           3,483         4,687       25,057            17,774          9,459               7,506         8,946
     Nuclear                      79            247         350                  —        422               79            247               350           1,199           434
     Wind                       306             781       1,051           1,240         2,857          484              1,924         2,405               5,022         8,319
     Other                         3              2             54                2        96          581                252               427             989           536
     Total                    8,441         10,284        5,691            5,204        8,852       26,871            20,526         13,175              16,807        19,624

     Note: Other = diesel, fuel oil, landfill gas, pet coke, solar/PV, waste heat, water, wood, biomass, and fuel cells.
     Entire Industry includes all new capacity placed on the grid by shareholder-owned electric utilities, independent power producers, municipals,
     co-ops, government authorities and corporations. Data includes expansions and new plants.

     p = preliminary

     Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department




fueled by coal, gas or uranium. In rela-                 PPAs with smaller renewable develop-                              although new nuclear reactors will not
tion to the broader industry, the share-                 ers to buy their electricity production.                          be immune to controversy and face a
holder-owned segment accounts for                                                                                          different set of financial and regulatory
                                                            Despite the recession-induced slow-
26% of total projects in the pipeline                                                                                      hurdles. In 2008, shareholder-owned
                                                         down in demand growth likely over
and 45% of the coal, gas and nuclear                                                                                       utilities submitted Construction and
                                                         the short to medium term, additional
capacity expected online before 2020.                                                                                      Operating License (COL) applications
                                                         baseload generation will still be needed
This sector has naturally a lesser per-                                                                                    to the Nuclear Regulatory Commis-
                                                         in many power markets over the long-
centage of renewables in their con-                                                                                        sion (NRC) for an additional 19 nu-
                                                         term. In light of the resistance facing
struction plans than the broader indus-                                                                                    clear reactors, which brought the total
                                                         many announced coal plants, several
try, as they tend to enter into LPs and                                                                                    number of reactors pending approval
                                                         utilities have turned to nuclear power,



                                                                                                                                  EEI 2008 FINANCIAL REVIEW                      51
BuSineSS StRategieS



                                       New Capacity Online by Region 2004-2008
                                               U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES
                      2004                           2005                       2006                       2007                           2008
     Region      Online Cancelled           Online     Cancelled          Online Cancelled           Online   Cancelled              Online Cancelled
     ECAR        1,934     2,054                —         1,736              —        —                 —         —                    —         —
     ERCOT          —        500              324         1,100             381      500              551      6,575                1,095       729
     FRCC        1,118        —             2,874         2,493              —       188            2,040      2,977                   —         —
     MAAC        1,369        —               750         1,161              —        —                 —         —                    —         —
     MAIN          621     3,098            1,329         1,627              —        —                 —         —                    —         —
     MRO           780        —               681         1,049             199      175              561      1,050                2,531       300
     NPCC          284     2,885            1,211           635             259       80                —        690                   92        —
     RFC                                                                  1,330    1,403                —         —                   775       867
     SERC        1,762       2,440         1,691         5,104               —     3,940               84      2,217                1,134        —
     SPP            —        2,000           107           650              141      640              776        874                  670       150
     WECC          575       2,420         1,318         4,654            3,380    3,387            1,192      2,194                2,556     2,910
     Total       8,441      15,397        10,284        20,209            5,691 10,313              5,204     16,577                8,852     4,956

     Note: Data includes new plants and expansions of existing plants, including nuclear uprates. Totals may reflect rounding.
     ReliabilityFirst Corporation (RFC) began operations on 1/1/06 and includes ECAR, MAAC, and MAIN.

     Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department



                              New Capacity Online – Regulated vs. Competetive
                                                                     ENTIRE INDUSTRY

     (MW)
     30,000

                                                       Competitive
     25,000                                                                                          2004      2005         2006     2007r   2008
                                                       Regulated
                                                                                 Total Competitive 16,655      7,419        7,205    7,864 12,177
     20,000                                                                      Total Regulated    10,216    13,108        5,970    8,943   7,447

     15,000                                                                      Total              26,871    20,526 13,175 16,807 19,624

                                                                                 Source: Ventyx, Inc., The Velocity Suite
     10,000                                                                      and EEI Finance Department

      5,000


            0
                2004        2005        2006         2007r         2008


at year-end to 24 out of a proposed                   projects will be the next challenge. The           transmission
29. The NRC did not approve any                       majority of companies already have in-
                                                                                                         Transmission and Distribution Survey
Early Site Permits (ESPs) in 2008, but                dicated that without federal incentives,
                                                                                                         Results
Southern Company’s Vogtle project in                  building a new nuclear plant will not
Georgia is expected to be approved in                 be economically feasible.                             The 2008 EEI Annual Property &
2009. Despite the increasing number                                                                      Plant Capital Investment Survey indi-
of ESP and COL application submis-                                                                       cated that shareholder-owned electric
sions, approvals do not guarantee that                                                                   utilities and stand-alone transmission
plants will be built. Lining up financ-                                                                  companies invested a record $7.8 bil-
ing to build these capital-intensive                                                                     lion in the nation’s transmission grid in




52          EEI 2008 FINANCIAL REVIEW
                                                                                                                             BuSineSS StRategieS



                               New vs. Cancelled Capacity by Fuel Type (MW)
                                             U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES

 Fuel Type                Online      Cancelled      Online   Cancelled    Online     Cancelled      Online    Cancelled       Online   Cancelled
                          2004          2004         2005       2005       2006         2006         2007        2007          2008       2008
 Coal                         ––          750            ––     4,585        110        2,575          479      13,880           790      2,759
 Natural Gas              8,054        14,527       9,255      15,054      4,126        7,584        3,483       2,177         4,687      1,810
 Nuclear                     79             ––        247            ––      350             ––          ––          ––          422         ––
 Solar/Photovoltaics          ––            ––          1           5           1           3            ––          ––           ––         ––
 Wind                       306           120         781         408      1,051          110        1,240         390         2,857        262
 Other                        3             ––          1         157         53           41            2         130            96        125
 Total                    8,441        15,397      10,284      20,209      5,691       10,313        5,204      16,577         8,852      4,956

 Note: Totals may reflect rounding. Data includes new plants and expansions of existing plants, including nuclear uprates.
 Other = diesel, fuel oil, landfill gas, pet coke, solar/PV, waste heat, water, wood, biomass, and fuel cells.

 Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department




2007, 12% more than the $7 billion in              provided that either an affected state              The process, as well as the controversy,
2006. After a slow decline from 1978               does not have the authority to grant ap-            are still ongoing.
to 1998, the industry’ investment in               proval for a new line or a state involved
                                                                                                          In an attempt to facilitate planning
the nation’s transmission grid experi-             in the proceeding has withheld approval
                                                                                                       and construction of new transmission
enced uninterrupted growth during                  for one year following submission of a
                                                                                                       lines, several states and Regional Trans-
the last 8-10 years. Since 2000, the               siting application. In addition, FERC
                                                                                                       mission Organizations (RTOs) released
industry and transmission companies                will only consider permits for projects
                                                                                                       reports in 2008 that outlined the need
have invested more than $40 billion in             that substantially reduce congestion. The
                                                                                                       for and the challenges facing new trans-
the nation’s transmission system. Also             designations raised strong opposition by
                                                                                                       mission in their regions. And over the
in 2007, shareholder-owned electric                environmental groups and several state
                                                                                                       course of the year, the increased aware-
utility investment in the distribution             regulatory commissions in both regions.
                                                                                                       ness of the need for transmission to
system reached $17.6 billion, a 2.4%               In March 2008, however, the U.S. De-
                                                                                                       support renewable energy development
increase over the previous year’s level            partment of Energy (DOE) announced
                                                                                                       eclipsed congestion concerns.
and a 20% increase over the amount                 that it would not reconsider any aspect
spent in 2000. The industry has in-                of the corridor designations.                       transmission in Support
vested well over $100 billion in the na-                                                               Of Renewables
                                                      Several interstate transmission lines
tion’s distribution system since 2000.
                                                   are currently proposed within these                    State renewable portfolio standards
                                                   corridors, and most of the proposed                 and a rising ecological consciousness
national Corridor Designations
                                                   lines are now being reviewed by state               among the public, politicians and state
   At the end of 2007, the Department              authorities. Many, like Allegheny’s                 commissions are driving an increased
of Energy (DOE) announced the desig-               TrAIL project, continue to face op-                 focus on improving transmission ac-
nation of two National Interest Electric           position, and are still awaiting state              cess to prime wind and other renew-
Transmission Corridors (in the mid-                approval. After the Arizona Commis-                 ables areas, which are typically far-re-
Atlantic and the Southwest) where the              sion denied an application submitted                moved from load centers. Connecting
DOE determined that significant con-               by Southern California Edison for its               these resources to the transmission
gestion adversely impacts customers.               Palo Verde to Devers 2 project last                 network is potentially costly due to the
The designations require the Federal En-           year, the company asked FERC to use                 remote locations. Yet, the need to ex-
ergy Regulatory Commission (FERC)                  its backstop siting authority. In May,              pand the nation’s transmission grid to
to consider proposals to site interstate           Southern California Edison requested                accommodate increasingly large shares
transmission lines within these corridors,         that FERC start a prefiling process.                of renewable energy became even more
                                                                                                       apparent during 2008.


                                                                                                              EEI 2008 FINANCIAL REVIEW           53
BuSineSS StRategieS


                                                                                                        (Iowa, Minnesota, North Dakota,
                          2008 New Capacity                                                             South Dakota and Wisconsin) formed
                       Announcements by Fuel Type                                                       a joint planning group (the Upper
                                                                                                        Midwest Transmission Development
                    U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES                                           Initiative) to examine issues relating
                              Coal                                                                      to transmission for wind power. The
                             68 MW
                                                                                                        Midwest ISO and the New England
                       Other
                     499 MW                                                                             and New York ISO also conducted
                                                                                                        studies on these topics.
                                                            Natural Gas                                     In addition to these regional ef-
                                   Hydro                    3,868 MW
                                                                                                        forts, a number of states undertook
                                 2,409 MW
                                                                                                        initiatives to assess the need for new
                                                                                                        transmission and to facilitate its con-
                                                                    Nuclear                             struction. The California ISO released
                                                                   1,793 MW                             a “Report on Preliminary Renewable
                                          Wind
                                       4,914 MW                                                         Transmission Plans” in July which ac-
                                                                                                        knowledged that the state will not meet
                                                                                                        its RES target of 20% by 2010 for lack
                                                                                                        of transmission capacity and outlined
             Note: Other includes biomass, diesel/fuel oil, fuel cells, landfill gas, pet coke,         a plan to add 9,550 MW of transmis-
             solar/PV, waste heat, water, wood. Totals may reflect rounding.
                                                                                                        sion capacity at a cost of $6.5 billion.
             Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department                        Shortly after, Texas began the process
                                                                                                        set up by its “Competitive Renewable
                                                                                                        Energy Zone” (CREZ) rules and the
         New Capacity Announcements by Fuel Type (MW)                                                   Public Utility Commission of Texas
                                                 2004-2008                                              (PUCT) approved a plan to build
                          U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES                                     over 2,300 miles of new transmission
                                                                                                        lines to integrate about 18,500 MW of
                                2004           2005            2006            2007            2008     wind capacity at a cost of about $5 bil-
       Coal                     5,050          7,170          17,242           2,462              68    lion. Following the Texas model, Utah,
       Natural Gas              6,923          2,174           7,929           5,988           3,868    Colorado and Nevada adopted the
       Nuclear                     —           5,180          10,217          11,277           1,793    CREZ model to facilitate development
       Wind                       869            898           1,773           4,900           4,914
                                                                                                        of transmission for renewables. During
       Hydro                       —              —               —               —            2,409
                                                                                                        the summer, Utah’s Renewable Energy
       Other                        5            669           1,146             322             499
                                                                                                        Zone Task Force began to study ways
       Total                   12,847         16,091          38,307          24,949          13,551
                                                                                                        to support and facilitate the develop-
     Note: Other includes biomass, diesel/fuel oil, fuel cells, landfill gas, pet coke, solar/PV,       ment of renewable energy and the nec-
     waste heat, water, wood. Totals may reflect rounding.                                              essary accompanying transmission. In
     Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department                                Nevada, the PUC approved $3.5 mil-
                                                                                                        lion for NV Energy to spend on new
                                                                                                        renewable transmission system studies.
   During the first half of the year,                       make renewables a focus of western
concerns that some companies may                            corridors and the Western Renew-               Spurring and supporting these ini-
not be able to comply with their state’s                    able Energy Zones project was initi-        tiatives were a number of influential
renewable energy standard (RES) due                         ated to encourage construction of new       studies that highlighted the need to
to transmission constraints encouraged                      transmission projects. Subsequently,        strengthen the nation’s transmission
the Western Governors’ Association to                       the governors of five Great Plains states
                                                                                                                            continued on page 58




54           EEI 2008 FINANCIAL REVIEW
                                                                                                                                                                                    BuSineSS StRategieS



                                                  Actual and Projected Capacity Additions 2004-2020
                                                                          U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES
(MW)
16,000

                                                                                                                                                                        Coal
14,000
                                                                                                                                                                        Natural Gas
                                                                                                                                                                        Nuclear
12,000
                                                                                                                                                                        Wind
10,000                                                                                                                                                                  Other


 8,000

 6,000

 4,000

 2,000

       0
             2004     2005        2006         2007          2008         2009        2010      2011        2012        2013     2014     2015      2016       2017      2018         2019      2020


                                  Actual                                                                                           Projected

                         2004         2005            2006      2007        2008        2009      2010        2011       2012     2013     2014       2015       2016      2017        2018      2019      2020
   Coal                    —               —           110          479      790        3,833    3,132       1,350       4,065    2,014        —      1,680       750           —       500          —     1,000
   Natural Gas          8,054        9,255        4,126        3,483        4,687       6,259    3,151       6,950       6,776    3,158   1,579            —      —             —        —           —       —
   Nuclear                   79          247          350           —        422         256       200             21     868       —          —      6,210     4,959      7,042       4,380     2,617     7,800
   Wind                   306            780      1,051        1,240        2,857       2,366    1,867       1,352        558      651        349      100        —             —        —           —       —
   Other                      3            2            54           2           96      659           18      317        257      117    1,250       1,185       —             —        —           —       —
   Total                8,442       10,284        5,691        5,204        8,852      13,373    8,367       9,990      12,524    5,940   3,178       9,175     5,709      7,042       4,880     2,617     8,800

   Notes: Data includes new plants and expansions of existing plants, including nuclear uprates. Other includes biomass, diesel/fuel oil, fuel cells, landfill gas, pet coke, solar/PV, waste heat, water, wood.
   Totals may reflect rounding. 2004-2008 is actual plants brought online. 2009-2020 is projected based on projects announced as of 12/31/08.
   Source: Ventyx, Inc., The Velocity Suite, and EEI Finance Department




                                                             Stage of Projected Capacity Additions
                                                                     U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES
by MW

Fuel                   Proposed            Feasibility                    Application Pending                  Permitted            Site Prep              Under Construction                Testing         Total
Coal                   1,010                   500                               4,860                            784                 600                     10,570                           —           18,324
Natural Gas            2,306                   140                               8,823                          6,777               1,060                      8,406                           362         27,873
Nuclear                  451                      0                            33,100                             803                     —                           —                        —           34,353
Wind                   5,063                    60                                 885                            150                     —                       847                          238          7,243
Other                    694                 2,405                                 383                            142                     —                       179                          —            3,803
Total                  9,524                 3,105                             48,051                           8,655               1,660                      20,001                          600         91,596


Note: Data as of 12/31/08. Other includes biomass, diesel/fuel oil, fuel cells, landfill gas, pet coke, solar/PV, waste heat, water, wood.
Totals may reflect rounding. Data is for the years 2009-2020.

Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department




                                                                                                                                                               EEI 2008 FINANCIAL REVIEW                           55
BuSineSS StRategieS



                                  Proposed New High Voltage Transmission Projects
                                     Located in Draft NIETC Designated Corridors
                                                    U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES
 Project                                                      Company                                      Voltage    Location    Distance     Estimated    Expected
                                                                                                                                                  Cost       Year In
                                                                                                                                                             Service
 Mid-Atlantic
 Trans-Allegheny                         Allegheny Energy & Dominion Resources                             500 kV      PA-WV       240 mi      $1.1 B         2011
     Interstate Line (TrAIL)
 Potomac-Appalachian Transmission American Electric Power & Allegheny Energy                          765/500 kV      WV-MD        290 mi      $1.8 B         2013
     Highline (PATH)
 AEP Interstate Project (I-765)          American Electric Power                                           765 kV     WV-NJ        550 mi      $3.0 B         2015
 Maine Power Reliability Program         Central Maine Power & Maine Public Service Co.                    345 kV     ME-NH        484 mi      $1.4 B         2012
 Maine Power Connection                  Central Maine Power & Maine Public Service Co.                    345 kV        ME        200 mi     $625 M          2012
     (Limestone to Detroit)
 New England East-West                   National Grid USA & Northeast Utilities                           345 kV      CT-MD                   $2.1 B 2012-2013
     Solution (NEEWS)
        Interstate Reliability Project                                                                                                        $250 M
        Greater Springfield Reliability Project
        Central Connecticut Reliability Project                                                                                     36 mi     $313 M
        Rhode Island Reliability Project                                                                                                      $250 M
 North East Energy Link                  National Grid USA                                                            Can-MA       200 mi
 Greater Springfield Reliability Project Northeast Utilities                                               345 kV      MA-CT       100 mi     $714 M          2013
 Mid-Atlantic Power Pathway              Pepco Holdings                                                    500 kV      VA-NJ       230 mi      $1.4 B         2013
 Susquehanna-Roseland Line               PPL Corp. & PSEG                                                  500 kV      PA-NJ       130 mi     $930 M          2012

 Southwest
 Tehachapi Renewable                      Edison International (Southern Cal. Edison)                      500 kV          CA      306 mi      $2.0 B      2009-13
     Transmission Project
 Palo Verde - Devers 2                    Edison International (Southern Cal. Edison)                      500 kV      AZ-CA       225 mi     $680 M      2011
 Palo Verde - Yuma                        Pinnacle West (Arizona Public Service Co.)                       500 kV      AZ-CO       115 mi     $300 M      2012
 Palo Verde - Pinnacle Peak               Pinnacle West (Arizona Public Service Co.)                       500 kV         AZ       110 mi     $700 M 2010-2012
 Sunrise Powerlink                        Sempra Energy (San Diego Gas & Electric)                         500 kV         CA        91 mi      $1.9 B     2012

 Source: Edison Electric Institute and SNL Financial




                                                    Proposed New Nuclear Plants
                                                     U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES
     Company                                       Site                              Early Site Permit                     Design         Expected Construction &
                                                  (State)                                  (ESP)                         (# of Units)    Operating License Submittal
     Ameren                                   Callaway (MO)                   ––                                         EPR (1)              July 2008
     DTE Energy Co.                           Fermi (MI)                      TBD                                        ESBWR (1)            September 2008
     Dominion Resources Inc.                  North Anna (VA)                 Approved November 2007.                    ESBWR (1)            November 2007
     Duke Energy Corp.                        Davie County (NC)               Under consideration                        TBD                  TBD
     Duke Energy Corp.                        Oconee (SC)                     Under consideration                        TBD                  TBD
     Duke Energy Corp.                        William States Lee (SC)         ––                                         AP1000 (2)           December 2007
     Entergy Corp.                            River Bend (LA)                 ––                                         ESBWR (1)            September 2008
     Exelon Corp.                             Clinton (IL)                    Approved March 2007.                       TBD                  TBD
     Exelon Corp.                             Victoria County (TX)            ––                                         ESBWR (2)            September 2008
     Florida Power & Light                    Turkey Point (FL)               ––                                         AP1000 (2)           2009
     NuStart (Consortium) - TVA Site          Bellefonte (AL)                 ––                                         AP1000 (2)           October 2007
     NuStart (Consortium) -Entergy Site       Grand Gulf (MS)                 Approved April 2007.                       ESBWR (1)            February 2008
     PPL Corp. / UniStar                      Susquehanna, PA                 ––                                         EPR (1)              October 2008
     Progress Energy                          Shearon Harris (NC)             ––                                         AP1000 (2)           February 2008
     Progress Energy                          Levy County (FL)                ––                                         AP1000 (2)           July 2008
     SCANA Corp.                              V.C. Summer (SC)                ––                                         AP1000 (2)           March 2008
     Southern Co.                             Vogtle (GA)                     Approval expected in 2009.                 AP1000 (2)           March 2008
     Energy Future Holdings Inc. (Luminant)   Comanche Peak (TX)              ––                                         APWR (2)             September 2008
     UniStar (Constellation & Areva)          Calvert Cliffs (MD)             ––                                         EPR (1)              July 2007 & March 2008
     UniStar (Constellation & Areva)          Nine Mile Point (NY)            TBD                                        EPR (1)              September 2008

     Note: As of 12/31/2008
     Legend:
     TBD:       To Be Determined                                EPR:        Pressurized Water Reactor designed by Framatome
     AP1000: Reactor designed by Westinghouse                   ESBWR: Economic Simplified Boiling Water Reactor
     APWR:      Advanced Pressurized Water Reactor              Those in italics represent COL applications that have been approved so far.
     Source: Nuclear Energy Institute, Nuclear Regulatory Commission and EEI Finance Department



56          EEI 2008 FINANCIAL REVIEW
                                                                                                                                                   BuSineSS StRategieS



                                              Selected Renewable High Voltage Transmission Projects
                                                                                U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES
Project                                                   Company                                Voltage   Location    Distance   Estimated    Expected             Status
                                                                                                                                     Cost       Year In
                                                                                                                                                Service
Southwest
Wyoming-Colorado Intertie Project (TOT-3)    AES & Western Area Power Admin.                     345 kV    WY-CO       250 mi     $325 M         2013     Announced
Palo Verde-Yuma                              Arizona Public Service Co.                          500 kV    AZ-CO       115 mi     $300 M         2012     Announced
Green Path (North Gila to Hassayampa)        Arizona Public Service Co & others                  500 kV        CA      117 mi                    2012     Advanced development
Palo Verde - Devers 2                        Edison International (SCE)                          500 kV     AZ-CA      225 mi     $680 M         2011     Approved by ISO and PUC
Tehachapi Renewable Transmission Project     Edison International (SCE)                          500 kV        CA      306 mi       $2 B      2009-13
BC to NorCal                                 PG&E                                                500 kV    BC-CA                                 2017     Announced
Central California Clean Energy              PG&E                                                500 kV        CA      150 mi                    2013     Announced
Sunrise Powerlink                            Sempra Energy (San Diego Gas & Electric)            500 kV        CA       91 mi      $1.9 B        2012
SunZia Southwest Transmission Project        SunZia Southwest (UniSource Energy)                 500 kV    AZ-NM       500 mi                    2013     Announced
Sunrise Tap project                          NV Energy                                           500 kV        NV                                2011     Announced
Eastern Nevada Transmission
 Intertie ( EN-Ti )                          NV Energy                                           500 kV        NV      250 mi                   2012      Advanced development
Pawnee-Smoky Hill transmission project       PSC of CO                                           345 kV        CO       96 mi     $120 M        2013      Announced

Northwest
Southwest Intertie Project (SWIP)            Dynegy & LS Power Group                             500 kV    ID-NV       500 mi                   2011      Advanced development
Boardman-Hemingway                           Idaho Power                                         500 kV    ID-OR       300 mi     $600 M        2012      Announced
Gateway West Transmission Project            Idaho Power & PacifiCorp                            500 kV    WY-ID       650 mi                   2013      Announced
Mountain States Transmission Intertie        NorthWestern                                        500 kV    MT-ID       400 mi     $800 M        2013      Announced
Colstrip Transmission System (upgrade)       NorthWestern, Puget, PacifiCorp, and others         500 kV       MT                                2012      Announced
Salt Lake City to Downey                     PacifiCorp                                          345 kV     UT-ID      136 mi     $750 M        2010      UC - ID PUC approved 10/08
Sigurd-Red Butte-Crystal                     PacifiCorp                                          345 kV    UT-NV                                2012      Announced
Energy Gateway Transmission Project          PacifiCorp                                          500 kV               2,000 mi       $6 B
   Hemingway - Captain Jack                                                                                ID-OR        230 mi                  2013      Announced
   Wyoming -Jim Bridger                                                                                    WY-ID        600 mi                  2014      Announced
   Wyoming -Mona substation                                                                                WY-UT        600 mi                  2014      Announced
Southern Crossing Project                    Portland General Electric                           500 kV       OR        225 mi                  2013      Announced

Plains
Electric Transmission Texas                  Electric Transmission America*                      765 kV        TX     1,000 mi     $3.2 B       2015      Announced
TransWest Express                            Anschutz (former owners: Pinnacle, National Grid)   500 kV     WY-AZ     1000 mi        $3 B       2014
Spearville-Axtell                            ITC Great Plains                                    345 kV     KS-NE       210 mi    $186 M        2012      Advanced development
Spearville-Wichita                           ITC Great Plains                                    345 kV        KS       180 mi     $82 M        2012      Advanced development
Big Stone-Granite Falls                      MDU Resources & Otter Tail                          345 kV    SD-MN         53 mi                  2013      Advanced development
Horizon Transmission                         OG&E, Electric Transmission America*                765 kV        OK       170 mi    $500 M        2013      Announced
Woodward - Ok City                           OG&E, Electric Transmission America*                345 kV        OK       115 mi    $211 M        2010      Approved 9/08
Prairie Wind Transmission                    Electric Transmission America*                      765 kV     KS-OK       230 mi    $600 M        2013      Announced
V-Plan                                       Westar Energy & ITC Great Plains                    345 kV        KS       180 mi                  2012      Applied to build project 4/08
Wichita-OK                                   Westar Energy & OG&E                                345 kV     KS-OK        95 mi    $260 M        2011      Announced
Southwest Minnesota Wind Expansion
 Project                                     Xcel                                                345 kV    MN-SD        87 mi                   2008      Construction begun
High Plains Express (HPX)                    PSC of CO, PSC of NM, & others                      500 kV    WY-CO-
                                                                                                           NM-AZ      1,300 mi    $5.1 B        2017      Announced
CapX 2020                                    Xcel & others                                       345 kV                       $1.5-1.7 B
   Brookings, SD- Southeast Twin Cities      Xcel, Otter Tail, & others                                    MN-SD       230 mi    $665 M         2014      Announced
   Southeast Twin Cities - Rochester
     - La Crosse                             Xcel, Wisconsin Public Power, & others                        MN-WI       150 mi     $360 M        2014      Announced
    Fargo, ND - St Cloud/Monticello          Xcel, Otter Tail, Allete, & others                            ND-MN       250 mi     $490 M        2014      Announced

Northeast
Potomac-Appalachian Transm. Highline
 (PATH)                                      AEP & Allegheny                               765 kV/500 kV   WV-MD       290 mi      $1.8 B       2013      Advanced development
Maine Power Connection
 (Limestone to Detroit)                      Central Maine Power & Maine Public Service Co.       345 kV      ME       200 mi     $625 M        2012      Announced
Carson-Suffolk                               Dominion Resources Inc.                              500 kV       VA       60 mi     $250 M        2011      Advanced development
Green Line Project                           New England ITC                                      500 kV   ME-MA       140 mi                   2013      Announced
Mid-Atlantic Power Pathway                   Pepco Holdings                                       500 kV    VA-NJ      230 mi      $1.4 B       2013
Susquehanna-Roseland Line                    PPL & PSEG                                          500 kV     PA-NJ      130 mi     $930 M        2012
North East Energy Link                       National Grid                                              CANADA-MA      200 mi                             Announced

Midwest
Donald C. Cook Transmission line             AEP & ITC                                           765 kV    OH-MI        700 mi     $2.6 B       2015      Announced
Chicago- Hartland (North Dakota)             AEP                                                 765 kV    ND-IL      1,000 mi    $5-10 B                 Announced
Pioneer Transmission                         AEP & Duke                                          765 kV       IN        240 mi       $1 B       2015      Announced


* Electric Transmission America: American Electric Power and MidAmerican

Source: SNL Financial and EEI Finance Department




                                                                                                                                    EEI 2008 FINANCIAL REVIEW                   57
BuSineSS StRategieS


                                                                                                                               of these cross numerous state lines,
             Actual and Planned Transmission Investment 2000-2010
                                                                                                                               such as PacifiCorp’s Energy Gateway
($ Millions [Real $2007])                                                                                                      (2,000 miles through Idaho, Oregon,
12,000                                                                                                                         Utah and Wyoming), AEPs Chicago-
                                                                                                                      11,050
11,000                                                                                                                         to-Hartland (1,000 miles from North
                                                                                                          10,388
                                                                                                                               Dakota to Illinois), PG&E’s BC-to-
10,000                                                                                           9,463
                                                                                                                               NorCal (expected to bring renewable
 9,000
                                                                                                                               resources from British Columbia to
 8,000                                                                                7,769
                                                                            7,551                                              California), as well as the High Plains
                                                                 6,815
 7,000                                                                                                                         Express project owned by the PSC of
 6,000                                     5,652 5,746                                                                         Colorado and PSC of New Mexico
           4,948 5,073 5,198
 5,000
                                                                                                                               (running 1,000 miles through Wyo-
                                                                                                                               ming, Colorado, New Mexico and Ar-
 4,000
                                                                                                                               izona). Building these projects, how-
 3,000
                                                                                                                               ever, may be difficult. Split authority
 2,000
                                                                                                                               over siting and permitting, public op-
 1,000                                                                                                                         position in some cases, rising cost of
      0                                                                                                                        capital, and cost allocation and cost
            2000       2001      2002       2003       2004       2005      2006       2007       2008       2009      2010
                                                                                                                               recovery challenges all represent sig-
                                                Actual                                                   Planned*              nificant barriers for the expansion of
     Note: The Handy-Whitman Index of Public Utility Construction Costs used to adjust actual investment
     for inflation from year to year. The GDP Deflator used to adjust planned investment for inflation from year to year.
                                                                                                                               transmission infrastructure.
     Data represent both shareholder-owned utilities and stand-alone transmission companies.

     *Planned total industry expenditures are estimated from 85% response rate to EEI’s Electric Transmission Capital
     Budget & Forecast Survey. Actual expenditures from EEI’s Annual Property & Plant Capital Investment Survey &
     FERC Form 1s.                                                                                                                        Fuel Sources
     Source: Edison Electric Institute, Business Information Group

                                                                                                                                   Record high fossil fuel commodity
                                                                                                                               prices during much of 2008 and a 1%
                                                                                                                               year-to-year decline in electricity de-
infrastructure to support the growth                               ulatory obstacles that thwart increased                     mand deeply affected the use of fuels
of renewable generation. Perhaps the                               investment in renewable energy in-                          for power generation and contributed
most influential was NERC’s 2008                                   frastructure. In February 2009, EEI                         to a reduction in coal, gas and oil-
Long Term Reliability Assessment                                   released a report entitled “Transmis-                       fired generation. The only generation
(LTRA) covering the 2008-2017                                      sion Projects: Supporting Renewable                         technologies that saw increased output
timeframe. NERC reiterated the need                                Resources” that illustrates the recent                      were nuclear (0.32%), hydropower
for ongoing investment in transmis-                                and ongoing efforts of EEI members                          (0.92%) and non-hydro renewables
sion to maintain grid reliability and                              to develop transmission to support                          (17.57%). Coal remained the primary
to integrate rapidly growing renew-                                renewable resource integration.                             fuel source for U.S. electric generation
able generation, which it expects will                                                                                         but its share of the total continued
                                                                      Encouraged by existing renewable
significantly outpace new transmis-                                                                                            its decline, from 52.8% in 1997 to
                                                                   developments as well as regional trans-
sion development. Other organiza-                                                                                              48.5% in 2008. Breaking with recent
                                                                   mission organization (RTO) planning
tions, such as the Pacific NorthWest                                                                                           trends, the percentage of U.S. electric
                                                                   guidelines, numerous projects were an-
Economic Region (comprising states in                                                                                          output generated by natural gas fell in
                                                                   nounced in 2008. The table Selected
the northwest United States and some                                                                                           2008, to 21.3%, consistent with the
                                                                   Renewable High Voltage Transmission
Canadian provinces) and WIRES also                                                                                             2.2% decline in gas-fired generation.
                                                                   Projects shows a sample of transmission
released reports stressing the need for                                                                                        Renewable resources continued to
                                                                   projects announced by shareholder-
new transmission in some regions and                                                                                           grow in importance, producing 9.1%
                                                                   owned utilities to support develop-
examining the many financial and reg-                                                                                          of total U.S. electric output in 2008.
                                                                   ment of renewable resources. Some



58          EEI 2008 FINANCIAL REVIEW
                                                                                                                                BuSineSS StRategieS



                            Fuel Sources for Net Electric Generation
                                          U.S. ELECTRIC UTILITY AND NON-UTILITY

                            2008p              2007r
                                                                           p = preliminary
Coal                        48.5%              48.5%                       r = revised
Natural Gas                 21.3%              21.6%                       Note: Totals may not equal 100.0% due to rounding.
Nuclear                     19.7%              19.4%
                                                                           U.S. Electric Utility: Owns and/or operates facilities within the
Hydro conventional           6.1%               6.0%                       United States, its territories, or Puerto Rico for the generation,
Oil                          1.1%                1.6%                      transmission, distribution, or sale of electric energy primarily for
                                                                           use by the public. This includes shareholder-owned utilities,
Other                        0.4%                0.5%                      public power, and cooperatives.
Other renewables             3.0%                2.5%
                                                                           Non-Utility Power Producer: Non-utility power producers include
  Biomass                      1.4%                1.3%                    qualifying cogenerators, qualifying small power producers, and other
                                                                           non-utility generators (including independent power producers)
  Geothermal                  0.4%                 0.4%                    without a designated franchised service area.
  Solar                      0.02%                 0.0%
                                                                           Source: Energy Information Administration
  Wind                        1.3%               0.8%
Total                       100%                100%




                             Fuel Sources for Electric Generation 1999–2008
                                                U.S. ELECTRIC UTILITY AND NON-UTILITY
                     60%

                                                      Coal

                     50%



                     40%



                     30%


                                                 Nuclear
                     20%
                                                                                        Natural Gas


                     10%                                                     Conventional Hydro

                                    Oil
                                                                                                Other Renewables

                        0
                             1999      2000    2001     2002     2003     2004      2005      2006     2007r     2008p

                     p = preliminary
                     r = revised

                     U.S. Electric Utility: Owns and/or operates facilities within the United States, its territories, or
                     Puerto Rico for the generation, transmission, distribution, or sale of electric energy primarily for use
                     by the public. This includes shareholder-owned utilities, public power, and cooperatives.

                     Non-Utility Power Producer: Non-utility power producers include qualifying cogenerators,
                     qualifying small power producers, and other non-utility generators (including independent power
                     producers) without a designated franchised service area.

                     Source: Energy Information Administration




                                                                                                                 EEI 2008 FINANCIAL REVIEW        59
BuSineSS StRategieS


                                                                                                            the nation’s primary generation fuel
                Average Cost of Fossil Fuels 1999-2008                                                      for the foreseeable future due to its
                                        U.S. ELECTRIC UTILITIES                                             cost advantage over natural gas and
       (Cents/MMBtu)                                                                                        the abundant domestic supply of coal
      1800                                                                                                  reserves. The recent evolution in U.S.
      1600               COAL          OIL    GAS                                                           natural gas markets (higher than ex-
                                                                                                            pected supply and lower prices) implies
      1400                                                                                                  that coal’s cost-advantage over natural
                                                                                                            gas might be reduced in the future if
      1200
                                                                                                            increasingly large amounts of domestic
      1000                                                                                                  gas supply enter the market. Factoring
                                                                                                            in that possibility, the Energy Informa-
        800
                                                                                                            tion Administration’s (EIA) 2009 An-
        600                                                                                                 nual Energy Outlook estimated that
                                                                                                            coal-fired generation will represent
        400
                                                                                                            45% of total electric output in 2025
        200
                                                                                                            and 46.6% in 2030. This is the first
                                                                                                            time the Outlook forecasts coal’s share
          0                                                                                                 at under 50% throughout the 2009-
               1999    2000     2001     2002     2003     2004     2005     2006     2007      2008p
                                                                                                            2030 period.
       The years 2002 and beyond include data for electric utilities, independent power
       producers, and commercial and industrial combined heat and power producers.
                                                                                                                However, the increasing likelihood
       The years prior to 2002 include data for electric utilities only.                                    that Congress will impose a national
                                                                                                            cap on carbon emissions makes it diffi-
       U.S. Electric Utility: Owns and/or operates facilities within the United States, its territories,
       or Puerto Rico for the generation, transmission, distribution, or sale of electric energy            cult to confidently predict that far into
       primarily for use by the public. This includes shareholder-owned utilities, public power,            the future. Coal usage will be shaped
       and cooperatives.
                                                                                                            by market fundamentals, state and fed-
                                                                                                            eral greenhouse gas (GHG) emissions
       Source: U.S. Department of Energy, Energy Information Administration (EIA)
                                                                                                            policies, and the availability of cost-
                                                                                                            effective technologies that capture and
Non-hydro renewable energy ac-                             ten years. Coal accounted for 48.5%              sequester GHG emissions from coal-
counted for 3% of total U.S. electric                      of 2008’s total electric output versus           fired facilities.
generation in 2008, up from to 2.5% in                     52.8% a decade earlier. The trend is
                                                                                                               Despite much lower prices for sul-
2007, as it continued to grow strongly                     primarily attributable to the growth
                                                                                                            fur dioxide (SO2) emission allowances
on an absolute basis. As in 2007, wind                     in natural gas-fired generation. Up
                                                                                                            (SO2 emissions allowances closed the
and solar power were the year’s fastest                    until 2008, despite coal’s relative ero-
                                                                                                            year at around $200/ton, well below
growing sources of electricity; wind                       sion of market share, rising nationwide
                                                                                                            the levels of 2006 and 2005) due to
generation increased by 51% year-to-                       electricity demand drove up total coal
                                                                                                            the District of Columbia Court of
year and solar generation grew by 36%.                     consumption by the power sector. Last
                                                                                                            Appeals decision to strike down the
                                                           year, however, a 1% reduction in over-
                                                                                                            Clean Air Interstate Rule, the average
Coal                                                       all electricity demand, coupled with
                                                                                                            cost to produce electricity1 from coal
   Although coal remained the prima-                       rising coal prices, pushed coal genera-
                                                                                                            (based on preliminary, modeled data)
ry fuel used to generate electricity in                    tion down by 1.1% compared to 2007.
                                                                                                            was $26.99/MWh in 2008, a 9% in-
the U.S. in 2008, its share of the fuel                      Despite coal’s declining relative              crease over 2007. However, the fuel
mix has steadily declined for the last                     contribution, it is expected to remain           cost component of the total rose by


1
    Production costs for each fuel only include fixed and variable operating costs. they do not include capital or construction costs.




60            EEI 2008 FINANCIAL REVIEW
                                                                                                                                   BuSineSS StRategieS


                                                                                                                   record high natural gas prices. The
         Average Cost to Produce Electricity 2003-2008                                                             price trend reversal after the summer
                                U.S. ELECTRIC UTILITY AND NON-UTILITY                                              was not enough to bring yearly costs
($/MWh)
                                                                                                                   down. The preliminary average cost
200
                                                                                                                   to produce electricity from natural gas
 180                      Cost of Fuel      Non-Fuel O&M                                                           was $84.35/MWh in 2008 compared
 160                                                                                                               to $64.63/MWh in 2007 and $75.67/
                                                                                                                   MWh in 2005 (the previous high).
 140
                                                                                                                      Natural gas prices followed the rise
 120
                                                                                                                   in crude oil prices during the first half
 100                                                                                                               of the year, reversing the trend of price
                                                                                                                   moderation seen in 2006 and 2007.
  80
                                                                                                                   Henry Hub spot prices jumped from
  60                                                                                                               a near-term low of about $6 per mil-
  40                                                                                                               lion British thermal units (mmBtu)
                                                                                                                   in October 2007 to more than $8 per
  20
                                                                                                                   mmBtu by mid-January and up to
    0                                                                                                              $13.32 per mmBtu by early July—the
                                                                                                                   highest level for the year. Rising natu-
               Coal
        Natural Gas
           Nuclear
                 Oil
             Hydro

                                Coal
                         Natural Gas
                            Nuclear
                                  Oil
                              Hydro

                                                  Coal
                                           Natural Gas
                                              Nuclear
                                                    Oil
                                                Hydro

                                                                   Coal
                                                            Natural Gas
                                                               Nuclear
                                                                     Oil
                                                                 Hydro

                                                                                     Coal
                                                                              Natural Gas
                                                                                 Nuclear
                                                                                       Oil
                                                                                   Hydro

                                                                                                       Coal
                                                                                                Natural Gas
                                                                                                   Nuclear
                                                                                                         Oil
                                                                                                     Hydro
                                                                                                                   ral gas spot prices appeared to be the
                                                                                                                   result of several factors, including ris-
            2003              2004              2005            2006               2007             2008*          ing crude oil prices, increased demand
                                                                                                                   from most economic sectors and low
U.S. Electric Utility: Owns and/or operates facilities within the United States, its territories, or Puerto Rico   inventories. However, after the rise in
for the generation, transmission, distribution, or sale of electric energy primarily for use by the public. This
includes shareholder-owned utilities, public power, and cooperatives.                                              domestic supply from unconventional
Non-Utility Power Producer: Non-utility power producers include qualifying cogenerators, qualifying small
                                                                                                                   sources, slowing demand and a conse-
power producers, and other non-utility generators (including independent power producers) without a                quent increase in inventories, natural
designated franchised service area.
                                                                                                                   gas prices began a slow descent in July.
* 2008 results are preliminary and based on modeled data from Ventyx, Inc., The Velocity Suite                     By the end of December, the Henry
Source: Ventyx, Inc., The Velocity Suite                                                                           Hub natural gas price was below $6
                                                                                                                   per mmBtu.
15%. The rapid growth of coal prices                       but still 84% higher than the $55/ton                      U.S. natural gas production has
that began at the end of 2007 due to                       level of December 2007.                                 been slowly increasing since 2005. In
increased international demand con-                                                                                2008, it grew 8% over the 2007 level,
tinued until the third quarter of 2008,                    natural gas                                             and total production, at 21.2 quadril-
when the global economic slowdown                             The combined effects of high nat-                    lion Btu, reached the highest level since
brought most energy and commodity                          ural gas prices during the first half                   1975. Increased onshore production in
prices down. At year-end, coal prices                      of 2008 and slightly reduced energy                     the lower 48 states and higher produc-
from most basins had gone down sig-                        demand for the year contributed to                      tion from unconventional sources were
nificantly from their record peaks dur-                    a more than 2% decrease in natural                      responsible for this increase.
ing the summer but remained well                           gas generation. The fuel’s share of the                    Rising domestic production cou-
above the level observed at the end of                     nation’s total electric output also de-                 pled with reduced overall electricity
2007. Northern Appalachian coal spot                       creased for the first time since 2003, to               demand cut imported LNG volume
prices, for example, closed the year                       21.3% from 21.6% in 2007.                               in half—from 2007’s record 771 Bcf
at about $101/ton, a 32% reduction
                                                             As was the case with coal and other                   to 355 Bcf in 2008. Many analysts
from the September price of $150/ton
                                                           energy commodity prices, 2008 saw                       expect LNG imports to grow again in



                                                                                                                       EEI 2008 FINANCIAL REVIEW         61
BuSineSS StRategieS


                                                                                                                   production costs of all fuel types. In
             NYMEX-Henry Hub Natural Gas Close Prices                                                              2008, the preliminary average cost to
                                                1999-2008                                                          produce electricity from nuclear power
                                                                                                                   was $16.66/MWh ($4.64 for fuel and
                                                                                                                   $12.02 for non-fuel O&M) compared
       ($/MMBtu)                                                                                                   to $26.99/MWh for coal, $84.35/
      16                                                                                                           MWh for natural gas and $178.06/
                                                                                                                   MWh for oil. Nuclear power’s low
      14
                                                                                                                   generating cost and fuel price stability
                                                                                                                   result from the low frequency of the
      12
                                                                                                                   refueling cycle and the small impact of
      10                                                                                                           fuel costs on overall production costs.
                                                                                                                   In 2008, nuclear fuel accounted for
       8                                                                                                           only 27.9% of total production costs.
                                                                                                                   The share was 80.8%, 91.2% and
       6                                                                                                           94.1% respectively for coal, oil and
                                                                                                                   natural gas generation.
       4
                                                                                                                      In 2008, uranium spot prices con-
       2                                                                                                           tinued the decline observed since mid-
                                                                                                                   2007. Uranium peaked at $135/lb. in
       0                                                                                                           June 2007, ended that year at about
             99 9 00 0 01 1 02 2 03 3 04 4 05 5 06 6 07 7 08 8 08
           n- Jul-9 an- Jul-0 an- Jul-0 an- Jul-0 an- Jul-0 an- Jul-0 an- Jul-0 an- Jul-0 an- Jul-0 an- Jul 0 ec   $90/lb., and closed 2008 at $52/lb.
        Ja         J         J         J         J         J         J         J         J         J         D
                                                                                                                   (a level still elevated in relation to the
     Source: NYMEX & SNL Financial                                                                                 longer-term price history of the com-
                                                                                                                   modity). Overall, world uranium re-
2009 as global demand stays depressed                        and 2 expansions under construction,                  sources are considered adequate, but
and cargo tankers are attracted to the                       and 16 projects in the approval stage.                analysts generally believe that ongoing
U.S. market and its vast storage capa-                                                                             production and supply constraints, in
bilities. Over the longer-term, demand                       nuclear                                               addition to the uncertainties about
for natural gas will probably return to                         There are 104 electricity-generating               whether new production can be devel-
a growth trend and (despite increased                        nuclear reactors in the U.S. Nuclear pow-             oped in time to meet demand growth,
domestic production) LNG supply                              er continues to account for the largest               will keep spot prices elevated for the
will be an important factor in meet-                         percentage of electric generation in Ver-             foreseeable future.
ing that demand. An adequate LNG                             mont, South Carolina, New Jersey, Illi-                   According to Trade-Tech and the
import, storage and pipeline infra-                          nois, Connecticut and New Hampshire.                  Nuclear Energy Institute (NEI), there
structure in the U.S. will be crucial for                    Nuclear energy accounted for 19.7% of                 are 29 new nuclear plants under con-
meeting the nation’s energy needs. Fu-                       total U.S. electric generation in 2008, up            struction worldwide. In the U.S., 48
ture federal carbon legislation will also                    from 19.4% in 2007. Whereas coal and                  nuclear reactors have been granted
likely increase the electric industry’s re-                  gas-fired generation were lower in 2008               20-year license extensions, seven have
liance on natural gas-fired generation,                      than in 2007, nuclear generation edged                filed for license renewals and 17 more
accentuating the critical importance                         up 0.32% year-to-year, highlighting its               plants (25 units) are expected to apply.
of a dependable natural gas supply                           essential role as a low-cost, reliable source         In 2008, shareholder-owned utilities
chain. Cognizant of this, FERC and                           of baseload power.                                    submitted Construction and Operat-
MARAD/Coast Guard are approving
                                                                Since 2001, when costs associated                  ing License (COL) applications to the
more LNG import terminals. At the
                                                             with coal generation began rising,                    NRC for an additional 19 reactors,
end of 2008, there were 8 LNG import
                                                             nuclear power has enjoyed the lowest                  which brought the total number of re-
terminals in the U.S., 4 new terminals



62           EEI 2008 FINANCIAL REVIEW
                                                                                                                              BuSineSS StRategieS



                            Existing and Proposed U.S. LNG Terminals
                                                     As of December 31, 2008




Constructed:                                                                 Approved by MARAD/Coast Guard
1. Everett, MA: 1.035 Bcfd (DOMAC -SUEZ LNG)                                 30. Port Pelican: 1.6 Bcfd (Chevron Texaco)*
2. Cove Point, MD: 1.0 Bcfd (Dominion -Cove Point LNG)                       31. Offshore Louisiana: 1.0 Bcfd (Main Pass McMoRanExp.)
3. Cove Point, MD: 0.8 Bcfd (Dominion) - Expansion
4. Elba Island, GA: 1.2 Bcfd (El Paso -Southern LNG)                         Proposed to FERC
5. Lake Charles, LA: 2.1 Bcfd (Southern Union -Trunkline LNG)                32. Robbinston, ME: 0.5 Bcfd (Downseast LNG – Kestrel Energy)*
6. Gulf of Mexico: 0.5 Bcfd (Gulf Gateway Energy Bridge -ExcelerateEnergy)   33. Coos Bay, OR: 1.0 Bcfd (Jordan Cove Energy Project)
7. Offshore Boston: 0.8 Bcfd (Northeast Gateway -ExcelerateEnergy)           34. Astoria, OR: 1.5 Bcfd (Oregon LNG)
8. Freeport, TX: 1.5 Bcfd (Cheniere/Freeport LNG Dev.)                       35. Calais, ME: 1.5 Bcfd (BP Consulting)*
9. Sabine, LA: 2.6 Bcfd (Sabine Pass Cheniere LNG)
                                                                             Proposed to MARAD/Coast Guard
Under Construction:                                                          36. Offshore California: 1.4 Bcfd (Clearwater Port LLC – NorthernStar NG LLC)
10. Hackberry, LA: 1.8 Bcfd (Cameron LNG -Sempra Energy)                     37. Gulf of Mexico: 1.4 Bcfd (Bienville Offshore Energy Terminal – TORP)*
11. Sabine, TX: 2.0 Bcfd (Golden Pass -ExxonMobil)                           38. Offshore Florida: 1.9 Bcfd (SUEZ Calypso – SUEZ LNG)
12. Sabine, LA: 1.4 Bcfd (Sabine Pass Cheniere LNG -Expansion)               39. Offshore California: 1.2 Bcfd (OceanWay – Woodside Natural Gas)*
13. Elba Island, GA: 0.9 Bcfd (El Paso -Southern LNG) - Expansion            40. Offshore Florida: 1.2 Bcfd (Hoëgh LNG – Port Dolphin Energy)
14. Pascagoula, MS: 1.5 Bcfd (Gulf LNG Energy LLC)                           41. Offshore New York: 2.0 Bcfd (Safe Harbor Energy – ASIC, LLC)
15. Offshore Boston: 0.4 Bcfd (Neptune LNG -SUEZ LNG)

Approved by FERC:
16. Corpus Christi, TX: 1.0 Bcfd (Ingleside Energy -Occidental Energy
    Ventures)
                                                                               * On hold or canceled
17. Corpus Christi, TX: 2.6 Bcfd (Cheniere LNG)
18. Corpus Christi, TX: 1.1 Bcfd (Vista Del Sol –4Gas)
                                                                               Sources: FERC and Ventyx          Inc., The Velocity Suite
19. Fall River, MA: 0.8 Bcfd (Weaver's Cove Energy/Hess LNG)*
20. Port Arthur, TX: 3.0 Bcfd (Sempra Energy)
21. Logan Township, NJ: 1.2 Bcfd (Crown Landing LNG -BP)*
22. Cameron, LA: 3.3 Bcfd (Creole Trail LNG -Cheniere LNG)
23. Freeport, TX: 2.5 Bcfd (Cheniere/Freeport LNG Dev.) – Expansion
24. Hackberry, LA: 0.85 Bcfd (Cameron LNG -Sempra Energy) – Expansion
25. Pascagoula, MS: 1.3 Bcfd (Bayou CasotteEnergy LLC-ChevronTexaco)
26. Port Lavaca, TX: 1.0 Bcfd (Calhoun LNG -Gulf Coast LNG Partners)
27. LI Sound, NY: 1.0 Bcfd (Broadwater Energy – TransCanada/Shell)
28. Bradwood, OR: 1.0 Bcfd (Northern Star LNG – Northern Star Natural Gas LLC)
29. Baltimore, MD: 1.5 Bcfd (AES Sparrows Point – AES Corp.)




                                                                                                               EEI 2008 FINANCIAL REVIEW                 63
BuSineSS StRategieS



                                 States With Renewable Electricity Standard Programs
                                       29 States and the District of Columbia as of April 3, 2009


               15%
              By 2020                                                                                                              40%
                                        15%                  10%                                                                    By
                                       By 2015              By 2015         25%                                                    2017
           25%                                                               By
          By 2025                                                                      10%                                             VT: =Load Growth
                                                             10%           2025*                  10%                    25%           2005-2012
                                                            By 2015                     By                              By 2013
                                                                                       2015        By
                                                                                                  2015               18%
                  20%                                                       105 MW                                  By 2020       MA: 25%     By 2019
                                                                                         25%            25%                       By 2030**
                 By 2015      20%                                                                      By 2025
                                                                                          By                                                  MD: 20%
        33%                  By 2025            20%                                      2025                                     RI: 16%
                                               By 2020                          15%                                  15%          By 2019     By 2022
       By 2020                                                                   By                                 By 2025
                                                                                2021                                 12.5%        CT: 27%     DC: 20%
                            15%                                                                                      By 2021      By 2020     By 2020
                                          20%
                           By 2025       By 2020                                                                                  NJ: 22.5%   NH: 24%
                                                                                                                                  By 2021     By 2025
                                                             5,880 MW                                                             DE: 20%
                                                              By 2015




                                                                  20%
                                                                 By 2020                              Existing RES Mandate

                                                                                                      Statewide Renewable
                                                                                                      Electricity Goal



          *Xcel Energy: 30% By 2020           **Increasing 1% per year thereafter, with no stated expiration date

          Source: Edison Electric Institute



actors pending approval to 24 out of                   environmental advantages, its future                  Renewable energy
the proposed 29.                                       will also be shaped by the strategy for
                                                                                                                Renewable fuel sources (includ-
                                                       long-term storage of spent fuel. Until
   The low and stable cost of nuclear-                                                                       ing hydropower) produced 9.1% of
                                                       recently, Yucca Mountain was the cho-
fueled generation, the security of ura-                                                                      total U.S. electric generation in 2008
                                                       sen location for a national repository
nium fuel supply and environmental                                                                           compared to 8.5% in 2007. The in-
                                                       for spent nuclear fuel. The Obama
considerations are all driving a re-                                                                         crease was primarily due to the rapid
                                                       Administration, however, has rejected
newed interest in nuclear energy in the                                                                      growth of wind and solar generation,
                                                       this option, and is currently consider-
U.S. Yet the development of domes-                                                                           which brought the share of non-hydro
                                                       ing new strategies to dispose of radio-
tic nuclear plants is unlikely to occur                                                                      renewable generation to 3% from
                                                       active waste.
quickly. New plant construction must                                                                         2.5% in 2007. Although small in abso-
navigate a potentially slow regulatory                                                                       lute terms, this 0.5% gain represents a
and licensing process. And despite
nuclear power’s generation cost and                                                                                                   continued on page 72




64      EEI 2008 FINANCIAL REVIEW
                                                                                                                        BuSineSS StRategieS



                      State Renewable electricity Standard Mandates by State
                                                           as of March 2009
State   implementation Schedule         Covered entities                   eligible Resources                           Off-ramps
                                                                                                                        (Cost Mitigation/Other)
aZ      •	Starts at 1.25% of sales in   •	IoUs                             •	Solar thermal/PV                           None
          2006, steps up to 15% in      •	Coops                            •	Wind
          2025                                                             •	Geothermal
        Set-aside:                                                         •	Landfill gas
        •	Renewable dG = 30% of                                            •	Biogas
          RES by 2012                                                      •	Qualified biomass
                                                                           •	Fuel cells using renewables
                                                                           •	Qualified hydro
                                                                           •	onsite renewable dG
Ca      •	Start points vary by LSE w/   •	IoUs                             •	Solar thermal/PV                           None
          statewide standard of 33%     •	CLSEs                            •	Wind
          by 2022                       •	Community choice aggregators     •	ocean wave, thermal, tidal
                                        •	Munis to comply w/intent         •	Geothermal
                                        •	LAdWP committed to RES           •	Some biomass
        •	Note: By executive order      •	Non-creditworthy LSEs exempt     •	Biodiesel
                                                                           •	Fuel cells using renewables
                                        •	Note: Per 2006 law               •	Qualified hydro
                                                                           •	Gas from digesters, landfills
                                                                           •	MSW-to-fuel using non-burning process

                                                                           •	Note: Per 2006 law
CO      •	IoUs: Starts at 3% in 2007,   •	IoUs                             •	Wind                                       •	Covered entities except coops
          steps up to 20% by 2020       •	Coops                            •	Solar                                        have 2% annual per cus-
        •	Munis w/ > 40K customers      •	Munis w/ > 40K customers         •	Geothermal                                   tomer rate impact limit; no
          & all coops: 1% by 2008,      •	Smaller munis may opt in         •	Qualified biomass                            penalty imposed if exceeded
          steps up to 10% by 2020                                          •	Qualified hydro                            •	Coops have 1% rate limit
        Set-aside:                                                         •	Fuel cells using renewables
        •	Solar mandate = 4% of                                            •	Gas from landfills, wastewater treatment
          RES w/half from onsite                                           •	Waste heat, w/restrictions
          customer dG
Ct      •	Starts at 4% in 2004, steps   •	IoUs                             Some resources subject to specified tier/    None
          up to 27% in 2020             •	CLSEs and aggregators            class limits
                                        •	Munis to promote &               •	Solar thermal/PV
                                          encourage RE but not             •	Wind
                                          mandated                         •	Fuel cells using renewable or non-
                                                                             renewable fuels
                                                                           •	Landfill gas
                                                                           •	ocean thermal, wave, tidal
                                                                           •	Qualified hydro
                                                                           •	Qualified biomass
                                                                           •	onsite dG using renewables
                                                                           •	trash-to-energy
                                                                           •	Efficient ChP
                                                                           •	Savings from customer-side energy
                                                                             efficiency/load mgt.
                                                                             C&I waste heat/pressure recovery
De      •	Starts at 1% on 6/1/07,       •	Retail electric suppliers,       •	Solar thermal/PV                           •	PSC in 2010, 2011, and
          steps up to 20% in 2019         including IoUs and CLSEs         •	Fuel cells using renewables                  2013 may review schedule
        Set-aside:                      •	Munis & coops may opt out if     •	Wind                                         and recommend acceleration
        •	Solar PV = 2% of RES in         offering green tariffs/funding   •	ocean                                        or deceleration to legislature
          2019                            for RE/energy efficiency         •	Geothermal                                   as necessary
                                        •	Industrials w/peaks > 1,500      •	Qualified hydro                            •	PSC in 2014 and each year
                                          kW exempt                        •	Qualified biomass                            thereafter may itself change
                                                                           •	Gas from biodigesters, landfills             schedule given certain mar-
                                                                           •	onsite in-state dG                           ket conditions




                                                                                                            EEI 2008 FINANCIAL REVIEW             65
 BuSineSS StRategieS


State   implementation Schedule         Covered entities                eligible Resources                          Off-ramps
                                                                                                                    (Cost Mitigation/Other)
DC      •	total (two tiers) starts at   •	IoUs                          Some resources subject to specified tier/   None
          4.5% in 2008, steps up to     •	CLSEs                         class limits
          20% in 2020                                                   •	Wind
        Set-aside:                                                      •	Solar thermal/PV
        •	Solar (tier 1) = 0.4% of                                      •	Qualified biomass
          RES in 2020                                                   •	Geothermal
                                                                        •	All forms of ocean energy
                                                                        •	Landfill/wastewater treatment gas
                                                                        •	Fuel cells using renewables
                                                                        •	Qualified hydro
                                                                        •	Some waste-to-energy
Hi      •	Starts at 10% in 2010,        •	IoUs                          •	Wind                                      •	Requires ratemaking
          steps up to 20% by                                            •	Solar                                       structure encouraging cost-
          12/31/20                                                      •	ocean                                       effective RE development,
                                                                        •	Landfill gas                                but allows for deviation if
                                                                        •	Biomass                                     standards cannot be met
                                                                        •	Biofuels                                    cost-effectively due to events
                                                                        •	Biodiesel                                   beyond utility control
                                                                        •	Fuel cells using renewables
                                                                        •	Geothermal
                                                                        •	Falling water
                                                                        •	hydrogen from renewables
                                                                        •	Energy efficiency
                                                                        •	onsite grid-connected renewable dG
                                                                        •	Waste heat from efficient ChP
                                                                        •	RE displacement or offset technology,
                                                                          e.g., solar water heating, seawater AC
iL      •	Starts at 2% on 6/1/08,       •	IoUs w/ ≥ 100,000 customers   •	Solar thermal/PV                          •	If specified rate impact
          steps up to 25% by 2025       •	Merchants/wholesale suppli-   •	Wind                                        limits exceeded, compliance
        Set-aside:                        ers serving C&I customers     •	Biodiesel                                   delayed
        •	Wind = 75% of RES in                                          •	Biomass                                   •	CC to review cap in 2011 and
          2025                                                          •	Qualified hydro                             report to General Assembly if
                                                                        •	In-state landfill gas                       it unduly constrains procure-
                                                                                                                      ment of cost-effective RE
                                                                                                                      resources
                                                                                                                    •	RES impact limits: 2008,
                                                                                                                      0.5% of kWh cost in baseline
                                                                                                                      yr. ending 5/31/07; 2009,
                                                                                                                      greater of 0.5% of prior yr.
                                                                                                                      costs or 1% of 2007 baseline
                                                                                                                      yr. costs; 2010, greater
                                                                                                                      of 0.5% of prior yr. costs
                                                                                                                      or 1.5% of 2007 baseline
                                                                                                                      yr.; 2011, greater of 0.5%
                                                                                                                      of prior yr. costs or 2% of
                                                                                                                      2007 baseline yr.; thereafter,
                                                                                                                      greater of 2.015% of 2007
                                                                                                                      baseline yr. or incremental
                                                                                                                      costs in 2011
ia      •	105 MW statewide w/no         •	IoUs                          •	Qualified hydro                           None
          target date                                                   •	Solar
                                                                        •	Wind
                                                                        •	MSW
                                                                        •	Some biomass




 66     EEI 2008 FINANCIAL REVIEW
                                                                                                                        BuSineSS StRategieS


State   implementation Schedule         Covered entities                   eligible Resources                           Off-ramps
                                                                                                                        (Cost Mitigation/Other)
Me      •	Class 2 starts/stays at 30%   •	IoUs                             •	Fuel cells                                 •	PUC may review Class I
          in 2000; Class 1 starts at    •	CLSEs                            •	tidal                                        standard, suspend increases
          1% in 2008, steps up to       •	All other entities selling at    •	Geothermal                                   under certain circumstances,
          10% in 2017. total: 40%         retail or providing standard     •	Solar thermal/PV                             and waive penalties if utility
          in 2017                         offer service                    •	Wind                                         deemed to have made good
                                                                           •	Efficient ChP                                faith effort but could not
                                                                           •	PURPA small power                            reasonably satisfy standard
                                                                           •	Qualified hydro                              due to market conditions
                                                                           •	Biomass
                                                                           •	Landfill gas
                                                                           •	MSW
                                                                           online after 9/1/05:
                                                                           •	Qualified new/expanded resources
                                                                             (except wind) from above resources
                                                                             except hydro w/o fish passage, MSW,
                                                                             efficient ChP
                                                                           •	Qualified pumped storage
MD      •	Starts at 3.5% in 2006,       •	IoUs                             Some resources subject to specified tier/    •	If actual or projected cost
          steps up to 20% in 2022       •	All other retail suppliers       class limits                                   of purchasing solar RECs in
        Set-aside:                      •	Coops w/PPAs in place on         •	Solar thermal/PV                             any year is ≥ 1% of supplier’s
        •	Solar = 2% of RES in 2022       10/1/04 exempted until PPAs      •	Wind                                         total annual electricity sales
                                          expire                           •	Qualified biomass                            revenues in state, supplier
                                                                           •	Biomass part of co-fired units               may ask PSC to delay by 1
                                                                           •	Geothermal                                   year scheduled increase for
                                                                           •	ocean wave, tidal, current, thermal          solar. delay to continue until
                                                                           •	Gas from landfill, digesters,                actual or anticipated cost is
                                                                             waste treatment                              < 1% of supplier’s annual
                                                                           •	Fuel cells using fuels from biomass/         sales revenue, at which time
                                                                             biogas                                       supplier is subject to next
                                                                           •	Eligible onsite grid-connected dG            scheduled increase
                                                                           •	Qualified poultry litter-to-energy         •	Above procedures & rules
                                                                           •	Qualified hydro                              apply to non-solar (tier 1)
                                                                                                                          except trigger level is greater
                                                                                                                          of 10% of supplier's total an-
                                                                                                                          nual retail sales or applicable
                                                                                                                          tier 1 percentage require-
                                                                                                                          ment for that year
Ma      •	Starts at 1% by 12/31/03,     •	IoUs                             Some resources subject to specified tier/    None
          steps up to 4% by             •	CLSEs                            class limits
          12/31/09 and increases        •	Munis exempt unless opting       •	Solar thermal/PV
          1%/yr. afterward w/no end       into retail choice               •	Wind
          date, e.g., RES is 25% by                                        •	ocean thermal, wave, tidal
          12/31/30                                                         •	Fuel cells using renewables
                                                                           •	Landfill gas
                                                                           •	Qualified hydro
                                                                           •	Qualified biomass
                                                                           •	Marine/hydrokinetic energy
                                                                           •	Qualified dG
                                                                           •	Geothermal
Mi      Credit Portfolio:               •	IoUs                             •	Biomass                                    •	Compliance not required
        •	10% by 2015, starts in        •	Munis                            •	Solar thermal/PV                             to extent PSC determines
          2012 w/obligations unique     •	Coops                            •	Wind                                         recovery of incremental cost
          to each supplier based on     •	Alternative electric suppliers   •	Kinetic energy of moving water including     of compliance to exceed
          specified criteria                                                 waves, tides, currents                       retail rate impact caps as
        Capacity Portfolio:                                                •	Qualified hydro                              follows: $3/mo for residential;
        •	Consumers Energy must                                            •	Geothermal                                   $16.58/mo. for commercial;
          build or purchase 200 MW                                         •	MSW                                          and $187.50/mo. for lg. C&I
          of new RE by 2013 and                                            •	Landfill gas                               •	Upon petition by provider,
          500 MW by 2015                                                   •	Energy optimization and/or advanced          PSC may for good cause
        •	detroit Edison must build                                          cleaner energy systems may be applied        grant two one-year extensions
          or purchase 300 MW by                                              against targets w/regulatory approval        of 2015 deadline; good cause
          2013 and 600 MW by                                                                                              stems from factors related
          2015                                                                                                            to siting, equipment cost/
                                                                                                                          availability, transmission, reli-
                                                                                                                          ability, labor or government/
                                                                                                                          court orders



                                                                                                          EEI 2008 FINANCIAL REVIEW                67
 BuSineSS StRategieS


State   implementation Schedule         Covered entities                  eligible Resources                           Off-ramps
                                                                                                                       (Cost Mitigation/Other)
Mn      Xcel:                           •	IoUs                            •	Solar                                      •	PUC may modify or delay
        •	Starts at 15% by 12/31/10,    •	G&t coops                       •	Wind                                         mandate for cost impacts,
          steps up to 30% by 2020       •	Municipal power agencies        •	hydro                                        adverse impacts on reliability,
        Xcel set-aside:                   (not munis themselves)          •	Biomass including gas from landfills,        siting problems, construction
        •	Wind = 25% of RES in                                              anaerobic digesters                          or permitting delays, trans-
          2020                                                            •	MSW                                          mission constraints, or other
        Covered entities except Xcel:                                     •	hydrogen                                     statutory limitations
        •	Starts at 12% by 12/31/12,
          steps up to 25% by 2025
MO      •	Starts at 2% in 2011, steps   •	IoUs                            •	Wind                                       •	PSC may excuse compliance
          up to 15% by 2021                                               •	Solar thermal/PV                             for events beyond utility con-
        Set-aside:                                                        •	Biomass                                      trol or if cost increases retail
        •	Solar = 2%; Empire district                                     •	Landfill/wastewater treatment gas            rates by > 1%
          Electric excepted                                               •	Qualified hydro
                                                                          •	Fuel cells using renewables
Mt      •	Starts at 5% on 1/1/08,       •	IoUs                            •	Wind                                       •	Utilities may seek short-term
          steps up to 15% in 2015       •	Coops & munis must recog-       •	Solar                                        waivers of full compliance
                                          nize intent of law to encour-   •	Gas from landfills, farms, wastewater        based on factors outside their
                                          age RE and establish own          treatment                                    control, inability to mitigate
                                          RES                             •	Geothermal                                   adverse reliability impacts of
                                                                          •	Qualified biomass                            integrating resources, or bids
                                                                          •	Fuel cells using renewables                  exceeding cost caps specified
                                                                          •	Renewable part of multi-fired facilities     for ea. utility
                                                                          •	Qualified hydro
nV      •	Starts at 6% on 1/1/05,       •	IoUs                            •	Solar thermal/PV                           •	PUC must waive RES to
          steps up to 20% on 1/1/15     •	CLSEs                           •	Wind                                         extent energy efficiency or RE
        Set-aside:                                                        •	Geothermal                                   contracts are not available at
        •	Solar = 5% of RES                                               •	Qualified biomass                            just and reasonable cost
                                                                          •	Qualified biogas
                                                                          •	Fuel cells using renewables
                                                                          •	hydro
                                                                          •	Reverse polymerization
                                                                          •	Certain energy efficiency, capped @
                                                                            25% of RES, including savings from
                                                                            customer dG
nH      •	Starts at 4% in 2008, steps   •	All retail electricity          Some resources subject to specified tier/    •	PUC may accelerate or
          up to 23.8% in 2025           •	suppliers                       class limits                                   delay by up to 1 year any
        Set-asides:                                                       •	Wind                                         incremental increase in Class
        •	Solar = 0.3% of RES in                                          •	Geothermal                                   I (most eligible resources) or
          2025                                                            •	Fuel cells using biomass/biogas              II (new solar) for good cause
        •	Biomass & biogas = 6.5%                                         •	ocean thermal, wave, current, tidal          and after notice & hearing
        •	Qualifying hydro = 1%                                           •	Gas from landfills, biodigesters           •	PUC may modify Class III
                                                                          •	Qualified biomass                            (biomass) or IV (hydro) as of
                                                                          •	Qualified biogas                             1/1/12, such that require-
                                                                          •	Qualified hydro                              ments must be 85%-95% of
                                                                          •	Solar                                        reasonably expected potential
                                                                          •	In-state, onsite customer dG                 annual output of available eli-
                                                                                                                         gible sources after taking into
                                                                                                                         account demand from similar
                                                                                                                         programs in other states
                                                                                                                       •	PUC must review RES pro-
                                                                                                                         gram and report findings to
                                                                                                                         legislature in 2011, 2018 and
                                                                                                                         2025, including any recom-
                                                                                                                         mendations for changes to
                                                                                                                         class requirements or other
                                                                                                                         program aspects




 68     EEI 2008 FINANCIAL REVIEW
                                                                                                                         BuSineSS StRategieS


State   implementation Schedule           Covered entities                  eligible Resources                          Off-ramps
                                                                                                                        (Cost Mitigation/Other)
nJ      •	Starts at 3.5% in 2006,         •	IoUs                            Some resources subject to specified tier/   None
          steps up to 22.5% in 2021       •	CLSEs                           class limits
        Set-aside:                                                          •	Wind
        •	Solar = 2.12% of RES in                                           •	Geothermal
          2021 mandate                                                      •	ocean wave, tidal
                                                                            •	Fuel cells using renewables
                                                                            •	Gas from landfills, biodigesters
                                                                            •	Qualified biomass
                                                                            •	Solar thermal/PV
                                                                            •	Qualified hydro
                                                                            •	Qualified resource recovery
nM      •	IoUs:                           •	IoUs                            •	Solar thermal/PV                          •	Utilities excused from diversi-
        •	Starts at 5% on 1/1/06,         •	Coops                           •	Wind                                        fication targets but not overall
           steps up to 20% in 2020                                          •	Qualified hydro                             RES if costs raise rates by
        IoU set-asides (“diversifica-                                       •	Geothermal                                  > 2%, or if targets cannot
        tion targets”) in RES:                                              •	Fuel cells using non-fossil fuels           be reached w/o impairing
        •	Solar = 20% of RES                                                •	Qualified biomass                           reliability.
        •	Wind = 20%                                                        •	Renewable onsite dG                       •	For C&I loads > 10 million
        •	Geothermal & biomass =                                                                                          kWh/yr, PRC may reduce
           10%                                                                                                            RES to keep cost increases
        •	Renewable dG = 3%                                                                                               at lesser of 1% of annual bill
        Coops:                                                                                                            or $49,000 as of 1/1/06, then
        •	Starts at 5% by 1/1/15,                                                                                         cap increases at $10,000/yr
           steps up to 10% by 2020                                                                                        until fixed at lower of 2% or
                                                                                                                          $99,000. After 1/1/12, cap
                                                                                                                          adjusted by CPI
nY      •	Starts at existing 19.3% (lg.   •	IoUs collect sales-based sur-   Some resources subject to specified tier/   None
          hydro) in 2006, steps up to       charge, used by central pro-    class limits
          25% by 12/31/13                   curement agency to provide      •	Wind
        Set-aside:                          incentives for producers to     •	Gas from landfill, biodigesters
        •	output from new re-               deliver RE to state wholesale   •	Qualified biomass
          sources = 7.71% of RES by         market and for end-users to     •	Liquid biofuel, biodiesel
          12/31/13                          install RE facilities           •	Fuel cells
                                                                            •	Solar PV
                                                                            •	Qualified hydro
                                                                            •	ocean tidal, wave, current, thermal
                                                                            •	Eligible customer dG
nC      •	IoUs: Starts at 3% in 2012,     •	IoUs                            •	Solar thermal/PV                          •	UC may modify or delay RES
          steps up to 12.5% in 2021       •	Coops                           •	ocean wave, current                         if in public interest
        •	Coops & munis: Starts at        •	Munis                           •	Biomass
          3% in 2012 then steps up                                          •	Geothermal
          to 10% in 2018                                                    •	Landfill gas
        Set-asides:                                                         •	Qualified hydro
        •	Solar = 0.20% of overall                                          •	Fuel cells & ChP using renewables
          RES in 2018                                                       •	Waste heat from onsite renewable dG
        •	Swine waste same as solar                                         •	Certain energy-efficiency, capped @25%
        •	Poultry waste = 900,000                                             of RES to 2021, 40% after
          MWh in 2014




                                                                                                              EEI 2008 FINANCIAL REVIEW            69
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State   implementation Schedule            Covered entities              eligible Resources                            Off-ramps
                                                                                                                       (Cost Mitigation/Other)
OH      •	IoUs: Starts at 0.25%            •	IoUs                        Renewable resources:                          •	Compliance excused if 3% of
          in 2009 from each of             •	CLSEs                       •	Solar thermal/PV                              costs of otherwise producing/
          advanced & renewable                                           •	Wind                                          buying requisite electricity is
          resource groups, steps up                                      •	Qualified hydro                               exceeded
          to 12.5% from ea. group                                        •	Geothermal                                  •	Covered entity may file for
          for total 25% by 12/31/24                                      •	Solid-waste derived fuel not involving        force majeure, requiring PUC
        Set-aside:                                                         combustion                                    to determine renewables
        •	Solar = 0.5% by 12/31/24                                       •	Fuel cells generating electricity             are reasonably available in
                                                                         •	Biogas                                        ohio and PJM/MISo regions.
                                                                         •	Qualified biomass                             If resources not available,
                                                                         •	Energy storage increasing use of off-         PUC must modify that year’s
                                                                           peak renewable                                obligation. Such modification
                                                                         •	onsite renewable dG                           doesn’t reduce future obliga-
                                                                         •	Qualified hydro                               tions and PUC may order
                                                                         Advanced resources:                             shortfalls made up later
                                                                         •	Increased conventional output not           •	PUC to review compliance
                                                                           increasing Co2                                yearly to identify weather,
                                                                         •	Any onsite dG meeting customer needs          equipment or resource
                                                                         •	Clean coal                                    factors, or events beyond
                                                                         •	Advanced nuclear                              supplier’s control leading to
                                                                         •	Any fuel cell                                 shortfalls
                                                                         •	Advanced waste conversion reducing
                                                                           GhGs
                                                                         •	Advanced-fueled dG of C&I customers,
                                                                           w/restrictions
                                                                         •	dSM/energy efficiency
OR      •	For entities w/load ≥ 3% of      •	IoUs                        •	Wind                                        •	Full compliance excused if
          state’s retail sales: Starts     •	PUds                        •	Solar thermal/PV                              utility costs exceed 4% of its
          at 5% in 2011, steps up to       •	Munis                       •	ocean wave, tidal, thermal                    annual revenue requirement
          25% in 2025                      •	Coops                       •	Geothermal                                    for compliance year
        •	Load > 1.5% and < 3% of          •	CLSEs                       •	Qualified biomass                           •	Utilities exempt if purchase
          state’s retail sales: Fixed at                                 •	Gas from landfill wastewater, anaerobic       of electricity from eligible
          10% in 2025                                                      digesters, MSW                                sources would: 1) exceed
        •	Load ≤ 1.5% of state’s retail                                  •	hydrogen from renewables                      projected load requirements;
          sales: Fixed at 5% in 2025                                     •	Qualified hydro                               2) require utility to substitute
                                                                                                                         eligible RE for sources other
                                                                                                                         than coal, natural gas or
                                                                                                                         petroleum; 3) require utility
                                                                                                                         to substitute eligible RE from
                                                                                                                         existing large hydro located
                                                                                                                         on the Columbia River; or 4)
                                                                                                                         reduce consumer-owned util-
                                                                                                                         ity's purchase of lowest price
                                                                                                                         electricity from BPA
Pa      •	Starts at 5.7% on 6/1/06,        •	IoUs                        Some resources subject to specified tier/     •	If PUC determines utilities
          steps up to 18% on 6/1/20        •	CLSEs                       class limits                                    are unable to comply despite
        Set-aside:                         •	Coops to offer energy ef-   •	Wind                                          good faith efforts, it may alter
        •	Solar PV = 0.5% on 6/1/20          ficiency, dSM to comply     •	Qualified hydro                               obligation for given year,
                                                                         •	Fuel cells using renewables                   but may set higher obliga-
                                                                         •	Solar thermal/PV                              tions later to compensate for
                                                                         •	Geothermal                                    shortfalls
                                                                         •	Biomass
                                                                         •	Gas from coal mines, landfills, digesters
                                                                         •	Waste coal
                                                                         •	Coal gasification
                                                                         •	ChP
                                                                         •	Qualified dG
                                                                         •	hydro w/pumped storage
                                                                         •	MSW
                                                                         •	Waste heat from industrial onsite dG




 70     EEI 2008 FINANCIAL REVIEW
                                                                                                                       BuSineSS StRategieS


State   implementation Schedule           Covered entities             eligible Resources                              Off-ramps
                                                                                                                       (Cost Mitigation/Other)
Ri      •	Starts at 3% on 1/1/07,         •	1 IoU                      •	Solar thermal/PV                              •	In 2010 and 2014, PUC
          steps up to 16% in 2019         •	CLSEs                      •	Wind                                            may delay scheduled annual
                                                                       •	Geothermal                                      increases for one year if sup-
                                                                       •	ocean tidal, wave, current, thermal             plies deemed inadequate
                                                                       •	Qualified hydro                               •	In 2020/each year thereafter,
                                                                       •	In-state dG                                     the min. requirement set in
                                                                       •	Fuel cells using renewables                     2019 must be maintained
                                                                       •	Qualified biomass                               unless PUC determines stan-
                                                                       •	Landfill gas                                    dard no longer necessary
                                                                       •	Biodiesel
                                                                       •	Renewable fuel in co-fired units
tX      •	Starts at 2,280 MW on           •	IoUs in non-restructured   •	Solar thermal/PV                              •	PUC may cap price of RECs
          1/1/07, steps up to 5,880       areas                        •	Wind                                            and suspend RES to protect
          MW by 1/1/15                    •	CLSEs                      •	Geothermal                                      grid reliability and operation
        Set-aside:                        •	Munis and coops offering   •	hydro
        •	Non-wind resources must           customer choice            •	Qualified biomass
          be ≥ 500 MW by 1/1/15                                        •	Landfill gas
                                                                       •	ocean wave, tidal, thermal
                                                                       •	onsite renewable dG
Vt      •	Goal that may become            •	IoUs                       •	Wind                                          •	Goal to become manda-
          mandate: Lesser of 100%         •	Munis                      •	Solar                                           tory if PSB makes specified
          of retail sales growth during   •	Coops                      •	Geothermal                                      finding by 1/1/13, otherwise
          2005-12 or 10% of total                                      •	Gas from landfills, biodigesters, sewage        RES mandate does not
          2005 statewide sales                                           treatment                                       apply. Finding may include
                                                                       •	Biomass                                         whether renewable resources
                                                                       •	Biodiesel                                       placed in service or certified
                                                                       •	Qualified hydro                                 exceeded 10% of total state-
                                                                       •	Fuel cells using renewables                     wide retail sales for 2005
                                                                       •	ChP using renewables
                                                                       •	Efficient ChP using fossil fuels/qualifying
                                                                         increases from existing units
Wa      •	Starts at 3% in 2012, steps     •	IoUs                       •	Wind                                          •	Waiver allowed for listed
          up to 15% in 2020               •	Munis                      •	Solar                                           events beyond utility control
                                                                       •	Geothermal                                      or reasonable ability to antici-
                                                                       •	Gas from landfill, sewage treatment             pate. Impact of RES costs on
                                                                       •	ocean wave, tidal                               rates not reason for waiver
                                                                       •	Qualified hydro
                                                                       •	Qualified biodiesel
                                                                       •	Renewable, qualified dG
                                                                       •	Zero load growth (not energy efficiency
                                                                         per se)
Wi      Starts at 2% by 12/31/10,         IoUs                         •	Wind                                          •	PSC may delay require-
        steps up to 10% by 12/31/15       Munis                        •	Fuel cells using renewables                     ments due to reliability or
                                          Coops                        •	Geothermal                                      rate impacts, siting delays, or
                                                                       •	Qualified biomass                               transmission constraints
                                                                       •	Landfill gas
                                                                       •	ocean tidal, wave
                                                                       •	Solar thermal/PV
                                                                       •	Qualified hydro




                                                                                                        EEI 2008 FINANCIAL REVIEW                 71
BuSineSS StRategieS




aCROnYM gLOSSaRY

AC – air conditioning
                                               MW – megawatt
BPA – Bonneville Power Administration
                                               MWh – megawatt hour
CC – Commerce Commission
                                               PJM – Pennsylvania-New Jersey-Maryland
C&I – commercial and industrial
                                               PPA – power purchase agreement
ChP – combined heat & power
                                               PRC – Public Regulation Commission
CLSE – competitive load serving entity
                                               PSB – Public Service Board
dG – distributed generation
                                               PSC – Public Service Commission
dSM – demand-side management
                                               PUC – Public Utilities Commission or Public Utility Commission
G&t – generation and transmission
                                               PUd – public utility district
GhG – greenhouse gas
                                               PURPA – Public Utility Regulatory Policies Act of 1978
hVAC – heating, ventilation & air
                                               PV – photovoltaic
conditioning
                                               QF – qualifying facility
IoU – investor-owned utility
                                               RE – renewable energy
kW – kilowatt
                                               REC – renewable energy credit
kWh – kilowatt hour
                                               RES – renewable electricity standard (also called renewable energy standard,
LAdWP – Los Angeles dept. of Water &
                                               renewable portfolio standard, or other, depending on state)
Power
                                               UC – Utilities Commission
LSE – load-serving entity
MISo – Midwest Independent System
operator
MSW – municipal solid waste
Sources: Edison Electric Institute from original source material, database of State Incentives for Renewables & Efficiency




significant development. Despite their       load coal plants; the financial, regula-       sion of those incentives, allowed devel-
still small relative contribution to total   tory and political uncertainties facing        opers to apply for the Investment Tax
electric output, renewables produced,        new nuclear plant construction; and            Credit (ITC) instead of the Production
again, the fastest growth of all fuel        rising public concern over environ-            Tax Credit (PTC), or a cash grant in-
types, including a 36.1% increase in         mental issues.                                 stead of the PTC or the ITC. Given
2008 compared to 2007 for solar and                                                         the almost disappearance of the tax
                                                 Government and state policies and
a 51% rise for wind. Wind generation                                                        equity market and the overarching ef-
                                             incentives, however, have been and
has experienced very rapid growth in                                                        fects of the credit crisis, the extensions
                                             continue to be key sources of support
recent years and is almost exclusively                                                      and new tax provisions will undoubt-
                                             for development of renewable gen-
responsible for the growth of the non-                                                      edly help investment in wind and solar
                                             eration. The Federal Production Tax
hydro renewables sector. The expan-                                                         facilities.
                                             Credit (PTC), which provides a 2¢/
sion in solar output is also significant                                                       State policies have also promoted
                                             kWh credit for electricity produced
given that solar generation had been                                                        and supported non-hydro renew-
                                             from certain renewable resources, is
fairly stable since the late 1990s. In                                                      able resources. The continuation and
                                             critical for financing new wind farms
2008, solar-powered electricity exceed-                                                     expansion of state renewable energy
                                             and the Investment Tax Credit (ITC)
ed 8.3 GWh compared to 5 GWh only                                                           electricity standards (RES) has been a
                                             is a major financial support for solar
two years earlier.                                                                          major driver of renewable energy de-
                                             power. After months of uncertainty,
   The above data demonstrate the            Congress passed a short-term exten-            velopment. Like recent years, 2008
growing support for renewable energy         sion of federal tax incentives as part of      was a very active year in the RES arena.
that has resulted from a number of fac-      an economic stimulus package in the            Utah and South Dakota enacted legis-
tors, including the long-term climb          fall of 2008. In early 2009, the Ameri-        lation that set non-mandatory renew-
in fossil fuel commodity prices; rising      can Recovery and Reinvestment Act              able goals. Maryland and Washington,
costs associated with building base-         (ARRA) granted a longer-term exten-            D.C. increased their RES targets. And



72       EEI 2008 FINANCIAL REVIEW
                                                                                                  BuSineSS StRategieS


three additional states enacted an         barrel, peaked at over $145/barrel in
RES: Ohio (25% by 2025), Michi-            mid-July 2008 and closed the year at
gan (10% by 2015) and Missouri (re-        around $40/barrel.
placed a state goal with a15% by 2021
                                              The international political envi-
RES mandate).
                                           ronment is often the primary driver
   Given such public sector support,       of world spot oil prices, yet the highs
renewable energy’s share of U.S. elec-     reached in the winter of 2007 and first
tricity generation will likely continue    half of 2008 were also a reflection of
to grow. However, growth of renewable      a tight physical market. Strong world
generation is critically dependent on a    demand along with OPEC’s decision
parallel development of transmission       to cut back production at the begin-
infrastructure and on the availability     ning of the year, as well as refinery and
of financing (which became strained        production outages, led to falling in-
in late 2008 by the economic recession     ventories in oil importing countries.
and credit crisis).                        The upward spiral was reversed in the
                                           summer when the combination of sus-
Oil                                        tained high oil prices, slowing demand
   Oil accounted for 1.1% of U.S.          from China, and the first manifesta-
electric generation in 2008, a 30% re-     tions of the international economic re-
duction from the 1.6% in 2007. For         cession all led to a reduction of world
the third straight year, oil made the      oil demand and prices. Even OPEC’s
smallest contribution to electricity       decision at the beginning of October
generation of all fuel types, accounting   2008 to cut back production by 1.5
for less than half that made by non-       million barrels a day and hurricane-
hydro renewables. The 2008 figures         related outages were insufficient to sta-
contrast with those of 2005, when oil      bilize crude oil prices.
accounted for 3% of electric output           As has been the case for the last 40
and non-hydro renewables 2.2%.             years, crude oil prices in the United
   Persistently high oil prices in 2006,   States will remain subject to the
2007 and through most of 2008 were         dynamics of the international oil
an important contributing factor to        market and the relative strength of
the decline in oil use. The prelimi-       the dollar versus other currencies. As
nary average cost to produce electricity   recent developments show, however,
from oil in 2008 was $178.06/MWh,          oil prices are also inextricably linked
a 71% increase from 2007 and an 82%        to the evolution and international
increase from 2006. Surging global oil     management of the current credit and
prices pushed the already high ratio of    economic crises.
fuel cost to total generation cost from
86% in 2007 to 91% in 2008.
   While crude oil prices averaged $15
to $25/barrel in the mid-1990s, the
price of oil began an upward climb in
the beginning of the current decade.
West Texas Intermediate crude spot
prices started 2007 at around $60/




                                                                                       EEI 2008 FINANCIAL REVIEW   73

				
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