View source for WM 19-0008, Financial Assurance Requirements for Decommissioning Nuclear Power Reactors 10 CFR 50.75(f)(1)

{{Adams
| number = ML19106A335
| issue date = 04/10/2019
| title = Financial Assurance Requirements for Decommissioning Nuclear Power Reactors 10 CFR 50.75(f)(1)
| author name = Reasoner C
| author affiliation = Wolf Creek Nuclear Operating Corp
| addressee name = 
| addressee affiliation = NRC/Document Control Desk, NRC/NRR
| docket = 05000482
| license number = 
| contact person = 
| case reference number = WM 19-0008
| document type = Financial Assurance Document, Letter type:WM
| page count = 785
}}

=Text=
{{#Wiki_filter:W$LFCREEK        1 NUCLEAR OPERATING CORPORATION Cleveland Reasoner Senior Vice President and Chief Nuclear Officer April 10, 2019 WM 19-0008 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555

==Subject:==
Docket No. 50-482: Wolf Creek Generating Station (WCGS) Financial Assurance Requirements for Decommissioning Nuclear Power Reactors 10 CFR 50.75(f)(1)
To Whom It May Concern:
Pursuant to 10 CFR 50. 75(f)(1 ), each power reactor licensee is required to report to the Nuclear Regulatory Commission (NRC) the status of its decommissioning funding for each reactor or part of each reactor it owns on a calendar year basis, beginning March 31, 1999, and every two years thereafter. Any licensee for a plant that is involved in a merger or an acquisition shall submit this report annually. Wolf Creek Nuclear Operating Corporation (WCNOC) holds the operating license for Wolf Creek Generating Station (WCGS), which is jointly owned by Kansas Gas and Electric Company (KGE), a wholly-owned direct subsidiary of Westar Energy, Inc. and indirect subsidiary of Evergy, Inc.; Kansas City Power & Light Company (KCPL), a wholly-owned direct subsidiary of Evergy, Inc; and Kansas Electric Power Cooperative, Inc. (KEPCo).
Accordingly, WCNOC provides the information for WCGS in accordance with the requirements of 10 CFR 50. 75(f)(1 ).
The Enclosures provide the required financial information to report the status of WCNOC's decommissioning funding, and legal documentation to provide the approval of the 2017 Decommissioning Cost Analysis for WCGS. The Enclosures reflect financial estimates based on the 2017 Cost Analysis.
The NRC Project Manager was contacted regarding not meeting the required due date stated in the regulations. This issue has been captured in WCNOC's Corrective Action Process as condition report 131169. This letter contains no commitments. If you have any questions concerning this matter, please contact me at (620) 364-4000, or Ron Benham at (620) 364-4204.                                   .
Sincerely, au~
Cleveland Reasoner COR/rlt P.O. Box 411 / Burlington, KS 66839 / Phone: (620) 364-8831 An Equal Opportunity Employer M/F/HCNET

WM 19-0008 Page 2 of 2

==Enclosures:==
Wolf Creek Nuclear Operating Corporation Decommissioning Funding Status Report as of 3/31/18 II     Commission Order (Docket No. 18-WCNE-107-GIE) 111    Direct Testimony of Adam H. Gatewood (September 12, 2018)
IV     Joint Motion to Approve Stipulation (Docket No. 15-WCNE-093-GIE)
V       Order Approving Unanimous Settlement Agreement (Docket No. 18-KCPE-480-RTS)
VI     Direct Testimony of Adam H. Gatewood (July 9, 2015)
VII    Order Approving Stipulation and Agreement (Docket No. 15-WSEE-115-RTS)
VIII   Order Approving Unopposed Stipulation and Agreement (15-WCNE-093-GIE)
IX     Order Approving Stipulation and Agreement (File No. E0-2018-0062)
X      Non-Unanimous Stipulation and Agreement (File No. E0-2018-0062)
XI     Direct Testimony of Adam H. Gatewood (June 11, 2018)
XII    Application of Kansas City Power & Light Company (KCPL) for Approval of the Accrual and Funding of WCGS Decommissioning Costs at Current Levels XIII   Annual NRC Certification Update XIV    Decommissioning Cost Analysis for the Wolf Creek Generating Station (W11-1741-001, Rev. 0) cc:  S. A. Morris (NRC), w/e B. K. Singal (NRC), w/e N. H. Taylor (NRC), w/e Senior Resident Inspector (NRC), w/e

Enclosure I to WM 19-0008 Wolf Creek Nuclear Operating Corporation Decommissioning Funding Status Report as of 3/31/18 (15 pages)

Wolf Creek Nuclear Operating Corporation Decommissioning Funding Status Report as of 3/31/19 Owned by Kansas Gas & Electric (KGE), Kansas City Power and Light (KCPL) and Kansas Electric Power Cooperative *(KEPCo)
Westar Energy                Great Plains Energy 10 CFR 50.751f111l Reauirement (KGE, 47% ownership)           (KCPL, 47% ownership)     KEPCo, 6% ownership       TOTAL                             Notes                  I
: 1) NRC minimum decommissioning estimate pursuant to 10 CFR 50.75( b,) and ( c) Dollars in Millions.                               $242.95                        $242.95                   $31.02            $516.92
: 2) The amount of accumulated funds at the end of the calendar year.preceding the date of the report for items
                                                                           $227.46                        $244.61                   $25.01            $497.07 included in 10 CFR 50.75 ( b) and ( c ). Dollars in Millions.
: 3) A schedule of the annual amounts to be collected; for                                                                                                            Current scheduled amounts established in items in 1o CFR 50.75 ( b) and ( c ). Dollars in Millions.                                                                                                          KCC Docket 15-WSEE-115-RTS Testimony See Attached Schedules                                                                                                                                              of Gatewood.
Collection amounts for 2018/2019 have not
                                                                           $151.54                                                                                  been established/approved as of 3/31/2019
                                                                                                           $87.07                   $16.24            $254.85 for KGE/KEPCo, KCC Docket 18-WSEE-328-RTS.
KCPL contributions established in KCC Docket 18-KCPE-480-RTS and E0-2018-0062
: 4) The assumptions used regarding:                                                                                                                                  New escalation rate approved for Kansas in (a) Rates of escalation in decommissioning costs;                                                                                                               2018 @ 2.91 %, new Site Specific .
Kansas                                                            2.91%                          2.91%                    2.91%                          Methodology Approved from DECON to SAFSTOR as found in KCC Docket 18-WCNE-107-GIE.
Missouri                                                            NIA                          3.16%                     NIA                            Missouri Rates established on E0-2018-062 (b) Rates of earning on decommissioning funds;                                                                                                                  Kansas earnings rates riot approved as of 3/31/19 by the KCC for KGE/KEPCo. Use rates established in KCC Docket 15-WSEE-Variable. See attached          Variable. See attached   Variable. See attached                  115-RTS, Testimony of Gatewood.
KCPL earnings rates established on 18-KCPE-480-RTS (c) Rates of other factors used in funding projections; and -
0.00%                          0.00%                    0.00%
(d) Real rate of return for current period, rate reduces in                                                                 .'
subsequent years;                                                            2.69%                          1.71%                    3.83%
Kansas Missouri                                                            N/A                          2.30%                     N/A
: 5) Any contracts upon which the licensee is relying pursuant to 10 CFR 50.75(e)(1)(v)?                                -                    None                           None                    None
: 6) Any modifications to a licensee's current method of providing financial assurance occurring since the last submitted report?                                                            None                           None                     None
: 7) Any material changes to trust agreements?
None                           None                     None Other information* estimated coroorate tax rate                            20.00%                         20.00%                 Non-taxable

WOLF CREEK NUCLEAR OPERATING CORPORATION Minimum Decommissioning Funds Estimate pursuant to 10 CFR 50.75 (b) and (c)
MINIMUM ESTIMATE Table (c)(1) - Jan86 dollars in Millions                         $         105
[Wolf Creek is a PWR licensed for 3,565 MWt]
Escalation Factor (see calculation below)                            . 4.923 Minimum estimate - Dec18 dollars in Millions                    $      516.92 Escalation per paragraph (c}(2}
Escalation Factor = 0.65 Labor + 0.13 Energy + 0.22 Waste Burial Share       4Q '18          Reeort
 ,Labor                                   65%           2.750             1.788
'                                          13%          2.365             0.307 Energy Waste Burial                             22%          12.853             2.828 TOTAL ESCALATION FACTOR                                                  4.923 NOTE: 4Q '18 factors per McDermott, Will & Emery memo dated February 20, 2019.
NEW SITE SPECIFIC STUDY (August 2017}
Decommissioning Alternative*                                      SAFSTOR Cost escallation rate                                                2.91%
Obtained from KCC Docket 18-WCNE-107-GIE (2017 $s)   (Q1 2019 $s)  (2045 $s)
SAFSTOR Period                                                       Millions      Millions     Millions % Total Radioactive Systems/Structures and License Termination           $       980.8 $    1,024.5  $ 2,189.7     90%
Preparation for Decommissioning/Spent Fuel Mgmt                  $        58.1 $        60.7 $    129.7     5%
Other Systems/Structures and Site Restoration                     $        54.2 $        56.7 $    121.1     5%
Subtotal - Not Applicable to NRC Minimum                       $       112.3 $       117.3 $    250.8    10%
TOTAL COST ESTIMATE                                               $     1,093.1 $    1,141.9  $ 2,440.6   100%
August 2017 study is approved by the KCC for the SAFSTOR method.

I I
I          .
~OLF CREEK NUCLEAR OPERATING CORPORATION .
Decommissioning Funding Status Report as of December 31, 2018 10 CFR 50.75 (b) and (c)
(~ollars In Thousands)
TOTAL                                KGE(47%)                                                          KCPL(47%)                                                                           KEPCo(6%)
jarket Value of External Sinking                        497,072.9                                   227,462.2                                                         244,605.2                                                                          25,005.5 Ftnd as of 12/31/18 S hedule of Amounts to be Collected (as approved by rate-selling authorities based on Site Specific Study) 2019                                       9,605                                      5,773                                                              3,317                                                                               515 I               2020 2021 9,613 9,621 5,773 5,773 3,317 3,317 523 531 2022                                       9,629                                      5,773                                                              3,317                                                                               539 2023                                       9,637                                      5,773                                                              3,317                                                                               547 2024                                       9,645 .                                    5,773                                                              3,317                                                                               555 2025                                       9,653                                      5,773                                                              3,317                                                                              ,563 2026                                       9,662                                      5,773                                                              3,317
* 572 2027                                     . 9,670                                      5,773
* 3,317                                                                               580 2028                                       9,679                                      5,773                                                              3,317                                                                               589 2029                                       9,688                                      5,773                                                              3,317                                                                               598 2030                                       9,697                                      5,773                                                              3;317                                                                               607 2031                                       9,706                                      5,773                                                              3,317                                                                               616 2032                                       9,715                                      5,773                                                              3,317                                                                               625 2033                                        9,725                                     5,773                                                              3,317                                                                               635 2034                                       9,734                                      5,773                                                              3,317                                                                               644 2035                                       9,744                                      5,773                                                              3,317                                                                               654 2036                                       9,754                                      5,773                                                              3,317                                                                               664 2037                                       9,764                                      5,773                                                              3,317                                                                               674 2038                                       9,774                                      5,773                                                              3,317                                                                               684 2039                                       9,784                                      5,773                                                              3,317                                                                            ' 694 2040                                       9,794                                      5,773                                                              3,317                                                                               704 2041                                       9,805                                      5,773                                                              3,317                                                                               715 2042                                       9,816                                      5,773                                                              3,317                                                                               726
                  ~~:                                        rn~                                        HH 3,317                                                                               736 l
3,317                                                                               748 829                                                                                 0 254,848                                     151,541                                                             87,071                                                                           16,236 A   umohons re* Rates/Factors soeclflc to Owner and Jurisdiction cbst Escalation Rate                                                                             Prior               Current                                        Prior                                  Current                                   Prior                 Current obtained from KCC Docket                                                                 15-WCNE-093-GIE        18-WCNE-107-GIE                            15-WCNE-093-GIE                          18-WCNE-107-GIE                            15-WCNE-093-GIE       '18-WCNE-107-GIE 3.15%                2.91%                                        3.15%                                  2.91%                                     3.15%                 2.91%
oltained from MPSC Docket                                                                                                                                  E0-2018-0062                             E0-2018-0062 N/A                   N/A                                       3.16%                                  3.1,6%                                        NIA                  NIA Aner Tax Earnings on Funds
  !Kansas
* From KCC Docket 1B-KCPE-480-RTS 2012- 2025                 5.60%                   TBD             2012 -2025                 5.84%         2018-2084                4.62%             2012 -2025              6.74%                   TBD 2026-2035                  4.83%                   TBD             2026 - 2045     deer - .25%/year         2085 -2091               3.95%
  !                                                                         2036-2044 2045 - Decommissioning 3.83%                   TBD  2045 - Decommissioning     deer - .13%/year         2092-2097                3.45%
2026-2035 2036-2044 5.33%
4.15%
TBD TBD 2.~1%                   TBD                                                      2098-2106                2.09%  2045 - Decommissioning             1.93%                   TBD I. .
M1ssoun 1
2012-2025                  5.18%                                  5.46%
1*                                                                                                                                           2026 - 2045    deer - .154%/year                     deer- ,16%/year 2045 - Decommissioning    deer - .022%/year                     deer - .04%/year I
Power sale contracts                                                                     None                   None                                       None                                     None                                       None                   None Jodificatlons to method of financial assurance                                           None                   None                                       None                                     None                                       None                , No*ne I
Material changes to trust agreements                                                     None                   None                                       None                                     None                                       None                   None I
I

WOLF CREEK NUCLEAR OP.ERATING CORPORATION Decommissioning Funding Status Report as of December 31, 2018 10 CFR.50.75 (b) and (c)
(Dollars in Thousands)
Kansas      FERC         TOTAL              KGE Market Value of External Sinking                                                             $      227,462.2 Fund as of 12/31/18 Schedule of Amounts to be Collected (as approved by rate-setting authorities based on Site Specific Study) 2019                                  5.477,274  , 295,426      5,772,700               5,773 2020                                  5,477,274    295,426      5,772,700               5,773 2021                                  5,477,274    295,426      5,772,700               5,773 2022                                . 5,477,274    295,426      5,772,700               5,773 2023                                  5.477,274    295.426      5,772,700               5,773
                - 2024                                  5,477,274    295,426      5,772,700               5,773 2025                                  5,477,274    295,426      5,772,700
* 5,773 2026                                  5,477,274    295,426      5,772,700               5,773 2027                                  5,477,274    295,426      5,772,700               5,773 2028                                  5,477,274    295,426      5,772,?00               5,773 2029                                  5,477,274    295.426      5,772,700               5,773 2030                                  5.477,274    295,426      5,772,700               5,773 2031                                  5,477,274    295.426      5,772,700               5,773 2032                                  5,477,274    295,426      5,772,700               5,773 2033                                  5.477,274    295,426      5,772,700               5,773 2034                                  5,477,274    295,426      5,772,700               5,773 2035                                  5.477,274    295.426      5,772,700               5,773 2036                                  5,477,274    295,426      5,772,700               5,773 2037                                  5,477,274    295,426      5,772,700               5,773 2038                                  5.477,274    295,426      5,772,700               5,773 2039                                  5.477,274    295,426      5,772,700              *5,773 2040                                  5,477,274    295,426      5,772,700               5,773 2041                                  5,477,274    295.426      5,772,700               5,773 2042                                  5.477,274    295,426      5,772,700               5,773 2043                                  5,477,274    295,426      5,772,700               5,773 2044                                 5,477,274     295,426      5,772,700               5,773 2045                                  1,369,319     73,857      1,443,176               1443 151,541 Assum11tions re: Rates/Factors s11ecific to Owner and Jurisdiction Prior                                               Current Cost Escalation Rate Obtained from KCC Docket 15-WCNE-093-GIE                                       Kansas                     3.15% Obtained from KCC Docket 18-WCNE-107-GIE    2.91%
Missouri                     N/A                                               N/A After Tax Earnings on Funds Kansas 2015 - 2025                                                      5.60%                                           TBD 2026 - 2035                                                      4.83%                                           TBD 2036-2044                                                        3.83%                                           TBD 2045 - Decommissioning                                                       2.31%                                           TBD Missouri Power sale contracts                                                                         None                                                        None Modifications to method of financial assurance                                               None                                                        None Material changes* to trust agreements                                                        None                                                        None

WOLF CREEK NUCLEAR OPERATING CORPORATION Decommissioning Funding Status Report as of Declj!mber 31, 2018 1o CFR 50. 75 (b) and (c)                                          *
(Dollars In Thousands)
Kansas        Missouri      TOTAL              KCPL Marl<et Value of External Sinking                                                             $         244,605.2 Fund.as of 12/31/18
* Schedule of Amounts to be Collected (as approved by rate-setting authorities based on Site Specific Study) 2019                                2,036,230      1,281,264     3,317,494                  3,317 2020                                2,036,230      1,281,264     3,317,494                  3,317 2021                                2,036,230      1,281,264     3,317,494                  3,317 2022                                2,036,230      1,281,264     3,317,494                  3,317 2023                                2,036,230      1,281,264     3,317,494                  3,317 2024                                2,036,230      1,281,264     3,317,494                  3,317 2025                                2,036,230      1,281,264     3,317,494                  3,317
                 . 2026                                2,036,230      1,281,264     3,317,494                  3,317 2027                                2,036,230 , 1,281,264        3,317,494                  3,317 2028                                2,036,230      1,281,264     3,317,494                  3,317 2029                                2,036,230      1,281,264     3,317,494                  3,317 2030                                2,036,230      1,281,264     3,317:494                 -3,317 2031                                2,036,230      1,281,264     3,317,494
* 3,317 2032                                2,036,230      1,281,264     3,317,494                  3,317 2033                                2,036,230      1,281,264     3,317,494                  3,317 2034                                2,036,230      1,281,264     3,317,494                  3,317 2035                                2,036,230      1,281,264     3,317,494                  3,317 2036                                2,036,230      1,281,264     3,317,494                  3,317 2037                                2,036,230      1,281,264     3,317,494                  3,317 2038                                2,036,230      1,281,264     3,317,494                  3,317 2039                                2,036,230      1,281,264     3,317,494                  3,317 2040                                2,036,230      1,281,264     3,317,494                  3,317 2041                                2,036,230      1,281,264     3,317,494                  3,317 2042                                2,036,230      1,281,264     3,317,494                  3,317 2043                                2,036,230      1,281,264     3,317,494                  3,317 2044                                2,036,230      1,281,264     3,317,494                  3,317 2.045                                 509,058        320,316       829,374 _ _ _ _ _;;;82"'9'-
87,071 Assumptions re: Rates/Factors specific to Owner and Jurisdiction Cost Escalation Rate                                                                                   Prior                                                            Current
.Obtained from KCC Docket 15-WCNE-093-GIE                                         Kansas                      3.15%  9btained from KCC Docket 18-WCNE-107-GIE                   2.91%
Obtained from MPSC Docket E0-2018-0062                                           Missouri                  .3.16%   Obtained from MPSC Docket E0-2018-0062                     3.16%
After Tax Earnings on Funds Kansas 2018 - 2029                                                         5.84%                                     2018 - 2084             4.62%
2030-2045                                                deer - .25%/year                                     2085- 2091              3.95%
2045 - Decommissioning                                                deer - .13%/year                                     2092-2097               3.45%
2098 - 2106             2.09%
Missouri 2018 - 2027                                                         5.18%                                                             5.46%
2028 -2047                                             deer- .154%/year                                                     deer - .16%/year 2048 - Decommissioning                                             deer - .022%/year                                                     deer - .04%/year Power sale contracts                                                                          None                                                                 None Modifications to method of financial assurance                                                None                                                                 None Material changes to trust agreements                                                          None                                                                 None

                                                                                                                                                 ./ ' '  *\
WOLF CREEK NUCLEAR OPERATING CORPORATION Decommissioning Funding Status Report.as of December 31, 2018 10 CFR 50.75 (b) and (c)
(Dollars in Thousands)
KEPCo Market Value of External Sinking                                                             25,005.5 Fund as of 12/31/18 Schedule of Amounts to be Collected (as approved by rate-setting authorities based on Site Specific Study) 2019                                                                              515 2020                                                                              523 2021                                                                              531 2022                                                                              539 2023                                                                              547 2024                                                                              555 2025                                                                              563 2026                                                                              572 2027                                                                              580 2028                                                                              589 2029                                                                              598 2030                                                                              607 2031 .                                                                            616 2032                                                                              625 2033                                                                              635.
2034                                                                              644 2035                                                                              654 2036                                                                              664 2037                                                                              674 2038                                                                              684 2039                                                                              694 2040                                                                              704 2041                                                                              715 2042                                                                              726 2043                                                                              736 2044                                                                              748 2045                                                                                 0 16,236 Assumptions re: Rates/Factors specific to Owner and Jurisdiction Cost Escalation Rate                                                                          Prior                                                      Current Obtained from KCC Docket 15-WCNE-093-GIE                                   Kansas               3.15%      Obtained from KCC Docket 18-WCNE-107-GIE         2.91%
Missouri                 NIA                                                       N/A After Tax Earnings on Funds Kansas 2015- 2025        6.74%                                                          TBD 2026 - 2035       5.33%                                                          TBD 2036 - 2043        4.15%                                                          TBD 2044 - Decommissioning         1.93%                                                          TBD Missouri Power sale contracts                                                                      None                                                          None Modifications to method of financial assurance                                            None Material changes to trust agreements                                                      None                                                          None

UMB               1010 Grand Boulevard Kansas City, MO 64106 800.545.6101 Account Name            KANSAS GAS & ELECTRIC WOLF CREEK GENERATING STATION DECOM TRUST Account Number          116889 Statement Period        Dec. 1 - Dec. 31 , 2018
  -- - --- manifest line------ - --                                  Administrator           Anthony Hawkins 816.860 .3014 l1111111**l*1*l*l1*111111111111*11l1llll1** 11llll, 1l1*1ll111*1ll*                         anthony.hawkins@umb.com KANSAS GAS AND ELECTRI C COMPANY                                   Associate Administrator Melissa Byers McGee ATTN : SUSAN NORTH                                                                         816-860-3202
  % WESTAR ENERGY                                                                            melissa.byersmcgee@umb.co m PO BOX 889                                                         Senior Officer          Douglas Hare TOPEKA KS 66601 -0889 816.860.3006 douglas.hare@umb.com Philomene Bennett The Ninth Day Oil on canvas 00?604 114

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obtained by multiplying the unit price by the number of shares/units as    Capital Gain / (Loss) Sections: The information contained in this of the statement date. The market value of a security , including those    section(s) includes a gain or a loss summary of your account and is priced at par value , may differ fro m its purchase price and may not      not a solic itation or a reco mmendatio n to buy or sell. It may however, closely reflect the value at which the security may be sold or             be helpful for investment and tax planning strategies. It should not be purchased based on various market factors.                                 relied upon for filing your tax return as it may not include all taxable transactions. UMB has provided cost basis information wherever

UMB                               Account Name:         KANSAS GAS & ELECTRIC WOLF CREEK GENERATING STATION DECOM TRUST Account Number: 116889 Statement Period : Dec. 1 - Dec. 31, 2018 Page 3 of 7 Market Overview                                                                Asset Allocation Current Period          Year-to-Date 12/01/2018             01/01/2018 Beginning Market Value                238,187,826.57         237 I 102,282,59 Income Dividends                                   94.86         5,159,589 .64 Other Income                           97 ,394.16            893 ,632.07 Net Contributions/Distributions Receipts                               97,488.53        14,086,898 .23 Disbursements                         (97,488.53)       (9,478,868 .35)                                                                                Account Value Expenses/Fees                                           (6,863,692.42)                                                                                    Percentage                     Market Value Capital Gain Distributions                                                          Equity Funds                                                                     53%                   $119,800,451 Change in Market Value              (1 0,823 ,154. 69)     (13,437,680.86)          Fixed Income Funds                                                               29%                     $64,923,859 Ending Market Value                   227 ,462,160.90        227 ,462,160.90
* Real Estate / Oil & Gas Unique Assets                                                                    17%
1%                     $3,241,109
                                                                                                                                                                                               $39 ,368,885 Capital Gains Short-term Capital Gain/ (Loss)
Long -term Capital Gain / (Loss)
Current Period 441 ,735.37 4,248,464.01 Year-to-Date 1,019,557.39 15,404, 117.57
* Money Markets and Cash                                                          < 1%
100%
                                                                                                                                                                                                    $127,857
                                                                                                                                                                                             $227,462,161 Historical Value 250,000,000 225,000,000 200,000,000 175,000,000 150,000,000 125,000,000 100,000,000 75,000,000 50 ,000,000 25,000,000 0 ....l___ _.L_...L.J:_   L.L--1.J:._-1....JL._.1....C..-- - - ' - - ' - ~-l.....<.---''-'-------'--'---'--
D    J        F    M A M J                            J          A           S       O       N       D 002604 ?/4

UMB                                  Acco unt Name:       KANSAS GAS & ELECTRIC WOLF CREEK GENERATING STATION DECOM TRUST Acco unt Number: 116889 Statement Period : Dec. 1 - Dec. 31 , 2018 Page 4 of 7 Portfolio(s) included in Statement Portfo lio Number:          116889.1           Portfo lio Name:     KG&E Wolf Creek Decom Tr CASH AC Pri Usd 116889.2                                KG&E Wolf Crk Decom Tr - SEI Inv Mgmt 116889.8                                KG&E Wolf Creek Decom Tr-CrossCreek (LP) 116889.16                               KG&E Wolf Creek Decom Tr-CrossCreek LLC 116889.24                               KG&E Wolf Creek Decom Tr-SEI Struc Cr LP 116889.25                               KG&E Wolf Creek Tr-CrossCreekCap Ill LP 116889.26                               KG&E Wolf Creek Tr-CrossCreekCap IV LP 116889.27                               KG&E Wolf Creek Decom Tr-SEI Core Prop 116889.28                                KG&E Wolf Creek Tr-CrossCreek Cap V L.P.
Transaction Summary Market Value Income Cash                 Princieal Cash                      Cost                                  lncludina Cash Beginning Market Value                                   0.00                           0.00               222,607,285.31                           238,187,826.57 Income Dividends                                                                        94.86                                                                    94.86 Other Income                                                                97,394.16                                                                97,394.16 Additions Transfers                                                                   97,488 .53                                                               97,488 .53 Disbursements Other                                                                     (97,488 .53)                                                              (97,488.53)
Purchases                                                                      (140 ,258.98)                 5,030,890.73                               4,890 ,631 .75 Sales & Maturities                                                                42,769.96                    (42 ,769 .96)
Non Cash Changes                                                                                                  6,105.39                                  6,105.39 Change in Market Value                                                                                                                              (15,719,891.83)
Ending Market Value                                      0.00                           0.00               227,601 ,511.47                          227 ,462, 160.90 Statement of Accruals Units Asset Descrietion                                     Pa~able Date                       Rate                         Amount Dividend 127,857.26  Fidelity Treasury Fund #2016                           01/01/2019                      0.001                           87.04 3,750,296.065   SEI Core Fixed Income Fund                             01/01/2019                      0.031                     115,375.93 2,298,412.64  SEI High Yield Bond Fund                               01/02/2019                      0.051                     117,807.52 718,720.581  SEI SIIT Dynamic Asset Allocation Fund                 12/31/2018                      0.127                      90,990 .03 4,123,068.211   SEI SIIT S & P 500 Index Fd Cl A                       12/31/2018                      0.097                     401,586.84

UMB                               Account Name:    KANSAS GAS & ELECTRIC WOLF CREEK GENERATING STATION DECOM TRUST Acco unt Number: 116889 Statement Period: Dec. 1 - Dec. 31 , 2018 Page 5 of 7 Statement of Accruals (continued)
Units Asset Description                               Payable Date               Rate                      Amount Dividend 2,590,432.11 SEI SIIT World Equity EX-US Fund Cl A             12/31/2018               0.281                 728,170.47 883,840.371 SIIT Emerging Markets Equity Fund                 12/31/2018               0.192                 169,432.20 Total Dividend                                                                                1,623,450.03 Total Accruals                                                                                1,623,450.03 002604 3/4

UMB                                      Account Name:    KANSAS GAS & ELECTRIC WOLF CREEK GENERATI NG STATION DECOM TRUST Account Number: 116889 Statement Period : Dec. 1 - Dec. 31 , 2018 Page 6 of 7 Statement of Investment Position Cost Basis                   Market Value                           Estimated Symbol                                                                        Unrealized      Annual Yield Units Descrietion                             Cusip                 Unit            Total          Unit           Total   Gain / (Loss)    Income %
iffidh:Ha Equity Fund 718,720.581 SEI SIIT Dynamic Asset Allocation Fund      SDLAX            11 .84   8,508,595.15         17.91    12,872,285.61   4,363,690.46      91 ,278  0.71 783980683 1,685,594.478 SEI SIIT Emerging Market Debt Fund Cl A    SEDAX             10.23   17,246,972.40           9.15   15,423,189.47  (1,823,782.93)    488,822   3.17 783980758 4,123,068.211 SEI SIIT S & P 500 Index Fd Cl A                             15.49   63,877,502.60         13.41   55,290,344.71   (8,587,157.89)  1,364,736  2.47 783980626 2,590,432 .11 SEI SIIT World Equity EX- US Fund Cl A    WEUSX             10.33   26,760,954.12         11.08   28,701,987.78    1,941 ,033.66    727,911  2.54 783980774 883,840.371 SIIT Emerging Markets Equity Fund          SMQFX              9.58    8,464,840.59           8.50    7,512,643.15    (952,197.44)    169,697  2.26 783980618 Total Equity Fund                                                  124,858,864.86                119,800,450.72  (5,058,414.14)  2,842,444 Total Equity Funds                                                 124,858,864.86                119,800,450.72  (5,058,414.14)  2,842,444
*M*i:i+i,,iii'lri*t-Fixed Income Funds 3,750,296.065 SEI Core Fixed Income Fund                 SCOAX             10.30   38,609,685.70           9.98  37,427,954.73  (1,181,730.97)   1,173,174  3.13 783980204 2,298,412.64 SEI High Yield Bond Fund                   SGYAX              8.94   20,540,187.63           8.22  18,892,951 .90 (1,647,235.73)   1,248,288  6.61 783980303 918,137.888 SEI SIIT Small Mid Cap Equity Fd           SSMAX             12.75   11 ,710,348.56          9.37    8,602,952.01 (3,107,396.55)     112,013   1.30 783980816 Total Fixed Income Funds                                            70,860,221.89                 64,923,858.64  (5,936,363.25)  2,533,475 Total Fixed Income Funds                                            70,860,221.89                 64,923,858.64  (5,936,363.25)  2,533,475 11i1&#xa5;iffiil*fitJit-Real Estate / Oil   & Gas 1 Cross Creek Capital, L.P.                            2,146,283.85    2,146,283.85  1,729,11 1.73    1,729,111.73    (417,172.12)           0 A Delaware Limited Partnership 1 Cross Creek Capital Partners LLC                     1,864,283.61    1,864,283.61  1,511,997.43     1,511,997.43    (352,286.18)           0 a Delaware limited liability company Total Real Estate/ Oil & Gas                                         4,010,567.46                  3,241,109.16     (769,458.30)           0 Total Real Estate/ Oil & Gas                                         4,010,567.46                  3,241,109.16     (769,458.30)           0

UMB                                   Accou nt Name: KANSAS GAS & ELECTRIC WOLF CREEK GENERATING STATION DECOM TRUST Account Number: 116889 Stateme nt Perio d : Dec. 1 - Dec. 31 , 2018 Page 7 of 7 Statement of Investment Position (continued)
Cost Basis                   Market Value                            Estimated Symbol                                                                        Unrealized       Annual Yield Units Description                         Cusip                 Unit           Total          Unit            Total   Gain / (Loss)     Income %
Unique Assets Unique Assets 1 Cross Creek Capital Partners Ill LP               1,554,000.00   1,554,000.00  1,970,901.41     1,970,901.41       416,901 .41           0 1 Cross Creek Capital Partners IV LP                1,000,000.00   1,000,000.00  1,043,587.00     1,043,587.00        43,587.00            0 1 Cross Creek Partners V LP                           690,000.00     690,000.00    502,405.00        502,405.00    (187,595.00)            0 5,108.79 SEI Core Property Fund LP                             1,859.54   9,500,000.00      2,304.76    11 ,774,510.34   2,274,510.34             0 8,879.44 SEI Structured Credit LP                              1,689.30  15,000,000.00      2,711 .60   24,077,481.37    9,077,481.37             0 Total Unique Assets                                             27,744,000.00                  39,368,885.12   11 ,624,885.12            0 Total Unique Assets                                             27,744,000.00                  39,368,885.12   11,624,885.12             0
*1M:fi'IMfl@d;l ft:-
Money Market Funds 127,857.26 Fidelity Treasury Fund #2016            FTVXX             1.00     127,857.26            1.00      127,857.26                       2,2 13  1.73 31607A406 Total Money Market Funds                                           127,857.26                      127,857.26            0.00       2,213 Total Money Markets and Cash                                       127,857.26                      127,857.26            0.00       2,213 Account Total                                                  227,601 ,511.47                227,462,160.90     (139,350.57)   5,378,132 00?604 414

~.
~
BNY MELLON TRDB58 B58GPLNOOOOO MONTHLY         FINAL    225951                                                2018 31 CYCLE A 22 : 59 : 54 RUN DATE : 04 - JAN - 19 INVESTMENT DETAI L                                                                           PAGE :       1 B58 GPLNOOO                                                               31 DECEMBER 2018                                                       M1101 KANSAS CITY P&L COMBINED PLAN KANSAS CITY P&L COMBI NED PLAN SHARES/                                                                                                  MARKET            . UNREALIZED PAR VALUE      SECURITY DESCRIPTION                                                                         VALUE               GAIN/LOSS INVESTMENTS UNIT OF PARTICIPATION KANSAS C ITY POWER & LIGHT 51 , 148 ,786 . 3580   KCPL WOLF CREEK KAN                      71 , 891 ,3 26 .09 1 .8859              96 ,462 , 365 . 72        24 , 571 , 039 .63 78 552 140 .6470       KCP&L WOLF CREEK MO                     1 06 349 070 . 65   1 .8859             148 142 817 .43            41 793 746.78 129,700 ,927.0050                                               1 78 ,240 ,396 .74                      244 ,605 , 183 . 15        66 , 364,786 . 41 TOTAL INVESTMENTS UNIT OF PARTICIPATION                           178 ,240 ,396 .74                       244 ,605 , 183 . 15        66 , 364,786 .41 TOTAL INVESTMENT                              1 78 ,240 ,396 .74                      244 , 605 , 183 . 15       66 , 364,786 . 41

 ,UU TRY CLUU TRU!:, I       l   I< KF 1-'*,0-WOl    H JI:    H J > lf[ l    t,                                                                                                                             L    l  ll t?
PORTFOLIO OVERVIEW PORTFOLIO ASSET ALLOCATION                                                                                                                               ASSET ALLOCATION CHART Estimated              Estimated Yield Current Holdings                       Cost
* Annual Income              at Market **         Market Value ***        Percent Reserves                                $441 ,785.84             $3,417.55                   0.77%               $441 ,785.84            1.77%
Fixed Income                           9,963 ,208.19            249,606.97                   2.54               9,834 ,609.93          39.33 Equities                             12,101,687.78              184,815.55                   1.25              14,729,141.28           58.90 Total Account                      $22,506,681.81             $437,840.07                    1.75%           $25 ,005,537.05          100.00%
                                                                                                                                                                         -         Reserves              1.77%
                                                                                                                                                                         -         Fixed Income        39.33
                                                                                                                                                                         -         Equities            58.90 INVESTMENT GUIDELINES                                                                                                                                   YEAR-TO-DATE INFORMATION Minimum                                             Maximum                                  Realized Gain/(Loss)                                            Amount Reserves                                                       0%                                                 35%                                   Short-Term                                                         N/ A Fixed Income                                                  35                                                  65                                    Long-Term                                                          N/ A Equities                                                      35                                                  65                                    Net Realized Gain/(Loss)                                           N/A Earned Income                                                   Amount Past Three Months                                        $213 ,959.80 Year-to-Date                                             $457,984.58
* Amortized cost will be reflected where applicable.
*
* Estimated Yield at Market is calculated by multiplying the number of shares/ units held by the income rate and dividing by the Market Va lue. Data is suppl ied by T. Rowe Price Associates, Inc. to exist ing clients as an update on their current holdings and portfolio.
* *
* Market values include accrued income where applicable.
Note: T. Rowe Price strongly encourages you to reconcile th is statement to the statements you receive directly from your custodian, broker, or the Price Funds, as applicable, to ensure consistency. If you have any questions with respect to this statement, please contact your T. Rowe Price Portfolio Manager.
CONF,DENCE T. ROWE PRICE                  2

Enclosure II to WM 19:.0008 Commission Order (Docket No. 18-WCNE-107-GIE)
(11 pages)

20180802102947
                                                                                      , Kansas Corporation Commission THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS Before Commissioners:                     Shari Feist Albrecht, Chair Jay Scott Emler Dwight D. Keen In the Matter of the 2017 Wolf Creek Triennial             )
Decommissioning Financing Plan.                            )         Docket No. 18-WCNE-107-GIE v-ORDER This matter comes before the State Corporation Commission of the State of Kansas (Commission) for consideration and decision. Having reviewed the pleadings and record, the Commission makes the following findings:
: 1.       .On September 1, 2017, the Wolf Creek Nuclear Operating Corporation (WCNOC),
Kansas Gas and Electric Company d/b/a Westar Energy (Westar), Kansas City Power & Light Company (KCP&L), and Kansas Electric Power Cooperative, Inc. (KEPCo) (collectively referred to as the Parties) jointly submitted the Decommissioning Financing Plan for the Wolf Creek Generating Station (Wolf Creek).
: 2.        The decommissioning dockets are designed to approve a methodology, which reasonably estimates the costs to decommission Wolf Creek and set a cost escalation rate. 1 This Docket represents the eleventh review over the last thirty years of the cost to decommission Wolf Creek. 2 The Decommissioning Financing Plan includes the 2017 Triennial Decommissioning Cost Study for Wolf Creek. 3 TLG Services, Inc. prepared the Decommissioning Cost Analysis for WCNOC. TLG's Decommissioning Cost Analysis offered two decommissioning cost estimate 1
Transcript (Tr.), p. 7.
2Jd.
3 Joint Pleading Regarding Decommissioning Financing Plan, Sep. 1, 2017.

methods: DECON and SAFSTOR. In past Dockets, the Commission has approved the DECON method. 4
: 3.      Since Wolf Creek's last Decommissioning Cost Analysis in 2014, the question whether the federal government will remove the spent fuel from Wolf Creek .upon its decommissioning remains a major concern. 5 As a result, in the 15-WCNE-093-GIE Docket, the Commission directed WCNOC to provide a cost estimate that includes long-term on-site storage of spent fuel. 6 In response, TLG produced Appendix E, which includes some assumptions that the federal government would not timely remove the spent fuel. 7 TLG included those assumptions in Appendix E of its 2017 Decommissioning Cost Analysis, but noted, "[b ]ecause the assumptions used in    this Appendix E analysis are so speculative at this point, the hypothetical cost effects shown here have not been included in the overalLupdated cost estimate in this report."8 Appendix E gave rise to a third decommissioning scenario: DECON Alternative with Long-Term Spent Fuel Management (DECON ALT).
: 4.      WCNOC's Application contained three decommissioning cost estimate methods and a single cost escalation rate. 9 The cost escalation rate is not disputed. The three cost estimate methods are: (1) DECON; (2) DECON Alternative with Long-Term* Spent Fuel Management (DECON ALT); and (3) SAFSTOR. 10 DECON assumes the U.S. Department of Energy will take the spent fuel at the time of decommissioning. 11 DECON ALT includes costs associated with on-4 Direct Testimony ofLeo M. Haynos (Haynos Direct), May 15, 2018, p. 6.
5 Attachment 2 to Triennial Wolf Creek Decommissioning Cost Study (Study Attachment 2), Aug. 2017, p. 130 of 139.
6 Haynos Direct, p. 11.
7 Id.; Study Attachment 2, p. 130.
8 ld.
9 Tr., p. 8.
io Id.
11 Jd.
2

site storage of spent fuel for an extended period of time after decommissioning. 12 Both DECON
* methods assume the spent fuel will be removed from the plant, whereas under SAFSTOR, the spent fuel remains at the facility. 13 SAFSTOR is a deferred decontamination, where the unit is shut down and safely stored until the unit is removed over a sixty-year timeframe. 14 The total cost for DECON is $814 million (ending in 2053). 15 The total cost for DECON ALT is $1.09 billion (ending in year 2075). 16 The total cost for SAFSTORis $1.09 billion (endingin2106). 17 DECON
.and*SAFSTOR have similar engineering, planning, and site preparation requirements. 18
: 5.      On May 15, 2018, Adam Gatewood and Leo Haynos filed testimony on behalf of Commission Staff (Staff). Gatewood recommended the Commissioi;i adopt the inflation forecasts proposed by TLG. 19           Haynos testified that TLG is a nationally renowned engineering firm specializing in decommissioning nuclear plants and that their decommissioning estimates are reasonable. 20 Due to the U.S. Department of Energy's failure to develop a plan to dispose.of spent nuclear fuel from commercial nuclear generating plants, Haynos recommended. that any estimate should consider the costs of on-site storage. 21 Haynos* concluded:
Because of the uncertainty in DOE accepting spent fuel, I recommend the Commission consider the Appendix E cost estimate [DECON ALT] as the appropriate methodology for accumulating sufficient funds to decommission
           -the Wolf Creek site. In consideration of the industry's hesitancy in acknowledging DOE's failure to date to accept spent fuel, the Commission alternatively could approve the SAFSTOR estimate as the appropriate methodology for the decommissioning financing plan. 22 i2 Id.
13 Haynos Direct, p. 7.
14 Id.; Study Attachment 2, pp. 8-9 of 139.
15 Haynos Direct, p. 13.
16 !d.
11 Id.
18 Study Attachment 2, pp. 38-39 of 139.
19 Direct Testimony of Adam H. Gatewood, May 15, 2018, p. 3.
20 Haynos Direct, pp. 8-9.
21 Id., p. 12.
22 /d. ,p. 13.
3
: 6. On June 12, 2018, Larry Wilkus filed Rebuttal Testimony, explaining that in developing the cost estimate and the resulting impact on rates to fund Westar's and KCP&L's decommissioning trust funds, WCNOC had assumed the Commission would continue to rely on the DECON method. 23            Accordingly, if the Commission adopted either of the methods recommended by Haynos (DECON ALT or SAFSTOR), the utilities would need to collect more money from customers to fund their decommissioning trust funds. 24 Wilkus requested recovery of the additional funds through energy cost adjustments in the pending Westar and KCP&L rate cases. 25
: 7. On June 18, 2018, the Citizens Utility Ratepayer Board (CURB)26 filed the Surrebuttal/Reply Testimony of Stacey Harden, in response to Wilkus's testimony that any increased funding level of the decommissioning trust in this Docket should be recovered through Westar's and KCP&L's RECA Tariffs. 27 Harden testifies that Wilkus's testimony recommending the Commission approve a specific ratemaking ~eatment for the potential increased funding level is premature and that the Annual Contribution level should continue to be part of base rates, to be determined in the pending KCP&L and Westar rate cases. 28
: 8. On June 22, 2018, WCNOC 29 and Staff filed a Joint Motion to Approve Settlement .
and Agreement. Under. the proposed Settlement and Agreement, the Commission would adopt the DECON ALT methodology in its Decommissioning Cost Analysis. Under the DECON ALT methodology, the Signatories agree $1.088 billion in 2017 dollars is the costfor decommissioning funding and for use by Westar, KCP&L and KEPCo in setting funding levels for each company's 23 Rebuttal Testimony of Larry Wilkus, June 12, 2018, p. 4.
24 Jd: .
25 Jd., p. 6.
26 CURB was granted intervention on September 19, 2017.
27 Surrebuttal/Reply Testimony of Stacey Harden, June 18, 2018, p. 3.
28 Jd., p. 5.
29 Westar and KCP&L each own 47% ofWCNOC. KEPCo owns the remaining 6%.
4

respective Decommissioning Trust Account. 30 The owners of Wolf Creek agree to use an annual 2.91 % escalation rate to escalate the 2017 decommissioning cost estimate from 2017 dollars to the appropriate dollar amount in the year the decommissioning costs occur. 31 CURB is opposed to the proposed Settlement.
: 9. On June 27, 2018, Wilkus, Gatewood, and Haynos filed testimony in support of the settlement; and Harden of CURB, filed testimony opposing the settlement. CURB's primary concern in opposing the settlement was the DECON ALT plan results in a significant increase in the ~ecommissioning cost estimate. 32
: 10. On June 29, 2018, Wilkus, Gatewood, and Haynos each filed rebuttal testimony in support of the proposed settlement. In his testimony, Wilkus explained adopting the DEC ON ALT plan would increase Westar's annual revenue requirement by approximately $2 million and KCP&L's by approximately $1.2 million. 33 The increased revenue requirement constitutes about a one-tenth of I% increase for Westar and less than 0.02% increase for KCP&L. 34
: 11. On July 10, 2018, the Commission held an Evidentiary Hearing. WCNOC, Staff, and CURB appeared by counsel. The Commission heard live testimony from a total of five witnesses, including two on behalf of WCNOC, one on behalf of CURB, and two on behalf of Staff. 35 The parties had the opportunity to cross-examine the witnesses at the evidentiary hearing and to redirect their own witnesses. CURB did not dispute the numbers proposed by TLG regarding the Wolf Creek decommissioning costs, but argued the numbers were based on 30 Non-Unanimous Settlement Agreement, June 22, 2018, ~ 4.
31 Jd., ~ 5.
32 Testimony in Opposition to Settlement of Stacey Harden, June 28, 2018, p. 4.
33 Responsive Testimony is Suppm1 of Stipulation and Agreement of Larry Wilkus, June 29, 2018, p. 2.
34 Id., pp. 2-3.
35 See Tr. p. 3.
5

speculation and assumptions. 36 Accordingly, CURB asserts the Settlement* Agreement is not supported by substantial, competent evidence. 37
: 12.      At the hearing, CURB stated:
CURB simply requests the Commission to reject the Settlement Agreement as proposed by the parties and instead take a long, hard look at the evidence and all the options presented to the Commission available in the TLG plan and make the best decision possible. 38 While CURB contends there is not substantial evidence to support using DECON ALT as a decommissioning scenario, it does not contest the 2.91 % escalation rate agreed to in the Settlement Agreement. Since the recommended 2.91 % escalation rate is uncontested, the Commission finds it appropriate to apply the 2.91 % escalation rate to whichever decommissioning scenario it selects.
: 13.      As CURB .and Staff note, TLG openly acknowledges the speculative nature of the DECON ALT decommissioning scenario. 39 Similarly, Haynos explains this Docket represents the first time TLG has presented a formal study detailing the DECON ALT scenario. 40 In th~ last Triennial Review, Haynos recommended considering interim long-term storage, but was unable to recommend a methodology with interim long-term storage because TLG had not presented an in-:-
depth cost estimate for interim long-te~ storage. 41 Appendix E represents the first time the Commission has been presented with an estimate instead of a conceptual approach. 42
: 14.      Even though TLG offers a cost estimate for the DECON ALT decommissioning scenario, the Commission remains concerned that DECON ALT is too speculative. All of the parties to the Docket agree that the DECON ALT method is speculative. Rather than adopt a 36 Tr., pp. 11-12.
37 Id., p. 12.
38 Tr., pp. 13-14.
39 See id., p. 27; Haynos Direct, p. 11; Study'Attachment 2, p. 130 of 139.
40 Tr., p. 79.
41 Id., pp. 82-83.
42 fd.
6

methodology reliant on unsubstantiated speculation, the Commission prefers a *methodology that has been endorsed by the Nuclear Regulatory Commission (NRC).
: 15. In 1988, the NRC announced decommissioning requirements for licensed nuclear power facilities. 43 The NRC defined three acceptable decommissioning alternatives: (1) DECON, (2) SAFSTOR, and (3) ENTOMB. Under DECON, portions of a facility and site containing radioactive      contaminants are removed or decontaminated to a level where the property can be used without restriction after the plant closes. 44 Under SAFSTOR, the nuclear facility is safely stored and decontaminated to a level where the property can be used without restriction within 60 years. 45 Under ENTOMB, radioactive contaminants are encased in concrete until the radioactive material decays to a level permitting unrestricted use of the property. 46 In March 2017, the NRC staff proposed removing the ENTOMB option from existing guidance documents, deeming. it impracticable. 47 None of the parties advocate for the ENTOMB method. As there is no evidence in the record to support the ENTOMB method, the Commission will not consider it as a viable option.
: 16. Since 1989, the NRC's Information Digest indicates eighteen reactors have been shut down. 48 DECON was the decommissioning alternative selected for nine of those reactors, SAFSTOR was selected for five, and the remaining four were initially placed in safe-storage before switching to DECON. 49\,_ In choosing between DECON and SAFSTOR, the Commission believes it would be extremely irresponsible to select a methodology that assumes the federal government will be able to accept the spent fuel at the time of decommissioning. There is no evidence that the 43 Study Attachment 2, p. 8 of 139.
44  Id.
45 Id., pp. 8-9.
46 Id., p. 9.
47  id.
48 Attachment 7 to Triennial Wolf Creek Decommissioning Cost Study (Study Attachment 7), Aug. 2017, p. 4 of 20.
49 Id., pp. 4-5 of 20.
7

federal government has any plan to collect and remove the spent* fuel.          Accordingly, the Commission is gravely concerned that adopting any methodology that does not factor in on-site storage would subject future generations to massive unfunded decommissioning costs, resulting in rate shock. To avoid future rate shock, the Commission is left with two options: DECON ALT or SAFSTOR.
: 17.      The cost estimate for SAFSTOR and DECON ALT are roughly the same in today's dollars, so but 80% of DEC ON ALT spending occurs from 2045-2050, shortly after the plant is shut down. 51 Under SAFSTOR, only about 30% of the spending occurs during that timeframe, with 43% of the spending occurring between 2100 and 2106. 52
: 18. The Commission fin4s SAFSTOR is the best cost estimate methodology for decommissioning Wolf Creek. Unlike DECON ALT, SAFSTOR is one of the three cost estimate methodologies recognized by the NRC.
* The Commission gives great weight to *the NRC's, recognition of SAFSTOR as an appropriate cost estimate. DECON ALT appears to be a hybrid of DECON and SAFSTOR that has b~en used in four decommissionings since 1989,53 but has not been officially recognized by NRC. Therefore, while the Commission finds SAFSTOR is the best cost estimate methodology for decommissioning Wolf Creek based on the available evidence, if WCNOC believes DECON ALT is a better cost estimate methodology, the Commission encourages WCNOC to present a more detailed Appendix E in its next Triennial Review.
50 Tr., pp. 32-33; Haynos Direct, p. 13.
51 Jd.
52 Id.
53 See Study Attachment 7, p. 4 of 20.
8

THEREFORE, THE COMMISSION ORDERS:
A.       The Joint Motion to Approve Settlement and Agreement is denied.
B.       The SAFSTOR cost estimate methodology will be
* used to                 calculate decommissioning* costs for Wolf Creek. The 2.91 % escalation rate agreed to by the parties is approved.
C.       Any party may file and serve a petition for reconsideration pursuant to the requirements and time limits established by K.S.A. 77-529(a)(l). 54 D.       The Commission retains jurisdiction over the subject matter and parties to enter further orders as it deems necessary.
BY THE COMMISSION IT IS SO ORDERED.
Albrecht, Chair; Emler, Commissioner; Keen, Commissioner 08/02/2018 Dated: - - - - - - - - - -
                                                           ~
                                                                        ~
L1 *        ~r-*
                                                                              -:-:,R._*
                                                                                        ~
LynnM. Retz Secretary to the Commission BGF 54 K.S.A. 66-l'18b; K.S.A. 77-503(c); K.S.A. 77-53l(b).
9

CERTIFICATE OF SERVICE 18-WCNE-107-GIE I, the undersigned, certify that the true copy of the attached Order has been served to the following _parties by means of 08/02/2018 electronic service o n - - - - - - - - - -
CARY CATCHPOLE, ACCOUNTANT/ECONOMIST                                 THOMAS J. CONNORS, ATIORNEY AT LAW CITIZENS' UTILITY RATEPAYER BOARD                                    CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                 1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                     TOPEKA, KS 66604 Fax: 78&-271-3116                                                    Fax: 78&-271-3116 c.catchpole@curb.kansas.gov                                          tj.connors@curb.kansas.gov TODD E. LOVE, ATIORNEY                                               DAVID W. NICKEL, CONSUMER COUNSEL CITIZENS' UTILITY RATEPAYER BOARD                                    CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                 1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                     TOPEKA, KS 66604 Fax: 78&-271-3116                                                    Fax: 78&-271-3116 t.love@curb.kansas.gov                                               d.nickel@curb.kansas.gov SHONDA RABB                                                          DELLA SMITH CITIZENS' UTILITY RATEPAYER BOARD                                    CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                 1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                     TOPEKA, KS 66604 Fax: 785-271-3116                                                    Fax: 785-271-3116
: s. rabb@curb.kansas.gov                                              d.smith@curb.kansas.gov ROBERT J. HACK, LEAD REGULATORY COUNSEL                              ROGER W. STEINER, CORPORATE COUNSEL KANSAS CITY POWER & LIGHT COMPANY                                    KANSAS CITY POWER & LIGHT COMPANY ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105                   ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105 PO BOX 418679                                                        PO BOX 418679 KANSAS CITY, MO 64141-9679                                           KANSAS CITY, MO 64141-9679 Fax: 816-556-2787                                                    Fax: 816-556-2787 rob.hack@kcpl.com                                                    roger.steiner@kcpl.com BRIAN G. FEDOTIN, DEPUTY GENERAL COUNSEL                             ROBERT VINCENT, LITIGATION COUNSEL KANSAS CORPORATION COMMISSION                                        KANSAS CORPORATION COMMISSION 1500 SW ARROWHEAD RD                                                 1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                     TOPEKA, KS 66604 Fax: 78&-271-3354                                                    Fax: 78&-271-3354 b.fedotin@kcc.ks.gov                                                 r.vin~ent@kcc.ks.gov

CERTIFICATE OF SERVICE 18-WCNE-107-GIE WILLIAM G. RIGGINS, GENERAL COUNSEL                       CATHRYN J DINGES, CORPORATE COUNSEL KANSAS ELECTRIC POWER CO-OP, INC.
* KANSAS GAS & ELECTRIC CO.
600 SW CORPORATE VIEW (66615)                             0/B/A WESTAR ENERGY PO BOX4877                                                818 S KANSAS AVE TOPEKA, KS 66604-0877                                     PO BOX889 Fax: 785-271-4884                                        TOPEKA, KS 66601-0889 briggins@kepco.org                                        Fax: 785-575-8136 cathy. dinges@westarenergy.com DEBBIE L HENDELL, GENERAL COUNSEL AND SECRETARY WOLF CREEK NUCLEAR OPERATING CORPORATION 1550 OXEN LANE NE PO BOX 411 BURLINGTON, KS 66839 Fax: 620-364-4017 dehende3@wcnoc.com ISi DeeAnn Shupe DeeAnn Shupe

l Enclosure Ill to WM 19-0008 Direct Testimony of Adam H. Gatewood (September 12, 2018)
(93 pages)

BEFORE THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS In the Matter of the Application of     )
Kansas. City Power & Light Company       ) '   Docket No.
to Make Certain Changes in its Charges   )     18-KCPE-480-RTS for Electric Services.                   )
DIRECT TESTIMONY PREPARED BY Adam H. Gatewood UTILITIES DIVISION KANSAS CORPORATION COMMISSION September 12, 2018

Direct Testimony of Adam H. Gatewood                                              Docket No. 18-KCPE-480-RTS Table of Contents Executive Summary********************************'.****************************************************************** 2 Decommissioning Trust Annual Accrual .................................................................. 3 .
Rate of Return Analysis*******:*********************************************: ...................... :................ 6 Capital Structure ........ ,............................... ;..................... :........ :................ *............ ;**::* 8
   *Cost ofDebt ...... ;.. .'.............................................................. '.. ...................... '.. ............ :10 Cost of Equity Analysis ..................................... ;.............. :...................................... 10 Standards for a Just & Reasonable Rate ofReturn; ................................................. 21 KCC Proxy Group ............................................................................... :.*................... 24 Return on Equity Analysis ........ :.......................................... ;........................... :........ ;30 Discounted Cash Flow Model .. ;.............................................................................. 34
* F orecasted Growth Rates for the DCF Model.. ........................................................ 35 DCF Results .............................................................................................................. 42
   ,Internal Rate of Return (IRR) Analysis ... ,..................... ,....................................... :.45
* Capital Asset.Pricing Model (CAPM) Analysis ............. ;............................... :........ 47 1    Q.      Would you please state your name and business address?
2   A.       My name is Adam H. Gatewo~d. My business address .is 1500 Southwest Arrowhead 3            Road, Topeka, Kansas, 66604.
4    Q. Who is your employer and what-is your t~tle?
5   A.       I am employed in the Utilities pivision of the Kansas Corporation Commission as a 6            Managing Fin~cial Analyst.
7    Q.      What is your educational and professional background?
1

Direct Testimony of Adam H. Gatewood                              Docket No. 18-KCPE-480-RTS 1 A.       I graduated from Washburn University ;ith a B.A. in Economics and a Masters of Business, 2          Administration. I have filed testimony on cost of capital and related financial issues before 3          the Commission in more than 120 proceedings. I have also filed testimony on cost of 4          capital issues before the Federal Energy Regulatory Commission in natural gas pipeline 5          and electric transmission dockets.
6 Executive Summary 7 Q.       What issues are you testifying to in this Docket?
8 A.r      My testimony addresses the annual accrual for KCP&L's nuclear decommissioning trust*
9          (NDT) and the rate of return used to calculate KCP&L's revenue requirement. With 10           respect to the annual accrual for the Kansas portion ofKCP&L's NDT, I recommend that 11          an annual accrual of $2,036,230, an amount equal to its current annual accrual, based on 12          the SAFEsroR decommissioning methodology selected by the Commission in Docket 18-13          WCNE..:107-GIE. With respect to the rate of return, I recommend that the Commission
'14          adopt a rate of return of 7.07% that incorporates the 9.30% return on equity set out in the 15          Non-Unanimous Settlement approved in Docket No. 18-KCPE-095-MER (18-095). My 16          analysis in the instant Docket provides substantial competent evidence that 9.30% is a fair 17          and reasonable return for both shareholders arid ratepayers and, therefore, it should be 18          adopted by the Commission to set KCP&L's revenue requirement in this Docket.
19  Q.       What documents did you review to prepare your analysis?
20  A.       In preparing my rate of return analysis and recommendation, I reviewed the following I
* 21           documents directly connected to, this Docket: 18-KCPE-480-RTS (18-480) Direct 2

Direct Testimony of Adam H. Gatewood                               DocketNo. 18-KCPE-480-RTS 1         Testimony, Application, the 18-095 Non-Unanimous Sf:,ttlement Agreement (S&A); and 2          data requests response to KCC #84, 85, 86, and 161. In preparing my recommendations
 *3         for KCP&L's annual NDT accrual, I reviewed the Commission's Order in 18-WCNE-107-4          GIE (18-107) issued on August 2, 2018; the Application and testimony filed in Docket 18-5          107; and responses to KCC data requests 162, 163, 164, and 258 in Docket 18-480.
6 Decommissioning Trust Annual Accrual 7 Q.      Please summarize your recommendation for KCP&L's annual NDT accrual.
8 A.       With respect to KCP&L's NDT for its Kansas jurisdiction, I recommend its annual accrual 9         remain unchanged from its current level of $2,036,230. My recommendation incorporates 10          the Commission's findings issued in its August 2, 2018 Order in the 18-107 Docket. In 11          that Order, the Commission adopted the SAFESTOR decommissioning methodology.
12  Q.       Describe the triennial review process of the decommissioning cost estimates.
13  A.      The trie~ial review is done in two phases. In phase one, the Commission reviews the 14           decommissioning cost study, sele~ts the decommissioning methodology, and decides on 15          the inflation rate to apply to the decommission cost estimate.              By selecting the 16           methodology, the Commission is selecting a cost estimate that is in current-year dollars.
17          The.inflation rate is necessary to escalate those costs to the y*ear they will occur.* The sum 18           of those inflated costs is the amount that the* nuclear plant's owners must accumulate in 19          their respective NDTs.        In the latest triennial review, the Commission selected the 20           SAFESTOR methodology and a 2.91 % escalation rate. Phase two determines the annual 21           accrual necessary to fully fund the owner's NDT.
3

Direct Testimony of Adam H. Gatewood                               Docket No. 18-KCPE-480-RTS 1 Q.         What amount did KCP&L propose for its Kansas NDT annual accrual?
2 A.         KCP&L proposed to keep its NDT annual accrual unchanged at $2,036,230 as set in the 3            previous review in Docket No. 15--KCPE-116-RTS. This position is KCP&L's adjustment 4            CS-37 sponsored by Ronald Klote./ KCP&L filed this position prior to the Co:mrtlission's 5            decision in 18-107. We now have the 18-107 Order which selected the SAFESTOR 6            decommissioning methodology which is lengthier and more expensive than the 7            decommissioning 1,
methodology selected in previous investig_ations.         My review 8            incorporates ~he costs and timing of the SAFESTOR methodology as adopted by the
                                                                                               /'
9
* Commission. Even with the additional costs associated with the latest decommissioning 10            cost study filed in the 18-107 Docket, the lower expected returns in. the future,  and the 11            higher cost decommissioning methodology, I found that KCP&L's current contribution is 12            sufficient to fund its obligations.
13 Q.         What are the fore~asted returns you recommend for the NDT?
14 A.         I propose using the expected returns published by J.P. Morgan Asset Management 15            (JPMAM) in the 2018 edition of its Long-Term Capital Market Assumptions (LTCMA).
16            The following table shows the 2018 forecasts for the asset classes used in the NDT and 17            highlights the lowered forecasts. As you can see in the following table, Staff recommends 18            using expect~d returns that* are lower (on average) than those that KCP&L used in its
.19            calculations .
4

Direct Testimony of Adam H. Gatewood                                                        DocketNo. 18-KCPE-480-RTS I
Exoected Prooosed Portfolio Performance                      I 2018
                                                                   -- !(gP_~~      - -- .
Exoected Returns        -.JPMAivt' Large Company Stocks                        9.59%              6.41%1 Small Company Stocks                      10.65%              7.35%1 International Stocks                        8.46%              7.61%
Corporate Bonds Cash
                                                                   --       __I96%
0.62%
4.2}'.Yo 2.00%
I Sources:                                                               I KCC-258                                                                 I J.P. Morgan Asset Management Long-Term Capital Market Assumptions 1
2           These are marked differences in returns for almost every asset class. Under Staffs 3           assumptions, in a portfolio of these assets, this differe11ce results in a 100 basis point 4           lower annual return from many of the years.
5 Q.        Is JPMAM' s publication a reasonable source for these types. of forecasts?
6 A.        Yes, J.P. Morgan's forecasts in this publication are consistent with forecasted returns by 7           other money management firms and_ reflect the expected returns of institutional portfolio 8           managers.
9 Q.        Historically, what has KCP&L's NDT earned?
10 A.        I performed an internal rate of return analysis on KCP&L's deposits to its NDT from 1986 11           through the present. Over that time period, KCP&L's NDT experienced an annual return 12           of 5.94% including the effects of income taxes on unrealized gains, management fees and
. 13                *'
            . expenses.
14 Q.        How *did you calculate the annual accrual amount?
15 A.      . My calculation appears in Schedule AHG-1, which assumes the SAFES TOR methodology, 5

Direct Testimony of Adam H. Gatewood                              Docket No. 18-KCPE-480-RTS 1          an NDT balance (net of income taxes on unrealized gains) as of June 30, 2018, forecasted 2          returns from the 2018 edition of the JPMAM-LTCMA, and the portfolio management fees 3          reported by KCP&L. The weighted forecasted returns of the portfolio across time appear 4          in Schedule AHG-2. The annual accrual is the amount that equates the cash in-flows 5          (annual accrual plus returns on the portfolio) to the cash out-flows (the decommissioning 6          expenses).
7 Q.       In 18-WSEE-328-RTS you recommended a significant increase in Westar Energy 8          Inc.'s (Westar) annual accrual to fund its share of the decommissioning costs. Why 9          is KCP&L's annual .accrual remaining the same as opposed to increasing at a rate 10          similar to that of its co-owner?
11 A.       There could be several factors at work to create this situation. The most direct, simplest, 12          and, therefore most likely, explanation is that KCP&L's portfolio is subject to significantly 13          lower annual expenses (management fees) than Westar's portfolio. Each owners' portfolio 14          management fees directly affect their respective expected returns over the remaining life 15          of their trust funds. To the extent that the current.management fees are reflective of those 16          paid in years past, KCP&L's lower annual expenses are the likely reason that its portfolio 17          has experienced a higher historic return than Westar' s.
18 Rate of Return Analysis 19 Q.       Please discuss the framework of Staff's rate of return (ROR) analysis in this Docket.
20 A.        Staffs ~OR analysis in this Docket is, in part, a continuation of the analysis that Staff 21          performed in the 18-095 Merger Docket and 18-WSEE-328-RTS Westar rate case. These 6

Direct Testimony of Adam H. Gatewood                                                   Docket No. 18-KCPE-480-RTS 1          D~ckets are made interdependent by the 18-095 S&A, 1 where signing parties committed 2          to supporting an allowed return on equity (ROE) of 9.30% 2 in this Docket for KCP&L, as 3          well as the 18-WSEE-328-RTS Docket for Westar Energy (18-328). On May 24, 2018, 4          the Commission approved the Non-Unanimous Stipulation and Agreement filed in the 5          Docket 18-095 S&A. 3 An Order is due in the 18-328 rate case by September 27, 2018.
6 Q.       With regard to KCP&L's ROR in this Docket, what are your findings and 7          recommendations?
8 A.       The following table summarizes my recommended ROR and the components of the 9          calculation.
Staff Proposed -- KCP&L Rate of Return Updated Capital Struc!ure - Section 7 of Application Tes! yl!a_r E_11de~_ ~ept~mbl!r 30, ~0!} U!llh!te~ t~ June 3!)_! 2018 Weighted Weight           Cost           Cost Long-term Debt                 50.91%           4.93%            2.51%
Common Equity                  49.09%           9.30%            4.57%
7.07%
Source: 18-KCPE-480-RTS; Response to DR#161 10 11          As a point of comparison, KCP&L's Application is based on the following ROR.
1 Non-Unanimous Settlement Agreement; l 8-KCPE-095-MER; filed March 17, 2018.
2 Non-Unanimous Settlement Agreement; 18-KCPE-095-MER; filed March 17, 2018; at paragraph 32, iv, l; p. 15.
3 Order Approving Merger; 18-KCPE-095-MER; Issued May 24, 2018.
7

Direct Testimony of Adam H. Gatewood                                                     Docket No. 18-KCPE-480-RTS
                                                       - - - - . --Return*-
                                     - - - - - KCP&LRate                        .
of
_ J>_l'.!'~~-~_Rat~of Ret~n.i in Se_c,tion 7 ~( ~ppJicatio!!
Tes! year Ended September 30, 2017
                                      ~       _ _ _ _ _ _ _ _ _ _ _ _ _ _ Weighted Weight             Cost           Cost Long-term Debt                50.25%              4.94%           2.48%
Conunon Equity                49.75%              9.30%           4.63%
7.Ii%
Sourc_e: 1_8-KGl'~-48_0-RTS; Sectio_n 7 Supplemental Direct Testimony of Darrin R. Ives; June 26, 2018 1
I 2          KCP&L's Application filed May 1, 2018, incorporated a 9.85% cost of common equity.
3          WitJ:i the Commission Order in 18-095 accepting the Non-Unanimous Settlement 4          Agreement, KCP&L reduced its recommende~ cost of equity request from 9.85% to 5          9.30%.
6          Setting the rate of returri requires decisions on &deg;the cost of debt, the cost of equity, and the 7          weight of each in the 1:1tility's capital structure. Staff is preparing its revenue requirement 8          incorporating an update to June 30;2018, from the September 30, 2017, balances used in 9          the Application. The ROR that I recommend is based on the updated account balance_s and 10          costs for the capital items. The update to Section 7 results in a minor change in the ROR 11          from KCP&L's position due a small change in the capital ratios of debt and equity. I agree .
12          with the capital 'structure and. cost of debt contained in KCP&L's update.
13 Capital Structure 14 Q.       Do you have any adjustments to KCP&L's capital structure?
15 A.       No. I.am using the capitalization ratios of June 30, 2018.
16 Q.       Is KCP&L's updated capitalization within the range. seen in the electric utility 8

Direct Testimony of Adam H. Gatewood                                                            Docket No. 18-KCPE-480-RTS 1           industry?
2  A.       Yes, healthy, financially sound electric utilities have traditionally employed capitalization 3           policies of about 50% debt and 50% equity. The group of electric utilities selected as the 4           proxy group for my cost of capital analysis follows this same pattern as seen in the 5           following table.
I          I                              I Long-Tenn Debt Ratios Staff's Proxy Group 18-KCPE-480-RTS Value-Line Forecasts 2015             2016       2017        2018     2019      '21- '23 Allete Inc                     ALE         46.3%1 42.0%1 41.0% *41.0%                     39.5%/ 40.0%
AIJjant Energy Corp            LNT ~
48.6% 52.8% . 49.0%
50,0%     50.0%
50.0%
Ameren Corp                    AEE         49.3% 47.7% 49.5% 49.5%                         49.0%      49.0%
American Electric Power Co. AEP         49.8% 50.0% 51.5% 52.5%                         54.5%      50.5%
Consolidated Edison Inc        ED          47.9% 50.8% 48.9% 49.0%                         48.5%      48.5%_
Duke Energy Corp New           DUK         48.6% 52.6% 54.0% 54,0%
* 55.0%. 56.5%
* Edison International           EIX         45.0% 41.8% 45.6% 48.0%                         48.0%      47.5%
El Paso Electric Co            EE          52.7%< 52.7% 51.2% 53.0%                        52.0%      54.5%
IDACORP Inc                    IDA         45.6% "44,8%   --   - .
43.7% 44.0%
42.0%
                                                                                                                 . --     44.0%
NorthWestern Corporation       NWE -
53.1%
52.0% 50.2% 49.5%               48.5%      46:0:o.
OGE Energy Corp                OGE         44.3% 41.1% 41.7% 43.0%                         44.0%      45.5%
Pinnacle West Capital Corp     PNW         43.0%* 45.6% 48.9% 48.0%                        48.5%      45.5%
Portland General Electric Co. POR         47.8%
48.4%      50.1%      47.0%     50.5%      48.5%
Xcel Energy Inc                XEL          54.1%: 56.3% 55.9% 58.0%                       57.0%      58.0%
Average      48.3%1 48.5%1 48.7%, 49.0%                      49.1%1 48.9%
Median      48.3%: 49.2% 49.3%1 49.3%                       48.8%      48.5%
Min      43.0%           41.1% 41.0%            41.0%    39.5%      40.0%
Max       54.1%:         56.3%
* 55.9%          58.0%    57.0%      58.0%
Source: Value-Line Investment Survey (April 27, 2018; May 18, 2018; and June 15, 2018)            I
-6 7  Q.       Is KCP&L's updated capitalization consistent with the capital structure limitations 8           discussed in the 18-095 S&A?
9  A.       Yes, it complies with the provisions of Attacliment 1 of the 18-095 S&A.
10* Q.       Is this capitalization ratio consistent with the current capitalization of evergy, Inc. the 9

Direct Testimony of Adam H. Gatewood                                    Docket No. 18-KCPE-480-RTS 1          new merged company?
2 A.       No, immediately post-merger, the holding company for KCP&L has an equity ratio in 3          excess of 61 %. 4 evergy management has stated that it intends to reduce the equity ratio to 4           a level close to 50% during the next few years. Regardless of that proposal, I would not 5          recommend using the current holding company equity ratio to establish KCP&L' s revenue _
6          requirement. It is not the lowest cost capitalization for the utility *and it is not within the 7           industry norms.
8 Cost of Debt 9 Q.       Do you propose any adjustments to KCP&L's cost of debt?
10 A.       As with the capital structure, I recommend an update from September 31, 2017, to June 30, 11           2018, which captures a very minor change in the embedded cost of debt..
12 Cost of Equity Analysis 13 Q.       Please summarize Staff's position on KCP&L's cost of equity?
14 A.        Staff recommends that the Commission authorize a 9.30% ROE, the same as that applied 15           for purposes of the Earnings Review & Sharing Plan (ERSP) that was accepted by the 16           Commission in the 18-095 Docket.                 KCP&L agrees with Staffs position and has 17          withdrawn its original request for a 9.85% ROE. 5 My analysis of the current capital 18          mark~ts finds that, inclusive of the benefits from the ERSP and other terms of the 18-095 4
evergy, Inc.; Form-I OQ for the period ending June 30, 2018.
5 Supplemental Direct Testimony of Darrin R. Ives, filed June 26, 2018.
10

Direct Testimony of Adam H. Gatewood                                Docket No. 18-KCPE-480-RTS 1           S&A, an ROE of 9.30% is reasonable for KCP&L stockholders and consumers. The 2          be1:1efits that accrue to consumers through the 18-095 S&A are made available with some 3           additional risks to the shareholders. My testimony in the 18-095 Docket 6 discussed the 4           benefits and risks related to 18-095 S&A and I will summarize that discussion because they 5           ate equally important to deciding the cost of capital issues in this Docket.
6  Q.      Please discuss the additional risks posed by the 18-095 S&A that was approved by the 7           Commission on May 24, 2018.
8 A.        The added risks to shareholders include:
9
* a five-year rate moratorium during which KCP&L carinot file a rate case in 10                     Kansas* 7 11
* upfront bill credits to KCP&L Kansas customers totaling $7,514,220; 8 12
* minimum annual credits to consumers of$2,817,832 by March 3pt of 2019, 2020, 13                     2021, and 2022; 9 14                  * $7,468,874 million of merger savings built into the revenue requirement in this 15                     rate case* 1&deg; and 16
* an Earnings Review and Sharing Plan for excess earnings above the 9.30%
17                     allowed return for years 2020, 2021, 2022, and 2023. 11 18           Staff believes the ~ 8-095 S&A presents additional risks to shareholders because it demands 19           annual credits to consumers that has the effect oflowering KCP&L's earned return; reduces 20          the value of earnings if KCP~L earns above its allowed return; sets a period of five years 21          during which KCP&L cannot file a rate case if its earnings are less than its allowed return; 22          and sets a period of five years during which KCP&L cannot file a rate case if its capital 23          costs increase. With the 18-095 S&A in place that sets a period of five years during which 6
Testimony of Adam H. Gatewood, 18-KCPE-095-MER filed January 29, 2018; p. 11-15.
7 Order Approving Merger, issued May 24, 2018; 18-KCPE-095-MER, Attachment A, p. 45; #24.
8
_ Order Approving Merger, issued May 24, 2018; 18-KCPE-095-MER, Attachment A, p. 44; #18.
9 Order Approving Merger, issued May 24, 2018; l 8-KCPE-095-MER, Attachment A, p. 44; #18.
10 Order Approving Merger, issued May 24, 2018; 18-KCPE-095-MER, Attachment A, p. 45; #25.
11 Order Approving Merger, issued May 24, 2018; 18-KCPE-095-MER, Attachment A, p. 46; #26.
11

Direct Testimony of Adam H. Gatewood                                  Docket No. 18-KCPE-480-RTS 1            KCP&L cannot fjle a rate case, KCP&L must find cost savings equal to the guaranteed 2            fixed annual credits in order to achieve its authorized return. Consumers could also see 3            additional annual credits if the Applicant's profits exceed the 9.30% threshold. KCP&L's 4
* shareholders will retain only a portion of any earnings above the allowed return over the
.5            rate moratorium.
6   Q.       Without the 18-095 S&A, would Staff be inclined to recommend a 9.30% ROE for 7            KCP&L?
8   A.       Without the 18-095 S&A, Staff would likely be recommending a lower allowed return for 9            KCP&L given the current financial markets. As I discussed earlier, and in my 18-095 10            testimony, there are risks and benefits to the 18-095 S&A, primarily theERSP, a five-year 11            ratemoratorium, and the bill credits to consumers cause me to distinguish this Docket from 12            a tradi_tional rate case. Without the 18-095 S&A, Staffs recommendation- based purely 13            on the results of my financial analysis9 - could likely be\Jcloser to 9.00%. However, Staffs 14            recommendation would also have to consider the fact that a 9.00% recommendation is a 15            fuH 25 to   30 basis points b~low the lowest authorized RO_E observation            in the current 16            national average and would, thus, be a highly contentious recommendation, which would
* 17            most likely result in litigation. Without the 18-095 S&A, it is likely my recommendation
* 18            would have been between 9.10% and 9.20% given the plateau seen in allowed returns 19            granted by utility regulatory commissions over the last several quarters and the fact that a 20            9.00% return is well below the lowest observation in the recent.national average. 12 12 RRA Regulatory Focus Major Rate Case Decisions: January - June 2018; S&P Global Market Intelligence; July 17,2018;p. 10.                                                                                  .
12

Direct Testimony of Adam H. Gatewood .                              Docket No. 18-KCPE-480-RTS 1   Q.       Is Staff recommending an ROE range forthe Commission?
2   A.      I recommend the Commission adopt a 9.30% ROE, the same that is used in the ERSP. If, 3            for some reason the Commission finds a need to deviate from the 9.30% ROE, then I 4            recommend that a range of 9 .10% to 9 .50%, which is consistent with the terms of the 18-
: 5.           095 S&A. 13 , This range is fully supported by niy cost of equity analysis specific to the risks
* 6            ofKCP&L in this Docket.
7   Q.       Do you believe the Commission. can deviate from the 9.30% ROE even though it adopted th~ 18-095 S&A?                                                                           \
9   A.       Yes, certainly that is well within the Commission's rights if it believes the evidence cannot 10            support the allowed return sought in the 18-095 S&A. If the Commission adopts an ROE 11            lower than 9.30%, KCP&L has the option of shortening the rate moratorium from five 12
* years to three years. Staff believes there are benefits for consumers to the full five-year 13 rate moratorium that may not be present in a three-year moratorium, such as an incentive 14            to capture merger relat~d synergies and a period of relative rate stability. Those are two 15            examples that are not easily quantified but Staff believes them to be beneficial to-16            consumers.
17   Q.       How does a 9.30% ROE compare to recent decisions from around the country?
18   A.       A 9.30% return on equity is at the low-end of recent observations for electric utility rate 19            cases. For the first six;.months of 2018, the average ROE granted was 9.74% with thirteen 13 Non-Unanimous Settlement Agreement; 18-KCPE-095-MER filed March 17, 2018; at paragraph 32, iv, I; p. 15.
13

Direct Testimony of Adam H. Gatewood                                                       Docket No. 18-KCPE-480-RTS 1           observations. 14 This group of observations includes only those decisions associated with 2           vertically integrated (generation, transmission, and distribution services) electric utilities 3           and not tied to a limited-issue rider. Over the past decade, allowed returns have declined 4           nationally, although the rate at which those declines* have occurred has varied across 5           jurisdictions. That decline happened at a more rapid pace in Kansas than in most other 6           jurisdictions. Reviewing decisions of the past year, there appears to be a plateau in allowed 7           returns; that is the rate of decline has fallen off although clearly the allowed returns are 8           significantly lower than those granted in the past. Graphs of allowed returns appear on 9           page 20 and 21.
Major Rate Case Decisions: January- June 2018 1/18/2018 Kentucky Power Co.                             KY       9.70%
1/31/2018 -_ P~tiic s~~i6e C~mpany ofOklahoma            OK       9.30%
2/2/2018 Intei:_s~te Pow~r ~n_d Ligh! Co.                IA      9.98%
2/23/20.18 Duke Energy Progres_s, LLC                    NC       9.90%
3/12/2018 ALLETTE _(Minn _Pwr)                           MN       9.25%
3/29/2018 Consumer E!]ergy Co.                           MI      10.00%
4/12/2018
* I~~~ana Michigan Power Co. __ ..              MI      9.90%
4/13/2018 Duke Energy Kentucky, Inc.                     KY       9.73%
4/18/2018 DTE Electric Co.                                MI     10.00%
4/26/2018 Avista Corp. ___________                       WA       9.50%
5/30/2018 Indiana Michigan Power Co.                      IN
* 9.95%
6/22/2018 Duke Energy Carolina, LLC                      NC       9.90%
6/29/2018 Hawaii Electric Light Co., Inc.                 HI      9.50%
9.74%
Source:
                                 -- "---- - -- -                        - -. -  ""      ~
Major ~ate C~e D_ectsion:_ Jan~: 11:!'1~ 2_0J8_; S&_~ <J!obal Market Intelligenc:e; July 17, 2018; p.10 (El'tctric Utility Decisions)
Removed decisions involving:
J?j~tribution only electric decisio~
Limited issue riders 10 11 Q..
* Please discuss how Staff arrived at the 9.30% ROE for the ERSP.
14 RRA Regulatory Focus Major Rate Case Decisions: January- June 2018; S&P Global Market Intelligence; July 17, 2018;p. JO.                                             .
14

Direct Testimony of Adam H. Gatewood                                Docket No. l 8-KCPE-480-RTS 1 A.       Staff was searching for a productive and fair settlement position for the 18-095 Merger, 2          which led Staff to consider a rate moratorium and a sharing mechanism of earnings above 3          an allowed return. Thus, it was necessary for Staff to perform a fresh and thorough analysis 4          of capital costs to determine the appropriate threshold for measuring earnings. At that time, 5          we were also aware that both KCP&L and Westar would be filing rate cases in 2018 and 6          the two utilities expressed a need to have some level of certainty regarding the cost of 7          equity recommendations in their upcoming rate cases, especially if they were going to 8          commit to an extended rate moratorium or an earnings sharing plan. For that reason, parties 9          agreed that the negotiated ROE applied in the ERSP would also become their 10          recommendation to use in setting the revenue requirements in the 2018 rate cases.
* 11          As I discussed in my 18-095 testimony, 15 my cost of capital analysis was developed in a 12          manner using conventions identical to those applied in rate cases. The results of my 13          analysis indicated that 9.30% was within a reasonable range for the ERSP. I also found 14          that capital costs were similar to those observed during Westar's and KCP&L's last rate 15          cases, which occurred in 2015. The Commission set KCP&L's ROE at 9.30% and adopted 16          a settlement in which Westar's ROE was about 9.35%. Thus, the cost of capital analysis 17          provided Staff with the positfon that Westar's and KCP&L's ROE could remain in place
* 18          from thei~ last rate cases to be used for the ERSP and setting rates in their 2018 rate cases.
19 Q.
* If the parties to the 18-095 S&A agreed to support a 9.30% ROE in this Docket, why 20           did you perform a new* cost of capital study?
.21  A.       I did this to provide the Commission with a comprehensive record on which to base its 15 Testimony of Adam H. Gatewood, 18-KCPE-095-MER filed January 29, 2018; p. 33.
15

Direct Testimony of Adam H. Gatewood                               Docket No. 18-KCPE-480-RTS 1          decision and to establish facts that demonstrate an ROE of 9.30% is a just and reasonable 2          return to use in determining KCP&L's revenue requirement. The signatories to the 18-095 3          S&A are aware that we cannot make a decision for the Commission. Ultimately, it is the 4          Commission that has to review the evidence and decide if 9.30% is a just and reasonable 5          return for setting KCP&L's revenue requirement. The legal standards that I discuss later 6          still apply to the Commission's decision, regardless of the fact that several parties have 7          reached an agreement on this issue amongst themselves.
8 Q.       How much time has elapsed since you prepared the analysis for the 18-095 Docket?
9 A.       About nine months. The time period of the capital market data I used in the 18-095 analysis 10          was January 1, 201 7, through December 31, 2017, and Staff filed its testimony on January 11          29, 2018. For my analysis in this Docket, I relied on financial data gathered from July 6, 12          2017, through July 3, 2018. In developing our position in the 18-095 Docket, Staff was 13          cognizant of the timing of both of these rate filings. Since the timing of the merger docket 14          and the two upcoming rate cases were relatively close together, Staff was comfortable with 15          connecting the three cases while recognizing our responsibility to prove the 9.3% ROE 16          included in the 18-095 Docket is reasonable for both the ERSP and the following rate cases.
17 Q.       Have capital costs for electric utilities changed significantly over this time span?
18 A.       No. Comparing the results of my analyses performed for the 18--095, 18-328, and this 19          Docket demonstrates that capital costs to electric utilities have not changed significantly.
20          The following table summarizes the results from the analysis performed for each docket.
21          In essence, this table condenses results from three capital cost studies performed over three 16

Direct Testimony of Adam H. Gatewood                                                              Docket No. 18-KCPE-480-RTS 1          over-lapping tim~ periods that cover a total of nineteen months from January 1, 2017, 2         through July 3, 2018.
Comparison of Staff ReC(_)f!!l_ll~!1~:la!~~11s ~c_ross 18-KCPE-095-MER Related Dockets Interest Rates Observed for Risk Premium Calculations
_30_&#xa5;<<;_~- _      Util_ityB_o~~               . ___         Mo_o_d)"s _    Bond Treasury Bond            A/A              Baa/BBB          Corporate Baa     YfM* '
18-095                  2.97%               4.13%               4.52%              4.58%,    4.24%'
18-328                  2.90%               3.97%               4.28%              4.39%1    3.85%'
18-480                  2.94%               4.01%               4.32%              4.44%1    4.12%i Risk Premiums Over Fixed-Income Interest Rates 30 Year          Utility B~nds _                         _ ~o_ody's _     Bond Treasury Bond            A/A              Baa/BBB          Corporate Baa     YfM*
18-095                  6.33%               5.17%               4.78%              4.72%;    5.06%;
18-328                  6.40%               5.33%               5.02%              4.91%'    5.45o/o:
18-480                  6.36%               5.29%               4.98%              4.86%1    5.18%,
Cost of Equity Models
                                      *Discounted
                                        * - - - - ___ Internal Rate __ __ Capital Asset Pr1cingModels ___ .
Cash-Flow           of Return         Historic Data     Forecasted Data :
18-095                  8.09%               7.81%               9.29%              6.30%_!
18-328                  8.22%               8.02%               9.00o/o            6.09%'
18-480                  8.28%               8.28%               9.00%              6.09%*
                        *Yield to maturities reported on Great Plains and Westar Energy bonds for 18-KCPE-095-MER; Westar Energy bonds_ for 18-WSEE:328-RTS; and Great Plains Energy bonds for 18-KCPE-480-RTS.
Data period for each docket:
l 8-KCPE-095-MER Janua_ry 2911 - r:>ec~rnber 2017 1~:WS!':E-328-RTS May 2017 - April 2018
                                  )~-K~E-480-RTS May 2017 - J~ ~018 Sources:    Gatewood Direct, 18-KC::PE-095-~R; file~ Janllfil)' 29, 2018; pp. 16, 22.
Gatewood Direct, 18.KCPE328-RTS; filed June 11, 2018; pp. 22,26.
3 4          This table summarize~ substantial evidence that the current cost of capital has remained 5          similar to the range_measured in Staffs the 18-095 S&A. This is true for both the cost of 6          equity of the proxy group of electric utilities as well as broader rpeasures of interest rates 7          on U.S. -Government 30 Year Bonds, corporate bonds, and public utility bonds. Staff 8          believes this comparison of capital costs across the three dockets supports the use of a 9          9.30% return on equity agreed to in the 18-095 S&A to set KCP&L's revenue requirement 10          in this Docket.
17

Direct Testimony of Adam H. Gatewood                                                 DocketNo. 18-KCPE-480-RTS 1  Q.       Please summarize the results of your cost of equity analysis performed for this 2           Docket.
3  A.       The following table summarizes the cost of equity estimates from my study in this Docket; 4           the details of each financial model appears later in my testimony. I relied on a discounted 5           cash flow (DCF) model, a variation of the DCF model known as an internal rate of return 6           (IRR) analysis, and the caphal asset pricing model (CAPM). These are the models I 7           typically use to estimate a utility's required return on equity. The results in this table are
: 8.          based on the capital markets using data from July 3, 2017, through July 2, 2018.
__ Sum~ary of Staffs Cost of Equity Estimates _
18-KCPE-480-RTS Discounted Cash Flow Analyses _
                                                                                 ' Mean , Low     High
                              'Two-Stage Growth DCF Model:                         8-28%  7.84%. 8.71%
_Based on the Average of Short-Term Growth
                              ' Forecasts & Long-Term nGDP Forecasts _
Internal Rate ofReturn-Multi-Stage DCF Analysis:   8.28%  7.39%   9-47%
* using Short-Term Growth EPS Growth &
Long-Term nGDP Forecast
                              *Based on Historical_ Return Data; gathered from. 9.00%  7.83% 10.93%
                              , 192&sect; - 2017; Repo~d ~y SBBI; D_uff ~ Phelps 0
                              'i3ased on-ForecasiecfReturn Data Pub! ishedby- . 6.09%  5-43%   7.17%
                              *lf. M~rga_!l ~~Se! ~a~!l_e~_n! (~_1..8 edip~n)_
9 10  Q.       For a point of comparison, please summarize return on equity decisions by this 11           Commission and Commissions across the country?
12  A.       The first table contains allowed return on equity decisions made by this Commission in 13           litigated rate cases. As a point of reference to the prevailing capital markets at that time, I 18

Direct Testimony of Adam H. Gatewood                                                                                 DocketNo. 18-KCPE-480-RTS
                                                \
1         included the yield on the Baa rated corporate bonds as of the month of the Commission's 2         decision.
i 1--------------                  Commission Determined Allowed RO Es -- Kansas Utilities --- --- ! --- -j-
                                      ----------r----                                        ---- r=::==- : ------1--------r-
:F~-~-~=Company- -_ ~-                 ~~F---=-           Docket -~-.          j- OrderD~-Rei~;edT- 0 ~~~d                                 -rB~i~l~nd-i-
            - !Kansas City Power & Light____ ~_!J5-KCPE-116-RTS                          _l__~ 0/2015                10.30% I ___ ___2:30% ~ ___4.86%J_
              ,AtmosEnergyCorp.                       ,14-ATMG-320-RTS _,                        9/4/2014            10.53%[                 9.10%     1 4.89%!
           -;Kansas   City Power & -   Light        -c 12-KCPE-764-RTS- --j"- 12/13/2012 --10.40%* --* -- 9.50%i---4.80%f
             -                           ---          \_. _____________ -                     --            -- -- -----t --- - ______ ,. _ ___ - - - - 1 KansasCityPower&Light                  :10-KCPE-415-RTS                        11/22/2010             10.75%[                10.00%i          5.56%J
           ~--::::~:::tf____
           ---:~--;;aass~i~eCo.
1it~~1~ttir 1193)05:ff*---- --
1
                                                                                               ~~~~~6~r           ---~1~~~f ii:6~~--- - l!~~-
4/15/19961-- -- *12.00%1                     w..sw.1-- --- 7.77%1 1
           -*                                         i                        _____ .l_ ____ ____J_ ____ -~- ------ ___ )__________ :_
              *Sources: SNURRA; Federal Reserve Banlc of St. Louis, FRED
                                                                                                       ---rI            ---                  -- --T:             --r!
3 4          The following chart is broader in both ,the time period and reporting scope. It indicates the 5          median return on equity granted in fully-litigate~ rate cases across the nation .from 1980 6          through June.of 2018. As a point ofreference to the prevailing capital markets, I included 7         the average yield to maturity of Baa corporate bonds.
Long-Term View of Electric Utility ROE and Baa Corporate Bond Yields 17.00%
16.50%
16.00%      .,
is.so%      A AA: i. -
15.00%                a 1-t..50%            -
:1~i:.:
* 13.00%
                                         *-*- e ~_:----~----
                                       - --          ..........  .t. -   -
12.50%                -    *      ---   .....       - --
12.00%                                         -,A-             ....
:::~i::
10.so%                    ***- -
                                                                 --- *::~-...~... - ............j;...*
* i * -- _---
                                                                                                                 ... ... -... A-_A:-.. ---- --- -- -- ---
10.00%   --- -------       ---- --.-                                            -- - - - - -          --    ...........- -...- -...-
9.50%                                    - - --                               --     --- -          ---        - -----*-*-
9.00%                                           *-
8.50%                                   -- - - *       **-- -         -.-
8.00%                                         - .. ** - - e e  .- -     -- *-* -                  --
Hm* -~~--:-~---~- -~~~-- ~--~----~-:---~--~--- ~----;~~:~~:;-~--~~:- ___ ~----
5.50%                                                                                                   * - *- - -   -- --- -   ---
                         ~:~g~: -_-___ -_---_---_ ----_----- _______ --_-___ --- -- _-- ------__ --------**~*~*
4.00%,
3.50%
itiilli~lfiil!i~i~ii&sect;s&sect;8388~&sect;&sect;~=~~3~
                                 --------------------NijN~ijij~NNNNgNgggN                                                                        ~~~
NN, Allledian ROE     eBaa Corporate Yield 8
9         The next chart highlights a shorter time period, the last four years from early 2014 through 19

Direct Testimony of Adam H. Gatewood                                                        Docket No. 18-KCPE-480-RTS 1          June of 2018. Compared to the decline seen in the chart of the long-term changes, the past 2          four years show a plateau in the median allowed return granted.
Electric Utility ROE and Baa Corporate Bond Yields 11.00%
10.50% --                                . --- -- --**--* - - - - - - - - - - - - - - - -
10.00%   ;a                       A                                                                            A A      A      A 9.50%                                  A.. J.- . --A- --          &#xa3; ___ - ~--- - A- --* &#xa3;_ A- - A - . A. -
9.00%
8.50%
8.00%
7.50%
7.00'Yo 6.50%
6.00%
5.50%          - -- -~-----   --      -~-~ ~ .--.*-*-*-* ~- -
:::::: *-** *-* :;._-.-i ~~----*-*-* ~-. ---------* ... --- -. ; .-** -~--:;--..* ~ ;_;~~-.-.* ***-. ~ ** **
4.00%
3.50%
eBaa Co!J)Orate Yield .I.Median ROE 3
4 Q..      How does Staff's recommendation compare to the returns available on other 5          investments?
6 A.       The following table shows that Staffs recommendation of a 9 .3 0% return on equity allows 7          investors a risk premium over less risky debt investments.                                       These types of income 8          producing securities are viewed as alternatives to investments to utility stocks because, like 9          utility stocks, bonds offer stable valuations and higher current income relative to the equity 10          market. Risk premiums vary over time and across market conditions; thus, there is not a 11          benchmark risk premium or formula that sets a reasonable return on equity at a given 12          interest rate. Nor has the Commission set a definitive spread over bond yields, but the 13          Commission's Order in 15-KCPE-115-RTS (15-116) noted that its decision allowed 20

Direct Testimony of Adam H. Gatewood                                                                                       Docket No. 18-KCPE-480-RTS 1          KCP&L a risk premium of 525 basis points over the yield on its long-term debt. 16 In that 2          Docket, Staff argued that a 525 basis point risk premium over the bond yield was 3          reasonable as it offered stockholders a higher re.tl!m than available on the lower risk debt 4           securities. The Commission agreed and applied Staff's risk premium to amve at an 5           allowed return for KCP&L.
I                     I                        I                        I               I KCC Staff's Risk Premium Over Fixed Income Yields Based on a 9.30% Return on Equity Fixed Income Yield Observations July 2017 tbrou~h June 2018 18-KCPE-480-RTS 30 Year (1)                    Utility Bonds (2)                      Moody's (3)    KCP&L(4)
Treasurv Bond               AJA                      Baa/BBB           Coroorate Baa   BondsYTM JtD1-l8           3.03%                 4.23%                        4.58%              4.83%           4.33%
May-18             3.14%                 4.27%                        4.62%              4.83%           4.37%
Apr-18             3.07%                 4.17%                        4.50%              4.71%           4.29%
Mar-18             3.09%                 4.12%                        4.45%              4.65%.          4.22%*
Feb-18             3.13%                 4._14~_                      4.42%              4.47%           4.21%
Jan-18            2.88%                 3_&1~.                       4.14_~             4.25%           tJ~%.
Dec-17             2.77%                 3.80%                        4.08%              4.~~~;*         3.94%
Nov-17             2.81%                 3.84%                        4.11%              4.06%           4.00%
Oct-17            2.88%                 3.92%                        4.21%              4.32%           4.03%
Sep-17             2.78%                 t~~-                         4.19%              4.30%           3.95%
Aug-17             2.80%                 3.87"/o                      4.20%              4.32%           3.99%
Jul-17            2.88%                 3.99%                        4.31%              4.40%           4.13%
Average-:          2.94%                 4.01%                        4.32%              4.44%           4.12%
Risk Premiums Over Fixed Income Securities KCC Staffs Recommended ROE         9.30%
I                     Average Yield on30 Year Treasury Bond            2.94%
Eauity RiskPrellaumOverthe 30-YearTreaswy Bond Yield                         6.36%
KCC Staffs Reco~nded _R.ClE        9.30%
Average Yield on "A" Rated Utility Bonds          4.01%
Equity RiskPrellaumOver "A" Utility Bond Yield                   5.29%
KCC Staffs Recommended ROE         9.30%
Average Yield on "BBB/Baa" Rated Utility Bonds
* 4.32%
Equity Risk Premium Over "Baa/BBB" Utility Bond Yield                    4.98%
I                        I KCC Staffs Recommended ROE         9.30%
Average Yield on "BBB/Baa" Rated Utility Bonds               4.44%
E(IWty Risk Premium Over Moody's "Baa/BBB" Coroorate Bond Yield                          4.86%
KCC Staffs Recommended ROE         9.30%
_,',vs!age Yl!oltto Maturityo_nK(2@B_o_!]ds           4.12%
E(ll!i_ty J!.!sk P_i.:e.!fill_l!l ov~r Yiel~ on~~~ Bo[!ds        5.18%
I) Board of GoYemors of the Federal Resen*e System (US). 30-Ycar Treasury Constant MaturitJ*
(Federal Reserve Bank of SI. Louis; Release H.15)            I                        I
: 2) Yield on A and BBB/Baa Rated Public Utilty Bonds 25 to 30 Maturity                  I Renorted weeklv in Value-Line Investment Survev, Selection & Oninion Section.
: 3) Yield on Moody's Baa Corporate Bonds reported at FRED (Federal Rcsen*c Bank of St. Louis Electronic Data)
: 4) Average yield to maturitv reported by FINRA on KCP&L 6.05%, 2035; KCP&L 5.30%, 2041;                I KCP&L 4.20%, 2047, and KCP&L 4.20%. 2048                   I                        I               I 6                                                               I                        I                        I               I 7 Standards for a Just & Reasonable Rate of Return 16 Order issued on KCP&L's Application on Rate Change; 15-KCPE-116-RTS; September 10, 2015; para. 34.
21

Direct Testimony of Adam H. Gatewood                                     Docket No. l 8-KCPE-480-RTS 1 Q.        What is the role of rate of return in setting a revenue requirement for public utilities?
2 A.       .The standards for setting a just and reasonable rate of return require that, to be reasonable, 3           the allowed return must reflect the risks associated with an equity investment in the utility.
4           For the allowed return to be in that reasonable range, it must compensate for those added 5           risks while capturing a fair proportion of benefits for consumers. The terms of the 18-095 6           S&A, although beneficial to all stake-holders, possess several risks to shareholders not seen 7
* in a traditional rate case and the Commission must consider these risks.
8           The allowed ROE is best described as the forward-looking discount rate that is necessary 9           to induce 'equity investors to commit their capital to the enterprise. The courts have 10           articulated standards for regulatory agencies to use to gauge the fairness and 11           reasonableness of an allowed ROE. Financial analysts and policy-makers rely on the 12           courts' decisions as a guide in estimating the appropriate cost of capital. The opinions do 13           not articulate precisely how to estimate or model a reasonable cost of capital. Instead, the 14           decisions provide critical questions for policy makers and analysts to consider in 15         . determining a reasonable return for a regulated utility.
16           In general, United States Supreme Court decisions state that returns granted to regulated 17           public utilities should: 1) be commensurate with returns on investments of similar risk; 2) 18           be sufficient to assure the financial integrity of the utility under efficient economic 19           management; and 3) change over time with changes in the money market and business 20           conditions. 17 An important take-away from these decisions is that the Supreme Court of 17 Smyth v. Ames, 169 U.S. 466 (1898); Wilcox v. Consolidated Gas Co., 212 U.S. 19, 48-49 (1909); Bluefield Water Works & Improvement Company v. Public Service Commission of West Virginia, 262 U.S. 679, 692-3 (1923); Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591,603 (1944).
22

Direct Testimony of Adam.H. Gatewood                                      Docket No. 18-KCPE-480-RTS 1           the United States has afforded regulatory agencies a significant amount of latitude in 2           establishing an appropriate ROR and ROE for a utility. The Kansas Supreme Court has 3           recognized and follows this body of law. 18 This Commission has noted this fact in Orders 4           issued in previous dockets. 19 5 Q.        Discuss how financial analysts apply the standards established by the Court.
6 A.        For an allowed ROE to meet the legal standards, the return should be as specific as possible 7           to the utility in question. There are several court cases that, as a gr~_up, are viewed as the 8           keystone to measuring the adequacy of a utility's allowed return. The earliest of these 9           decisions go back to an era when it was not only the "rate of return" at issue but also the 10           fundamental measurement of the investment in the utility enterprise, commonly referred to 11           as rate base. This is less of an issue today as regulators, utility management, and investors 12           readily accept actual historic-depreciated value as the measure of investment to estimate 13           the value of a utility's rate base (as opposed to reproduction cost or market value). The 14           Court's decision in Bluefield addressed both rate base and ROR. 20 Treatises on rate of 15           return for public utilities, such as The Cost of Capital - A Practitioner's Guide, agree that 16           Bluefield lays out the four standard~ for a fair return:
17
* 1) Comparable Earnings - a utility is entitled to a return similar to that being earned by 18               other enterprises with similar risks, but not as high as those earned by highly profitable 19               or speculative ventures; 20       - 2) Financial Integrity- a utility is entitled to a return level reasonably sufficient to assure 21               financial soundness; 18 Kansas Gas & Elec. Co. v. State Corp. Comm'n, 239 Kan. 483,491, 720 P. 2d 1063, 1072 (1986).
19 Order: 1) Addressing Prudence; 2) Approving Application, in Part; & 3) Ruling on Pending Requests, Docket No.
10-KCPE-415-RTS; November 22, 2010; 37-38.
20 Bluefield Water Works & Improvement Co. v. Pub. Svc. Comm'n of West Virginia, 262 U.S. 679, 692-3 (1923).
23

Direct Testimony of Adam H. Gatewood                                            Docket No. 18-KCPE-480-RTS 1           3) Capital Attraction .:... a utility is entitled to a return -sufficient to support its credit and 2                 raise capital; and 3           4) Changing Level of Returns - a fair return can change along with economic conditions 4                 and capital markets. 21 5           As a financial analyst formulating rate of return analyses for our state commission, I take 6           from Bluefield that the Court requires a rate order that_ allows a utility an opportunity to 7           earn a return consistent with the utility's risk profile and consistent with observations in 8           the capital markets. The Court's decision in Hope, 22 like that in Bluefield, dealt with both 9           valuation of rate base, as well as rate of return on that rate base. With respect to the rate of 10           return, the Court in Hope affirmed the four standards set out in Bluefield.
11 KCC Proxy Group 12 Q.        How did you select a proxy group for your cost of equity analysis?
13 A.        To narrow the universe of potential proxy companies, I used the following selection 14           criteria:
15
* Has publicly traded common stock 16
* Is an electric utility followed by Value-Line Investment Survey 17
* No recent spin-offs, mergers or distressed assets 21 The Cost ofCapital*-A Practitioner's Guide by David C. Parcell; Prepared for the Society of Utility and Regulatory Financial Analysts; 1997; pp. 3-13 to 3-14.
22 Federal Power Comm 'n. v. Hope Natural Gas ca:, 320 U.S. 591, 603 (1944). "The rate-making process under the Act, i.e., the fixing of 'just and reasonable' rates, involves a balancing of the investor and the consumer interests.
Thus, we stated in the Natural Gas Pipeline Co. case that 'regulation does not insure that the business shall produce net revenues.' Btit such considerations aside, the investor interest has a legitimate concern with the financial integrity of the company whose rates are being regulated. From the investor or company point of view, it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business. These include service on the debt and dividends on the stock. By that standard, the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the* financial integrity of the enterprise, so as to maintain its credit and to attract capital. The conditions under which more or less might be allowed are not important here. Nor is it important to this case to determine the various permissible ways in which any rate base on which the return is computed might be arrived at. For we are of the view that the end result in this case cannot be condemned under the Act as_ unjust and unreasonable from the investor or company viewpoint.''
24

   . Direct Testimony of Adam H. Gatewood                                Docket No. 18-KCPE-480-RTS 1
* Exhibits stable dividends-No recent dividend cuts 2
* Possesses an investment grade bond rating between A3/A~ and Baa2/BBB 3
* Earns at least 70% of its annual revenues by providing regulated electric utility 4                     services 5            These parameters are identical to those that I used in the 18-095 Docket and 18-328 Docket 6            and support using the same group of electric utility companies as a proxy group in this 7             analysis as was used in those two previous dockets. Both before and after the merger, 8             Westar and KCP&L possess nearly identical risk profiles, thus it is expected that we would 9             use the same proxy group for both utilities.
10             Stock-price data is critical to a cost of equity analysis as that price data encapsulates the 11            market partic~pants' valuation of the company.         Selecting companies that investment 12             research companies like Value-Line categorize as electric utilities focuses the analysis on 13             companies facing similar types of business risks and opportunities and ensures that 14             publically available financial data is available. As a starting point, this parameter is 15           . important as it assures us the companies generally derive their earnings in electric utility 16             industry. The following table contains all of the electric utilities followed by Value-Line.
17             The bold and boxed cells indicate the primary reason for rejection from the proxy group.
25

Direct Testimony of Adam H. Gatewood                                                                                   Docket No. 18-KCPE-480-RTS I                       2         3           4         5                   6                      7            8           9           10 No                         Dividends                  2017 Value-Line: Electric Utilities                 ***Bond Rating***                 Announced              No Planned        2017       Electric Operations Company Name                      Moody's      S&P                         Merger               Reductions       History     %Rev       %Assets*
Allele Inc                                    ALE     A3         BBB+         Yes                    X                      X            X           74.9%
yes
* Alliant Energy Corp Ameren Corp LNT AEE Baal Baal A-BBB+         &#xa5;~
X
                                                                                                                    ~
X X            ,,
X           85.6%
86.0%
82.6%
85.0%
American Electric Power Company Inc           AEP     Baal       A-           Yes                                         *X             X                        94.1%
QllQl:IJQIW) iAii.                           AGR     Baal       BBB+
Yes X
X
                                                                                                                                        -* X            X
                                                                                                                                                                    ~~--*
81.0%       85.7%
               ~                                             AVA                                        *Hyjro-One Merger* _
lllaol, Uills Go,p                            BKH                                      *Selling oil & gas assets*
                                                                     --                                                                                             31.7%        45.4%
CeateFl!eiRt SeeFffii1 Im;                    CNP     Baal       A-           Yes                    X                      X            X CHi      liRBFre  Gerp                        CMS     Baal       BBB+         Yes                    X                      X            X           67.5%        60.3%
Consolidated Edison Inc                     . ED      A3         A-           Y_es                   X                      X            X            76.6%       73.3%
DamiRiaA S1ier~                               D                                           *AcquiriJ:tg SCANA*
l'J:rJ; ll**'l!l' G*'"l'*"l'                  DTE     Baal       BBB+         Yes                    X                      X            X           40.5%        62.7%
Duke Energy Corp New                          DUK     Baal       A*           ye~                    X                      ~-           X            90.5%       86.6%
Edison International                          Ell(    AJ         BBB+         Yes                    X                      X            X            99.0%       89.9%
El Paso Electric Co                           EE      Baal       BBB          Yes                    X                      X             X         100.0%
SRteEgy GeFp                                  ETR     Baa2       BBB+         Yes   Closing 4 non-reg nuclear plants E 8F581:iF68 Bll8Ffil                         ES      Baal       A+           SPLT                   X                      X            X            71.5%       53.0%
               ~                                             EXC     Baa2       BBB          Yes                    X                      X            X            44.4%
liiFstl!AeFffi GeFp                           FE      Baal       BBB*         NO    Sub. Bankruptcy/elim. non-reg           X             X           69.4%       64.2%
l'eRis,IR&                                    FTS.TO Baa3        A-                                                         X             X           54.0%
Qieat l!laiR& liA1iFm1 In*                    GXP     Baa2       BBB+         Yes                Westar l:lai11aiiaR ElesGie lnd11S&ie& IA6           HE                 BBB-         NO                     X                      X             X           88.0%       47.0%
IDACORP Inc                                   IDA     Baal       BBB          Yes                    X                      X             X           99.0%       99.0%
I IGll ll"''l!l' I**                          MGEE Al            AA-          NO                     X                      X             X           73.5%       56.2%
We!iiteFa EneFre,1 Ins                        NEE     Baal       A-           Yes                    X                      X             X           69.0%       51.4%
NorthWestern Corporation                      NWE     Baal       BBB          Yes                    X                      X             X           79.3%        80.1%
OGE Energy Corp                              OGE     AJ         A-           Yes                    X                      X             X         100.0%
QtteF +ail GeFp                              OTTR    Baa2       BBB          Yes                    X                      X             X           51.0%        84.3%
Paeiffe Gas an!I EleeGia Gempa~               PCG     Baal       BBB+         Yes                    X                         Suspended Pinnacle West Capital Corp                    PNW     A3         A-           Yes                    X                       X            X           99.0%        98.0%
l!NM Resgw:ees Im:                            PNM     Baa3       BBB+         SPLIT                  X                       X            X         100.0%
Portland General Electric Company             POR     AJ         BBB          Yes                    X                      X             X         100.0%
l!P:b GeFp8Fatiea                             PPL     Baa2       A-           Yes              Forex risk                   X             X           71.9%        59.2%
PYhlis SeF iee EnleFpFise Gl:eYf.1 IR6        PEG     Baal       BBB+         Yes                    X                       X            X           68.1%       66.9%
SG OiN Oi GeFpeFatiea
* SCG                                      Construction issues/ACQ Sem1na Energy                                 SRE     Baal       BBB+         Yes          Onocor acquisition                X            X           39.4%       35.7%
               ~                                             so      Baa2       A-           Yes          Construction issues               X            X           73.0%        65.8%
lteeGenGeFp                                   vvc                A-           Yes                    X                       X            X           21.4%       29.1%
WEC Energy Group                              WEC     A3         A-           Yes                     X                      X            X           60.0%
mes'-IF lineF~ IA6                            WR      Baal       BBB+         Yes             Great Plains                                           100.0%
Xcel Energy Inc                               XEL     AJ         A-           Yes                     X                      X            X           84.9%
: 1) Electric utilities followed by Value-Line Investment Survey (U.S. companies)
: 2) Ticker symbol
: 3) Moody's credit rating (LTR) data from S&P Global Market Intelligence
: 4) S&P credit rating (LTR) data from S&P Global Market Intelligence                                                 I
: 5) Within credit rating range of both rating agencies
: 6) No merger, acquistion, or sale of assets (Value.Line & S&P Global Market Intelligence)
: 7) No forecasted dividend reduction (Value-Line)                                                                      x = no reduction
: 8) No dividend reduction in 2017 (Value-Line & S&P Global Market Intelligence)                                       x = no forecasted reduction
: 9) Revenues from regulated electric operatiom-*% of total revenues (S&P Global Market Intelligence)                  70% of Revenues from electric utility industry I 0) Assets ofregulated electric operations (S&P Global Market Intelligence) 1 2          I reviewed the potential proxy companies that were considered in the 18-WSEE-328-RTS 3          Docket. I found that the selection screens applied in the 18-328 analysis to be a reasonable 4          guide for selecting a proxy group for KCP&L in this Docket. Credit ratings shown in 5          columns three and four are the first screen applied to the population. The current ratings 6          forKCPL is Baal by Moody's and A- by S&P; these ratings are firmly in the mid-range 7          of the investment-grade ratings. The selection criteria uses a range that is one notch either 26

Direct Testimony of Adam H. Gatewood                                      Docket No. 18-KCPE-480-RTS 1                side ofKCPL's ratings which is a range of A3/A- to Baa2/BBB. 23 2                In column six, I listed any merger or acquisitions in process or any significant financial 3                issues that make it difficult to assess the utility's long-term earnings prospects. In this 4                criteria, I found there are several utilities involved in acquisitions. SCANA and Southern 5                Co. are excluded due to their construction problems with nuclear power plants; SCANA
                           \.
6                has also signed in acquisition plan with Dominion.           I excluded utilities involved in
: 7.               acquisitions and those with significant construction issues because both types of events 8                cause uncertainty around future earnings. I also excluded PPL Corp. due to its investments 9                overseas. *PPL reports that 30% of its revenues are subject to foreign exchange risk. This 10                is an atypical situation in the U.S. electric utility industry and a risk that is distinct from 11
* KCP&L. The filter in column six focuses the study on electric utilities with known 12                prospective earnings power.
Credit Rating Table
                 ~_oody's_    S&P Aaa       AM
          .         Aal        AA+
         "O o:I Aa2 Aa3 AA AA-
        ".=        . Al        A+
s."'        A2 A3 A
A-
        - i:       Baal Baa2 Baa3 BBB+
BBB BBB-B_al       ~B+
          .         Ba2         BB "O
o:I      Ba3        BB-
        "...=.       Bl B2
                      --~
B+
8 s."'        B3         8-Caal       CCC+
        -...-==
i:
o:I Caa2 Caa3
                            - _Q.<;:<;:
CCC-
                      - - - -cc Ca
         ...l C+
C 23                C          D 27

Direct Testimony of Adam H. Gatewood                                Docket No. 18-KCPE-480-RTS 1          Columns seven and eight are similar to column five in that these criteria would eliminate 2          firms that have or are forecasted to reduce annual dividends. In the public utility sectors 3          where management and boards strive for a record of stable dividend growth, a dividend 4          reduction signals major change in ongoing operations and is probably a sign that 5          managements cannot expect stable earnings growth in the foreseeable years.             Such 6          candidates should not be in the proxy group for KCP&L because that situation is not 7          consistent with KCP&L's prospects. Pacific Gas & Electric is the only utility eliminated 8          with this criteria; it suspended its dividend payments in December of 2017.
9          The criteria in columns nine and ten attempt to ascertain whether providing regulated 10          electric utilities services is the primary business *of the company. I set the threshold for 11          revenues from electric utility service at 70% of total revenues. This is a subjective cutoff, 12          but it works for this analysis because meeting that threshold means that the company is 13          largely focused on, and earnings are derived from, providing regulated electric utility 14          services. The following table contains Staffs proxy group of 14 electric utilities for the 15          cost of equity and capital structure analyses.
28

Direct Testimony of Adam H. Gatewood                                                                               DocketNo. 18-KCPE-480-RTS 1                       2         3            4         5         6             7           8       9          10 No               Dividends              2017 Value-Line: Electric Utilities                  ***Bond Rating***          A1U1ounced    No Planned     2017   Electric Operations Company Name                      Moody's        S&P                Me1"2er      Reductions   Historv %Rev       %Assets*
Allele Inc                                  AIE      A3          BBB+        Yes           X             X           X       74.9%
Alliant Energy Coro                         LNT      Baal        A-          Yes           X             X           X       85.6%       82.6%
Ameren Corp                                 AEE      Baal        BBB+        Yes           X             X           X       86.0%       85.0%
American Electric Power Company Inc         AEP      Baal        A-          Yes           X             X           X       86.7%       94.1%
Consolidated Edison Inc                     ED       A3          A-          Yes           X             X           X       76.6%       73.3%
Duke Energy Corp New                        DUK      Baal        A-          Yes           X             X           X       90.5%       86.6%
Edison International                        EIX      A3          BBB+        Yes           X             X           X       99.0%       89.9%
El Paso Electric Co                         EE       Baal        BBB         Yes           X             X           X      100.0%
IDACORP Inc                                 IDA      Baal        BBB         Yes           X             X           X       99.0%       99.0%
NorthWestern Corporation                    NWE      Baal        BBB         Yes           X             X           X       79.3%       80.1%
OGE Energy Coro                             OGE      A3          A-          Yes           X             X           X      100.0%
Pinnacle West Caoital Coro                  PNW      A3          A-          Yes           X             X           X       99.0%       98.0%
Portland General Electric Company           POR      A3          BBB         Yes           X             X           X      100.0%
Xcel Energy Inc                             XEL      A3          A-          Yes           X             X           X       84.9%
l) Electric utilities followed by Value-Line Investment Survey (U.S. companies)
: 2) Ticker symbol
: 3) Moody's credit rating (LTR) data from S&P Global Market*Intelligence
: 4) S&P credit ratirig (LTR) data from S&P Global Market Intelligence
: 5) Within credit rati~ge of both rating agencies
: 6) No merger, acquistion, or sale of assets (Value-Line & S&P Global Market Intelligence)
: 7) No forecasted dividend reduction (Value-Line)
: 8) No dividend reduction in 2017 (Value-Line & S&P Global Market Intelligence)
: 9) Revenues from regulated electric operations 70% of total revenues (S&P Global Market Intelligence)
I 0) Assets ofregulated electric operations (S&P Global Market Intelligence)
I 2 Q.       Have bond ratings for Westar or KCP&L changed since the cost of equity studies in 3          the 18-095 and 18-328 Dockets?
4 A.       Yes, with the close of the merger of Westar and Great' Plains Energy, Standard & Poor's 5          raised its rating of Great Plains Energy and each of its subsidiaries one notch from BBB+.
6          toA-. Moody's did not change its ratings of any of the companies. Because this was a 7          one-notch change and by just one of the two rating agencies, I did not alter the proxy 8          company selection criteria from that used in the previous two dockets.
29

Direct Testimony of Adam H. Gatewood                                             DocketNo. 18-KCPE-480-RTS Bond Ratings of Evergy, Inc.
                                              & Kansas Jurisdictional Subsidiaries Pre-Merger Rating/ Post-Merger Bond Rating Standard
                                                                     &Poors'         Moody's Evergy, Inc./Great Plains Energy     BBB+/ A-         Baa2/Baa2 Kansas City Power & Light            BBB+/ A-         Baal/ Baal W~s~r E_f!~~gy_ _                    BBB+/ A-         Baal/ Baal Kansas Gas & Electric                 BBB+/ A-        Baal/ Baal Source: S&P Global Market Intelligence 1
2 Return on Equity Analysis 3 Q.       How did you perform the cost of equity analysis?
4 A.       I am using discounted cash flow models and capital asset pricing models; identical to the 5          methods used in recent rate cases: the 18-095 Docket and 18-328 Docket to establish the 6          9.30% threshold for the ERSP.
7 Q.       Does the DCF model meet the legal standards discussed earlier in your testimony?
8 A.       Yes, a cost of equity estimate derived from the DCF model meets the legal standards 9          discussed above if the model incorporates current information from the capital markets via 10          current stock prices and accurate data that investors use to establish their discount rate.
11          This market-based information ensures the cost of equity estimates evaluate investors' 12          required rate of return or discount rate that reflects the current economic environment.
13          The DCF model is a valuation model used by investors to value different types of 14          investments such as real estate, bonds, and equity securities. The DCF model is a useful 15          tool to value any investment that involves regular, periodic cash flows. The notion of 30

Direct Testimony of Adam H. Gatewood                                       Docket No. l 8-KCPE-480-RTS 1           discounting a future receipt of cash back to the present so as to place a price or value on an 2       *
* investment goes back centuries. 24 The premise of the DCF model in the valuation of
                                                                                                              \
3           common stock is that investors determine the value of a company's common stock by 4           discounting its future dividend payments back to the present. The cornerstone of the DCF 5           model is the process of discounting those future cash flows back to the present at the 6           investors' required return.      An investor's required rate of return is risk-sensitive and 7           sensitive to the returns available on investments of comparable risk throughout the global 8           capital markets.      In other words, as the risk of the investment increases, so will the 9           investors' required return. A higher required rate of return decreases the present value 9f 10           the stream of dividends that equates to the price of the stock So, all other variables being 11           equal, investors price the riskier of two common stocks lower because the cash flows or 12           dividends are discounted back to the present at a higher rate.
l3           The form of the DCF model that regulatory agencies are accustomed to seeing is often 14           referred to as the Gordon Growth Model, which is a model that values the security at the 15           present value of a stream of cash flows (dividends) growing at a constant rate into 16           perpetuity. The basic form of this DCF equation is:
D0 (1 + g) 17                                                     Po= -(K_e___    g_)
18                   Where:*
19                   Po= the value of the common stock or asset 24 The formal presentation of the DCF model as we use it today dates back to the 1930's in Irving Fisher's book: The Theory of Interest and John Burr Williams' 1938 text: The Theory of Investment Value. These two authors expressed the DCF model in modem economic terms.
31

Direct Testimony of Adam H. Gatewood                                          Docket No. 18-KCPE-480-RTS 1                  Do= the current dividend of the stock or annual cash flow from the asset 2                  g = the annual growth rate of the dividend or cash flow forever 3                  Ke = cost of equity or required rate of return for the stockholders 4                                                           Or 5                       Stock Price= Annual Dividend/ (Req'd Rate of Return -Dividend Growth Rate) 6          This is the form of the equation commonly found in texts regarding finance, investments, 7          and asset valuation. Such texts are inclusive of both theory and practical application.
8          Regulatory agencies responsible for setting rates and revenue requirements want to know 9          the investors' required rate of return or Ke in the equation. So, we solve the equation for 10          that variable. The equation below shows the algebraic isolation of the investors' required 11          rate of return. By isolating investors' required rate of return in the equation, we can
* 12          estimate it by knowing the stock's dividend yield and the annual dividend growth rate 13          expected by investors. That form of the equation is:
D0 (1  + g) 14                                                    Ke=          Po       +g 15          This equation is frequently written out as:
16                  Req'd Rate of Return= (Dividend/Current Stock Price)+ Dividend Growth Rate 17                                                            or 18                           Req'd Rate of Return= Dividend Yield+ Dividend Growth Rate 19 20          Or as commonly abbreviated by regulatory agencies 32

Direct Testimony of Adam H. Gatewood                               Docket No. 18-KCPE-480-RTS 1                                                  Ke=y+ g 2            Where: y = Dividend Yield 3                    g = Expected Dividend Growth 4            Through a handful of inputs, the DCF model distills down to an equation, a complex 5 '          proc.ess performed by investors to arrive at a discount rate and valuation of the security.
6            As with any equation that attempts to model behavior, there are a host of assumptions that 7            come along with it. Those assumptions are:
8
* Ke corresponds only to the specific stream of future dividends, rather than earnings, 9                    and that constitutes the source of value.
10
* The discount rate (Ke) must exceed the growth rate (g).
"11
* The constant growth rate will continue for an indefinite future.
12
* Investqrs require the same discount rate (Ke) each year.
13
* There is no external financing.
14   Q.       Why is it reasonable to accept thes.e assumptions?
15   A.       The DCF model is attempting to emulate investors' behavior; distilling human b~havior 16            into a handful of inputs demands simplifying assumptions. The question becomes whether 17            the assumptions are so contrary to investors' behavior in the real-world that the model 18            output becomes meaningless or illogical. There is no strong evidence that leads me to 19            believe the assumptions of the DCF model are contrary to investor behavior.* Moreover, 20            there are methods I use to evaluate whether an output falls outside of the realm of reality.
21            For example, the output can be compared with the returns available on other investments 22            such as long-term corporate bonds. There were no observations eliminated using this 33

Direct Testimony of Adam H. Gatewood                                            Docket No. 18-KCPE-480-RTS.
1            screen. 25 2 Discounted Cash Flow Model 3 Q.        'How did you calculate the dividend yield (y) component of the DCF model?
4 A.         The* dividend yield (y) is the easier of the two components to measure as it is easily 5            *observable in daily stock price reports. It is calculated by dividing the stock's annual 6            dividend payment per share by its market price per share.
7 Q.
* What is the source of the dividend information?
8 A.         Historic and current dividend information is easily obtained from public sources or 9            subscription services such as Value-Line. The DCF model requires a forward-looking dividend payment which is often the current year's dividend payment increased by the 11            forecasted grow:th rate for next year. In lieu of forecasting, I obtained the 2019 forecasted 12            dividend per share information from Value-Line Investment Survey. The Value-Line 13            reports for each of the proxy companies are attached as Schedule AHG-3. I obtained the 14            stock prices for the dividend yields from YahooFinance. For this analysis, I used weekly 15            stock price observations taken from July 2, 2017, through July 3, 2018. The stock prices 16            for each of the proxy companies appears on Schedule AHG-4.                               My DCF analysis 17           -incorporates a dividend yield based on forecasted 2019 dividend payments.
25 Staff applies this screen using the interest rates of Baa Utility Bonds and the yields on utility specific debt shown in the Risk Premium Table. Staff adds 100 basis points to these yields as a minimum risk premium test. Cost of equity observations below this level are eliminated from the average. FERC proceedings apply a similar test for outliers.
34

Direct Testimony of Adam H. Gatewood                                                           DocketNo. 18-KCPE-480-RTS Staff Proxy Group Dividend Yields Based on Prices from July 2, 2017 through July 3, 2018 18-KCPE-480-RTS I          2          3           4            5          6          7 DPS                     Stock Prices                     Dividend Yield 2019        Min        Max     Mid-Point Mean            Min         Max Allete Inc                      ALE.      $ 2.34     $ 66.64 $ 81.24 $ 73.94 $74.78                    2.88%      3.51%
Alliant Energy Corp             LNT       $ 1.42     $ 36.84 $ 45.55 $ 41.19 $41.56                    3.12%      3.85%
Ameren Corp                     AEE       $ 1.94     $ 51.89 $ 64.89 $ 58.39 $ 58.17                   2.99%      3.74%
American Electric Power Co. AEP       $ 2.63     $ 62.71 $ 78.07 $ 70.39 $70.22                    3.37%     4.19%
Consolidated )3dison Inc        ED
                                                . - *-    $ 2.96     $. IJ-~2- $- . 89.70 $ 80.41 $ 80.75              3.30%     4.16%
Duke Energy Corp New            DUK
                                                          $ *:i:so   $. ?_L96 $ 91.80. _$ 81.88__ $81.78 _ 4.14%
5.28%
Edison International            EIX       $  2.57    ~- ~?,6&deg;? $ 83.38 ; $ ---*--
70.50 $ 69.71           3.08%     4.46%
El Paso Electric Co             EE
                                                          $   1.52
                                                  .. ---             $ 48.05 $ 61.15 $ 54.60 $54.44                    2.49%      3.16%
IDACORP Inc                     IDA       $  2.56    $ 79.59 $ 100.04 $ 89.81 $ 89.08                  2.56%     3.22%
NorthWestern Corp_1?ration      NWE       $   2.30   $ 50.01 $ 64.47; ~ 57.24 $_56.88                  3.57%     4.60%
OGE Energy_f~---                OGE
                                                          $   1.54   $ 29.59 $ 37.32 $ 33.46 $34.06                    4.13%      5.20%
Pinnacle West Capital Corp_     PNW
                                                          $   3.02   $ 73.41 $ 92.48 $ 82.95 $ 83.23                   3.27%      4)J~
Portland General Electric Co. POR
                                                 -------* ! 1.50     $_}~Q2 $ 50.11 $.. 44.57 ~~~:27                .. 2.99%
                                                                                                                       ------     3.84%
Xcel Energy Inc                 XEL       $ 1.60     $ 41.51 $ 52.22 $ 46.86 $46.77                    3.06%      3.85%
Range:       2.49%
* 5.28%
                !) Dividends per Share for 2019 Forecasteiby Value-Line lnves~nt Survey
             - 2) Minimum 12 month price observed from July 2, 2017 through July 3, 20-1!-
             - I) Maximum 12 month price observed from July 2, 2017 thr~gh July_3, 2018
                                                                                                          ~~~-    -~_::==-~--
                                                                                                                                  ~~=
_ ~ Mid-point is the average of minimum price and maximum price            _           _ .. ___ ... _ _ _ _ ___ _
             - ~ Mean price for the time period ofJuly 2, 2017 through Jul_y 3, 2018 ~eek!Y. <!~~ervations)_ ____ _ _ _ _
_ 6) Minimum dividend yield available from time_p~riod
             >- 7) Maximum dividend yield availabl~ from time period 1
2 Forecasted Growth Rates for the DCF Model 3 Q.      Please discuss the importance of the second component, the growth rate '(g), in the 4         DCF equation.
5 A.      The "g" represents the anticipated annual growth rate in cash-flows that investors expect 6         to receive through dividends from the stock. This is a challenging and contentious issue in 7         a DCF analysis for two reasons. First, it is a key element in the DCF model or any form 8         of a discounted cash flow analysis because the growth rate has a one-for-one effect on the 9         required return produced by the model. All other factors being equal, a higher growth rate 10         results in an equally higher return on equity for the utility. Second, there is a strong element 11         of subjectivity to the growth rate, due to the uncertainty about future earnings and 35

Direct Testimony of Adam H. Gatewood                                Docket No. l 8-KCPE-480-RTS 1          dividends.
2 Q.       How did you estimate the growth rate in the DCF model?
3 A.       The appropriate growth estimate is that which is expected by the market and factored into 4          investors' analyses to estimate stock prices. That is, it is the growth estimate investors 5          used to determine the stock price. Earnings per share growth forecasts are commonly 6          incorporated into the DCF model. Investment firms that publish growth forecasts typically .
7          publish three to five-year annual growth estimates for earnings. Value-Line Investment 8          Survey also provides dividend growth rate forecasts; it is the only firm that I am aware of 9          that does so. Three to five years is as far into the future as analysts forecast for a specific
. 10          company.
11 Q.       How do investors estimate the dividend growth rate beyond the three to five-year 12          h.orizon of the short-term growth forecasts?
13 A.       For a long-terin perspective of potential growth, investors rely on forecasts of the broad 14          economy as measured by annual changes forecasted for the nation's gross domestic product 15          (GDP). There are sources for long-term growth estimates of this country's GDP that extend 16          out more than 20 years. Academic texts and investment professionals use these forecasts 17          in DCF models as a forecast of potential long-term growth of corporate dividend payments.
18          GDP refers to the market value of all final goods and services produced within a country 19          in a given period. Nominal GDP (nGDP) is that measure of goods and services which 20          includes effects of price changes - better known as inflation. Inflation must be included 21          for our forecast because the DCF analysis is interested in the nominal required return. That 36

Direct Testimony of Adam H. Gatewood                                   Docket No. l 8-KCPE-480-RTS 1            is to say; investors' expectations of inflation are contained in their required return. Keep 2            in mind that the "headline" GDP reported in the media is real GDP, which is GDP less the
                         \
3            inflation experienced over the measurement period.
4  Q.        Is it accepted practice in securities valuation to use nGDP growth estimates in the 5            DCF model?
6 A.         Yes, in the federal regulatory arena, similar to the responsibilities of the KCC, the Federal 7            Energy Regulatory Commission (FERC) uses nGDP to estimate the cost of equity. FERC 8            has reviewed the issue of long-term growth estimates used in DCF models. It took 9            comments . from .stakeholders that includeq. state commissions, customers, investment 10            bankers, and interstate pipeline companies. 26 Testimony from these parties made it clear 11            that long-term estimates of nGDP are a common component of valuation analyses 12            conducted by investment professionals. From that proceeding, FERC concluded that long-13            term growth estimates of nGDP should be the estimate or'long-term growth in the DCF 14            models used to estimate required returns for interstate pipeline companies because that is 15            consistent with investor behavior. 27 In June of 2014, FERC concluded that the same 16            methodology should be used in, setting the required returns for electric transmission 17
* companies. 28    Although the Commission has never explicitly endorsed long-run GDP 18            growth as an input, it is clear that the growth estimate used by Staff in*the 15-116 Docket 19           were considered credible by the Commission. 29 In that analysis, I relied on the same
                                                                                    ;
26 Transcript from Technical Conference held on January 23, 2008: FERC Docket PL07-2-000.
27 Policy Statement, FERC Docket PL07-2-000 (April 17, 2008); FERC Opinion No. 486, FERC Docket RP04-274 (Oct. 19, 2006) ..
28 Opinion No. 531; June 19, 2014; 147 FERC 61,234; para 36.
29 Order issued September 10, 2015; Docket 15-KCPE-116-RTS; para. 34; p. 15-16.
37

Direct Testimony of Adam H. Gatewood                                    Docket No. 18-KCPE-480-RTS 1           sources for long-term nGDP growth as I am using in this analysis.
2  Q.       Is there academic support for this issue?
3  A.       Yes, academic research has shown that nGDP growth forecasts are an important input to 4           valuation studies because the analyst has to consider whether a company's annual earnings 5           can grow as fast as, or even faster than, the broad economy. In two of his books devoted 6           to the subject of asset valuation, Dr. Aswath Damodaran discusses the nature of a stable 7-          growth rate for DCF models. 30 He argues for viewing nominal economic growth as the 8           absolute maximum when using a stable-growth model, such as the DCF model we are 9           usmg.
10                "The stable growth rate cannot exceed the growth rate of the economy in 11               which a firm operates, but it can be lower. There is nothing that prevents 12               us from assuming that mature firms will become a smaller part of the 13               economy and it may, in fact, be the more reasonable assumption to make.
14               Note that the growth rate of an economy reflects the contributions of both 15               young, higher growth firms and mature, stable growth firms. lf the former 16               grow at a rate much higher than the growth rate of the economy, the latter 17               have to grow at a rate that is lower. " (Damodaran on Valuation: Security 18               Analysis for Investment and Corporate Finance, 2nd edition; Aswath 19               Damodaran; p. 148) 20                "The growth rate ofa company cannot be greater than that of the economy 21               but it can be less. Firms can become smaller over time relative to the 22               economy. Thus, even though the cap on the growth rate may be the nominal 23               growth rate ofthe economy, analysts may use growth rates much lower than 24               this value for individual companies. " (Damodaran on Valuation: Security 25               Analysis for Investment and Corporate Finance, 2nd edition; Aswath 26               Damodaran; p.159) 30 Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, 2nd Edition and Damodaran on Valuation: Security Analysis for Investment and Corporate Finance, 2nd Edition.
38

Direct Testimony of Adam H. Gatewood                              Docket No. 18-KCPE-480-RTS 1         It is worth noting that Professor Damodaran cites the nGDP growth projection as a ceiling 2         for long-term growth in most valuation studies. Certainly, there are industries that will 3          exceed the average for a period of time, but even for those industries, rapid growth cannot 4          continue forever.
5 Q.       Does the view that nGDP growth is a ceiling. on long-term earnings growth exist 6          outside of academia?
7 A.       Yes, valuation analysts carefully consider the long-run growth rates used to value assets 8          very carefully because using an incorrect growth estimate will lead to incorrectly valuing 9          an asset: The authors of the previous discussion, Peter L. Bernstein and Robert D. Arnott, 10         have both been published in peer-reviewed academic journals and books on investment 11          strategy, as well as building careers in the field of asset management and investment 12          strategy.
13          Furthermore, institutions directly involved ip. asset valuation and asset management that 14          apply valuation models to analyze potential acquisition and merger transactions recognize 15         that estimates of firm-specific growth are a driver to the value of an asset; overstating 16          growth would cause a model to overestimate the value of the asset which would result in 17          an economic loss to the investor. These experts also warn of a ceiling to earnings growth 18         rates as being no mon;: than that of broad economic growth.
19                  "Growth rate: Few companies can be expected to grow faster than the 20                  economy for long periods. The best estimate is probably the expected long-21                  term rate of consumption growth for the industry's products, plus inflation. "
22                  (Valuation: Measuring and Managing the Value of Companies; Tim Koller, 23                  Mark Goedhart, and David Wessels; McKinsey & Co; 4th ed; p. 275.)
39

Direct Testimony of Adam H. Gatewood                                      Docket No. l 8-KCPE-480-RTS 1          The following quote from J.P. Morgan Asset Management (JPMAM) addresses the macro 2          or economy-wide measures of profits, and it is consistent with the firm-specific view 3          expressed by asset valuation experts in that analysts must be aware of the forecasted growth 4          rates applied in valuation models and how those growth forecasts comport with broad 5          measures of forecasted economic growth.
6                   "One common mistake is to assume that earnings and dividends received 7                  by investors can grow in line with-or even in excess of-overall economic 8                  growth (GDP) in perpetuity. Granted, it is almost a truism that aggregate 9                  earnings must grow at the same pace as the overall economy in the very 10                  long run; otherwise, profits would eventually outstrip the size of the entire 11                  economy or dwindle to an insignificant share of it. But not all of this 12                  earnings growth accrues to existing shareholders. On the contrary, a large 13                  portion of economic growth comes from the birth ofnew enterprises. Some 14                  commentators suggest (for example, Bernstein and Arnott, 2003; Cornell, 15                  2010) that new enterprises account for more than half of GDP growth in 16                  the US., while in some rapidly developing economies new enterprises may 17                  account for the lion's share of overall economic growth. " 31 18          Goldman Sachs Asset Management explains to its clients, "Our analysis reveals that the 19          link between GDP growth and equity returns is, in fact, very strong." 32 The asset pricing 20          formula of a dividend discount model shows how GDP growth influences the return they 21          earn on equity assets: " ... the dividend growth rate will equate to the growth rate in 22          earnings. Assuming that earnings growth is equal to, or just associated with GDP growth, 23          a direct link with equity returns is established." 33 Goldman Sachs also states that research 24          has demonstrated that GDP growth is a proxy for earnings growth.
31 Long-term Capital Market Return Assumptions: 2015 Estimates and Thinking Behind the Numbers; J.P. Morgan Asset Management; p. 25; https://am.jpmorgan.com/us/institutional/ltcmra.
32 "Linking GDP Growth and Equity Returns"; Monthly Insights: From the Office of the Chairman; Goldman Sachs Asset Management; May 2011; p. 1.
33 "Linking GDP Growth and Equity Returns"; Monthly Insights: From the Office of the Chairman; Goldman Sachs Asset Management; May 2011; p. 2.
40

Direct Testimony of Adam H. Gatewood                                DocketNo. 18-KCPE-480-RTS 1 Q.        Do you believe this evidence justifies incorporating long-run nGDP growth forecasts 2           into cost of equity analyses of utility companies?
3 A.        Yes, because we h~ve to ascertain the discount rate investors apply to the future cash flows 4           from an investment in these utilities. Therefore, the Commission should emulate investors' 5           analytical practices as closely as possible to determine investors' discount rate. As noted 6           above, investment professionals include a long-run growth forecast for the general 7           economy (in addition to company-specific short-run growth estimates) when applying the 8           DCF and capital asset pricing model, and that measure of macro-economic growth serves 9           as the upper bounds of a firm-specific analysis.       Therefore, the Commission should 10         , consider the same information when estimating a utility's required return.
11 Q.        How did you estimate long-run nominal GDP growth?
12 A.        I averaged the long-run nGDP forecasts of the Energy Information Agency (EIA) and the 13           Social Security Administration (SSA). The average of these two forecasts composes the 14           long-run growth estimate in the DCF analysis. The nGDP growth forecasts published by
, 15        . EIA and SSA-OADSI are the same sources that I have relied on over the past decade.
                                                                  \
41

Direct Testimony of Adam H. Gatewood                                              Docket No. 18-KCPE-480-RTS Nominal GDP Estimates En~!~W:or!llllti_onAg~!1CYJ~~p0_15 - 2Q50_             4.19%
_, Social Security Administration (SSA) _____ * -*
OADSI Trustees Rep}>rt 2017 - 2095 _                   4.41%
1 Average 4.30%:
                                                -    *--- -- - --- - Estimates Additional GDP     ---------
Exxon-Mobile 201? Outlook for Enerw 2015 - 2040 2.2% Real GDP + 2.2 GDP Deflator from SSA              4.40%
Congresssional Budget Office Nominal GDP Forecast
                               .2019 - 2020                                              3.50%
2021 - 2027                                             3.90%
Federal Reserve Open Market Committee Long-run Forecast 2.2% Real GDP + 2.0 PCE Inflation                       4.20%
1 2 Q.       Are these two the only two sources for long-run GDP forecasts?
3 A.       There are other source shown in the table and they are wholly consistent with the EIA and 4          SSA forecasts.
5 DCF Results 6 A.       Please discuss the results of your DCF analysis.
7 Q.       The results of my DCF analysis appear in the following table. The results seen in this DCF 8          analysis are very much the same as the DCF results in my 18-095 analysis. As I have set 9          out the foundations for the DCF analysis in the previous pages, in this section, I will discuss 10          the specific information that I relied on for the DCF model and interpret the results.
42

Direct Testimony of Adam H. Gatewood                                                                      Docket No. I 8-KCPE-480-RTS Staff Proxy Group
______
* _____ Discounted Cash Flow (DCF) Analysis              -----------*             __
18-KCPE-480-RTS I                 2                3        4          5 Dividend Yields                 Growth    DCF Estimated Min               Max              Rate     Required Return
                        'Allele Inc                                ALE              2.88%            3.51%            4.91%  7.79%      8.42%
Alliant Energy Corp                      LNT              3.12%            3.85%            5.18%  8.30%      9.04%
                        ,Arreren Corp                              AEE              2.99%            3.74%            5.38%  8.37%      9.12%
                        ,Arrerican Electric Power Co.              AEP              3.37%            4.19%            4.80%  8.17%      8.99%
                                                                                                   -----"- - - --------- ----~-
Consolidated Edison Inc                  ED               3.30%            4.16%            3.78%  7.08%      7.95%
Duke Energy Corp New                     DUK              4.14%            5.28%            4.45%  8.59%      9.74%
* Edison lntemati~nal                      EIX              3.08%            4.46%            4.62%  7.71%      9.08%
:El_ Pa~o J;:lectric Co                    EE               2.49%            3.16%            4.88%  7.36%      8.04%
                        ,IDACORP Inc                               IDA              2.56%            3.22%            4.33%  6.89%      7.55%
NorthWestern Corp.                       NWE              3.57%            4.60%            3.92%  7.49%      8.52%
OGE Energy Corp _                       _}2GE             4.13%            5.20%            4.95%  9.08%    10.15%
Pinnacle West Capital Corp               PNW              3.27%            4.11%            4.50%  7.77%      8.62%
Portland General Electric Co.             POR             2.99%            3.84%            4.11%  7.10%      7.95%
Xcel Energy Inc                          XEL              3.06%            3.85%            4.97%  8.03%      8.82%
Average of each colwnn     7.84%      8.71%
Average ofall observations         8.28%
Range ofall observations     6.89%     10.15%
I) 2018 annual dividend divided bymaximwn price obsern,d from July 2, 2017 through July 3, 2018
: 2) 2018 annual dividend divided by minimwn price obsern,d July 2, 2017 through July 3, 2018   ____ _
                         ,3) Fore~?5ted EPs_ gromh
                         '4) Low-end estimate = col I + col 3
: 5) High-el!~ est"!13te =_co_! 2 + col 3 1
2           Pricing data was gathered from Y ahooFinance for each of the proxy companies from the 3           time period of July 2, 2017, through July 3, 2018, on a weekly basis. The low dividend 4           yield is computed using the projected 2019 dividend divided by the average of the weekly 5           high prices while the high dividend yield is computed using the average weekly low prices.
6 Q.         How did you arrive at a growth rate for each proxy company?
7 A.        The growth rate is the average of the short-term growth rates 34 and the long-run forecast 8           of nGDP of 4.30%. The following table summarizes all of the observed growth forecasts, 34 For each proxy company, I gathered three short-run, three to five-year growth forecasts for earnings and dividend from Value-Line Investment Survey, as well as analysts' earnings growth projections by Thomson Financial Network (I/B/E/S) reported by YahooFinance. 1/B/E/S aggregates analysts' earnings forecasts and reports the mean of those estimates. FactSet is a service similar to 1/B/E/S in that it aggregates analysts' forecasts and publishes the mean and median of estimates. FactSet data was obtained through S&P Global Market Intelligence.
43

Direct Testimony of Adam H. Gatewood                             Docket No. 18-KCPE-480-RTS 1          both historical and forecasted.
2 Q.       How is the long-run nGDP forecast applied in your DCF analysis?
3 A.       The long-run nGDP growth forecast of 4.30% is averaged with the short-run growth 4          forecasts. In my DCF analysis, I give equal weight to short-run and long-run growth 5          forecasts. The weighting is certainly debatable because we cannot know precisely how 6          investors weight the two forecast horizons. At FERC, in both natural gas pipeline and 7          electric transmission rate cases, the short-run growth is afforded a two-thirds weighting 8          and the nGDP forecast a one-third weighting. Whatever the weighting an analyst applies 9          between the short-term and long-term growth forecasts, the analysis needs to be 10          constructed in a manner that distinguishes between the growth potential of each time 11          horizon.
44

Direct Testimony of Adam H. Gatewood                                                                               Docket No. 18-KCPE-480-RTS I       I            I Staff Proxy Group Growth Rate Sunnnary lS-KCPE-480-RTS I       I            I I            2          3          4        5        6        7        8             9.      10             11 Value-Line Historic Data                         Forecasted Growth Rates 10 Year                 SYear             Value Line    Thomson FactSet , Short-ruu Long-tenn            DCF EPS           DPS        EPS        DPS      EPS      DPS       EPS      EPS        Average    nGDP    Growth Rate Allete Inc.                    ALE        1.50%1 3.50%1 5.50%1 3.00%                   5.00%     4.50%    6.00%     6.60%        5.53%     4.30%           4.91%
Alliant Energy Coro.           LNT        5.00%1 7.50%1 6.50%1 6.50%                   6.50%     6.00%    5.85%     5.91%        6.06%     4.30%           5.18%
Am:ren Coro.                   AEE       -1.00%1 -4.00%1 0.50%1 2.00%                  7.50%     5.50%    6.30%     6.57%        6.47%     4.30%           5.38%
Am:rican Electric Power Co. AEP           3.00%         4.00%      5.50%       4.50%   4.50%     5.00%    5.79%     5.92%        5.30%     4.30%
* 4.80%
                                                                                                                                  *J Consolidated Edison Inc.       ED         2.50%         I.SO%      2.00%       2.00%   3.00%     3.50%    3.39%     3.18%1       3.27%     4.30%           3.78%
Duke Energy Corp.              DUK        2.50% 10.00%             0.50% ' 2.50*%       5.50%    4.50%    4.22%
* 4.2io/~i     4.61%     4.30%           4.45%
Edison International           EIX        2.50%         6.00%      2.50%       9.00%   4.50%     8.00%    3.19%     4.10%*       4.95%     4.30%           4.62%
1 El Paso Electric Co.           EE      _ 6.50% _ 0.00% -- 0.00% !8.00%                 4.50%     7.00%    5.20%     5.10%         5.45%    4.30%            4.88%
IDACORP Inc.                   IDA        7 ..50,'!'o   5,_50~ * ' 4.5.QY., 10.50%     3.50%     6.50%    3.55%     3.91%:       4.37%     4.30%            4.33%
NorthWestern Corp.             NWE *- 8.00% _ 5.50% 7.00% _ 7.00%                      3.50%     4.50%    3.16% ___3.01%, __ 3.54%         4.30%            3.92%
OGE Energy Corp.                          4.50%                                                           4.30% .. 410%:
Pinnacle West Capital Corp. PNW OGE 4.00%         2.50%
                                                  -*--- 5.50% 1.00%-- 8.50%
5.00%       2.50%
6.00%
5.00%
8.00%
5.50%
3.78%     4'.54%1 5.60%
4.70%
4.30%
4.30%
4.95%
4.50%
Portland General Electric Co. POR         4.00%         9.00%      3.50%       3.50%    4.00%    6.00%    2.65%     3.02%1       3.92%     4.30%            4.11%
1 Xcel Energy Inc.               XEL        5.50%         4.50%      5.00%       5.50%    5.50%    5.50%    5.86%     5.67%         5.63%    4.30%            4.97%
Min -1.00%1 -4.00%1 0.00%1 2.00%                    3.00%     3.50%    2.65%     3.01%         3.27%                     3.78%
Max 8.00%1 10.00%1 7.00%1 18.00%                     7.50%     8.00%    6.30%     6.60%         6.47%                     5.38%
Mean 4.00%1 4.36%1 3.50%1 6.07%                        4.89%    5.71%    4.52%     4.70%        4.96%                      4.63%
I) Historic 10-year earning per share annual growth rate reported by Value-Line
: 2) Historic IO-year divdend per share annual growth rate reported by Value-Line
: 3) Historic 5-vear earnings per share annual growth rate reoorted by Value-Line
: 4) Historic 5-year dividend per share annual growth rate reported by Value-Line
: 5) 3 to 5-year forecasted annual earnings per share growth rate by Value-Line
: 6) 3 to 5-year forecasted annual dividends oer share growth rate bv Value-Line
: 7) 5-year forecasted annual earnings per share growth rate. Consensus forecasts gatherd by Thomson-Reuters and reported at YahooFinance on July 17, 2018
: 8) Long-term forecasted annual earnings per share growth rate. Consensus forecasts gathered by FactSet and reported at S&P Global Marketlntelligence (fka: SNL Financial) on July 17, 2018
: 9) Average of3 to 5-year forecasted annual growth rates
: 10) Lone-term forecasted nominal GDP growth rate                            ... - -       -- - --           - - -- --   ----
: 11) Average of short-term and lone-term growth rates 1                                                            I       I            I 2 Q.         What are your observations of the short-run growth forecasts?
3 A.         The average of the short-run growth forecasts for the proxy group is 4.96% with a range of 4            3.27% to 6.47%.
5 Internal Rate of Return QRR) Analysis 6 Q.         Please discuss the internal rate of return (IRR) analysis that you performed.
7 A.         An IRR analysis of an investment is a form of a discounted cash flow analysis, only with 8            a more complex equation than the Gordon Growth Model that we applied in the previous 9            section. In the IRR analysis, we are able to apply the five-year growth forecasts to only 45

Direct Testimony of Adam H. Gatewood                              DocketNo. 18-KCPE-480-RTS 1          the intended next five years of dividends, with the remaining years growing at the long-run 2          nGDP forecasted growth rate. In the age of spreadsheets, the IRR equation is not that much 3          harder to manage than the basic dividend yield plus growth DCF model (a.k.a. Gordon 4          Growth Model) and, as the IRR model allows us to apply the growth forecasts to their 5          respective forecast periods, the IRR model provides important information to policy 6          makers because it recognizes the respective time spans of both the short-run (three to five-7          year earnings growth) and long-run (nGDP growth rate) forecasts. The full output of the 8          IRR calculations appears in Schedule AHG-5; the following table summarizes the results.
9          In the IRR model, short-term growth forecasts are given much less weight than in the two-10          stage DCF analysis; five years of a several hundred year time horizon or five percent as 11          opposed to a weighting of 50 percent that I applied in the two-stage DCF model. As a 12          result of the greater weighting of the long-term growth estimate, the average for the proxy 13          group in the IRR analysis is 16 basis points lower than the two-stage DCF results.
46

Direct Testimony of Adam H. Gatewood                                                   DocketNo. 18-KCPE-480-RTS Staff Proxy Groue__ __ _
                                       -,----- -- Internal Rate of Retum(IRR) 18-KCPE-480-RTS
                                                           - - - -- ~ - - ------*
                                         !Allete Inc. ___________ ------*-          7.82%1
:!,lli~t_ ~!}e_rgy Corp.                   8.23%:
_\Ameren C~rp~----------------               8.19%,
1American Electric Power Co.               8.51%:
                                         ,Consolidated Edison Inc.                  8.12%
iDuke Energy Corp.                        -9~44o/~:
                                         ,Edison International                      8.39%:
                                         !EI Paso Electric Co.                      7.42%,
:IDACORP Inc.                              7.39%
1 NorthWestern Corp.                        8.58%
                                         ,OGE Energy Corp.                          9.47%
                                         !Pinnacle West Capital Corp.               8.28%'
                                         ,Portland General Electric Co.             7.93%
                                         !xcel Ene;gy     I~~:
* 8.18%,
Mean   8.28%'
Min  7.39%
Max  9.47%
1 2          In this instance, as is usually the case with public utilities, there is not a wide difference 3          between the short-term growth rates and long-te~ nGDP growth, therefore, the difference 4          in weighting of the two growth rates between the DCF and IRR analyses do not cause a 5          large difference in results.
6 Capital Asset Pricing Model (CAPM) Analysis 7 Q.       Please describe the capital asset pricing model (CAPM).
8 A.       The CAPM offers an explanation of the positive relationship between risk and ROR 9          required by investors. 35 It is appealing to regulators because it meets the legal standards I 10          discussed above, as it can be structured to iQ.corporate current data from the financial 35 The theoretical support for the CAPM is the work done by Harry Markowitz ("Portfolio Selection," Journal of Finance, March, 1952). W.F. Sharpe added the concept of a risk-free rate of return to the Markowitz model ("A Simplified Model of Portfolio Analysis," Management Science, January, 1963).
47

Direct Testimony of Adam H. Gatewood                                   Docket No. 18-KCPE-480-RTS 1            markets and the unique risks of the utility in question.
2                       Ke = Rf+ Beta (Rm - Rf)        or 3                      Ke= Rf+ Beta (Rp) 4                             Where:
5                    Ke =     required return on equity 6                    Rf=      return on a risk-free security 7                    Rm =     an expected return from the market as a whole 8                    Rp =      risk premium available to investors through purchasing common stocks 9                              instead ofrisk-free securities often calculated as Rm - Rf 10                    Beta=     volatility of the security's or portfolio's return relative to the volatility of 11                              the market's return with the market beta equal to 1.0 12             Rf 13           . The Rf estimate is the interest rate investors believe represents a riskless return. Although 14
* it is a simple concept, the answer is not universally agreed upon. It is widely accepted that 15             a debt instrument issued by the U.S. Government is a risk-free instrument.         An investment 16             in U.S. Treasury Bonds *is a risk-free investment if the investor plans to hold it until 17             maturity. The risk-free instrument chosen will have an effect on the results of the CAPM 18             analysis. Whichever instrument is selected; it should be used consistently in the equation.
19             Beta 20             The beta coefficient measures the volatility of the return earned by the utility's stock 21             relative to the volatility of the returns earned by the broader equity market. The broad 22             equity market is frequently measured using the S&P 500 Index. This measure provides a 48

Direct Testimony of Adam H. Gatewood                                 Docket No. 18-KCPE-480-RTS 1           look at the risk and volatility of a stock relative to other investments. A stock with a beta 2           of 1 is equally as volatile as the market as a whole. A stock with a beta of 0.5 is half as 3          volatile as the market. Value-Line's last report on Great Plains Energy, prior to the merger 4           closing, reported a beta coefficient of 0. 70; ~imilar to the average for the proxy group of .
5           0.67.
6          Rm 7          Rm is the expected return on the stock market as measured by a broad market index such 8          as the S&P 500. This represents the total return consisting of the price change of the index 9          plus dividends earned for the year.
10          Rp 11          The risk premium is the difference between investors' expected return from the stock 12          market and their expected return from the risk-free investment over the same time period.
13          The risk premium is written as Rm-Rf. The market return and the *risk-free return should 14          be taken from the same time period so as to accurately measure the additional return 15          required by investors to take on the risk of common stocks over the risk-free investment.
16  Q.      Please discuss your CAPM analysis.
17  A.      I took two distinct approaches to the CAPM analysis. I performed one analysis using 18          purely historic measures of returns from the stock and bond markets and a second analysis
: 19.         using forecasted returns. The results using historic returns are drastically higher, 9.38%,
20          when compared to results using forecasted returns of 6.93%.
49

Direct Testimony of Adam H. Gatewood                                                DocketNo. 18-KCPE-480-RTS 1          Both forms of my CAPM analysis incorporate the high and low beta coefficients observed 2          in the proxy group. This beta indicates that the volatility of the proxy group is about 65%
3          of that exhibited by the broad market and, accordingly, investors would expect a relatively 4          lower return from stocks of public utilities than the broad market. This is a clear indication 5          that public utility companies like KCP&L and the proxy group are less risky than the broad 6          stock market, and investors expect a return lower than that *expected of the market.
7          Reviewing the high and low beta coefficients observed in the proxy group provides a 8          picture of the range that the new company could exhibit in the future.
B~tl! Co~!~c~nt~,_s~l!rr~ P.!_OE G~~P Updated on July 24, 2018 18-KCPE-480-RTS Allete Inc                                   ALE       0.75.
Allfl!~t E.~<::!gy CC!_rJJ                   LNT       0.70 Ameren Corp_                                 AEE       0.65 American Electric- Power
                                              ...           . Co Inc        AEP       0.65
:Consolidated Edison Inc                      ED        0.50
                                  ,Duke Energy Corp New _ -* __ .               DUK       0.60 Edison International                         EIX        0.60 El Paso Electric Co                          EE         0.75
                                 . IDACORP Inc                                  IDA        0.70 NorthWestern Corp                            NWE        0.65 OGE Energy Corp                              OGE        0.95 Pinnacle West Capital Corp                   PNW        0.65 Portland
                                       -------    --- -Electric Co General                           POR        0.65 Xcel Energy Inc                              XEL        0.60 Min        0.50 Source: Value-Line Investment Survey Max               ,0.95 Me.an      0.67 Median     0.65 9
10 Q.       Please describe the forecasted CAPM analysis.
11 A.       For the forecasted CAPM, I relied on the* expected returns published by JP MAM in its 12          annual publication, Long-Term Capital Market Assumptions for 2018, to establish the 13          expected return for the market. JPMAM publishes 10 to 15-year forecasts of expected 50

Direct Testimony of Adam H. Gatewood                                Docket No. l 8-KCPE-480-RTS 1         returns on dozens of investment asset classes in its annual publication, the Long Term 2          Capital Market Return Assumptions (LTCMRA). JPMAM forecasts an annual return on 3          common stocks of 6.93%.        The JPMAM's forecasted returns on common stocks has 4          declined over the past two years; generally a product of the "increase in stock prices over 5         the past two years.
6         Following the calculations and inputs through the CAPM equation in line 2 of the following 7         table, the forecasted return on a risk-free investment, 10-Year U.S. Treasury Bonds, is 8          subtracted from the expected return on common stocks resulting in a risk premium of 9          3.86%. This risk premium is the additional return necessary to induce investors to take on 10         the added risk associated with common stocks over the risk-free investment. The beta 11          coefficient is applied to the risk premium to ascertain how much of a risk premium is 12          necessary for.investors to take on risks of investing in utility stocks as opposed to the risk-13          free U.S. Treasury Bond.
51

Direct Testimony of Adam H. Gatewood                                                                          DocketNo. 18-KCPE-480-RTS Capital Asset Pricing Model -- Fore casted Risk Pre_minm Using Forecasted Market Returns~ i;:reasury Bond Yields 18-KCPE-480-RTS Low Beta           High Beta     Avg Beta I) Fore<:aste~ ~1:t_l!f~ ~n C::ol1!111_'?n. Stocks                               6.93%,              6.93%      6.93%,
: 2) Forecasted To~l Return on IO-Year T-Bonds                                     3.07%'              3.07%      3.07%;
: 3) Resultini~skPr~~lllll                                                         3.86%'              3.86%      3.86%
: 4) Beta_ <:oe_!fi_cie1_1t __                                      x,              o.so I               0.95      0.67, 5)_ Risk Premilllll                                                              1.93%:              3.67%      2.59%
: 6) Forecasted Yield on IO-Year T-Bonds                            +              3.50%,              3.50%      3.50%
: 7) For Cost ofEquity                                                             5.43%               7.17%      6.09%'
6.30%
I) Fore_ca~ted 10 to _IS-year3nn_1!3I ~ri!}mletic return 011_!,tqcks              _
for mid-sized ~ompaniesby J .P_. Morgan Asset Management, 2018 E~ition
: 2) Forec_asted 19 to 15-y~ar anrn,ial ~i~etic r~_turn on intermediate term _
U.S. Government bonds_ by J.P. ~Or!?f111 Asset Mana&ement, 2018 Edition
: 3) Resulting risk premi~ (1-2)
: 4) Beta cpeffi cie11t ~.<!ng~ qf pi:_o~ gi:2._up_ ~eport~_d by Val l!e-!,i11_e
_ ~) Ro\_:\' 3 ~ Rq..y ~ = ~.5~!_5P.e_ci_!}&#xa3; ~~sk JJ_re_mi~               _ __
_ 6) _Forecasted_xield 01119-Y_ear U~_-_ Trea_!>_llr)'. bonds fo_!e~ge~ ~y J.P. Morgan Asset Management, 2018 Edition (page 55)
: 7) Forecasted cost of equity capital row 5 + row 6 Sources:
_J.P. Morgan Asset M~lplg~~!]!,_ ~ng-te~ 9apital Market Return As_slllllptio1!5, 2018 Edition; J.P. Mo_rgan Asset ~nagem~nt (published October of29_17)
:www.jpmorganinstitutional.com/pages/jpmorgan/am/ia/research and publications/long-term capital market
                    *   --    -  --*      -      -  -- -** ----------   ----------?-      *r      ----  - - - - : - - - - ---
1 2          The expected risk-free yield of 3.50% forecasted by JPMAM is added to the beta specific 3          risk premium to arrive at the cost of equity for the given beta coefficient of 0. 70 - about 60 4          basis points less than the returns JPMAM is forecasting for the broad stock market indexes.*
5          These results appear low by historic measures of the past 40 years. The results are in line 6          with the returns offered on other investments in the current capital markets. For instance, 7          investors in KCP&L's long-term bonds are purchasing bonds with the expectation for 8          returns of less than 4.00%.
9 Q.       Please discuss the historical CAPM analysis.
10 A.       I performed a CAPM analysis incorporating historic data of returns earned from 1926 11          through 2014. The process is the same as that applied in the Forecasted CAPM.
52

Direct Testimony of Adam H. Gatewood                                                                         Docket No. 18-KCPE-480-RTS
                             ---~--C_apital Asset Pricing Model -- Historic Risk Premium Based on Historic -----     Risk Premiums         from 1926 to 2015
                                                                                           --- ---------~---------
18-KCPE-480-RTS Low Beta         High Beta   Avg Beta lfl'otal Renn-~ ~nC~mmonStoc_!<s                            --*** ------ -             12.10%       12.10%      12.10%
: 2) j Total Return on Government Bonds ________ _                                        5.20%         5.20%      5.20%
3), Resulti.ng Risk Premiwn                                                             6.90%         6.90%      6.90%
: 4) ,Beta Coefficient                                                                     0.50          0.95       0.67 5)jRi;;-kPremiwn                                                                xi 3.45%1        6.56%1     4.62%1
: 6) J~-~t~ri_~Y~ld _CJ!} Q_CJve~nt Bqni:_                            .           + 4.38%              4.38%       4.38%
: 7) iForecasted Cost of Equity Based on Historic Returns                                 7.83%       10.93%       9.00%
l -- -- '                       -- -               - --
9.38%
I
: 1) 1Historic returns on common stocks 1926-2017 (SBBI; Exhibit 2-3)
: 2) ;Historic returns on intermediate-term government bonds 1926-2017
: 3) \~eslllrjng_risk IJr_el!lil_ll!lJl-2)                    _
4):Beta coefficient ofthe proxy grm.l}l (Reported by Value-Line) 5)IRow I *-*
3 xRow     4 = As~et S}lecific Risk:P;e~~
                                                                     *. - -*-*-*. --*-*-* ~--- -
: 6) 1Historic year-end yield on intermediate-term government bonds 1926-2017 7);F~rei:~t~d~o~t~f~q~ty-capi~!;_r_~~5+-~~~6 * *                                  --      * -
Sources:---- ---- ---- ----
Ibbotson SBBI: 2018 Classic Yearbook (Duff & Phelps) & Value-Line Investment Survey 1
2          In relying on purely historic data, we are assuming that certain trends observed in the past 3          80 years will continue in the future. Most notably, we would be assuming that the returns 4          observed on common stocks from decades past will continue in the future, which of course 5          assumes this historical data accurately measures the past returns. There is strong evidence I
6          that these :frequently-quoted returns do not present a complete picture of historic retums. 36 7          The simple step of beginning measurement period in 1926 brings questions as to whether 8          the time period represents all of the modem-era securities trading. The historic returns are 9          reported and might influence expectations despite warnings that surround historic 10          economic growth rates. There are well regarded financial publications that focus solely on 11          this type of historic data and how to apply it in cost of capital studies. Thus, I have to argue 36 McQuarrie, Edward F; "The Myth of 1926: How Much Do We Know Long-Term Returns on U.S. Stocks?"; The Journal oflnvesting; Winter 2009; p. 96.
53

Direct Testimony of Adam H. Gatewood                             Docket No. 18-KCPE-480-RTS 1          that the historic data is part of the cost of capital universe, although given only light 2          consideration in the final decision.
3 Q.       Does that conclude your testimony?
4 A.       Yes, thank you.
54

Schedule AHG - 1 18-KCPE-480-RTS Weighted
                               *** Escalation Rate***                           Composite 2.80%          1.80%          2.60%          5.70%        2.30%          2.91%
Escalate~ Costs From
       *** Table 3.2 SAFESTOR Alternative (thousands, 2017 $'s) Cost Categories***          Time                   2017 Dollars Equip&                                                               from           Total                KCP&L Year      Labor        Materials       Energy         Burial        Other          Total    2017     Inflatc:;d Costs        KS Allocated 2045 $     50,301 $        1,936 $         1,969 $          33 $      9,446 $       63,685    28 $        134,230,644 $         27,638,208 2046 $     52,967 $       10,775 $         1,832 $       1,389 $     23,599 $       90,562    29 $        192,477,968 $         39,631,383 2047 $     28,085 $        6,228 $           486 $          15 $      6,065 $       40,879    30 $         88,071,073 $         18,133,912 2048 $     28,162 $        6,245 $           487 $          16 $      6,082 $       40,992    31 $         90,623,909 $          18,659,543 2049 $     28,085 $        6,228 $           486 $          15 $      6,065 $       40,879    32 $         92,731,922 $          19,093,585 2050 $     20,521 $        4,415 $           411 $          13 $      4,624 $       29,984    33 $         69,834,217 $          14,378,927 2051 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    34 $         12,975,580 $           2,671,683 2052 $      3,446 $          323 $           243 $           7 $      1,374 $        5,393    35 $         13,352,715 $           2,749,336 2053 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    36 $         13,670,261 $           2,814,719 2054 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    37 $         14,031,645 $           2,889,128 2055 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    38 $         14,402,734 $           2,965,536 2056 $      3,446 $          323 $           243 $           7 $      1,374 $        5,393    39 $         14,821,931 $           3,051,849 2057 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    40 $         15,175,096 $           3,124,566 2058 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    41 $         15,576,923 $           3,207,302 2059 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    42 $         15,989,562 $           3,292,265 2060 $      3,446 $          323 $           243 $           7 $      1,374 $        5,393    43 $         16,455,607 $           3,388,224 2061 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    44 $         16,848,473 $           3,469,116 2062 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    45 $         17,295,365 $           3,561,131 2063 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    46 $         17,754,307 $           3,655,627 2064 $      3,446 $          323 $           243 $           7 $      1,374 $        5,393    47 $         18,272,546 $           3,762,333 2065 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    48 $          18,709,681 $          3,852,340 2066 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    49 $         19,206,804 $           3,954,698 2067 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    50 $          19,717,364 $          4,059,823 2068 $      3,446 $          323 $           243 $           7 $      1,374 $        5,393    51 .$        20,293,775 $           4,178,506 2069 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    52 $         20,780,288 $           4,278,680 2070 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    53 $         21,333,426 $           4,392,571 2071 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    54 $         21,901,550 $           4,509,548 2072 $      3,446 $          323 $           243 $           7 $      1,374 $        5,393    55 $         22,542,816 $           4,641,586 2073 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    56 $         23,084,431 $           4,753,105 2074 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    57 $         23,700,055 $           4,879,862 2075 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    58 $         24,332,401 $           5,010,063 2076 $      3,446 $          323 $           243 $           7 $      1,374 $        5,393    59 $         25,046,004 $           5,156,994 I 2077 $      3,437 $          322 $.          243 $           7 $      1,370 $        5,379    60 $         25,649,136 $           5,281,180 2078 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    61 $         26,334,497 $           5,422,296 2079 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    62 $         27,038,525 $           5,567,256 2080 $      3,446 $          323 $           243 $           7 $      1,374 $        5,393    63 $         27,832,842 $           5,730,807 2081 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    64 $         28,504,690 $           5,869,141 2082 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    65 $         29,267,916 $           6,026,290 2083 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    66 $         30,051,993 $           6,187,732 2084 $      3,446 $          323 $           243 $           7 $      1,374 $        5,393    67 $         30,936,415 $           6,369,835 2085 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    68 $         31,685,059 $           6,523,982 2086 $      3,437 $          322 $           243 $           7 $      1,370 $        5,379    69 $         32,535,274 $           6,699,041

Schedule AHG - 1 18-KCPE-480-RTS Weighted
(
                                   *** Escalation Rate***                           Composite 2.80%           1.80%          2.60%          5.70%         2.30%         2.91%
Escalated Costs From
          *** Table 3.2 SAFESTOR Alternative (thousands, 2017 $'s) Cost Categories ***          Time                     2017 Dollars Equip &                                                              from             Total               KCP&L Year        Labor         Materials       Energy         Burial        Other          Total    2017        Inflated Costs        KS Allocated 2087   $      3,437   $         322   $         243 $            7  $     1,370 $       5,379    70   $         33,408,789 $          6,878,899 2088   $      3,446   $         323   $         243 $            7  $     1,374 $       5,393    71   $         34,393,851 * $        7,081,724 2089   $      3,437   $         322   $         243 $            7  $     1,370 $       5,379    72   $         35,228,375 $          7,253,554 2090   $      3,437    $        322   $         243 $            7  $     1,370 $       5,379    73   $         36,175,823 $          7,448,634 2091   $      3,437    $        322   $         243 $            7  $    -1,370 $       5,379    74   $         37,149,327 $          7,649,079 2092   $      3,446    $        323   $         243 $            7  $     1,374 $       5,393    75   $         38,246,858 $          7,875,062 2093   $      3,437    $        322   $         243 $            7  $     1,370 $       5,379    76   $         39,177,485 $          8,066,679 2094   $      3,437    $        322   $         243 $            7  $     1,370 $       5,379    77   $         40,233,688 $          8,284,152 2095   $      3,437    $        322   $         243 $            7  $     1,370 $       5,379    78   $         41,319,046 $          8,507,628 2096   $      3,446    $        323   $         243 $            7  $     1,374 $       5,393    79   $         42,542,342 $          8,759,506 2097   $      3,437    $        322   $         243 $            7  $     1,370 $       5,379    80   $         43,580,588 $          8,973,281 2098   $*      8,030   $        526   $         530 $           IO  $     1,416 $      10,512    81   $         91,483,641 $         18,836,562 2099   $     39,843    $      3,003   $       2,428 $"          35  $     1,725 $      47,034    82   $        430,839,660 $         88,710,266 2100   $     51,668    $     21,348   $       2,352 $      19,715   $    11,194 $     106,277     83  $      2,662,274,613 $        548,164,690 2101   $     52,224    $     26,356   $       2,272 $      29,879   $    16,007 $     126,738     84  $      3,922,244,251 $        807,593,549 2102   $     43,514    $      7,481   $       1,821 $      10,054   $     5,614 $      68,484     85  $      1,662,739,234 $        342,359,474 2103   $     43,514    $      7,481   $       1,821 $      1)0,054  $     5,614 $      68,484     86  $      1,741,171,137 $        358,508,672 2104   $     36,028-   $      4,171   $       1,047 $       4,233   $     3,422 $      48,901     87  $        978,573,603 $        201,489,168 2105   $     19,989    $     11,805   $         289 $            6. $     1,828 $      33,917     88 $         300,897,026 $         61,954,963 2106   $     11,872    $      9,571   $         164 $               $     1,237 $      22,844     89 $         196,446,660 $         40,448,540 Total  $    676,450    $ 142,715      $     29,816 $       75,796   $   168,376 $ 1,093,153 Source: Decommissioning Cost Analysis for the Wolf Creek Generating Station; prepared by TLG Services; August 2017; Table 3.2; p68 of 139 Kansas allocator for Wolf Creek; KCC DR #164                  43.8%
KCP&L Ownership                                               47.0%

Schedule AHG-1 18-KCPE-480-RTS Kansas City Power & Light-Ks SAFESTOR Decommissioning
            $   2,036,766 Annual Payment Annual         Annual           Annual                      Annual Time  Year     Inflow         Outflow          Earnings      Balance       Return 2018 $   2,036,766 $                                $   96,010,166   4.62%
 , 2   2019 $   2,036,766 $                  $   4,483,728 $  102,530,660   4.62%
3   2020 $   2,036,766 $                  $   4,785,043 $  109,352,468   4.62%
4   2021 $   2,036,766 $                  $   5,100,281 $  116,489,515   4.62%
5   2022 $   2,036,766 $                  $   5,430,087 $  123,956,368    4.62%
6   2023 $   2,036,766 $                  $   5,775,133 $  131,768,268    4.62%
7   2024 $   2,036,766 $                  $   6,136,124 $  139,941,158    4.62%
8   2025 $   2,036,766 $                  $   6,513,797 $  148,491,721    4.62%
9   2026 $   2,036,766 $                  $   6,908,922 $  157,437,408    4.62%
10   2027 $   2,036,7~6 $                  $   7,322,305 $  166,796,480    4.62%
11   2028 $   2,036,766 $                  $   7,754,792 $  176,588,038    4.62%
12   2029 $   2,036,766 $                  $   8,207,264 $  186,832,067    4.62%
13   2030 $   2,036,766 $                  $   8,680,644 $  197,549,478    4.62%
14   2031 $   2,036,766 $                  $   9,175,900 $  208,762,144    4.62%
15   2032 $   2,036,766 $                  $   9,694,042 $  220,492,952    4.62%
16   2033 $   2,036,766 $                  $  10,236,127 $  232,765,845    4.62%
17   2034 $   2,036,766 $                  $  10,803,263 $  245,605,874    4.62%
18   2035 $   2,036,766 $                  $  11,396,606 $  259,039,246    4.62%
19   2036 $   2,036,766 $                  $  12,017,367 $  273,093,379    4.62%
20   2037 $   2,036,766 $                  $  12,666,814 $  287,796,959    4.62%
21   2038 $   2,036,766 $                  $  13,346,272 $  303,179,997    4.62%
22   2039 $   2,036,766 $                  $  14,057,129 $  319,273,892    4.62%
23   2040 $   2,036,766 $                  $  14,800,834 $  336,111,492    4;62%
24   2041 $   2,036,766 $                  $  15,578,906 $  353,727,165    4.62%
25   2042 $   2,036,766 $                  $  16,392,934 $  372,156,864    4.62%
26   2043 $   2,036,766 $                  $  17,244,577 $  391,438,208    4.62%
27 28 29 2044 $
2045 $.
2046 $
2,036,766 $
(27,638,208)
(39,631,383) 18,135,576 $
19,020,688 $
18,622,469 $
411,610,550 402,993,030 381,984,115 4.62%
4.62%
4.62%
30   2047 $              $   (18,133,912)  $  17,651,639 $  381,501,843    4.62%
31   2048 $              $   (18,659,543)  $  17,629,353 $  380,471,653    4.62%
32   2049 $              $   (19,093,585)  $  17,581,747 $  378,959,815    4.62%
33   2050 $              $   (14,378,927)  $  17,511,885 $  382,092,773    4.62%
34   2051 $              $    (2,671,683)  $  17,656,660 $  397,077,750    4.62%
35   2052 $              $    (2,749,336)  $  18,349,122 $  412,677,536    4.62%
36   2053 $              $    (2,814,719)  $  19,069,994 $  428,932,811    4.62%
37   2054 $              $    (2,889,128)  $  19,821,157 $  445,864,840    4.62%
38   2055 $              $     (2,965,536) $  20,603,593 $  463,502,897    4.62%
39   2056 $              $     (3,051,849) $  21,418,654 $  481,869,702    4.62%
40   2057 $              $     (3,124,566) $  22,267,392 $  501,012,528    4.62%
41   2058 $              $    (3,207,302)  $  23,151,989 $  520,957,215    4.62%
42   2059 $              $    (3,292,265)  $  24,073,641 $  541,738,592    4.62%
43   2060 $              $    (3,388,224)  $  25,033,957 $  563,384,325    4.62%
44   2061 $              $    (3,469,116)  $  26,034,215 $  585,949,424    4.62%*
45   2062 $              $    (3,561,131)  $  27,076,957 $  609,465,251    4.62%
46   2063 $              $    (3,655,627)  $  28,163,633 $  633,973,256    4.62%
47   2064 $              $    (3,762,333)  $  29,296,158 $  659,507,081    4.62%

Schedule AHG- 1 18-KCPE-480-RTS Kansas City Power & Light-Ks SAFESTOR Decommissioning
             $*  2,036,766 Annual Payment Annual         Annual             Annual                         Annual Time   Year     Inflow         Outflow            Earnings       Balance         Return 48    2065 $              $     (3,852,340)  $   30,476,086 $    686,130,827    4.62%
49    2066 $              $     (3,954,698)  $   31,706,380 $    713,882,509    4.62%
50    2067 $              $     "(4,059,823) $   32,988,796 $    742,811,483    4.62%
51    2068 $              $     (4,178,506)  $   34,325,616 $    772,958,592    4.62%
52    2069 $              $     (4,278,680)  $   35,718,726 $    804,398,639    4.62%
53    2070 $              $     (4,392,571)   $  37,171,583 $    837,177,650    4.62%
54    2071 $              $     (4,509,548)   $  38,686,314 $    871,354,416    4.62%
55    2072 $              $     (4,_~41,586) $   40,265,636 $    906,978,466    4.62%
56    2073 $              $'    (4,753,105)   $  41,911,838 $    944,137,199    4.62%
57    2074 $              $     (4,879,862)   $  43,628,958 $    982,886,295    4.62%
58    2075 $              $     (5,010,063)   $  45,419,569 $  1,023,295,801    4.62%
59    2076 $              $     (5,156,994)   $  47,286,908 $  1,065,425,715    4.62%
60    2077 $              $     (5,281,180)   $  49,233,748 $  1,109,378,284    4.62%
61    2078 $              $     (5,422,296)   $  51,264,814 $  1,155,220,802    4.62%
62    2079 $              $     (5,567,256)   $  53,383,215 $  1,203,036,761    4.62%
63    2080 $              $     (5,730,807)   $  55,592,810 $  1,252,898,764    4.62%
64    2081 $              $     (5,869,141)   $  57,896,953 $  1,304,926,576     4.62%
65    2082 $              $     (6,026,290)   $  60,301,179 $  1,359,201,466    4.62%
66    2083 $              $     (6,187,732)   $  62,809,243 $  1,415,822,977    4.62%
67    2084 $              $     (6,369,835)   $  65,425,746 $  1,474,878,888    4.62%
68    2085 $              $     (6,523,982)   $  58,309,632 "$ 1,526,664,538     3.95%,
69    2086 $              $     (6,699,041)   $  60,356,988 $  1,580,322,485     3.95%
70    2087 $              $     (6,878,899)   $  62,478,365 $  1,635,921,951     3.95%
71    2088 $              $     (7,081,724)   $  64,676,502 $  1,693,516,728     3.95%
72    2089 $              $     (7,253,554)   $  66,953,523 $  1,753,216,698     3.95%
73    2090 $              $     (7,448,634)   $  69,313,773 $  1,815,081,836     3.95%
74    2091 $              $     (7,649,079)   $  71,759,623 $  1,879,192,381     3.95%
75    2092 $              $   * (7,875,062)   $  64,743,439 $  1,936,060,758     3.45%
76    2093 $              $     (8,066,679)   $  66,702,714 $  1,994,696,794     3.45%
: 77. 2094 $              $     (8,284,152)   $  68,722,890 $  2,055,135,531     3.45%
78    2095 $              $     (8,507,628)   $  70,805,173 $  2,117,433,077     3.45%
79    2096 $              $     (8,759,506)   $  72,951,498 $  2,181,625,069     3.45%
80    2097 $              $     (8,973,281)  .$  75,163,092 $  2,241;814,880     3.45%
81    2098 $              $   (18,836,562)    $  47,024,287 $  2,276,002,605     2.09%
82    2099 $              $   (88,710,266)    $  47,613,974 $  2,234,906,314     2.09%
83    2100 $              $ (548,164,690)     $  46,754,240 $  1,733,495,864     2.09%
84    2101 $              $ (807,593,549)     $  36,264,733 $    962,167,048     2.09%
85    2102 $              $ (342,359,474)     $  20,128,535 $    639,936,J 09    2.09%
86    2103 $              $ (358,508,672)     $   13,387,463 $   294,814,900     2.09%
87    2104 $              $ (201,489,168)     $    6,167,528 $    99,493,260     2.09%
88    2105 $              $   (61,954,963)    $    2,081,399 $    39,619,696     2.09%
89    2106 $              $   (40,448,540)    $      828,844 $             (0)   2.09%

Schedule AHG - 2 18-KCPE-480-RTS Estimates of Returns on Nuclear Decommissioning Trusts Across Investment Periods JPMAM Long-Term Capital Market Assumptions                                                          w/Fees   Pre-Tax 2017             MW!                                              Asset     Proj. Weighted    After Arithmatic        Arithmatic                    . Time Period 1       Weight   Return    Return     Tax Equities-Large Cap                    7.63%            6.41%               Equities-Large Cap              27.00%    6.30%      1.70%     1.36%
Equities-Small Cap                    8.67%            7.35%               Equities-Small Cap               6.00%    7.24%      0.43%. 0.35%
Equities-International (EAFE)         7.95%            7.61%               Equities-International (EAFE)   20.00%    7.50%
* 1.50%     1.20%
Core Bonds                            3.44%            3.67%               Core Bonds                      25.00%    3.45%      0.86%     0.69%
High Yield Bonds                      6.13%            5.59%               High Yield Bonds               '17.00%    5.37%      0.91%     0.73%
Real Estate                           7.32%            7.42%               Real Estate                      5.00%    7.31%      0.37%     0.29%
Cash & Equivalents                    2.00%            2.00%               Cash & Equivalents               0.00%    1.78%      0.00%     0.00%
Equity Management Fees            O. l l % see DR KCC-258 Fixed Income Management Fees             0.22%                                      Time Period 2 Tax Rate        20.00%                            Equities-Large Cap              20.00%    6.30%      1.26%     1.01%
Equities-Small Cap               5.00%    7.24%      0.36%     0.29%
Equities-International (EAFE)   12.00%    7.50%      0.90%     0.72%
Core Bonds                      44.00%    3.45%      1.52%     1.21%
SAFESTOR Methodology 2018-2106                        High Yield Bonds                 8.00%    5.37%      0.43%     0.34%
Pre-Tax     Post-Tax Real Estate                      5.00%    7.31%      0.37%   -o.29%
Time Period 1           2017-2084            5.78%       4.62%   Cash & Equivalents               6.00%    1.78%      0.11%     0.09%
Time Period 2           2085-2091            4.94%       3.95%
Time Period 3           2092-2097            4.31%       3.45%             Time Period 3 Time Period 4           2098-2106            2.62%       2.09%   Equities-Large Cap              10.00%    6.30%      0.63%     0.50%
Equities-Small Cap               5.00%    7.24%      0.36%     0.29%
Sources: J.P.Morgan Asset Management                                       Equities-International (EAFE)    5.00%    7.50%      0.38%     0.30%
2018 & 2017 Long-term Asset Returns                                        Core Bonds                      57.00%    3.45%      1.97%     1.57%
High Yield Bonds                 8.00%    5.37%      0.43%     0.34%
Real Estate                      5.00%    7.31%      0.37%     0.29%
Cash & Equivalents              10.00%    1.78%      0.18%     0.14%
Time Period 4 Equities-Large Cap               0.00%    6.30%      0.00%     0.00%
Equities-Small Cap               0.00%    7.24%      0.00%     0.00%
Equities-International (EAFE)    0.00%    7.50%      0.00%     0.00%
Core Bonds                      50.00%    3.45%      1.73%     1.38%
High Yield Bonds                 0.00%    5.37%      0.00%     0.00%
Real Estate                      0.00%    7.31%      0.00%     0.00%
Cash & Equivalents              50.00%    1.78%      0.89%     0.71%

                                                                                                                                                                                                                                                                                   ..J\.,H\.,UUU., I'.HJ.'U -            J 18-KCPE-480-RTS 0
I-A_L_L_ET_E-::-N_Y_SE_-A_LE--r----r--.-------r--...Ll~T"""~rJ_tr~7_s_.0~2...J...1:_T10~2_2~.1_(i_~~i~i~~;_m-4)_~TELA_Jr~1b_1._2.,. . . J1'--~to~'D_3_.1~/i----lao--'--*                                                                                                                                    ---I TIMELINESS                        4 Lowered 5125,18                        High: 51.3 49.0 35.3 37.9 42.5 42.7 54.1                                                                                             58.0 59.7 66.9 81.2 79.9                                               Target Price Range 1-'Lo:o-"w.,_:-'---"3"'8.=-2..__-=2"-'8."'"3_.__,23.3 30.0 35.1                                                     37.7 41.4 44.2 45.3 48.3 61.6 66.6                                                             2021 2022 2023 SAFETY                            2 New 10/1/04                           LEGENDS                                                     f---+-----1---+-----1---+-----1---l---4---1---4---1-----1---+-----l-120 TECHNICAL 2 Raised6/15/18                                              -            ~J~:d~vi1i1~~!l ~~te l-+---!--+---!--+---l--+---+--+---+--+---!--+----+-100
                                                                            * *,
* Relative ~rice Strength                                l-+---l--+---!--+---!---6....,,,....+-..,.,,,..i-,,,.,..-1--+---l~~'"""=-==+-80 t-B_E_TA.,.,,..7;.r5,r,,(1.-rl00~=7"M"llark~e..,t)ffltn,---t O~~~~~/,:'!a indicates recession                                                                                            ,,,...._                               -            .._ ,,,, * ,.1* o 1111
                                                                                                                                                                                                                                                                                           * ** * * * ** *
* 64
                 ~u~1-iJ t'KUJc"11um:,                                                                                                                                        /                            ., ..  ,.... 111,,      , ,1* 11 *             **--* _                          ****** ----- 48 Price
* Gain An~~tJ~al r:*:""'-:                    .....:..'.' .+.....-*1_p-:,,:J.,*
                                                                                                              ...1*.,.l'._.,~*l'.tl*~j:'.:~;:;:i;11;11C-*;-..:.'' +-':&deg;"-,1*_*'_1,~1*'+-'-'*1_,,_..._11t---+--"-+*--f--+--f--+--t---+--t---+32 High 75 Low                    55 (N"ll
(-25<?.          J~                                     "::.-; ..** *                     '1111 1!                                                                                                                                                                         24 Insider Decisions                                                    1---+--+---+--i"*.-*:::..**-**:.,.,,.,,,,                                                      ***.-'-***:.:.*f-o::::""'"o-.J.a'**,e.*...,...+--1---4---~1--....--...._1---,,.--+---l----+--l----+-20 0
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* to Buy o o o o o o o o
* o                                                                                                                                                                                                                                                                                      12 Options 010008810 tos,n o o o o o o o 1 1                                                                                                                                                                                                                                                       % TOT. RETURN 5/18 ~ 8 Institutional Decisions                                                                           1                  .Ill      .11..                                                                                                                   I                               THIS     VL ARITH.'
3Q2017        4Q2017          1Q2018 Percent                          15 l i l i i '                                                                                                                                                                        STOCK       INDEX    ""
toBuy tos,n 118 1243 3 7 98 117             132 shares 140 traded 10 5
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                                                                     ~-i.....20~0-6~2~0-0.....17 2008 2009 2~~~ 2011~2013 2014 2015 2016 2017 2018 2019 @VALUELINEPUB.LLC 1, 1*23 1-2;;;.Ht~;..;;,~;;.;o;.. ~s;,;.;3....-2""~"'~"";......,;c...~.;.,;;...
5yr.      94.3        67.5
                  ..                .. 25.30 24.50 25.23 27.33 24.57 21.57 25.34 24.75 24.40 24.60 24.n 30.27 27.01 27.78 27.95 28.65 Revenues per sh                                                                                                                                                            31.25
                  ..                .. 2.97 3.85 4.14 4.42 4.23 3.57 4.35 4.91                                                                                                                5.01           5.35    5.68     6.79         7.08      6.59     6.85        7.20 "Cash Flow" per sh                  8.50
                  ..                ..        1.35             2.48             2.77                3.08             2.82                 1.89          2.19                2.65              2.58           2.63    2.90     3.38         3.14      3.13     3.40        3. 60 Earnings per sh A                  4.25
                  ..                ..          .30            1.25             1.45                1.64              1.72                1.76           1.76               1.78              1.84           1.90    1.96     2.02         2.08      2.14     2.24        2.34 Div'd Decl'd per sh a* t            2.70
                  ..                .. 2.12                    1.95             3.37                6.82              9.24                9.05          6.95                6.38 10.30                       7.93 12.48       5.84         5.35      4.08     6.30        6.90 Cap'I Spending per sh .             6.75
                  ..                .. 21.23                20.03 21.90 24.11 25.37 26.41 27.26 28.78 30.48 32.44 35.06 37.07 38.17 40.47 41.75 43.00 Book Value per sh c                                                                                                                                       47.25
                  ..                .. 29.70                30.10 30.40 30.80 32.60 35.20 35.80 37.50 39.40 41.40 45.90 49.10 49.60 51.10 51.50 52.00 Common Shs Outst'g O                                                                                                                                       53.50
                  ..                ..        25.2             17.9             16.5                14.8              13.9                16.1           16.0                14.7             15.9           18.6    17.2     15.1         18.6      23.0 Bold fig res are Avg Ann'I PIE Ratio                     15.0
                  ..                .. 1.33                       .95              .89               .79                 .84              1.07           1.02                  .92            1.01           1.05      .91      .76           .98    1.14     Value Line        Relative P/E Ratio                   .85
                  **                **         .9% 2.8% 3.2% 3.6% 4.4% 5.8% 5.0% 4.6% 4.5% 3.9% 3.9% 4.0%                                                                                                                                 3.6% 3.0%            estln ates       Avg Ann'I Div'd Yield            4.2%
CAPITAL STRUCTURE as of 3/31/18                                                                                801.0 759.1 907.0 928.2 961.2 1018.4 1136.8 1486.4 1339.7 1419.3                                                                          1440 1490 Revenues ($mill)                           1670 Total Debt $1502.7 mill. Due in 5 Yrs $450.5 mill.                                                                82.5                61.0          75.3                93.8              97.1 104.7 124.8 163.4 155.3 159.2                               175         185 Net Profit ($mill)                   225 LT Debt $1396.5 mill. LT Interest $58.5 mill.                                                                34.3% 33.7% 37.2% 27.6% 28.1% 21.5% 22.6% 19.4% 11.3% 14.8%                                                                                 NMF        NMF Income Tax Rate                       NMF (LT interest earned: 3.8x) 5.8% 12.8% 8.9% 2.7% 5.3%                                                               4.4% 6.3% 2.0%                1.4%       .8% 2.0% 2.0% AFUDC %to Net Profit                           1.0%
Leases, Uncapitalized Annual rentals $14.2 mill.                                                             41.6% 42.8% 44.2% 44.3% 43.7% 44.6% 44.2% 46.3% 42.0% 41.0% 41.0% 39.5% Long-Tenn Debt Ratio                                                                                                  40.0%
58.4% 57.2% 55.8% 55.7% 56.3% 55.4% 55.8% 53.7% 58.0% . 59.0% 59.0% 60.5% Common Equity Ratio                                                                                                  60.0%
Pension Assets-12/17 $628.2 mill.                                                                          1415.4 1625.3 1747.6 1937.2 2134.6 2425.9 2882.2 3388.9 3263.4 3507.4                                                                         3645 3700 Total Capital ($mill)                      4225 Oblig $793.2 mill. 1387.3 1622.7 1805.6 1982.7 2347.6 2576.5 3286.4 3669.1 3741.2 3822.4                                                                                              3970 4140 Net Plant ($mill)                          4350 Pfd Stock None 6.7% 4.8% 5.4% 6.0% 5.6% 5.3% 5.2% 5.8%                                                                               5.8% 5.5% 5.5% 6.0% Return on Total Cap'I                               6.0%
Common Stock 51,271,007 shs.                                                                                  10.0% 6.6% 7.7% 8.7% 8.1% 7.8% 7.8% 9.0%                                                                                8.2% 7.7% 8.0% 8.5% Return on Shr. Equity                               9.0%
10.0% 6.6% 7.7% 8.7% 8.1% 7.8% 7.8% 9.0%                                                                                8.2% 7.7% 8.0% 8.5% Return on Com Equity E                              9.0%
MARKET CAP: $3.8 billion (Mid Cap)                                                                              3.9%                  .5% 1.5% 2.9% 2.3%                                                2.2% 2.5% 3.6%                2.8% 2.4% 3.0% 3.0% Retained to Com Eq                                  3.0%
ELECTRIC OPERATING STATISTICS                                                                                    61%                 93%            81%                 66%               71%            72%     67%      60%          66%       68%      65%         65% All Div'ds to Net Prof               64%
2015 2016 ~J~f-,-B~U~Sl~N~E~SS~:~A~L~LE~T~E-,l-nc~.-is-t-he-'-pa-re-n-to-f~M-in-n-es-o~ta_P_o_w-erL,w-h-ic_h_._p_ro-je_c_tsL.A-c_q_'d_UL.S-.-W-a-teLr-S-eN-i-ceLs-2-,1-5.-H-a_s_re_a_le_s_ta-te-o~p-er-at-io-n~
    %Change Retail Sales (KWH)                              -8.9               -2.3 Avg. lndust. Use (MWH)                                     NA               NA                 NA supplies electricity to 146,000 customers in northeastern MN, & Su- in FL Generating sources: coal & lignite, 41%; wind, 12%; other, Avg. Indus!. Revs.JI.er KWH (&#xa2;)                         6.40                NA                 NA perior Water, Light & Power in northwestern WI. Electric rev. break- 6%; purchased, 41%. Fuel costs: 28% of revs. '17 deprec. rate:
Capaci~ al Peak (Mw)
* 1942                  NA                 NA down: !aconite mining/processing, 26%; paper/wood products, 9%; 3.2%. Has 2,000 employees. Chairman, President & CEO: Alan R.
Peak Load, Wnter (Mw)
Annual load Factor(%)
1631 1520 15 NA                NA                  JR          other industrial, 8%; residential, 12%; commercial, 13%; wholesale, Hodnik. Inc.: MN. Address: .30 West Superior St., Duluth, MN
    %ChangeCustomers(avg.)                                    NA                NA                  NA f--1-6%_,_o_th_er_,_16_%_,._A_L_LE_T_E_c_1_ea_n_E_n_er..:.g~y-ow_n_s_r_en_e_w_ab_le_en_e~rg:.:.y_5_5_80_2_-2_0_93_._Te_1._:_21_0_~_79_*_50_0_0._1_nt_er_ne_t:_www                 __.a_ll_et_e._co_m_._ _-1 f~edChargeCov.(%)                                        381               318                339          ALLETE's primary utility subsidiary to acquisitions), and should benefit (by
 '"A_N_N_u""'A~L-M""'T~E-S_P_a-st~-P-a-st-E-st-,d-,-                                           15-.,- 17-1      has appealed its rate order. In the first $0.10 a share) from the lower federal tax ofchange(persh) 10Yrs.                                         svrs.              to'21-'23                  quarter of 2018, Minnesota Power was rate. (ALLETE will probably have a nega-Revenues                                     1.0%                 2.5%                 1.5%                 granted a rate increase of $13 million tive tax rate due to the effects of tax cred-
    "Cash Flow"                                 5.0%                  7.5%                 3.5%                   (retroactive to the start of 2017), bas~d on its for renewable energy.) Our 2018 es-
    ~tTci~RJs Book Value t~~
6.0%
t5~
6.0%
                                                                                           ~:~~
3.5%
a return of 9.25% on a common-equity ra- timate of $3.40 a share is within the com-tio of 53.81 %. The utility was disappointed pany's targeted range of $3.20-$3.50. We Cal-                     QUARTERLY REVENUES($ mill.)                                      Full         with some aspects of the decision (includ- look for profit growth in 2019 in line with endar Mar.31 Jun. 30 Sep. 30 Dec. 31 Year                                                                    ing the allowed ROE), and asked the Min- management's goal of 5%-7% annually.
_            .                _                 _                  .4        nesota                            Public                        Utilities                       Commission The company's utility in Wisconsin 2015 320 0 323 3 462 5 380 6 1486 2016 333.8 314.8 349_6 341. 5 1339.7                                                                        (MPUC) for reconsideration. It is seeking plans to file a rate case later this year.
2017 365.6 353.3 362.5 337.9 1419.3                                                                        changes that, if granted, would provide an Superior Water, Light & Power got a more 2018 358.2 351.8 380
* 350                                                             1440               additional $20 million-$25 million in an- fruitful result in its last application, when 2019                 365            360            400                365              1490              nual revenues. The MPUC's ruling is ex- it was granted an allowed ROE of 10.5%.
Cal-                          EARNINGS PER SHARE A                                         Full          pected in mid-2018. Whatever happens, However, this utility is much smaller than endar Mar.31 Jun. 30 Sep. 30 Dec. 31                                                         Year          the utility is unlikely to earn its allowed Minnesota Power.
2015                       _85          .45           1.23                .83                3.38         ROE this year, despite cost-reduction ALLETE is proposing to build a gas-2016                       .93          .50             .81               .89                3.14         measures it is taking. Even so . . .                                                                                  fired plant. The company's 50% stake in 2017                       .97          .72             .88               .56                3.13        Earnings are likely to advance solidly the project would cost an estimated $350 2018                       .99          .61             .95               .85                3.40        this year and next. Minnesota Power is million. Minnesota Power would purchase 2019                    1.05            .65           1.00                .90                3.60        benefiting from full production at the taco- half of the plant's output. A decision from Cal- QUARTERLY DIVIDENDS PAID e
* t                                                        Full         nite mines in its service area. The utility the MPUC is expected by yearepd.
endar Mar.31 Jun.30 Seo.30 Dec.31                                                            Year          is booking income from a $330 million This untimely stock is priced expen-2014                                                                                                     transmission line it is constructing in or- sively. The dividend yield is below the 2015 2016
::5.525 ::5.525 ::5.525 ::5.525 J:5~                                  2.08 AdeLrLtEoTimEport power from ManitobbadHydro. uhtility meafn. With t he r ece ntTquotatiopn at s main nonuti1ity su si iaries, t e top o our 20 2 1- 2 0 2 3 arget                                                                                            rice 2017                   .535          .535            .535               .535                2.14         ALLETE Clean Energy and U.S. Water Range, total return potential is zero.
2018                    .56           .56                                                                 Services, are growing rapidly (due in part Paul E. Debbas, CFA                                                                                                                 June 15, 2018 (A) Diluted EPS. Exel. nonrec. gain (losses):                                                      to rounding Next earnings report due early                                                        deferred charges. In '17: $11.95/sh. (D) In mill. Company's Financial Strength                                A
 '04, (25&#xa2;); '05, ($1.84); '15, (46&#xa2;); '17, 25&#xa2;;                                                    Aug. (B) Div'ds historically paid in early Mar., (E) Rate base: Orig. cost depr. Rate allowed in Stock's Price Stability                                                                                       95 gain (losses) on disc. ops.: '04, $2.57, '05,                                                      June, Sept. and Dec.
* Div'd reinvest. plan                                                       MN on com. eq. in '18: 9.25%; earned on avg. Price Growth Persistence                                        45 (16&#xa2;); '06, (2&#xa2;), '15 & '16 EPS don't sum due avail. t Shareholder invest. plan avail. (C) Incl. com. eq., '17: 8.0%. Regulatory Climate: Avg.
 &#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wtthout warranties of any kind. -
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscribers own, non-commercial, internal use. No part I of tt may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product:
Earnings Predictability I       I'    .ll.1!:!lll!'lll!Ull:111111 I
85~-.

18-KCPE-480-RTS
 )!~IA[T3 _E_N_E_R~1--.------,:.--...----ll~REC-ENT--.3_9_7&sect;_.1.-IP/E~_1_8__,9_(_rrau...--ing:_1 1
NYSE-LNT                                                   PRICE             , RATIO , Median:s.2tR_ELAT--.1vE_1_Q!l_oiv 15.0 PIE RATIO ,                  YLD~D  l,!0_11      / 0,~_:_'  (~                                   ----1 TIMELINESS                    Lowered4/l3/1B                       High:              23.3                  21.2              15.8          18.8    22.2        23.8      27.1    34.9         35.4       41.D     45.6        43.5                             . Target Price Range SAFETY 2 Raisedg/28/0l                     r----=t'-"~""~'--~N'-o-s-'-17:...:..5::....i...__:_11:..:..4.!..L.._;10.2
                                                                    -           0.90 x Dividends p sh 14.6    17.D       20.9      21.9    25.D          27.1      30.4     36.6        36.8                                    2021 2022 2023 TECHNICAL                 1 Raised 6/1/18                                    divided bi Interest Rate 1--+----+--+-----1---+-----1---+----+--+----+--+-- ---1--+---+-80 BETA .70 (1.00 = Market)                                         2:f~r:1 ~i/:tivi/Hrce Strength                                  t-+----+--+----t--+----t--+--=---+--+----+--+- ---t--+---t-~g t--""""'20""2.. 1-""2"3"'P"'RO"'J""E""C""T'""11Q"'1N.,.....li--1   o~g~~!/!!a               indicates recession                                                   --.                           ~                    ::-.*1;,1 * * :.* - - -                            * * * * * * * * *
* 40 Ann'I Total                                                                                                       /                                              ,111 "*11 1....,,..tr,...,....,--t----+---t----+---r---+--t-30                    * * * * * * ****
Price Gain                     Return 1---+--r---+--1----t-__,---,,-r---+-..--+-,,,                                                                                 ..
1 rm,-,.,1"1+'
High         45 (+15%!                        7%                                                                                                                                                                                                                                                          25 Low          35          (-10%                1%                                 ,1*, -*                                               _.                  1.,,.,,,.,,, '                                                                                                                                 20 11                                                          1 Insider Decisions                                                 11 111 "               '           l!!!Jnr.'::                       111 1111'"''                                                                                                                                                       15 A S O N D J F M A                                        *"""" ~ * ""- *I' f;1 1111 11 to Buy O O O O O O O O O * * * * -                                                           "                  ** '1 1,* **                   *""* * * **** ****""*... -*- "" ,. .. *'* *** *......... ,.........                                                                                         10 Options 000000500 toSoll        O 1 O O o o O 1 0 1 - - - + - - r - - - + - - r - - - + - - - r - - - + - - + - - - + - - + - - - + - - r - - - + - - l %TOT.RETURN5/18 >---7,5 Institutional Decisions                                                                                                                                                                                                                                               rnrs            VLARllH."
3Q2D17 4Q2D17 1Q201B Percent 24                                                                                                                                                                                                         yr. ST~~K                        l~~E:        '.:
lo Buy             194            190            170 shares                             16 -+---:-.tn1~"1n'-,--t,,.+-,                       ,,-;--t--t--,,---l----+---h---:--+.---+,,----,1--,---tt,~--II----I                                       1                                               ~
toSoll             187            165            239 traded                               8 ~,1, 1                                                  "          "                     *" .I                               .. "''                       3yr.           49.2                 29.1 >--
Hld'slDDD) 182717. 166325 168237                                                             .JllllJ.llllllllll ll1111111111UIIIIIIII IIIIIIUII 111011111 1111111111 1111111111111111 l11ll 1111111ll1l 1111                                          5yr.           99.2                 67.5 Alliant Energy, formerly called Interstate En- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 &#xa9;VALUE LINE PUB. LLC , 1-23 ergy Corporation, was formed on April 21, 16.67 15.51 15.40 16.51 13.94 14.77 15.10 14.34 14.58 14.62 15.30 15.55 Revenues per sh                                                                                                                                                                        17.75 1998 through the merger of WPL Holdings,                                                                     2.28              2.10           2.60    2.75        2.95      3.34    3.44         3.45        3.45    3.97        4.25      4.45 "CashFlow"persh                                            5.00 IES Industries, and Interstate Power. WPL                                                                     1.27                .95         1.38    1.38        1.53      1.65    1.74         1.69        1.65    1.99        2.10       2.25 Earnings per sh A                                          2.60 stockholders received one share of Inter-                                                                      .70                .75           .79    .85         .90       .94    1.02         1.10        1.18    1.26         1.34      1.42 Div'd Decl'd per sh e
* t                                  1.66 state Energy stock for each WPL share, IES i--3"'.9"'8+--5_..,.,43.+--,,3"',9'1i--3"'.0"'3+--,,-,,,;-1---;,-a,,-+----,,=-1---,4"'.25r+--,,-,;;;-+-----,,a-.+-.6'"".75.+-~7...,,
5.22      3.32    3.78                     5.26    6.34                     1"'"0+-c=ap""*1"":;=-=pe=nd:;,-:in""g7pe:--::-rc.:sh--+--.5"',3;;;--10 stockholders received 1.14 Interstate Ener- 12.78 12.54 13.05 13.57 14.12 14.79 15.54 16.41 16.96 18.08 19.00 20.25 Book Value per sh c                                                                                                                                                                  22.85 gy shares for each IES share, and Interstate >-2=2~0_9=0--2=21~.3~1+-2=2~1.7=9--2=22~.0~4+-=~,....._,~=-+~~...,2=26~.9=2-+-===-+-~=-+~23=3~,oo-,,-+-2=3=5,o=o~co_m_m-on-s=;h-1s=
221.97 221.89 221.87                        227.67 231.35                                                          01u~ts~t-g-...-+u~2=35~.oo=-'
Power stockholders received 1.11 Interstate 13.4 13.9 12.5 14.5 14.5 15.3 16.6 18.1                                                                                                                          22.3    20.6 Bold fig , ....,. Avg Ann'! PIE Ratio                                            15.0 Energy shares for each Interstate Power                                                                        .81                .93           .80    .91         .92       .86     .87           .91       1.17    1.01         vatue une           Relative P/E Ratio                                     .85 share.                                                                                                      4.1%              5.7%           4.6%    4.3%       4.1%       3.7%   3.5%          3.6%        3.2%    3.1%          estlnates          AvgAnn'!Div'dYield                                  4.3%
CAPITAL STRUCTURE as of 3/31/18                                                                        3681.7 3432.8 3416.1 3665.3 3094.5 3276.8 3350.3                                                   3320.0 3382.2          3560 3650 Revenues ($mill)                                                4175 Total Debt $5248.9 mill. Due in 5 Yrs $1500.0 mill.                                                        280.0 208.6 303.9 304.4 337.8 382.1                                    385.5                    373.B 455.9            490        530 Net Profit ($mill)                                          610 LT Debt $4056.8 mill. LT Interest $180.0 mill.
(LT interest earned: 4.0x) 33.4%                     -- 30.1% 19.0% 21.5% 12.4% 10.1%                                       13.4% 12.5% 12.0% 12.0% Income Tax Rate                                                       12.0%
                                                                                                                    --                --                               --        --       --                  7.0%     7.3%        7.5% 7.5% AFUDC %to Net Profit                                            7.5%
Pension Assets-12/17 $950.7 mill. Oblig. $1303.1 36.3% 44.3% 46.3% 45.7% 48.4% 46.1% 49.7%                                                                                                           Yo   52.8% 49.0% 50.0% 50.0% Long-Term Debt Ratio                                                  50.0%
mill.                                                                                                   58.6% 51.2% 49.5% 50.9% 48.4% 50.8% 47.5%                                                    Yo   47.2% 51.0% 50.0% 50.0% Common Equity Ratio                                                   50.0%
Pfd Stock $400.0 mill. Pfd Div'd $10.2 mill.                                                           4815.6 5423.0 5840.B 5921.2 6476.6 6461.0 7257.2                                                   8177.6 8192.B          8300 8400 Total Capital ($mill)                                          8700 16,000,000 shs.
5353.5 6203.0 6730.6 7037.1 7838.0 7147.3 6442.0                                                   9809.9 10797.9 11125 11645 Net Plant ($mill)                                                   12900 Common Stock 231,481,828 shs.                                                                               7.0%              5.1%           6.6%    6.4%       6.3%       7.0%   6.3%          6.3%        5.6%    5.6%        6.0%       6.5% Return on Total Cap'!                                     7.0%
9.1%              6.9%           9.7%    9.5% 10.1% 11.0% 10.6% 10.2%                           9.7% 10.9% 11.0% 11.0% Return on Shr. Equity                                                11.5%
9.3%              6.8%           9.9%    9.5% 10.3% 11.3% 10.9% 10.2%                           9.7% 10.9% 11.0% 11.0% Return on Com Equity E 11.5%
MARKET CAP: $9.2 billion (Large Cap)                                                                        3.8%                 .9%         3.8%    3.3%       3.9%       4.9%   4.3%          3.6%        2.8%    4.0%        4.0% 4.0% Retained to Com Eq                                              4.0%
ELECTRIC OPERATING STATISTICS                                                                                62%               BB%           64%     67%         64%        57%    59%           65%        72%      63%         64%       63% All Div'ds to Net Prof                                      64%
2015 2016 2 ~~~ i--e'"'us.,.,1-:-:N"="~sccs:-:-A.,,.lli~an_t..,E,...ne-rg~y-C-o-rp-.~.f,....or_m_e...,.rly~n-a_m_e...,.d~ln-te-rs-ta-te~En-e-~~s-o-ur-ce-s~.-20_1_7:-co~al-,4-0-%~;-ga_s_,-17~%-,;-o-th-e-r,-4""'3%.,.,.-=F=-u""'el_c_o~st-s:-4-5&deg;-V.-t
   %Change Retail Sales (KWH)                        -.1               +2.0 Avg. Indus!.. Use (M'Mll                    11735 11987 12102 gy, is a holding company formed through the merger of WPL Hold- of revs. 2017 depreciation rate: 5.5%. Estimated plant age: 15 Avg. Indus!. Revs1er KWti (&#xa2;)                  6.92                 7.04            7.16 ings, IES Industries, and Interstate Power. Supplies electricity, gas, years. Has approximately 3,989 employees. Chairman & Chief Ex-Capacity al Peak (MIIJ,                       5385 5615 ~~~~ and other services in Wisconsin, Iowa, and Minnesota. Elect. revs. ecutive Officer: Patricia L Kampling. Incorporated: Wisconsin. Ad-Peak load, Summer!~)                          5385 5615 Annual Loadfactor(Y,)                            NA                    NA              NA by state: WI, 38%; IA, 61 %; MN, 1%. Elect. rev.: residential, 36%; dress: 4902 .N. Biltmore Lane, Madison, Wisconsin 5371 B. Tele-
   %Change Customers (yr-&#xa3;nd)                       +.3               +1.0               +.4 commercial, 24%; industrial, 30%; wholesale, 8%; other, 2%. Fuel phone: 608-458-3311. Internet: www.alliantenergy.com.
t-----------------------------
We think Alliant Energy's earnings the
                                                                                                                                                                                                                                        -------------1 F~ed Charge Gov.(%)                             315                  295             319                                                                                                                         IUB is expected in around 10 months.
ANNUAL RATES                      Past               Past Est'd '15-'17 will advance steadily in 2018 and                                                                Regulators have approved another of change (per sh)              10 Yrs.             5Yrs.                  to '21-'23                   2019. Each year, the utility is expected to                                                      500 megawatts of wind energy expan-Revenues                               .5%           -1.5%                      3.5%                    benefit from electric and gas rate increases                                                     sion for Alliant. Combined with ongoing "Cash Flow''                        3.5o/,             6.5%                     7.0%                    at Interstate Power and Light (IPL) and                                                          projects in western Iowa, the company ex-Earnings                            5.0%                6.5%                    6.5%
Dividends                           7.5%                6.5%                    6.0%                    Wisconsin Power and Light (WPL). At the                                                          pects to add 1,000 megawatts of wind en-Book Value                          4.0%               4.5%                     5.0%                    start of 2018, electric tariffs were boosted                                                     ergy by 2020, bringing its total renewable Cal-            QUARTERLY REVENUES ($ mill.)                                                          by $130 million (11.6%), while gas rates                                                         energy mix in that state to at least 30%.
Full endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                                  are now in the process of being hiked (see                                                       Progress continues at the West River-2015           897.4 717.2 898.9 740.1 3253.6 below). Our 2018 share-net estimate                                                              side Energy Center. The 730 megawatt 2016           843.8 754.2 925.0 797.0 3320.0                                                          ($2.10) is near the midpoint of manage-                                                          facility is approximately one-third com-2017           853.9 765.3 906.9 856.1 3382.2                                                          ment's targeted guidance range of $2.04-                                                         plete and is on track to be placed into serv-2018           916.3 790                    1050                  803.7 3560                           $2.18. For 2019, we envision earnings of                                                         ice by early 2020. The plant will power 2019           935            815 1025                            875             3650                 $2.25 a share, representing year-on-year                                                         nearly 500,000 homes upon completion.
Cal-                 EARNINGS PER SHARE A                                          Full growth of around 7%.                                                                             The company has some financing endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                                  The company's largest utility subsidi-                                                           needs. Alliant plans to issue $1 billion of 2015               .44            .30            .80                   .15            1.69             ary has filed a rate case. Interstate                                                            long-term notes this year to help fund its 2016               .43            .37            .57                   .28            1.65             Power and Light is asking the Iowa Utili-                                                        construction projects and refinance $595
  .2017                .44            .41            .73                   .41            1.99             ties Board for an annual gas increase of                                                         million of term loans that are coming due 2018               .52            .43            .82                   .33           2.10              $19.8 million (8.0%), based on a return of                                                       this year. The utility also said it would is-2019               .54            .45            .88                   .38           2.25              9.8% on a common-equity ratio of 49.6%.                                                          sue up to $200 million in equity in 2018 .
Cal-          QUARTERLY DIVIDENDS PAID e -t                                        Full An interim hike of approximately $11.3                                                           This neutrally ranked stock has a div-endar Mar.31 Jun.30 Seo.30 Dec.31 Year                                                                  million went into effect last month while                                                        idend yield that is about equal to the 2014            .255            .255           .255                .255              1.02 the IUB debates the proposal. Alliant has                                                        average for a utility. In addition, with 2015            .275            .275           .275                .275              1.10 said that the tariff is needed to cover natu-                                                     the recent price well within our 2021-2023 2016            .295            .295           .295                .295              1.18              ral gas improvements made over' the past                                                         Target Price Range, total return potential 2017            .315            .315           .315                .315              1.26             six years. A formal hearing should take                                                           is subpar.
place in the fall and a final decision from                                                     Daniel Henigson, CPA                                              June 15, 2018 2018            .335            .335 (A) Diluted EPS. Exel. nonrecur. gains (losses): Aug., and Nov.
* Div'd reinvest. plan avail. t Orig. cost. Rates all'd on com. eq. in IA in '17:
'08, 4&#xa2;; '09, (44&#xa2;); '10, (8&#xa2;); '11, (1&#xa2;); '12, (8&#xa2;). Shareholder invest. plan avail. (C) Incl. 10.5%; in WI in '17 Regul. Clim.: WI, Above I  Company's Financial Strength Stock's Price Stability
* 100 A
Next earnings report due early August. (B) deferred chgs. In '17: $69.7 mill., $0.30/sh. (D) Avg.; IA, Avg.                                                                                                                           Price Growth Persistence                                                90 Dividends historically paid in mid-Feb., May, In millions, adjusted for split. (E) Rate base:                                                                                                                                         EamJngs Predictability_ ___ __ __ 85-*
&#xa9; 2018 Value Line, Inc. All nghts reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind.,,
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, inlemal use. No part:
of 1t may be reproduced, resold, stored or transmitted in any printed, electronic or othar form, or used for generating or marketing any printed or electronic publication, service or product.

18-KCPE-480-RTS I-A_M_f_Bg[----,---.------,----,--1'--r-REC-ENT_!7_4~11P/E~1!!(_Tra~iling NYSE-AEE                                                                  PRICE                   ,         RATIO            , Median:_:      19_.a)J.--RELA-Jl 15.0 P/E RATIO       ~VE1~!D_IV'D~1~3____i.;::0/o~_
                                                                                                                                                                                                                      ,              YLD             /( ' .- -
                                                                                                                                                                                                                                                           ~- - - - I TIMELINESS                      2 Raised 3/2/lB                      High:         55.0       54.3         35.3       29.9            34.1       35.3          37.3       48.1       46.8           54.1         64.9            59.8
* Target Price Range Raised6/20/14               -t-~~-~N~D_S_47_._1~-25_._5..........,19.5           23.1            25.5        28.4         30.6       35.2       37.3           41.5         51.4            51.9                                 2021 2022 2023 SAFETY                          2                                  -        0.64 x Dividends p sh TECHNICAL                       2 Raised6/15/18                    .... i~i~ii~eb~r/~!effi~!n,~e t--+----+--+----+--+---+---+----+---+----+---+ ---+---+----80 0o,.=,...M,.,ar1<.,.e"'t).,...n..----;
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                                                                                                                                                           . .~~\F"i~~~,.,.'4rtl'*'4l*'!lj"F''-"----jf-...:.**:.:-+~:-:-::f:-:--+--f--+--l-40 1..,.-/ 11 ,.,.,,, .. *'' 11111 ''' ,,.,                                                         --- **                                                              30 110 High            65 (+15%l                           7%                                            r   I*      .. I         I'"'        'T'                                                                                                                                                            25 11
~L~o~w~_:5~0~J,(-~1~5~%L_!.1~%~l--,---i----t*.,_1i:.:=..:;t-"-:'--t--::;;t-:::-""t--t----t-----i-:-----t-----ii----t-- -i----t-----ii---r20 Insider Decisions                                                l---t---t---+---*+-*.,_                            * .,,**c.."*-*-1=....=-:*_*"t=""-'"-"..:;'":.,p*-.,..-1=---:*--:""'":....:':::**".c.""'-.I..--.":..*.:.*f-a:--+---t---+---t---+-15 IIM ASONDJFMA                                                                                                         ....-                        ...........................                                   ..**
toBuy           ooooooo oo                                                                                                                                                                                                                                                                            10 Options         o o o o 0211151 tos,n Institutional   o o oDecisions    1 o o o 4 o i---+--1+-l1-1,-,11-11-l1+-1ll-l1_111_1l-11+----+--+----+--t----+-- --11----+---t----+----t                                                                                                             %TOT.RETURN5/18THIS           VLARITH: ..-7.5 3Q2017 4Q2017 1Q2018 Percent, 1~-                                                                                                               . . .                                                                                        STOCK               INDEX       _
to Buy                  229            212             234 shares                  10                                                                                                                                      ~                       1 yr.              7.6               14.3      _
toSell                  215            192             243 traded                    5                                                                                                                                       fll"'t---+----l       3yr.             63.4                29.1      _
Hld's(000) 186752 171005 170335                                                                                                                                                                                             1111                  5 yr.           110.1                67.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 19 VALUELINEPUB.LLC;,1-23 24.93 28.20 26.43 33.12 33.30 36.23 36.92 29.87 31.77 31.04 28.14 24.06 24.95 25.13 25.04 25.46 26.45 27.10 Revenues per sh                                                                                                                                                                       29.50 5.28               6.29            5.57            6.10           6.02         6.76       6.44         6.06       6.33            5.87        5.87         5.25       5.77       6.08           6.59          6.80            7.40       7.90 "Cash Flow" per sh                                 9.50 2.66               3.14            2.82            3.13           2.66         2.98       2.88         2.78       2.77            2.47        2.41         2.10       2.40       2.38           2.68          2.77            3.05       3.25 Earnings per sh A                                  4.00 2.54               2.54           2.54             2.54           2.54         2.54       2.54         1.54       1.54            1.56        1.60         1.60       1.61       1.66            1.72         1.78            1.85       1.94 Div'd Decl'd per sh e
* 2.35 5.11               4.19           4.13             4.63           4.99         6.96       9.75         7.51       4.66            4.50        5.49         5.87       7.66       8.12           8.78          9.05            9.80 11.25 Cap'I Spending per sh                                    9.50 24.93 26.73 29.71                                 31.09 31.86 32.41                       32.80 33.08 32.15 32.64 27.27 26.97 27.67 28.63                                                        29.27 29.61                  31.00 32.50 Book Value per sh c                                     37.50 154.10 162.90 195.20 204.70 206.60 208.30 212.30 237.40 240.40 242.60 242.63 242.63 242.63 242.63 242.63 242.63 244.00 245.50 Common Shs Outst'g O 250.00 15.8               13.5            16.3            16.7           19.4         17.4       14.2          9.3           9.7         11.9        13.4         16.5       16.7       17.5            18.3         20.6 Bold fig res are Avg Ann'I PIE Ratio                                          14.5
         .86                 .77            .86             .89           1.05          .92       .85           .62          .62          .75         .85          .93         .88        .88            .96         1.02            Value Une       Relative P/E Ratio                                   .80 6.1%               6.0%           5.5%            4.9%            4.9%        4.9%        6.2%         6.0%       5.8%           5:3%        5.0%         4.6%        4.0%       4.0%           3.5%          3.1%              estln ates     Avg Ann'I Div'd Yield                             4.2%
CAPITAL STRUCTURE as of 3131118                                                             7839.0 7090.0 7638.0 7531.0 6828.0 5838.0 6053.0 6098.0 6076.0 6177.0                                                                 6450       6650 Revenues ($mill)                                    7400 Total Debt $8896 mill. Due in 5 Yrs $3338 mill.                                              615.0 624.0 669.0 602.0 589.0 518.0 593.0 585.0                                                        659.0 683.0                     755        810 Net Profit ($mill)                                 1000 LT Debt $6766 mill.                          LT Interest $348 mill.                         33.7% 34.7% 36.8% 37.3% 36.9% 37.5% 38.9% 38.3% 36.7% 38.2% 22.0% 22.0% Income Tax Rate                                                                                                                22.0%
(LT interest earned: 4.3x)
Leases, Uncapitalized Annual rentals $10 mill.                                                4.6%         5.8%       7.8%            5.6%       6.1%          7.1%       5.7%       5.1%           4.1%          3.5% .4.0%                 4.0% AFUDC %to Net Profit
* 3.0%
Pension Assets-12/17 $4293 mill.                                                            47.8% 49.7% 48.2% 45.3% 49.5% 45.2% 47.2% 49.3% 47.7% 49.2% 49.5% 49.0% Long-Term Debt Ratio                                                                                                           49.0%
Oblig $4827 mill. 50.8% 49.1% 50.9% 53.7% 49.4% 53.7% 51.7% 49.7% 51.3% 49.8% 49.5% 50.0% Common Equity Ratio                                                                                                                       50.0%
Pfd Stock $142 mill.                          Pfd Div'd $6 mill.                          1---,=c+-===-i--.c=+-c~-=-+-~~1--,-,=-+-=-=-+--,=-,~+-c~c-f-~=--1-1.,..,5,:-,22cc5+-1"'5 13712 15991 15185 14738 13384 12190 12975 13968 13840 14420                                                                              9:--a5c=-o-1-aT,..,ot""a1'"'c~ap~it,..;al~($""m~il ~)--+-"'18=10""0,-1 807,595 sh. $3.50 to $5.50 cum. (no par), $100                                               16567 17610 17853 18127 16096 16205 17424 18799 20113 21466 22800 24425 Net Pl ant ($ m1'II)                                                                                                           27900 stated val., redeem. $102.176-$110/sh.; 616,323 sh. 4.00% to 6.625%, $100 par, redeem. $100-                                                  5.7%         5.3%       6.0%            5.6%       6.0%          5.6%       5.8%       5.3%           6.0%          5.9%            6.0% 6.0%        Return         on  Total        Cap'I             6.5%
  $104/sh.                                                                                      8.6%         7.8%       8.5%            7.5%       8.7%          7.7%       8.7%       8.3%            9.1%         9.3% 10.0% 10.0% Return on Shr. Equity                                            10.5%
Common Stock 243,653,807 shs. as of 4130/18                                                   8.7%         7.8%       8.6%            7.5%       8.8%          7.8%       8.7%       8.3%            9.2%         9.4% 10.0% 10.0% Return on Com Equity E 10.5%
MARKET CAP: $14 billion (Large Cap)                                                           1.0%         3.5%       3.8%            2.8%       3.0%          1.9%       2.9%       2.5%            3.3%         3.4%           4.0% 4.0% Retained to Com Eq                                        4.5%
88%          56%        56%             63%        66%           76%        67%        70%             64%          64%             60%        59% All Div'ds to Net Prof                               59%
ELECTRIC OPERATING STATISTICS
  %Change Retail Sales (KWH) 2015 2016 2017
                                                       -1.1             -4.2        _34  _  t-----.......
BUSINESS:  ----~---'---~---'---'---~~-'---~--'---~--'--~-----~----1 Ameren        Corporation       is   a  holding     company      formed           dustrial,    8%;     other,      11 %. Generating    sources:             coal,      71  %;  nuclear, Avg. Indus!. Use (MWH)                                  NA             NA           NA through the merger of Union Electric and CIPSCO. Acq'd CILCORP 19%; hydro & other, 4%; purchased, 6%. Fuel costs: 27% of revs.
Avg. Indus!. Revs.Jer KW!l (&#xa2;)                          NA             NA           NA 1/03; Illinois Power 10/04. Has 1.2 mill. electric and 127,000 gas '17 reported deprec. rates: 3%-4%. Has 8,600 employees. Chair-Capaci~ al Peak (MW)                                    NA             NA           ~~ customers in Missouri; 1.2 mill. electric and 813,000 gas customers man, President & CEO: Warner L. Baxter. Inc.: MO. Address: One Peak Load, Summer !Mw)                                  NA             NA NA in Illinois. Discontinued nonregulated pol'/er-generation operation in Ameren Plaza, 1901 Chouteau Ave., P.O. Box 66149, St. Louis, AnnualloadFactor(Y,)                                    NA             NA
  %Change Customers (yr-en~                               NA             NA           NA '13. Electric rev. breakdown: residential, 46%; commercial, 35%; in- MO 63166-6149. Tel.: 314-621-3222. Internet: www.ameren.com.
F~edChargeCov.(%)                                     343             351         362       We esthnate that Ameren will post a                                                                   will increase the ability of utilities to earn strong earnings increase in 2018. Posi-                                                               a reasonable return on their investments.
ANNUAL RATES Past                                          Past Est'd '15-'17 of change (per sh)                    10 Yrs.              5Yrs.           to '21-'23       tive factors include a full year's effect of                                                          It will also encourage utilities to increase Revenues                                 -3.0%             -3.5%              2.5%          the rate increase the utility received in                                                             their capital spending. As a result, "Cash Flow"                                 .5%              1.5%             6.5%          Missouri last April; spending on Ameren's                                                             Ameren plans to initiate a project (roughly Earnings                                 -1.0%                  .5%           7.5%
Dividends                               -4.0%               2.0%             5.5%          electric transmission system; and winter                                                              $1 billion through 2023) to modernize the Book Value                               -1.0%             -1.0%              4.5%          weather that was much colder than a year                                                              electric grid. This should boost the compa-QUARTERLY REVENUES ($ mill.)                                         earlier. Our estimate is at the midpoint of                                                           ny's long-term earnings growth rate. Man-Cal-                                                                            Full agement will likely provide more informa-endar Mar.31 Jun.30 Sep.30 Dec.31                                                 Year      Ameren's guidance of $2.95-$3.15 a share.
Ameren filed a gas rate application in                                                                tion with its earnings call for the third or 2015 1556 1401                                   1833              1308       6098.0 2016 1434 1427 1859 1356                                                      6076.0      Illinois. The utility is seeking a rate in-                                                           fourth quarter of 2018.
2017 1514 1538 1723 1402                                                      6177.0      crease of $44 million, which incorporates                                                             Ameren is planning to acquire a 400- .
2018 1585 1600 1765 1500                                                      6450        agreements with the staff of the Illinois                                                             megawatt wind farm. This is part of the 2019 1650 1650 1800 1550                                                      6650        commission for a 9.87% return on equity                                                               company's potential $1 billion of wind gen-EARNINGS PER SHARE A                                          and a common-equity ratio of up to 50%.                                                               eration investments by 2020. The Missouri Cal-                                                                            Full endar Mar.31 Jun.30 Sep.30 Dec.31                                                 Year      An order is expected in December, with                                                                commission must approve this proposed 2015                  .45            .40           1.41              .12         2.38 new tariffs taking effect in January.                                                                 acquisition. An associated transmission 2016                  .43            .61           1.52              .13         2.68     We look for another strong earnings                                                                   project is already under construction. This 2017                  .42            .79           1.18              .39         2.77     increase in 2019. Additional transmis-                                                                is expected to cost $250 million and be in 2018                  .62            .63           1.40              .40         3.05     sion spending and rate relief in Illinois                                                             service in December of 2019 .
2019                  .60            .70           1.50              .45         3.25     should help. Our $3.25-a-share estimate                                                               This thnely stock has a dividend yield QUARTERLY DIVIDENDS PAID e
* would produce profit growth of 7%, which                                                              that is slightly below the. utility mean.
Cal-                                                                             Full endar Mar.31 Jun.30 Seo.30 Dec.31                                                 Year      is at the top end of Ameren's annual goal                                                             Although we have raised our sights for the of 5%-7%.                                                                                             3- to 5-year period, with the recent price 2014               .40             .40            .40              .41           1.61 within our 2021-2023 Target Price Range, 2015               .41             .41            .41              .425          1.66 A new regulatory law in Missouri will 2016               .425            .425           .425             .44           1.72     help utilities in the state. Regulatory                                                               total return potential over that time frame 2017               .44             .44            .44              .4575         1.78     lag there has been a problem historically,                                                            is unspectacular.
2018              .4575                                                                   but the new law (effective August 28th)                                                               Paul E. Debbas, CFA                                                     June 15, 2018 (A) Dil. EPS. Exel. nonrec. gain (losses): '05,                                        ing. Next egs. report due early Aug. (B) Div'ds depr. Rate all'd on com. eq. in MO in '17: elec.,                                               Company's Financial Strength                                       A (11&#xa2;); '10, ($2.19); '11, (32&#xa2;); '12, ($6.42); '17, histor. paid in late Mar., June, Sept., & Dec.
* none spec.; in '11: gas, none spec.; in IL in '14:                                                                                Stock's Price Stability                                          95 (63&#xa2;); gain (loss) from disc. ops.: '13, (92&#xa2;);                                        Div'd reinv. plan avail. (C) Incl. intang. In '17:                  elec., 8.7%, in '16: gas, 9.6%; earned on avg.                              Price Growth Persistence                                          40
'15, 21&#xa2;. '16-'17 EPS don't sum due to round- $6.76/sh. (D) In mill. (E) Rate base: Orig. cost com. eq., '17: 9.3%. Reg. Climate: Below Avg.
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wtthout warranties of any kind.'
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part, Earnings Predictability 111-,111~~ ... 1,,....,                  :11Ill'lll!lllllll*rn1 1.-.
80*-* .
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of tt may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product:

IJvUvUUH, rU.J.'U - J 18-KCPE-480-RTS AMERICAN ELEC. PWR. NYSE-AEP l~~f!fl 65 ,29 IP/ERATIO 17,0                                                                                           Median: 18.1) crailing: 14.0 RElATIVE PIE RATIO o93 I IDIV'D YLD         3.9%
                                                                                                                                                                                                                                       ....... =-
TIMELINESS            4 Lowered 514118            High:          51.2     49.1        36.5         37.9           41.7         45.4        51.6      63.2     65.4        71.3        78.1           73.4                         - Target-Price Range Low:           41.7      25.5       24.0         28.2           33.1         37.0        41.8      45.8     52.3        56.8        61.8           63.3                             2021 2022 2023 SAFETY                1 Raised3/17117         -
LEGENDS 0.67 x Dividends p sh                                                                                                                                                                              128 TECHNICAL             3  Raised 5/25118        . . . . ~~i~r~eb~r/gleffi~ln,~e BETA .65 (1.00 = Market)                                                                                                                                                                                                                                    96 80 o~~~~:/i~a indicates recession                                                                                               ,,;-- ,_,_,.,,111 11
          ,:u,n-i3                IIVN;)                                                                                                                                                                                                                      64 Price      Gain Ann'I Total Return                .. ,* .... 11.11
                                                                                                                 -      ./
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                                                                                                                                                     ,,**I'   1111111*11 48
                                                                                                                                    ,1*11 High         80 (+25%l               9%                                                                                                                                                                                                                     40
                                                                               'h *
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                                                *1     .....
32 Low          65          (Nil        4%                                                            I 1
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Insider Decisions
                                                                                            ... *.... ***.. ....**                                                        ...-... .......... ...*                                                             24 A S O N D J FM A to Buy 0 0 0 0 0 0 0 0 0 Options 0 0 0 0 0 0 0 0 0
                                                                                                                                              ***-*. --. .........****                                                                                         16 to Sell 0 0 0 0 0 0 0 0 0                                                                                                                                                                                                                                -12
                                                                                                                                                                                                                               % TOT. RETURN 5/18 Institutional Decisions MIiii l1m1~111~~11~11 ~~!1~111~~11~1111~~~~11~1~~~~11ll~La THIS    VLARITH.'
3Q2017    4Q2017      1Q2018    Percent                                                                     ,I                  I                                                                                   STOCK      INDEX 15-to Buy           388        371        406     shares            10                                                                                                                                                      1 yr.      -1.9       14.3 to Sell          351        342        468     traded             5                                                                                                                                                      3yr.       34.5       29.1 Hld'sfOOOf 382879 352776 357126                                                                                                                                                                                          5yr.       78.8       67.5 2002 2003 2004 2005                            2006 2007 2008 2009 2010 2011                                                                                                                                    2019         "'VALUE LINE PUB. LLC , 1-23 42.96 36.82 35.51 30.76                        31.82 33.41 35.56 28.22 30.01 31.27 30.77 31.48 34.78 33.51                                                             33.31       31.35 32.00 32.85                  Revenues per sh                   34.50 6.99         5.76      5.89        5.96        6.67          6.80     6.84        6.32          6.29          6.83         6.92        7.02     7.57      7.98        8.47         7.95           8.45         8.90 "Cash Flow" per sh                10.25 2.86         2.53      2.61        2.64        2.86          2.86     2.99        2.97          2.60          3.13         2.98        3.18     3.34      3.59        4.23         3.62           3.85         4.10 Earnings per sh A                   5.00 2.40         1.65       1.40       1.42        1.50          1.58     1.64        1.64          1.71          1.85         1.88        1.95     2.03      2.15        2.27         2.39           2.51         2.63  Div'd Decl'd per sh B
* 3.05 5.08         3.44      4.28        6.11        8.89          8.88     9.83        6.19          5.07          5.74         6.45        7.75     8.68      9.37        9.98 11.79 12.50 12.95                        Cap'I Spending per sh             11.25 20.85 19.93 21.32 23.08                        23.73 25.17 26.33 27.49 28.33 30.33 31.37 32.98 34.37 36.44                                                             35.38 37.17 38.60 40.20                         Book Value per sh c              46.50 338.84 395.02 395.86 393.72                    396.67 400.43 406.07 478.05 480.81 483.42 485.67 487.78 489.40 491.05                                                   491.71 492.01 493.50 495.00                      Common Shs Outst'g u 516.00 12.7         10.7       12.4       13.7         12.9         16.3     13.1        10.0          13.4          11.9         13.8        14.5      15.9     15.B        15.2         19.3 a*oldflg res are            Avg Ann'I P/E Ratio                 14.5
         .69         .61        .66        .73          .70          .87      .79          .67           .85           .75         .88         .81       .84       .BO         .BO          .96           Value Line       Relative P/E Ratio                    .80 estln ates 6.6%         6.1%      4.3%        3.9%        4.1%         3.4%      4.2%       5.5%         4.9%           5.0%         4.6%        4.2%      3:8% 3.8%             3.5%        3.4%                               Avg Ann'I Div'd Yield             4.2%
CAPITAL STRUCTIJRE as of 3/31/18                                         14440 13489 14427 15116 14945 15357 17020 16453                                                 16380       15425          15800        16250   Revenues ($mill)                  17750 Total Debt $24121 mill. Due In 5 Yrs $10714 mill.                       1208.0 1365.0 1248.0 1513.0 1443.0 1549.0 1634.0 1763.4                                         2073.6      1783.2            1850         1970  Net Profit ($mill)                 2465 LTDebt$18845mill. LT Interest $777 mill.                                31.3% 29.7% 34.8% 31.7% 33.9% 36.2% 37.8% 35.1%
Incl. $1410.5 mill. securitized bonds. Incl. $294 26.8%       33.7%          19.0%        19.0%   Income Tax Rate                  19.0%
mill. capitalized leases.                                                 9.9% 10.9% 10.4% 10.6% 11.2%                                    7.3%      9.0% 11.0%            8.0%        8.0%          11.0%        10.0%   AFUDC %to Net Profrt               6.0"/o (LT interest earned: 3.8x)                                              59.1% 54.4% 53.1% 50.7% 50.6% 51.1% 49.0% 49.8%                                                  50.0%       51.5%         52.5%         54.5%   Long-Tenn Debt Ratio             50:5%
Leases, Uncapitalized Annual rentals $245.9 mill.                       40.7% 45.4% 46.7% 49.3% 49.4% 48.9% 51.0% 50.2%                                                  50.0%       48.5%         47.5%         45.5%   Common Equity Ratio              49.5%
Pension Assets-12/17 $5174.1 mill.                                      26290 28958 29184 29747 30823 32913 33001 35633                                                  34775       37707          40275        43750   Total Capital ($mill)            48700 Oblig $5215.8 mill. 32987 34344 Pfd Stock None                                                                                  35674 36971 38763 40997 44117 46133                                      45639       50262          54150        58175    Net Plant ($mill)                67600 6.2%        6.2%         5.7%          6.6%          6.1%       6.0%      6.3%      6.1%        7.2%        5.9%            5.5%         5.5%  Return on Total Cap'I              6.0%
Common Stock 492,523,470 shs.                                           11.2% 10.3%                9.1% 10.3%                  9.5%       9.6%      9.7%      9.9%       11.9%        9.8%          10.0%        10.0%   Return on Shr. Equity            10.5%
as of 4/26/1 B                                                          11.3% 10.4%                9.1% 10.3%                  9.5%       9.6%      9.7%      9.9%       11.9%        9.8%          10.0%        10.0%   Return on Com Equity        E    10.5%
MARKET CAP: $32 billion (Large Cap)                                       5.1%        4.6%         3.1%          4.2%          3.5%       3.7%      3.8%      3.9%        5.5%        3.2%            3.5%        3.5%   Retained to Com Eq                 4.0"/o ELECTRIC OP.ERATING STATISTICS                                             55%        56%           66%           60%          63%         62%       61%      60%          54%          67%            67%          66% All Div'ds to Net Prof               63%
2015 2016 2017 BUSINESS:
  %Cha~e Retail Sales (Kl'Af)           -1.2          +.3         -1.6                       American           Electric     Power        Company,     Inc.  (AEP),      Pipeline '05; commercial barge operation in '15. Generating Avg. In ust. Use (MWH~                  NA          NA            NA through 1Ooperating utilities, serves 5.4 mill. customers in Arkan-                               sources not available. Fuel costs: 34% of revenues. '17 reported Avg.lndust.Revsi         (&#xa2;)            NA          NA            NA sas, Kentucky, Indiana, Louisiana, Michigan, Ohio, Oklahoma, Ten-                                 depreciation rates (utility): 1.6%-9.2%. Has 17,700 employees.
CapacifyatPeak )                        NA          NA           NA nessee, Texas, Virginia, & West Virginia. Electric revenue break-                                  Chairman, President & CEO: Nicholas K. Akins. Incorporated: New Peakloadt)                              NA          NA           NA Annual Loa Factor(%&                    NA          NA           NA down: residential, 40%; commercial, 23%; _industrial, 19%; whole-                                  York. Address: 1 Riverside Plaza, Columbus, Ohio_ 43215-2373.
  %Change Cu~omers r-en~                 +.3          NA           NA sale, 15%; other, 3%. Sold SEEBOARD (British utility) '02; Houston                                 Telephone: 614-716-1000. Internet: www.aep.com.
F~ed Charge Cov. (%)                  356         374           354     We estimate that American Electric                                                             well. The 2,000-megawatt facility would ANNUAL RATES Past                         Past Est'd '15-'17 Power's earnings will increase nicely                                                          cost $4.5 billion and is targeted for comple-of change (per sh)        10Yrs.          5Yrs.         to '21-'23      in 2018 and 2019. As usual, AEP is bene-                                                       tion in the fourth quarter of 2020. This Revenues                          --       1.5%             1.0%        fiting from rate relief. So far this year, the                                                 project is not reflected in AEP's capital "Cash Flow''                  2.5%         4.0%            4.0%         company's utilities in Michigan, Kentucky,                                                     budget, or in our figures.
Earnings                      3.0%         5.5%             4.5%
Dividends                     4.0%         4.5%             5.0%        Oklahoma, and Texas have been granted                                                          Rate cases are pending in Indiana and Book Value                    4.0%         4.0%             4.0%        tariff increases. Other rate cases are pend-                                                   West Virginia. Indiana & Michigan Cal-           QUARTERLY REVENUES ($ mill.)                           ing (see below). AEP's extensive electric                                                      Power reached a settlement (subject to Full endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                  transmission system obtains revenues an-                                                       regulatory approval) for a rate hike of $97 2015 4580               3827 4431               3615 16453 nually for $3 billion in capital spending.                                                     million, based on a 9.95% return on equity.
2016 4045               3893 4652 3790 16380                           Moreover, the utilities are experiencing                                                       New tariffs are expected to take effect at 2017 3933               3577 4105 3810 15425                           some load growth, thanks to the improving                                                      the start of July. Appalachian Power is as-2018 4048               3652 4200 3900 15800                           economies in their service territories. Our                                                    king the West Virginia commission for an 2019 4150               3750 4350 4000 16250                           2018 and 2019 share-earnings estimates                                                         increase of $115 million, based on a Cal-               EARNINGS PER SHARE A                       Full are at the midpoint of the company's tar-                                                      10.22% ROE. New rates should take effect endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                  geted ranges of $3.75-$3.95 and $4.00-                                                         by March. Another petition might well oc-2015           1.27        .88      1.04           .41          3.59   $4.20, respectively. Management's goal for                                                     cur in Oklahoma, where Public Service of 2016           1.02      1.03       1.43           .76          4.23   yearly profit growth is 5%-7%, and our es-                                                     Oklahoma was disappointed with the rul-2017            .94        .76      1.11           .81         3.62    timates, if attained, would produce in-                                                        ing it received earlier this year. Cost-2018            .92        .85      1.23           .85          3.85   creases within this range.                                                                     control measures have become even more 2019           1.00        .90      1.30           .90          4.10   AEP is proposing a huge wind project                                                           important here in view of this.
Cal-          QUARTERLY DIVIDENDS PAID 8 *                  ,Full     that would serve four states. Although                                                         This high-quality stock is untim.ely, endar Mar.31 Jun.30 Seo.30 Dec.31 Year                                  there has been some opposition, the                                                            but offers an attractive dividend 2014          .50       .50        .50          .53            2.03 project has been approved in Arkansas,                                                         yield. This is about a half percentage 2015          .53       .53        .53          .56            2.15    and the utilities in Louisiana and Oklaho-                                                     point above the utility mean. Total return 2016          .56       .56        .56          .59            2.27    ma have reached regulatory settlements                                                         potential to 2021-2023 is somewhat above 2017          .59       .59        .59          .62            2.39    that await commission approval. The                                                            average for this industry.
2018          .62       .62                                            Texas regulators must have their say, as                                                       Paul E. Debbas, CFA                                             June 15, 2018 (A) Dil. EPS. Exel. nonrec. gains (losses): '03, (32&#xa2;); '04, 15&#xa2;; '05, 7&#xa2;; '06, 2&#xa2;; '08, 3&#xa2;; '15,
* Div'd reinv. plan avail. (C) Incl. intang. In '17:                                                       Companls Financ_i~I Strength                     A+
($1.92); '04, 24&#xa2;; '05, (62&#xa2;); '06, (20&#xa2;); '07, 58&#xa2;; '16, (1&#xa2;). '15!16 EPS don't sum due to $12.59/sh. (D) In mill. (E) Rate base: vanous.                                                                  Stock's rice Stability                           100 (20&#xa2;); '08, 40&#xa2;; '10, (7&#xa2;); '11, 89&#xa2;; '12, (38&#xa2;); rounding. Next egs. report due fate July. Rates all'd on com. eq.: 9.3%-10.9%; earn. on                                                                    Price Growth Persistence                          50
'13, (14&#xa2;); '16, ($2.99); '17, 26&#xa2;; disc. ops.: '03, (BJ Div'ds paid early Mar., June, Sept., & Dec. avg. com. eq., '17: 10.0%. Regul. Climate: Avg.                                                         Earnings Predictability                           85 * .
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wtthout wananties of ani kind.,                                           -                                                           *,
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, intemal_use. o part*,                                                 I     I      I '     *
* 11                       I*
of tt may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generatin or marketing an y printed or electronic publication, service or product:
* L.JvHvUUH, r-1..l.l'-.1 -            J 18-KCPE-480-RTS   --
76 ,23 IP/ERATIO 17, gerailing:18.2)                         RELATIVE 101 DIV'D CON. EDISON NYSE-ED                            High:        52.9        49.3       46.3 IRECENT PRICE 51.0      62.7          66.0       64.0 Median:
68.9 15.0 P/E RATIO 72.3       81.9 I
89.7 YLD 3.8%111 84.9                       Target Price Range TIMELINESS           3 Raised 312/18            Low:         43.1        34.1       32.6          41.5     48.6          53.6        54.2       52.2         56.9       63.5           72.1           73.7                        2021 2022 2023 SAFETY               1 New 7/27/90              LEGENDS                                                                                                                                                                                                 120 100 TECHNICAL            4. Raised 5/18118
           .50 (1.00 = Market)
                                               -       ~i~i~:d ~vi1~,~~!sr ~~le
                                               ...
* Relative ~rice Strength 0                                                                                                                ,
1111
* 1 111    ---- *****
                                                                                                                                                                                                     ....                         ---- .                 80 BETA
                                                 ~t~~:/:,~a     indicates recession                      _...(,'j'il*  ....
V'
                                                                                                                               "(11**1,11,11, 111111111"
                                                                                                                                                                                                                                              ***II*     64
        .tU~l-23 l't(UJt:\, IIUNl:l
                                                                 ....                                                                                                                                                                                    48
                                                                   --~*
Ann'I Total 1,1*''                                       1 1 *11
                                                  ......                         It*p1*1**
Price Gain             Return 32 High Low 85 (+10%l 70 *(-10%
7%
2%                                                *-* *....***** ...                                                                    .... ...........
                                                                                                                                                                                   ~
24 20 Insider Decisions J A SO ND J F M                                                                                                                              -**                                                                                            16 to Buy 11 8 811 8 811 8 8                                                                                                                                                                                                                                12 Options 0 0 0 2 2 0 812 0 to Soll 0 1 0 0 0 0 0 0 1                                                                                                                                                                                                % TOT. RETURN 4/18 -8 Institutional Decisions                                                                                                                                                                                                          THIS      VLAR!TH."
2Q2017    3Q2017      4Q2017 Percent            21            ,I                                 I                                                                                                       1 yr.
STOCK 4.6 INDEX 9.5 I-
:~:~ri          330 323 335 322 298 shares 284 traded 14                                       1,,,,11, ,..
II II.                  3yr. 45.4          25.8 rr Hld'slDOO) 196270 197384 178532 2002 2003 2004 2005 2006 2007 7
11~~~[1111~~~~1111~~~~1            1111111111 11111111111 2011 2012                           2014 2015 2016 2017 2018 2019 II   IIIIIIIIU Ill                       5yr. 53.1          68.8
                                                                                                                                                                                                                          &#xa9; VALUE LINE PUB. LLC , 1-23 39.65 43.51 40.24 47.66 47.14 48.23 49.62 46.36 45.69 44.17 41.62 42.27 44.11 42.85                                                                                  39.59 38.82 38.80 39.80                        Revenues per sh                  43.25 5.44        5.12      4.54        5.27       5.28         5.77       5.99       5.86          6.24      6.61          7.15       7.45        7.30         7.93       7.89           8.41           8.75      9.15 "Cash Flow" per sh               10.50 3.13        2.83      2.32        2.99       2.95         3.48       3.36       3.14          3.47      3.57          3.86       3.93        3.62         4.05       3.94          4.10            4.25      4.40 Earnings per sh A                  4.75 2.22        2.24      2.26        2.28       2.30        2.32        2.34      2.36           2.38      2.40          2.42       2.46       2.52          2.60       2.68           2.76           2.86      2.96 Div'd Decl'd per sh e
* 3.30 5.68        5.72      5.60        6.59       7.17        7.09        8.50       7.80          6.96      6.72          7.06       8.67        8.26 10.42             12.07 11.11                   12.50 11.15     Cap'I Spending per sh            11.25 27.68 28.44 29.09 29.80 31.09 32.58 35.43 36.46 37.93 39.05 40.53 41.81 42.94 44.55                                                                                  46.88 49.74 51.70 53.25                        Book Value per sh c              58.00 213.93 225.84 242.51 245.29 257.46 272.02 273.72 281.12 291.62 292.89 292.87 292.87 292.88 293.00                                                                     305.00 310.00 317.00 318.00                     Common Shs Outst'g 0           321.00 13.3        14.3       18.2       15.1       15.5         13.8       12.3       12.5          13.3      15.1          15.4       14.7        15.9         15.6        18.8          19.8 Bold fig res are         Avg Ann'I P/E Ratio                16.5
                                                                                       .83                    '.95            .98        .83        .84           .79        .99            .99           Value Lin*    Relative P/E Ratio                   .90
        .73         .82        .96       .80         .84          .73       .74                      .85 ostfn ~OS 5:3%        5.5%      5.3%        5.0%       5.0%        4.8%        5.7%      6.0%          5.2%      4.5%          4.1%        4.3%       4.4%         4.1%        3.6%           3.4%                           Avg Ann'I Div'd Yield            4.2%
CAPITAL STRUCTURE as of 3/31/18                                       13583 13032 13325 12938 12188 12381 12919 12554                                                  12075 12033                  12300 12650 Revenues ($mill)                      13850 Total Debt $17410 mill. Due in 5 Yrs $4935 mill.                       933.0 868.0 992.0 1062.0 1141.0 1157.0 1066.0 1193.0                                           1189.0 1266.0                    1340 1405 Net Profit ($mill)                     1550 LT Debt $14730 mill. LT Interest $670 mill.                           36.0% 34.2% 36.0% 36.1% 34.5% 31.8% 34.0% 33.6%                                                  35.3% 36.6%                  21.5% 21.5% Income Tax Rate                       21.5%
(LT interest earned: 3.6x)                                                                                                                                                             1.5%           2.0% 1.0% AFUDC %to Net Profit                    1.0%
1.7%       2.6%          2.4%      1.6%           .5%         .5%        .3%          .7%        1.3%
Leases, Uncapitalized Annual rentals $63 mill.                        48.3% 48.5% 48.6% 46.5% 45.9% 46.1% 48.0% 47.9%                                                  50.8% 48.9%                  49.0% 48.5% Long-Term Debt Ratio                  48.5%
50.6% 50.4% 50.4% 52.5% 54.1% 53.9% 52.0%* 52.1%                                                 49.2% 51.1%                  51.0% 51.5% Common Equity Ratio                   51.5%
Pension Assets-12/17 $14274 mill.                                      19160 20330 21952 21794 21933 22735 24207 25058                                                 29033 30149                   32150 32900 Total Capital ($mill)                36200 Oblig $15536 mill. 20874 22464 23863 25093 26939 28436 29827 32209                                                           35216 37600                  40150 42075 Net Plant ($mill)                     47800 Pfd Stock None                                                                                                                                              6.0%         5.3%          5.4%            5.5% 5.5% Return on Total Cap'I                  5.5%
6.2%       5.7%          5.9%      6.2%          6.5%       6.4%       5.6%
Common Stock 310,730,465 shs.                                           9.4%       8.3%          8.8%      9.1%          9.6%       9.4%       8.5%          9.1%        8.3%          8.2%            8.0% 8.5% Return on Shr. Equity                  8.5%
as of 4/30/18                                                           9.5%       8.4%          8.9%      9.2%          9.6%       9.4%        8.5%         9.1%        8.3%          8.2%            8.0% 8.5% Return on Com Equity E                 8.5%
MARKET CAP: $24 billion (Large Cap)                                     3.1%       2.5%          3.2%      3.1%          3.6%       3.6%       2.6%          3.5%        3.0%          3.0%            2.5% 2.5% Retained to Com Eq                     2.5%
ELECTRIC OPERATING STATISTICS                                            67%        71%           65%       66%           62%        62%        69%           61%         64%           63%             67%       67% All Div'ds to Net Prof             68%
2015 2016 2017 BUSINESS: Consolidated Edison, Inc. is a holding company for                                                       opportunities through three wholly owned subsidiaries. ~ntered into
  %Cha}e Retail Sales (KWH)           +1.9          -.4       -2.8 Avg. In u~. Use (MWH~                 NA         NA           NA Consolidated Edison Company of New York, Inc. (CECONY), which                                       midstream gas joint venture 6/16. Purchases most of its power.
Avg.lndu~.Revsi         (&#xa2;)           NA         NA           NA sells electricity, gas, and steam in most of New York City and                                       Fuel costs: 22% of revenues. '17 reported depreciation rates: 2.9%-
CapacityalPeak ~                   NMF           NA           NA Westchester County. Also owns Orange and Rockland Utilities                                         3.1 %. Has 15,000 employees. Chairman, President & CEO: John Peakload,Summerl )                13721          NA           NA                                                                                                      McAvoy. Inc.: New York. Address: 4 Irving Place, New York, New Annual load Factor(%/              NMF NMF NMF (O&R), which operates in New York and New Jersey. Has 3.7 mil-
  %Change Customers yr-l!n~             NA         NA           NA lion electric, 1.2 million gas customers. Pursues competitive energy                                 York 10003. Tel.: 212-460-4600. Internet: www.conedison.com.
F~ed Cha1ge Cov. (%)                 370        352          354      We            estimate                     that              Consolidated                      A natural gas pipeline project is un-Edison's earnings will rise 3%-4% this                                                          der way, and another is being pro-ANNUAL RATES Past                       Past Est'd '15-'17                                                                                                            posed. ConEd's 12.5% stake in the pipe-of change (per sh)       10Yrs.         5Yrs.        to '21-'23       year and next. ConEd's largest subsidi-Revenues                     -1.5%       -1.5%          1.0%          ary, Consolidated Edison Company of New                                                         line represents an investment of $400 mil-
  "Cash Flow''                  4.0%        4.0%         4.5%           York, is benefiting from rate relief. At the                                                    lion for the company. This is scheduled for Earnings                      2.5%        2.0%          3.0%                                                                                                          completion by yearend. ConEd also has a Dividends                     1.5%        2.0%          3.5%          start of 2018, electric and gas tariffs were Book Value                    4.0%        3.5%          3.5%          boosted by $155.3 million (2.0%) and $92.3                                                      6.375% stake in a much-shorter pipeline million (5.6%), respectively. Increases of                                                      proposal.
Cal-          QUARTERLY REVENUES ($ mill.)                 Full endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                $155.2 million (1.9%) for electricity and                                                       The company has some financing
                                                                        $89.4 million (5.1 %) for gas will take effect                                                  needs. The utilities plan to issue $1.3 2015 3616 2788 3443 2707 12554                                                                                                                                       billion-$1.8 billion of long-term debt this 2016 3157 2794 3417 2707 12075                                       at the beginning of 2019. Orange and 2017 3228 2633 3211                           2961 12033             Rockland Utilities might also obtain a rate                                                     year. ConEd will issue up to $450 million 2018 3364 2750 3436 2750 12300                                       increase next year (see below). Customer                                                        of common equity, over and above what 2019 3450 2850 3500 2850 12650                                       growth is another plus. And oil-heating                                                         will be raised through the dividend rein-EARNINGS PER SHARE A                              users continue to convert to the use of gas                                                     vestment and other stock plans (perhaps Cal-                                                       Full                                                                                                     $80 million).
endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                heat. Our 2018 earnings estimate, which we raised by a nickel a share, is at the                                                       *conEd's renewable-energy subsidiary 2015         1.26         .74      1.45         .60         4.05 2016         1.05         .77       1.47        .64         3.94     midpoint of the company's targeted range                                                        continues to add projects. A 25-2017         1.27         .57       1.48        .78         4.10      of $4.15-$4.35 a share. We lifted our 2019                                                     megawatt wind facility went into effect in 2018         1.37         .63       1.60        .65         4.25     estimate by $0.10 a share, to $4.40.                                                            the first quarter. The company has 1,561 2019          1.40        .65       1.65        .70         4.40     Orange and Rockland has a rate case                                                             mw of wind and solar projects in service or QUARTERLY DIVIDENDS PAID e
* pending. The utility is asking the New                                                          under construction.
Cal-                                                       Full endar Mar.31 Jun.30 Seo.30 Dec.31 Year                                York State Public Service Commission for                                                        High-quality ConEd stock has a divi-electric and gas increases of $22.5 million                                                     dend yield that is a bit above average 2014            .63        .63       .63        .63         2.52                                                                                                     for a utility. However, with the recent 2015            .65        .65       .65        .65         2.60 and $2.7 million, respectively, based on a 2016            .67        .67       .67        .67         2.68      return of ,9.75% on a common-equity ratio                                                      price well within our 2021-2023 Target 2017            .69        .69       .69        .69         2.76      of 48%. New rates should take effect at the                                                    Price Range, total return potential is low.
* 2018            .715                                                 start of 2019.                                                                                  Paul E. Debbas, CFA                                             May 18, 2018 (A) Diluted EPS. Exel. nonrec. gains (losses): Next earnings report due early Aug. (B) Div'ds base: net orig. cost. Rate allowed on com. eq. Company's Financial Strength                                                                                  A+
'02, \11&#xa2;); '03, (45&#xa2;); '13, (32&#xa2;); '14, 9&#xa2;; '16, historically paid in mid-Mar., June, Sept., and for CECONY in '17: 9.0%; O&R in '15: 9.0%; Stock's Price Stability                                                                                        95 15&#xa2;; 17, 84&#xa2;; gain on discontinued operations: Dec.
* Div'd reinvestment plan avail. (C) Incl. earned on avg. com. eq., '17: 8.6%. Regulatory Price Growth Persistence                                                                                     40
'08, $1.01. '16 EPS don't sum due to rounding. intang. In '17: $16.04/sh. (D) In mill. (E) Rate Climate: Below Average.                                                                                     Earnings Predictability                         95**
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wfthout warranties of an~ kind. -
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for                               subscriber's own,   non-commercial,    internal   use.       o part,     I     I    I'     ,       :1111!'111*1                ;
of I may be reproduced, resold, stored or transmftted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

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                                                              -          0.54 x Dividends p sh                                                 1-fnr-                                                                                                                                   1
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1 40 Insider Decisions                                                            "*.> ....---             ...._. * ....               ... *-****...
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                   . 2Q2017 3Q2017 4Ql017 Percent 15 528 509 Hld's{000) 435858 442941 402762 531 494           531      shares 467 traded                  101111111 5
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68.8 l-:2=0,:,02,..,...,2=0=0=3.,..2=0=0'""4..,..,.,20=0=5-+=20=0=s,...,..,,2=00=7 2008 2009 2010 2011 2012 2013 2014 2015 2016 2i!!o~11~2~0~1=a+-2=0~1~9..j....,&#xa9;;,.,V=AL~U=EL~IN=E=Pu=s.~LL-c-,J...1.-23.........I 25.32         30.24          31.15      29.18    32.22         32.63        27.88           34.84       33.84      34.10        32.49       33.66        33.45      34.20 Revenues per sh                            36.50 7.86           8.11         7.34       7.58       8.49         8.68         6.80            8.56        9.11       9.40        9.20       10.01        11.15      11.70 "Cash Flow" per sh                         13.25 2.76           3.60         3.03       3.39       4.02         4.14          3.71           3.98        4.13       4.10        3.71        4.22         4.80       5.00 Earnings per sh A                             5.50
                                                                                 '             m m ~ m ~ ~ u ~ ~ ~ ~ ~ Div'd Decl'd per sh e
* 4.40 8.07           7.43 10.35              9.85 10.84              9.80          7.81           7.83        7.62       9.83 11.29 11.50 15.05 15.00 Cap'l Spending per sh                                               11.75 62.30 50.40 49.51 49.85 50.84 51.14 58.04 58.54 57.81 57.74 58.62 59.63 61.05 62.35 Book Value per sh c                                                                                                              66.00
                                                       *. 418.96 420.62 423.96 436.29 442.96 445.29 704.00 706.00 707.00 688.00 700.00 700.00 727.00 731.50 Common Shs Outst'g u 745.00 16.1         17.3       13.3       12.7         13.8          17.5           17.4        17.9       18.2        21.3         19.9 Botdfig res are Avg Ann'I PIE Ratio                                 18.0
                                                                                    .85        1.04         ;89       .81          .87          1.11             .98        .94         .92       1.12          .99         ValueLJne         Relative PIE Ratio                         1.00 estlnlates 4.4% 5.2% 6.2% 5.7% 5.2% 4.7% 4.4% 4.3% 4.3%                                                                     4.3% 4.2%                                    Avg Ann'I Div'd Yield                    4.5%
CAPITAL STRUCTURE as of 12/31117                                                          13207 12731 . 14272 14529 19624 24598 23925 23459 22743 23565 24300 25000 Revenues ($mill)                                                                                              27200 Total Debt $54442 mill. Due in 5 Yrs $19439 mill. 1279.0 1461.0 1765.0 1839.0 2136.0 2813.0 2934.0 2854.0 2560.0 2963.0                                                                                                 3435 3640 Net Profit ($mill)                                 4100 LT Debt $49035 mill. LT Interest $1790 mill.                                              32.5% 34.4% 32.6% 31.3% 30.2% 32.6% 30.6% 32.2% 31.0% 30.4% 15.5% 15.5% Income Tax Rate                                                                                                 15.5%
Incl. $1000 mill. capitalized leases.
(LT interest earned: 3.1 x)                                                               16.0% 17.5% 22.7% 23.2% 22.3% 8.8% 7.2% 9.2% 11.7% 12.3% 11.0% 11.0% AFUDC %to Net Profit                                                                                               10.0%
38.7% 42.6% 44.3% 45.1% 47.0% 48.0% 47.7% 48.6% 52.6% 54.0% 54.0% 55.0% Long-Tenn Debt Ratio                                                                                            56.5%
Leases, Uncapitalized Annual rentals $218 mill.                                           61.3% 57.4% 55.7% 54.9% 52.9% 52.0% 52.3% 51.4% 47.4% 46.0% 46.0% 45.0% Common Equity Ratio                                                                                             43.5%
Pension Assets-12/17 $9003 mill.                                                          34238 37863 40457 41451 77307 79482 78088 77222 86609 90774 97000 101475 Total Capital ($mill)                                                                                         112500 Oblig $8448 mill. 34036 37950 40344 42661 68558 69490 70046 75709 82520 86391 92675 98725 Net Plant ($mill)                                                                                                               108700 Pfd Stock None 4.8% 4.9% 5.5% 5.6% 3.6% 4.6% 4.8% 4.8%                                                            4.0% 4.3% 4.5% 4.5% Return on Total Cap'I                                             5.0%
Common Stock 700,092,667 shs.                                                              6.1% 6.7% 7.8% 8.1% 5.2% 6.8%                                               7.2% 7.2%              6.2% 7.1%                7.5% 8.0% Return on Shr. Equity                              8.5%
as of 1/31118                                                                              6.1% 6.7% 7.8% 8.1% 5.2% 6.8%                                               7.2% 7.2%              6.2% 7.1%                7.5% 8.0% Return on Com Equity E 8.5%
MARKET CAP: $55 billion (Large Cap)                                                          .6% 1.1% 2.1% 2.2%                              .9%           1.5%        1.7% 1.5%                .6% 1.2% 2.0% 2.0% Retained to Com Eq                                               1.5%
ELECTRIC OPERATING STATISTICS                                                               89%        84%       73%           72%          82%             78%        76%         79%         91%         83%          76%        76% All Div'ds to Net Prof                        80%
  %Change Relail Sales (Kl',ll) 2015 2016
                                                     +.6            -.3
                                                                             ~ii          1-B-U-SI-N~ES_S_:_D_uk~e-E-n-er-gy.....
Co-r-po-ra~ti-on-is-a~h-01-di-ng-c~o-m-pa_n_y~fu-r-ut-il-......_r_e_sid-e-nt~ia-1,-4-1-%~;-ro_m_m_e~rc-ia-l,-2-9~%-;-in-d-us-tr-ia-l,-1-4'-Yo;-o-t-he~r.-1-6-%-.~
Avg. lnlfusl. Use (MWH)                         2883 2908 2914 ities with 7.4 mill. elec. customers in NC, FL, IN, SC, Oh, & KY, and Generating sources: roal, 27%; nuclear, 27%; gas, 23%; other, 1%;
Avg. lndusl. Revs._p.er )(\'Ill (&#xa2;)                NA            NA            NA 1.5 mill. gas customers in OH, KY, NC, SC. and TN. Owns inde- purchased, 22%. Fuel rosts: 30% of revs. '17 reported deprec. rate:
Capacity at Peak (Mill                             NA            NA            NA pendent power plants & has 25% stake in National Methanol in 2.8%. Has 29,100 employees. Chairman, President & CEO: Lynn J.
Peak load, Summer (Mw)                             NA            NA Annual load Factor(%)                              NA            NA            ~~ Saudi Arabia. Acq'd Progress Energy 7/12; Piedmont Natural Gas Good. Inc.: DE. Address: 550 South Tryon St., Charlotte, NC
  %Change Cuslomers (avg.)                        +1.2 +1.4 +1.3 10116; discontinued most int'I ops. in '16. Elec. rev. breakdown: 28202-1803. Tel.: 704-382-3853. Internet: www.duke-,,nergy.com.
t-:---,--=-----,------------------------------......C;....---1 F~edChargeCov.(%)                                 317           264           272 Duke Energy has received rate in- on June 1st.
..A_N_N_U_A~L-RA~TE~S--Pa_s_t--P-as_t_E-st-,d-,- -_,-'"' creases in two states. The settlement for                                                                                             Earnings are likely to advance signifi-15 17 ofchange(persh)                   10Yrs.             svrs.
* to'21-'23                     its Progress Energy unit was approved by                                                          cantly in 2018 and 1nore 1nodestly in Revenues                                2.0%          1.5%              1.5%              the North Carolina regulators. Rates were                                                         2019. The third-quarter comparison "Cash Flow"                             2.0%          3.5%               5.5%              raised by $193 million, based on a return                                                         should be easy, as profits in that period of Bfvrci~R~s                            1  ~:5~         2 :~~              ~:g~              of 9.9% on a common-equity ratio of 52%.                                                          2011 were hurt by mnd weather patterns Book Value                                  .5%       2.0%               2.0%              However, certain costs were disallowed,                                                           and some unusual (but not nonrecurring) 1-C-al----r--Q-U-AR_TE_R-~-Y-REV-EN-U-ES-($_m_i_ll.)~,--F-ul-il                              including some associated with coal ash                                                           costs. Our 2018 estimate of $4.80 a share endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                     basin remediation. (Ongoing coal ash costs                                                        is near the upper end of Duke's guidance r-=,20""'15=-t-:6""06:-:5,---::55::-::8""9-6="'4"'    83c---::53.,,.,2,,. 23,.,4.,,,
2-+-=-      59,-t     will be deferred, to be considered for re-                                                        of $4.55-$4.85 a share. Besides the easy 2016 5377                      5213 6576 5577 22743                                      covery in the utility's next rate case.) This                                                     comparison, rate relief should benefit the 2017 5729                      5555 6482 5799 23565                                      forced Duke to take a pretax charge of                                                            bottom line this year and next. We figure 2018 6135                      5650 6665 5850 24300                                      $100 million (included in our earnings                                                            profits will advance 4%, to $5.00 a share, 2019 6300                      5750 6950 6000 25000                                      presentation) in the first quarter. Sepa-                                                         in 2019.
1-C-al-"-+---EA-R_N_IN-GS_P_E_R_SHA-RE-A---11--F-ul-il                                       rately, the utility was granted a tariff in-                                                      Duke executed a forward sale of co1n-endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                     crease of $8.4 million in Kentucky, based                                                         1non stock. The closing, by yearend, will 1---1-........-1.---.-8--1~.4-- - .- -+---.----<
20 5                09                  7          4            70          4 10         on a return of 9.725% on a common-equity                                                          raise more than $1.5 billion and will in-2016               .83             .90         1.44            .54          3.71         ratio of 49%.                                                                                     crease the share count by more than 21 2017            1.02               .98         1.36            .86          4.22         Other regulatory 1natters are pending.                                                            million. The proceeds will be used for gen-2018            1.17            1.03           1.55          1.05           4.80         Duke Energy Carolinas is seeking a hike                                                           eral corporate purposes.
2019             1.20           1.10           1.60          1.10           5.00         of $647 million, based on a return of                                                             This stock offers an attractive divi-1-C-al---+--,,Q,-,UA,.,,R,..TE--R""'LV""D--IV"'ID""EN--D--S-:::-PA:-:,ID:-B-.--11--F-ul--il  10.75% on a common-equity ratio of 53%.                                                           dend yield. The yield is more than one endar Mar.31 Jun.30 *Seo.30' Dec.31 Year                                                   New tariffs should take effect soon. In                                                           percentage point above the utility mean.
t-,~~-1-:-+--:-j~-5--J-~-s-~:~-~~--:~-~~-+--~-:J--i~ ~$1~9~~d lrlo~~~ b:i:~tdc~~ddi:tr~e~~!~~f egta8~4et:i !~o~d*ec!~re~ctlt~~le3_ itJh~;:i:r p~;br:~ho:i~
2016               .825            .825          .855          .855 3.36                         mi ion, ase on a return o . 10 on pro uce tota returns t at are a ove aver-2017               .855            .855          .89           .89          3.49 a common-equity ratio of 50. 75%. The com- age for a utility, as well.
2018               .89                                                                   pany is asking for new rates to take effect Paul E. Debbas, CFA                                                                                                    May 18, 2018 (A) Dil. EPS. Exel. nonrec. losses: *12*, 70&#xa2;; egs. due early Aug. (B) Div'ds paid mid-Mar., Rates all'd on rom. eq. in '13 in NC: 10.2%; in Company's Financial Strength                                                                                                                 A
'13, 24&#xa2;; '14, 67&#xa2;; '17, 15&#xa2;; '18, 11&#xa2;; gain June, Sept., & Dec.* Div'd reinv. plan avail. '17 in SC: 10.1%; in '09 in OH: 10.63%; in '04 Stock's Price Stability                                                                                                                     100 (losses) on disc. oes.: '14, (80&#xa2;); '15, 5&#xa2;; '16, (C) Incl. intang. In '17: $45.48/sh. (D) In mill., in IN: 10.3%; earn. avg. com. eq., '17: 7.1%. Price Growth Persistence (60&#xa2;). '16 EPS don t sum due to rounding. Next adj. for rev. split. (E) Rate base: Net orig. cost. Reg. Clim.: NC Avg.; SC, OH, IN Above Avg.
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wtthout warranties of any kind.
TH.E PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part; I 1111..'{~j I * ,
of I may be reproduced, resold, stored 01 transmitted in any printed, electronic or other form, or used !or generating or marketing any printed or electronic publication, service or product:
rmEarnings Predictability
                                                                                                                                                                                                                                                               *:lili'"111 40 85-

18-KCPE-480-RTS 1                                                                     1 1--E_D_IS_O~N_IN_T_E_RN_A_T~'L_NY_SE~-E_IX~....__,_l~~c_ier~65_.2_2_._l:_TI0_14_.3_(_~:~_1~~;_1n--l-)~_TELARA_                                                                                             r1~_0_.7_6,___l~~D~*o              _3~.8____.%.lill \ .
TIMELINESS                  3     Lowered      121 3 18                      High:         60.3         55.7         36.7          39.4        41.6        48.0      54.2    68.7          69.6        78.7          83.4            67.6                    * ''. Target-Price Range
                                                                      >---'L=o~w~:~~42=*-8~=26~-~7~23.1                          30.4        32.6        39.6      44.3    44.7          55.2        58.0          62.7            57.6                              2021 2022 2023 SAFETY                      2 Raised 513/13                             LEGENDS TECHNICAL                   4 Raised 4/20/18                         -. . . . 1.00 x Dividends p sh
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* 1 High 100 (+55%l 14% t..,._.,._.,.,,.,1;,..:=~=-6,...,:r;ffili,,11.!-:1-:-ril1,".'.F'.!!!Jlfl!.'.-F-...L-:.+--+--+--l--+-'--l--+--+--+--l--+--l-32 111 Low            75 (+15%                            8%                                 .--                 ' ''                                                                                                                                                                               24 Insider Decisions                                                                                                     * * .... * ...... *** -* **** ** ***-. ** .....               **** *           "*, ........ -.                                                                         20 J JASON DJ F                                                                                                                                                                                                                                                                  16 to Buy O O O O O O O O O Options 2 O 1 O O 1 011 O to Sell 2 0 1 0 0 1 0 0 0 Institutional Decisions toBuy to Sell 2Q2017 299 236 3Q2017 274 258 4Q2017 Percent 278 shares 225 traded 10 5
iii 15 *                   . .
I illlll c11tt'-.b!HIH--+----,
                                                                                                                                                                                                                                                        % TOT. RETURN 3/18 >-8 1 yr.
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                                                                                                                                                                                                                                                                   ~~c!
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12 Hld's(ODD) 290101 28837 4 267652                                                                                                                                                                                    111                           5 yr.         44.9           68.8
'"'2='=0,;;;o;,;,;2~20='=0='=3..,=:-20:;;;o,;..,4,.,=;;2;,;.00;;;5;.+-,,2=0=0s="'""'2=0=07='J/ol2~00a 2009 2010 2011 2012 2013 2014 2015 2016 201~1~20~1=a-l-,,,20""1'""9,-1--.,;,.&#xa9;v-A-LU=E-uN=E=pu=0~.L~LC~1,,h1,..,*2""3""""
35.26 37.25 31.30 36.38 38.74 40.25 43.31                                                                   37.98 38.09 39.16 36.41 38.61 41.17 35.37                                         36.43 37.81 38.35 40.20 Revenues per sh                                                    46.75 4.79           5.88              3.79             6.99               7.25         7.60         8.08         7.96          8.41        9.03        9.63      8.80     9.95 10.35              10.43 11.03 11.45 12.05 "Cash Flow" per sh                                                14.25 1.82           2.38                .69            3.34               3.28         3.32         3.68         3.24          3.35        3.23        4.55      3.78     4.33         4.15        3.94           4.51            4.55        4.70 Earnings per sh A                          5.50
            ..             ..              .80            1.02                1.10        1.18         1.23         1.25          1.27        1.29        1.31      1.37     1.48         1.73         1.98          2.23             2.45       2.57 Div'd Decl'd per sh 8
* 3.10 4.88           3.95              5.32             5.73                7.78        8.67         8.67 10.07 13.94 14.76 12.73 11.05 11.99 12.97                                                11.46 11.75 13.30 15.05 Cap'l Spending per sh                                             15.75 13.62 16.52 18.57 20.30 23.66 25.92 29.21                                                                   30.20 32.44 30.86 28.95 30.50 33.64 34.89                                         36.82 35.82 37.35 38.90 Book Value per sh c                                                44.50 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 325.81 Common Shs Outst'g u 325.81 7.8             7.0            37.6             11.7                13.0        16.0         12.4           9.7         10.3        11.8          9.7     12.7     13.0         14.8         17.9          17.2 Boldfigresare AvgAnn'IP/ERatio                                         15.5
          .43             .40            1.99                .62                .70         .85          .75          .65           .66         .74         .62      .71       .68          .75         .94            .85            Value Une       Relative P/E Ratio                          .85
            ..              **          3.1%            2.6%                2.6%         2.2%         2.7%        4.0%           3.7%        3.4%        3.0%     2.8%     2.6%          2.8%        2.8%          2.9%                estlnlates     Avg Ann'I Div'd Yield                    3.6%
CAPITAL STRUCTURE as of 12/31/17                                                                 14112 12374 12409 12760 11862 12581 13413 11524 11869 12320 12500 13100 Revenues ($mill)                                                                                                  15200 Total Debt $14516 mill. Due in 5 Yrs $4793 mill.                                                1266.0 1115.0 1153.0 1112.0 1594.0 1344.0 1539.0 1480.0 1422.0 1603.0                                                             1620        1670 Net Profit ($mill)                        1970 LT Debt $11642 mill. LT Interest $569 mill.                                                      30.7% 33.0% 32.1% 25.7% 14.3% 25.2% 22.4%                                            6.6% 11.1%                5.0% 10.0% 10.0% Income Tax Rate                                           10.0%
(LT interest earned: 4.0x)
Leases, Uncapitalized Annual rentals $335 mill.                                                    8.9% 10.5% 16.9% 14.8%                             8.5%      7.8%    5.8%          8.0%        6.8%          7.2%             8.0% 7.0% AFUDC %to Net Profit                             7.0%
Pens. Assets-12/17 $3616 mill. Oblig $4179 mill.                                                 51.2% 49.3% 51.8% 55.3% 45.2% 45.7% 44.1% 45.0% 41.8% 45.6% 48.0% 48.0% Long-Term Debt Ratio                                                                                             47.5%
Pfd Stock $2193 mill. Pfd Div'd $124 mill.                                                       44.5% 46.5% 44.3% 40.6% 46.2% 46.2% 47.2% 46.7% 49.2% 45.8% 44.0% 44.5% Common Equity Ratio                                                                                               45.5%
4,800, 198 sh. 4.08%-4. 78%, $25 par, call. $25.50-                                              21374 21185 23861 24773 20422 21516 23216 24352 24362 25506 27500 28525 Total Capital ($mill)                                                                                             31800
   $28.75/sh.; 3,250,000 sh. variable, noncum., call.                                               18969 21966 24778 32116 30273 30455 32981 35085 37000 39050 41125 43675 Net Plant ($mill)                                                                                                 50700
   $100; 1,250,000 sh. 6.5%, cum., $100 liq. value; 350,000 sh. 6.25%, $1000 liq. value; 460,012 sh.                                                   7.4%        6.9%           6.3%        6.0%        8.9%      7.3%    7.7%          7.1%        6.9%           7.3%            7.0% 7.0% Return on Total Cap'I                            7.5%
5.1 %-5. 75%, $2500 liq. value.                                                                  12.1% 10.4% 10.0% 10.0% 14.2% 11.5% 11.9% 11.1% 10.0% 11.6% 11.5% 11.0% Return on Shr. Equity                                                                                             12.0%
Common Stock 325,811,206 shs. as of 2/20/18                                                      12.8% 10.8% 10.4% 10.5% 15.9% 12.5% 13.0% 12.0% 10.8% 12.7% 12.5% 12.0% Return on Com Equity E 12.5%
MARKET CAP: $21 billion (Large Cap)                                                                8.6%        6.7%           6.5%        6.3% 11.4%            8.1%    8.8%          7.2%        5.6%          6.6%              5.5% 5.5% Retained to Com Eq                               6.0%
ELECTRIC OPERATING STATISTICS                                                                       35%          41%           40%         43%         32%       40%     37%           44%          53%           52%              57%        58% All Div'ds to Net Prof                      58%
   %Change Retail Sales (KWH) 2015 2016 2
                                                        -1.4                -2.6
                                                                                         &deg;;~    1--B-U-SI-N~ES_S_:_E_d~is-on-ln-te~rn-at-io-na-l~(f-orm-e-rly~S-C_E_C_o~~-)-is_a_h~o-ld-in_g-1.d_e-nt-ia-l,~3-7o/c-,;-c-om.,__m_er-ci-al~,4-4_%_;-ind~u-st-ria-l,-6-o/c-,;-m-h-er-,1-3_%__~G-en-e-ra--~
Avg. lmfu~. Use (MWH)                                703                 664           NA       company for Southern California Edison Company (SCE), which ting sources: gas, 6%; nuclear, 6%; hydro, 5%; purchased, 83%.
Avg. lndu~. Revs1.e1 l(1Mj (II                      9.07                6.51           NA       supplies electricity to 5.1 mill. customers in a 50,000-sq.-mi. area in Fuel costs: 38% of revs. '17 reported depr. rate: 3.8%. Has 12,500 Capaci~ at Peak (MW)                                   NA                 NA           ~~       central, coastal, & southern CA (excl. Los Angeles & San Diego). empls. Chairman: William P. Sullivan. Pres. & CEO: Pedro J. Piz-Peak load, Summer !Mw)                         23079 23091 235NA                                Edison Energy is an energy svcs. co. Disc. Edison Mission Energy zaro. Inc.: CA. Address: 2244 Walnut Grove Ave., P.O. Box 976, Annual LoadFacior(Y,)                               52.2                50.7
   %ChangeCuslomers(yr-end)                               +.6                +.5          +.7       (independent power producer) in '12. Elec. rev. breakdown: resi- Rosemead, CA 91770. Tel.: 626-302-2222. Web: www.edison.com.
f~edChargeCov.(%)                                    247                 246          241       Investors remain concerned about the                                                            the beginning of 2018.) The utility's three-1-A-N_N_U..:A_L_RA..:.T..:.E_S_P-as-t--P-as-t-Es_t_'d-,1-5-_,1--17                                 possible wildfire liability of Edison In-                                                      year capital spending plan calls for $1.4 ofchange(persh)                     10Yrs.                 5Yrs.               to'21-'23        ternational's                               utility               subsidiary.                   billion for grid modernization, which is Revenues                                 -.5%                  -.5%               4.0%          Southern California Edison's service area                                                       somewhat controversial because the Cali-
   "Cash Flow"                             4.0%                  3.5%                5.0%          had wildfires in the fall of 2017. The cause                                                    fornia commission has not been asked to Earnings                                2.5%                  2.5%                4.5%
Dividends                                6.0%                 9.0%                8.0%           of the wildfires has not yet been deter-                                                       approve such spending in previous rate Book Value                              4.5%                  3.0%                3.5%          mined, but SCE has already been hit with                                                        cases. An order is expected by yearend.
1--C-al----Q-UA-R-TE-R-LV_R_EV_E-NU_E_S_($_m_ill.-)~-F-ul....,I                                    some lawsuits alleging that its power lines                                                     Tax reform is slightly negative for the endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                          were at fault. (It has $1 billion in liability                                                  company. Edison International has about
,__20-1--+-2-5 -- - - ~ - - -- - - - - ....,                                                    insurance.) Under California's inverse con-                                                     $1.75 billion of long-term debt at the 5               2 2908 3763 234 1 11524 2016 2440 2777 3767 2885 11869                                                                demnation law, a utility can be held liable                                                     parent level, so corporate interest and 2017 2463 2965 3672 3220 12320                                                                if its power lines contributed to the wild-                                                     other expenses will have a lower tax 2018           2500 3000 3800 3200 12500                                                      fires, even if the utility followed accepted                                                    shield. This is also true for the company's 2019 2600 3150 4000 3350 13100                                                                 inspection and safety rules. If this occurs,                                                    nonutility                         energy-services                        subsidiary,
,_c_a_l_-+---EA-R_N_IN_G_SP_E_R_SH_A_R_EA___F_u_ll                                                 there is no assurance that the utility will                                                     Edison Energy, which is still in its start-endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                          be allowed to pass these costs through to                                                       up phase and is in the red. Management
....,..,.,cc-+--,.,.,- -,.._cc- -,,__,..- - .,..-+~..,.-i 1 15 ratepayers. So, the company is pursuing a                                                       estimates that the corporate and non-20 15               91                             1 15                    94        4 15 2016               .85              .86            1.27                  .96         3.94      three-pronged strategy to address this                                                          utility. drag on earnings will amount to 2017             1.11               .85            1.43                 1.12         4.51      risk, seeking legislative, regulatory, and                                                      $0.25-$0.30 a share this year. Note that 2018             1.10                .90           1.45 1.10                         4.55      judicial solutions to this problem.                                                             the company is not providing earnings 2019             1.15                .90           1.50 1.15                         4.70      SCE is awaiting an order on its gener-                                                          guidance as long as the general rate case 1--C-al---+--Q-UA_R_T-ER-LV_D_IV-ID-E-ND_S_P_I\I_D_B_*-+--F-u--ill                                 al rate case. The utility has revised its                                                       is pending.
endar Mar.31 Jun.30 Seo.30 Dec.31 Year                                                          request to pass through to customers the                                                        The wildfire risks hurt the stock last 1---1--+'"".'"'"-'--""".="''-'--=--'."'.:.:.=....c::.:.c::.:.:-=+--- --1                           benefits of federal tax reform. SCE is ask-                                                     year, and the price has risen just 20 4             355               35 5            35 5                 355          1 42 2015            .4175 .4175 .4 175 .4 175                                            1:67      ingdf~r a reductiofn$o f $ 106 m illion 1d*n $2 0 18                                            s 1ightly in 2018. The dividend yield and 2016            .48               .48             .48                  .48           1.92      an mcreases o                                  4 3 1 mi11ion an                    50 3         3 - to 5 -year tota1 return potentia1 are 2017            .5425 .5425 .5425 .5425                                              2.17      million at the start of 2019 and 2020, res-                                                     above average for this industry.
2018            .605              .605                                                         pectively. (The order will be retroactive to                                                    Paul E. Debbas, CFA
* April 27, 2018 (A) Dil. EPS. Exel. nonrec. gains (losses): '02, lions: '12, ($5.11); '13, 11&#xa2;; '14, 57&#xa2;; '15, 11&#xa2;. charges. In '17: $15.08/sh. (D) In millions. (E) 1 *company's Financial Strength                                                                                                              A.
$1.48; '03, (12&#xa2;); '04, $2.12; '09, (64&#xa2;); '10, Next earnings report due late July. (B) Div'ds Rate base: net orig. cost. Rate allowed on com. Stock's Price Stability                                                                                                                           90 54&#xa2;; '11, ($3.33); '13, ($1.12); '15, ($1.18); '17, paid late Jan., Apr., July, & Oct.
* Div'd rein- eq. in '15: 10.45%; earned on avg. com. eq., Price Growth Persistence                                                                                                                       50
($1.37); gains (loss) from discontinued opera- vestment plan available. (C) Incl. deferred '17: 12.2%. Regulatory Climate: Average.                                                                                                     Earnings Predictability                                  60 *
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wtthout warranties of any kind.,
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscribers own, non-commercial, inlemal use. No part. ~scribe call 1-800-VALUEL~~J of tt may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or eleclronic publication, service or product.'

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                                                                                                                                                                                                                                            /( ~        ~1101.------1 TIMELINESS               3 Lowered1/26/18                 Higli:        28.2            25.5             21.1        28.7           35.7        35.3      39.1         42.2      41.3           48.8        61.2    55.8                         * *Target-Price Range SAFETY                  2 Raised 5111107             f-=~"'~~""~'-N"-o""'s2"'0"'.8"-'---1-"'5'"".2"-'--....;11.6     18.7           26.7        29.2      31.8         33.4      33.B           37.2        44.7    48.1                             2021 2022 2023 TECHNICAL                3       Lowered 4/6/18         -
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giJi~:d ~vi1~~1!l ~~te                                                                                                                                                                                80 00 BETA
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          .tu,n-23 t'KUJl:l,;IIUN:i o~~~~!/:ka indicates recession                     t-+---t--+--=-t--+---t---::=_9~'---::,:..-a~''l.';':-::'"-,..*-o--+
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                                                                                                                                                                                                                                              ----l---+----l--+ 40 50 Price           Gain AnR~tJ~al ,---+----,1----+----,1---~,..--+-",,1..,11,l'+-~'*..,.~*"-".,._1"_1_,*1_,1_''1-''_"_                                          .. ,1,,-+-1_1_111_,*-+---1----+---1----1---1----1----,1-30 High         60 (+20%1                       8%              ,111 , .... I''" II *I, ..                                .,,, I I / /                                                                                                                                    25 Low          45          (-10%               1%                                                                                         -..                                                                                                                            20 Insider Decisions                                      .,,, ******-**** * * * "Ill ii.* ,1                                           ,*      *,.:*****                                                                                                                 15 J J A S O N D J F *'                                                                  11'1!--*" ******"                                   ' ***-,, *,"""''' *-***,,*'*                "**, ,*"
* toBuy O O O O O O O O O                                                                                                                                                                                                                                                 10 Options 340040047 to Soll       1 o o o o o o o o l---t---t---t---l----t---1----t---l----+---l----+ ---l----+----l % TOT. RETURN 3/lB 1-7.5 Institutional Decisions                                                                                                                   I                                                                                                          THIS VLARJTll' 2Q2017 3Q2017 4Q2017 Percent 21                                                                                                                                                                                            yr. sr~~K       IN~~    '"'
toBuy              117                96         86 shares                                                               1 14 .,...,,-+--t;-t-H-tttt1"thh-*1tt:-'"-t-.---t----.-t----tt--,----,t--.rlT                                                                     ,---t---t yr. 1 toSell                78              83         67 traded                7                               11.,1    .,II 1*      I ,lllmlllllmt          I                   I                   ., .,        htJllU                     3          43 _5    24_3 1     Hld's(0001 45099 45123 39640                                                                              lllf11111111illllllllllllllJJJ,IJl!UU,lft111111lfllfllllt1111fff11 1111111111 111lll111111111ff-l                             5yr.       75.1     68.8 1-,2""0~0"'"2,..2"'0'"'0;...3..,...,,.20""0'""4~2"""00'"'5--2"""00=5~2"""00=7-2/.!J.OOB 2009 2010 2011 2012 2013 2014 2015 2016 2017 2:..0'"'1.,..8+,,,20""'1""9-"'=,V.""1'. ,.,.LU"'"E'""LIN""E""'PU""B,.,L.,.,LC"",..,.1""-2""3                                .             -t 13.91          13.97 14.95 16.70 17.75 19.43 23.15 18.85 20.61                                                                   22.97 21.26 22.11                  22.74 21.01              21.89 22.59 22.80 23.35 Revenues per sh                               25.00 2.99            3.00             3.27       3.05        3.44         3.86            4.16             4.07         5.15           6.05       5.66      5.65         5.87       5.75           5.98        6.17    6.35        6. 60 "Cash Flow" per sh              7.50
         .57             .64             .69        .76         1.27        1.63            1.73              1.50        2.07           2.48       2.26      2.20         2.27       2.03           2.39        2.42    2.45        2.60 Earnings per sh A                3.00
           ..             ..              ..         ..                                         ..                ..          ..           .66        .97      1.05         1.11      1.17            1.23       1.32    1.42        1.52 Div'd Decl'd per sh B             1.85 1.75           2.03             1.94       2.28         2.73        4.63            5.36              5.95        5.27           5.90       6.70      7.18         8.50       8.55           7.03        5.91    6.80        6.85 Cap'I Spending per sh            7.25 9.20 10.51                     11.23 11.56 12.60 14.76 15.47 16.45 19.04 19.03 20.57 23.44 24.39 25.13                                                                                      26.52 28.14 29.20 30.25 Book Value per sh c                           33.50 49.61         47.56 47.40 48.14 46.00 45.15 44.88 43.92 42.57 39.96 40.11                                                                             40.27 40.36 40.44                      40.52 40.58 40.60 40.70 Common Shs Outst'g u                          41.00 23.0            18.3             22.0       26.7         16.9         15.3           11.9              10.8        10.7           12.6       14.5      15.9         16.4       18.3           18.7        21.8 Bold fig res are Avg Ann'I P/E Ratto                 17.0 1.26            1.04             1.16       1.42           .91         .81             .72               .72         .68            .79        .92       .89           .86         .92          .98       1.10    Value Una          Relative P/E Ratio               .95
           ..             ..              ..         ..                                         ..                ..          . . 2.1% 3.0% 3.0% 3.0% 3.1%                                          2.7%        2.5%      estin ates       Avg Ann'I Div'd Yield         3.5%
CAPITAL SlRUCTURE as of 12/31/17                                                      1038.9 828.0 877.3 918.0 852.9 890.4 917.5 849.9                                                          886.9 916.8            925         950 Revenues ($mill)                 1025 Total Debt $1369.5 mill. Due in 5 Yrs $218.5 mill.                                       77.6             66.9         90.3 103.5                90.8      88.6         91.4       81.9           96.8        98.3     100         105 Net Profit ($mill)                 125 LT Debt $1196.0 mill. LTlnterest $72.3 mill.
(LT interest earned: 2.9x)                                                            32.8% 33.1% 36.1% 34.2% 34.1% 33.0% 31.0% 29.9% 35.8% 34.2% 24.5% 24.5% Income Tax Rate                                                                                        24.5%
20.4% 24.3% 22.1% 17.6% 22.4% 24.1% 30.8% 27.5% 17.6% 11.2% 13.0% 12.0% AFUDC %to Net Profit                                                                                   14.0%
53.8% 52.7% 51.2% 51.8% 54.8% 51.4% 53.5% 52.7% 52.7% 51.2% 53.0% 52.0% Long-Tenn Debt Ratio                                                                                   54.5%
Pension Assets-12/17 $304.4 mill.                                                     46.2% 47.3% 48.8% 48.2% 45.2% 48.6% 46.5% 47.3% 47.3% 48.8% 47.0% 48.0% Common Equity Ratio                                                                                    45.5%
Oblig $362.0 mill. 1503.9 1527.7 1660.1 1576.7 1824.5 1943.5 2118.4 2150.8 2269.9 2338.2                                                                          2530 2575 Total Capital ($mill)                   3025 Pfd Stock None 1595.6 1756.0 1865.8 1947.1 2102.3 2257.5 2488.4 2695.5 2821.2 2928.4                                                          3045        3160 Net Plant ($mill)                 3550 Common Stock 40,661,003 shs.                                                            6.7%             6.0%         7.0%           8.3%       6.5%      6.1%         5.7%       5.3%           5.8%        5.8%    5.5% 5.5% Return on Total Cap'I                  6.0%
as of 1/31/18                                                                         11.2%              9.3% 11.1% 13.6% 11.0%                           9.4%         9.3%       8.1%           9.0%        8.6%    8.5%       8.5% Return on 5hr. Equity             9.0%
11.2%              9.3% 11.1% 13.6% 11.0%                           9.4%         9.3%       8.1%           9.0%        8.6%    8.5% 8.5% Return on Com Equity E 9.0%
MARKET CAP: $2.0 billion (Mid Cap)                                                    11.2%              9.3% 11.1% 10.0%                       6.3%      4.9%         4.8%       3.4%           4.4%        3.9%    3.5% 3.5% Retained to Com Eq                      3.5%
ELECTRIC OPERATING STATISTICS                                                                ..               ..           .. 26% 43% 47% 49% 57%                                                 51%         54%     57%         58% All Div'ds to Net Prof            61%
   %Change Retail Sales (K1Mi) 2015 2016 2
                                                 +2.3          +.1
                                                                           ~!        t---B-U-Sl~N~ES_S_:_E~I-P-a-so---cE~le-ct~ric.....,C-om_p_a_n_y_(E~P~E-)-p-ro-v-id-es~el-ec-tr-ic~a~b-le-.-G-e-ne_ra_t-ing~s-ou-~-e-s:-nu_c_le-ar-,-49-%-,;-g_a_s,-36-%-,;-p~~-~-ha-s-ed-,~
Avg. lndu&. Use (MWHI                       21687 21036 21553                         service to 417,000 customers in an area of approximately 10,000                                        15%. Fuel costs: 27% of revenues. '17 reported depreciation rate:
Avg. lndu&. RevsJ_er Kl'.li (&#xa2;)                 NA          NA           NA           square miles in the Rio Grande valley in western Texas (68% of                                         2.3%. Has about 1,100 employees. Chairman: Charles A.
Capacity at Peak (Mw~                        2055 2080 ~8~~                           revenues) and southern New Mexico (19% of revenues), including                                         Yamarone. President & CEO: Mary E. Kipp. Incorporated: Texas.
Peak load, Summer )                          1794 1892 Annual load Factor ( ,)                          NA          NA           NA           El Paso, Texas and Las Cruces, New Mexico. Wholesale is 13% of                                         Address: Stanton Tower, 100 North Stanton, El Paso, TX 79901.
   %Change Custome1S (yr-en~                     +1.4        +1.6         +1.7           revenues. Electric revenue breakdown by customer class not avail-                                      Tel.: 915-543-5711. Internet: www.epelectric.com.
F~edChargeCov.(%)                              218         267          263           We estiinate that El Paso Electric                                                                     more volatile.
t-A-N_N_u""'A'-L-RA-'-T'-ES--P-as-t--P-as_t_E-st-'d-,- -_,--l 15 17 Co1npany's earnings will advance                                                                       The utility is required to file a general ofchange(persh) 10Yrs.                            5Yrs.          to'21-'23            slightly this year. The utility will have a                                                            rate case in New Mexico by July of Revenues                              2.0%              ..          2.5%              full year's worth of the rate increase in                                                              2019. EPE may file sooner; we note that "Cash Flow''                          5.5%         1.0%             4.0%              Texas that took effect in July of 2017. EPE                                                            the portion of Units 3 and 4 of a new gas-5!7~i~R~s                             65
                                           * :~ 18 _oo/~               g~                is also benefiting from above-average cus-                                                             fired generating station that is allocated to Book Value
* 7.5%         6.5%             4.0%              tamer growth that stems from the healthy                                                               New Mexico is not reflected in rates. How-i----.--------,=-,----.---t QUARTERLY REVENUES ($ mill.)                                        economy in El Paso and environs. On the                                                                ever, the regulatory climate in New Mexi-Cal-                                                                  Full endar Mar.31 Jun.30 Sep.30 Dec.31                                        Year          other hand, the weather was favorable for                                                              co is difficult (not just for EPE), so the 2015 163.8 219.5 289.7 176.9                                          849.9 the company in 2017, and we assume                                                                     company might well wait until it is re-2016 157.8 217.9 323.2 188.0                                          886.9          normal weather this year. Our 2018 earn-                                                               quired to file before it puts forth its rate 2017 171.3 251.8 297.5 196.2                                          916.8          ings estimate, which we lowered by $0.20                                                               application.
2018 170                     255           305         195            925            a share, is within management's guidance                                                               We expect a dividend hike at the 2019 175                     260           315         200            950            of $2.30-$2.65 a share. Next year, the utili-                                                          board 1neeting in May. This has been Cal-                  EARNINGS PER SHARE A                            Full ty will benefit from rate relief in Texas                                                              the pattern since the directors initiated a endar Mar.31 Jun.30 Sep.30 Dec.31                                     . Year          through transmission and distribution reg-                                                             common dividend several years ago. We 2015              .09              .52       1.40          .02         2.03          ulatory mechanisms. However . . .                                                                      estimate an increase of $0.10 a share 2016            d.14               .55       1.84          .14         2.39          Earnings have beco1ne less predic-                                                                     (7.5%) in the annual disbursement. EPE's 2017            d.10               .89       1.47          .16         2.42          table. The company owns a 15.8% share of                                                               goal is a payout ratio in a range of 55%-
2018            d.15               .75       1.70          .15         2.45          the Palo Verde nuclear station in Arizona.                                                             65%.
2019            d.10               .80       1.75          .15         2.60          Like any utility that owns nuclear assets,                                                             This stock has a dividend yield that is Cal-            QUARTERLY DIVIDENDS PAID B                            Full          EPE invests1 in a trust to provide funds for                                                           below the industry 1nean. Like many endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                 nuclear decommissioning. The gains or                                                                  utility issues, the recent quotation is 2014           .265             .28         .28          .28           1.11          losses on the nuclear decommissioning                                                                  within our 2021-2023 Target Price Range .
2015           .28              .295        .295         .295          1.17          trust are now being reflected in the income                                                            Accordingly, total return potential over 2016           .295             .31         .31          .31           1.23          statement, instead of through Accumu-                                                                  that time frame is unspectacular, despite 2017           .31              .335        .335         .335          1.32          lated Other Comprehensive Income on the                                                                good dividend growth prospects .
2018           .335                                                                  balance sheet. This will make earnings                                                                 Paul E. Debbas, CFA                                       April 27, 2018 (A) Diluted earnings. Exel. nonrecurring gains dates in late March, June, Sept., and Dec. '16: 9.48%; earned on avg. com. eq., '17:                                                                                        Company's Financial Strength                 B++
(loss): '03, 81&#xa2;; '04, 4&#xa2;; '05, (2&#xa2;); '06, 13&#xa2;; '10, (CJ Incl. deferred charges. In '17: $96.0 mill., 8.9%. Regulatory Climate: TX, Average; NM, Stock's Price Stability                                                                                                   90 24&#xa2;. Next earnings report due early May. $2.37/sh. (D) In millions. (E) Rate allowed on Below Average.                                                                                                                     Price Growth Persistence                        70 (B) Initial dividend declared 4/11; payment common equity in TX in '17: 9.65%; in NM in
&#xa9; 2018 Value Line, Inc: All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wnhout warranties of any kind.,
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part .,,
of nmay be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or ma,keting any printed or electronic publication, service or product:
Earnings Predictability I       I '    , 11a~:Oll,.11 'Ull:tllll11 I
75-*.
                                                                                                                                                                                                                                                                                   ;,

18-KCPE-480-RTS t--lD_A_C_Q_B_n              r,lN_C~~-..---.--'-,-IREC-ENT_!8_8~_.__
1  NYSE-IDA                                                PRICE               ,    IP/E~11_1~(_Trail~ing:_21.1LR-ELA~TIVE_1_1!.__D1V~'D RATIO           , Median: 14.0 P/ERATIO ,                           YLD 1~1_0,0~.*      /(       ' .-=-*- -
TIMELINESS             2    Raisedl2/22/H                 High:            39.2 35.1                   32.B      37.B        42.7    45.7
* 54.7           70.1       10:5       83.4 100.0 65.0 77.5 91.4 79.6
* Target Price Range 2021 2022 2023 Low:             30.1         21.9           20.9      30.0        33.9    38.2 43.1             50.2       55.4 SAFETY                 2 Raised 8/2/13                 *_L_EG~-~f;Dividends Psh                         t--+----!---+----!---+----:-+--+----4--+----4--+ ----4--+---+ 120 TECHNICAL 3 Lowered 2/23/18                             . . . . ~~\~f~eb~r/g!e~~~n~~e                   t--+----!---f----!---f----4--+--                                        _--:-+,-,,,-,,-,i'lnl*-.,0 -+----4--+-.-                  . *-.-.+-.-**-.-.-+- ~~O BETA .70 (1.00 = Market) 1--        l!TI-=2!15R'OJ1:C'l"IIT!g--t_D...c~'!!!.~~~~:~~~yi~,~al!..:,"!!'ndl!E_ic~ates~re::!cess~io'!!_nt--+----!---+--=---l---f--,:a,lflt;F.,,......-:.,l"'L!l'~":.:."_'"+---*....:*.:i.=-*--..-,d,c--+----l--+~---+-64 I 2 .:u.:*r-23 l'l'IUJC~ I IUNl:i 1-==i::==t==::::i:=--l---l--~~l/~=t;;;i;Il';m*~~lil'._+'"__"': _:11:.:_' l_j___ j__ _j___j_"__*_ _j___ j__ _j___i,48 Ann'I Total Price       Gain           Return r"'~*l:;;'"="f''"-'"u,*~
High Low 90 65            ~*11
(-2 o}.
3%
                                            -4%
1-!=:~~:;......,....!~'.!!!l._:~~j,...-=-**-**:.:.***k--::::..+:'
1.1,fi,irtr,i!ti]jt;::;;~='''!!!,;"'"-"'t""'l*~~**.::..._''t-'-*~1_1'_''_'''t--+--t-- +--'---t--+--t--+--t--+--t-32
                                                                                       "~==-***;",f~r!!:- *''-t--;;;:-t-----..;,l----:;:-:-t--+--l---;*"--..b,.-.-..-.f----t--                                                     -+--t---+--t-2240 Insider Decisions                                                       "** ~- .......              l"!e*.
J J A S 0 N D J F l---+---l----+---1----l----1----l---+--+--+- -+--+--+--+--+--+---+-16
                                                                                                                                                                            .**          e e*         L--
to Buy 0 0 0 0 0                    0    0    0 0 Options 0 0 0 0 0 0 0 010 l---+--+---+--+---+--+---+--+---+--+---+ --+---+--+---+--+---+-12 to Sall 2 0 0 0 0 0 0 0 0 111;,,,., . ,: ,
                                                                                                                                                                                                                                    % TOT. RETURN 3/18 ,-8 Institutional Decisions                                                    1111                                                                                                                                                         THIS       VL ARITH."
to Buy 2Q2017 139 3Q2017 116 4Q2017 Percent 127 shares 15 10                                                          I.
                                                                                                                                                  .11,11,  1111-,1~, .... , ..
I II 1 yr.
3 yr.
STOCK 9.2
: 52. 7 INDEX 9.7 ::
24.3 ._
tos,11              91         113               86 traded                   5                                                                                                                                                 5yr. 111.6            68.8 Hld'slOOO} 45985 45708 38200                                                                                    111111111111111111      11 11111111111 11111                 111111111111n11111111 11 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019                                                                                                                                        &#xa9; VALUE LINE PUB. LLC 1, 1-23 24.43         20.41        20.00          20.15         21.23                                                                                24.~1      25.51      25.23 25.04            26.76       26.60       27.00     Revenues per sh                 28.75 4.08         3.50          4.12           3.87          4.58                                                                                 6.29       6.58      6.70        6.86       7.50         7.65        8.05    "Cash Flow" per sh               9.25 1.63           .96         1.90           1.75          2.35                                                                                 3.64       3.85      3.87        3.94       4.21         4.15        4.35    Earnings per sh A                4.75 1.86          1.70         1.20           1.20          1.20                                                                                 1.57       1.76      1.92        2.08       2.24         2.40        2.56    Div'd Decl'd per sh 8
* t         3.05 3.53         3.89          4.73           4.53          5.16                                                                                 4.68       5.45      5.84        5.89       5.66         6.25        6.40    Cap'I Spending per sh            6.75 23.01         22.54        23.88          24.04         25.77                                                                                 36.84     38.85      40.88 42.74            44.65       46.40       48.15     Book Value per sh c             53.25 38.02         38.34        42.22          42.66         43.63                                                                                 50.23     50.27      50.34 50.40            50.42       50.40        50.40    Common Shs Outst'g u            50.40 18.9          26.5
* 15.5           16.7          15.1            18.2         13.9          10.2      11.8        11.5    12.4        13.4       14.7      16.2        19.1        20.6    Bold fig    res are    AvgAnn'I PIE Ratio                16.0 1.03          1.51           .82            .89           .82            .97           .84           .68       .75         .72     .79         .75       .77        .82       1.00        1.04        Value Une           Relative P/E Ratio                 .90 6.0%         6.7%          4.1%           4.1%          3.4%           3.5%         4.0%           4.5%      3.4%        3.1%    3.3%        3.2%      3.1%       3.1%       2.8%      , 2.6%           est/, lates       Avg Ann'I Div'd Yield            4.0%
CAPITAL STRUCTURE as of 12/31/17                                                       960.4 1049.8 1036.0 1026.8 1080.7                      1246.2     1282.5     1270.3 1262.0          1349.5         1340 1360 Revenues ($mill)                           1450 Total Debt $1746.1 mill. Due in 5 Yrs $305.D mill.                                       98.4 124.4 142.5 166.9 168.9                           182.4     193.5      194.7 198.3            212.4          210         220 Net Profit ($mill)                   245 LT Debt $1746.1 mill. LT lnteresl$82.D mill.                                          16.3% 15.2%                   --          -- 13.4%      28.3%        8.0%     19.0% 15.5%            18.6% 10.5% 10.5% Income Tax Rate                                 10.5%
(LT interest earned: 3.9x)                                                                                                                                                                 13.9% 14.0% 14.0% AFUDC %to Net Profit                            14.0%
10.2% 10.5% 19.1% 23.3% 20.3%                           12.3%      13.6%      16.3% 16.3%
Pension Assets-12/17 $697.7 mill.                                                     47.6% 50.2% 49.3% 45.6% 45.5%                           46.6%      45.3%      45.6% 44.8%            43.7% 44.0% 42.0% Long-Tenn Debt Ratio                            44.0%
                                                      .Oblig $999.3 mill.                52.4% 49.8% 50.7% 54.4% 54.5%                           53.4%      54.7%      54.4% 55.2%            56.3% 56.0% 58.0% Common Equity Ratio                             56.0%
2485.9 2807.1 3020.4 3045.2 3225.4                      3465.9     3567.6     3783.3 3898.5          3997.5 4180 4165 Total Capital ($mill)                              4775 Pfd Stock None                                                                       2758.2 2917.0 3161.4 3406.6 3536.0                       3665.0     3833.5     3992.4 4172.0         4283.9 4425 4560 Net Plant ($mill)                                   4850 Common Stock 50,392,360 shs.                                                            5.3% 5.7% 6.0% 6.8% 6.5%                                6.4%       6.6%      6.2%       6.1%         6.3% 6.0% 6.5% Return on Total Cap'I                             6.0%
as of 2/16/18                                                                          7.6% 8.9% 9.3% 10.1% 9.6%                                9.9%       9.9%      9.5%        9.2%        9.4%        9.0% 9.0% Return on Shr. Equity                      9.0%
7.6% 8.9% 9.3% 10.1% 9.6%                               9.9%       9.9%      9.5%        9.2%        9.4% 9.0% 9.0% Return on Com Equity E 9.0%
MARKET CAP: $4.5 billion (Mid Cap)                                                      3.4% 4.8% 5.5% 6.5% 5.7%                                5.6%       5.4%      4.8%       4.3%         4.4% 4.0% 4.0% Retained to Com Eq                                 3.5%.
ELECTRIC OPERATING STATISTICS                                                            55%           46%       41%         36%     41%         43%        46%       50%         53%         53%         57%         59% All Div'ds to Net Prof               63%
   %ChangeRetai1Sales(Kl',li)                ~1~~          20}~             ~ 21~        BUSINESS: IDACORP, Inc. is a holding company for Idaho Power                            rigation, 11%; other, 10%. Generating sources: hydro, 50%; coal, Avg.lnaust.Use(MWH)                            NA            NA             NA         Company, a regulated electric utility that serves 545,000 customers                     18%; gas, 8%; purchased, 24%. Fuel costs: 33% of revenues. '17 Avg.lndu~.Revs.:~(&#xa2;)                        5.70           5.63           5.83         throughout a 24,DOO-square-mile area in southern Idaho and east-                        reported depreciation rate: 2.9%. Has 2,000 employees. Chairman:
Capacifya!Peak( ~
:(}i0t~ads~~~;r1i,) )                      34NA
                                                  ~~
3 ~~NA
                                                                               ~~
34NA ern Oregon (population: 1 million). Most of the company's revenues
                                                                                       . are derived from the Idaho portion of its service area. Revenue Robert A. Tinstman. President & CEO: Darrel T. Anderson. ln-corporated: Idaho. Address: 1221 W. Idaho si., Boise, Idaho
   %ChangeCustomers{yr-n~                    +1.4          +1.8             +2.0        breakdown: residential, 41%; commercial, 24%; industrial, 14%; ir-                      83702. Telephone: 208-388-2200. lntemet: www.idacorpinc.com.
F~edChargeCov.(%)                            307           295            329 IDACORP's 10-year streak of earnings                                                            2017 was driven in part by weather) due ANNUAL RATES Past                                 Past Est'd ,15 _, 17 growth might well come to an end in                                                                    to the effects of energy efficiency. The util-of change (persh) 10Yrs.                         svrs.          to'21-'23             2018. This is despite the performance of                                                ity's cost control has been effective, too.
Revenues                          2.5%             4.0%             2.0%              the company's utility subsidiary, Idaho                                                 We forecast a reslllilption of profit "Cash Flow"                      5.5%              4.0%             4.5%              Power, which is faring well, is financially                                             growth in 2019. We think IDACORP will Bt7~l~~Js                         ~:~~           1 6:~~ i:~~                          sound, and has good growth prospects. A year ago, IDACORP's income benefited benefit from the growth of Idaho Power.
Our $4.35-a-share estimate would produce Book Value                        5.5%             5.5%             3.5%
Cal-           QUARTERLYREVENUES($mill.)                                 Full from some tax adjustments. Favorable                                                          an increase of 5%.
endar Mar.31 Jun.30 Sep.30 Dec.31 Year weather conditions, helped, as well. Our                                                                                               The utility has a regulatory mechan-2015 279.4 336 _3 369 _2 285.4 1270_3 earnings estimate of $4.15 a share, which                                                                                              ism to supplement its income, if 2016 281.0 315.4 3?2.0 293 .6 1262.0 we trimmed by a nickel, is within the com-                                                                                              necessary. If Idaho Power's earned re-2017 302.6 333.0 408.3 305.6 1349.5 pany's targeted range . of $4.10-$4.25.                                                                                                  turn on equity falls below 9.5% through 2018         310          335            390           305           1340            Given that IDACORP earned $4.21 a                                                       2019, the utility may use up to $25 million 2019         315          340            395           310           1360            share in 201 7, another year of profit                                                  of accumulated deferred investment tax Cal-               EARNINGS PER SHARE A                                  Full       growth is hardly out of the question, based                                             credits annually to bring its ROE to that endar Mar.31 Jun.30 Sep.30 Dec.31                                         Year        on the company's guidance.                                     .                        level. (A proposed regulatory settlement m~
2017
:~i
                     .66 ni
                                  .99
                                             -1:ci~
1.80
:~~
                                                               .77 u~ ::.               :~:c\rd~':!:fn!sgr;:!~i: isc~:::: ;:y~~d 0
4.21 rupted. Management anticipates recom- shown in the* statistical array are for e'::;d ;~~~-)              m~~~:n~1:t i~~=fi~~~{
2018             .60         1.00          1.85            .70            4.15       mending to the board annual increases of                                                IDACORP as a whole, not just its utility 2019             .65         1.05          1.90            .75            4.35       at least 5%. The company is targeting a                                                 subsidiary.
Cal- QUARTERLYDIVIDENDSPAIDB*t                                           Full       payout ratio in a range of 50%-60%.                                                     This stock is timely, but is priced ex-endar Mar.31 Jun.30 Seo.30 Dec.31                                         Year        Idaho Power is performing well. The                                                     pensively. The dividend yield is below
                                                                                .        economy of the company's service area is                                                average for a utility. The recent quotation 2014           43            43             43            47              1 76 2015          :47          :47            :47           :51               1_92       healthyh. _Chustomer grhowthd wba s 2h.O~ dlast                                         Tis nearpthe uRpper enAd ofdour 2021-2 023 2016 .51                    .51           .51           .55               2.08       year, w 1c is more t an ou 1e t e m us-                                                     arget rice ange. ccor ing1y, tota1 re-2017 .55                    .55           .55            .59              2.24       try norm. Kilowatt-hour sales generally                                                 turn potential is negligible.
2018 .59                                                                             aren't rising as fast (the 2.6% increase in                                             Paul E. Debbas, CFA                                        April 27, 2018 (A) Diluted EPS. Exel. nonrecurring gains paid in late Feb., May, Aug., and Nov.
* Div'd Net original cost. Rate allowed on common Company's Financial Strength                                                                                                    A (loss): '03, 26&#xa2;; '05, (24&#xa2;); '06, 17&#xa2;. '17 earn- reinvestment plan available. t Shareholder in- equity in '11: 10% (imputed); earned on avg. Stock's Price Stability                                                                                             95 ings don't sum due to rounding. Nexl earnings vestment plan available. (C) Incl. intangibles. In com. eq., '17: 9.6%: Regulatory Climate: Price Growth Persistence                                                                                                90 report due early May. (8) Div'ds historically '17: $21.49/sh. (D) In millions. (E) Rate base: Above Average.                                                                                                  Earnings Predictability                             95 ~
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wtthout warranties of any kind.                                                                                           1 THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for                                           subscribe(s  own,  non-commercial,  internal use. No  part*  **1-..., 11 1 ,w .. , "            : 11 of tt may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product:

L.J\,,H\,,UU.I.\,, ~.1..1.'U -     J 18-KCPE-480-RTS   --
NORTHWESTERN NYSE-NWE                                                                        IRECENT PRICE           54 ,59 IP/ERATIO 16 ,         2Crailing:16.3)
Median: 16.0 RELATIVE PIE RATIO O86 DIV'YLDD 4.1%-
I TIMELINESS            3 Lowered 2/23118             High:
Low:
36.7 24.5 29.7 16.5 26.8 18.5 30.6 23.8 36.6 27.4 38.0 33.0 47.2 35.1 58.7 42.6 59.7 48.4 63.8 52.2 64.5 55.7 59.8 50.0
                                                                                                                                                                                                                                      .,, Target Price Range 2021 2022 2023 SAFETY                3 New5/4/12                  LEGENDS 120 TECHNICAL            5 Lowered 416/18           -         ~Ji1~ ~vi1~t~~!l ~~ta
                                                   . , , . Relative Price Strength 100
                                                                                                                                                                                                                                          ...... - .......... 80 BETA .65 (1.00 = Market) tUtl*23                  IIUN:)
o~~~~:/:ia indicates recession I/"'--..                   .....  ~ *** 1r*11
                                                                                                                                                                          .... ,.. ,., ....      ~oil r,4.. -
64 48 Ann'I Total Price Gain              Return          ...........                                                  /.', ... ,1*11,,,  11111111   I High         75 (+35%1 11%
                                                      ..... ..      *11' .. 1I 32 1111111 Low          50        (-10%          2%                                      .ui-~                  11 111 I
                                                                                                                                                                          . . ....                                                                              24 Insider Decisions J J A S 0 N D J F
                                                       -                       ...... 11
                                                                                         "'"I
                                                                                                                                                           ... -**                           .                                                                  20 16 to Buy       0 0 0 0 0 0 0 0 0 Options 1 0 1 0 0 1 0 215 to Sall      0 0 1 1 0 0 1 0 1
                                                                                                                                                                                                      -                          % TOT. RETURN 3/18 12 Institutional Decisions                                                                                                                                                                                                                                     -8 THIS     VLARITll' to Buy 2Q2017 124 101 3Q2017 118 100 4Q2017 96 97 Percent shares 30 20 I
1 yr.
3yr.
STOCK
                                                                                                                                                                                                                                          -4.9 11.4 INDEX 9.7 24.3 --
to Soll Hld's(DDD) 56186 53930 45947 traded           10
* II.              lh                                 I 11111111111111m1111111111111 1111111111 11,111(1111 11111111111 1111111111
                                                                                                                                                                                         .II   II 1111111111111111111m1 II II 5yr.         61.2       68.8 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015                                                                                                    2016 2017 2018 2019                                  (&#xa3;) VALUE LINE PUB. LLC 1, 1-23
          ..          .. 29.18 32.57 31.49 30.79 35.09 31.72 30.66 30.80 28.76 29.80 25.68 25.21                                                                             26.01 26.45 26.25 27.00                        Revenues per sh                    29.50
          ..          ..       3.20       4.00         3.62         3.70          4.40       4.62          4.76        5.42     5.18      5.45         5.39       5.92         6.74           6.76        6.95         7.30 "Cash Flow" per sh                  8.25
          ..          .. d14.32            1.71         1.31        1.44          1.77        2.02         2.14        2.53     2.26      2.46         2.99       2.90         3.39           3.34        3.45         3.55 Earnings per sh A                    4.00
          ..          ..          .. 1.00 1.24 1.28 1.32 1.34 1.36 1.44 1.48 1.52 1.60 1.92                                                                                    2.00           2.10        2.20         2.30 Div'd Decl'd per sh a* t             2.60
          ..          ..        2.25       2.26         2.81        3.00          3.47        5.26         6.30        5.20     5.89      5.95         5.76       5.89         5.96           5.60        5.70         6.70 Cap'I Spending per sh                6.25
          ..          .. 19.92 20.60 20.65 21.12 21.25 21.86 22.64 23.68 25.09                                                          26.60 31.50 33.22                    34.68 36.44 37.95 39.10                        Book Value per sh c                42.75
          ..          .. 35.60 35.79 35.97 38.97 35.93 36.00 36.23 36.28 37.22 38.75 46.91 48.17                                                                             48.33 49.37 50.25 50.4()                       Common Shs Outst'g 0               51.00
          ..          ..          ..       17.1        26.0         21.7          13.9        11.5         12.9        12.6     15.7       16.9        16.2       18.4         17.2           17.8 Bo/rt fig res are        Avg Ann'I P/E Ratio                  16.0
          ..          ..          ..         .91        1:40        1.15           .84         .77           .82        .79     1.00        .95          .85        .93          .90            .89       Value Line        Relative P/E Ratio                    .90
          ..         ..           .. 3.4% 3.6% 4.1% 5.4% 5.7% 4.9% 4.5% 4.2% 3.7% 3.3% 16%                                                                                    3.4%           3.5%
estin [ales Avg Ann'I Div'd Yield              4.1%
CAPITAL STRUCTURE as of 12/31/17                                             1260.8 1141.9 1110.7 1117.3 1070.3 1154.5 1204.9 1214.3                                      1257.2 1305.7                1320         1360 Revenues ($mill)                     1500 Total Debt $2137.3 mill. Due In 5 Yrs $332.0 mill.                              67.6        73.4         77.4        92.6     83.7      94.0 120.7 138.4                   164.2 162.7                   170          180 Net Profit ($mill)                    205 LT Debt $1815.6 mill. LT Interest $83.5 mill.                                37.3% 17.2% 25.0%                                                          .. 13.7%
9.8%     9.6% 13.2%                                   13.7%            7.6%        2.5%        3.5% Income Tax Rate                      6.5%
Incl. $22.2 mill. capitalized leases.
(LT interest earned: 3.1 x)                                                    2.3%       4.4% 14.2%                3.3%     9.4%      8.7%         8.9%      9.8%          4.3%           5.2%        6.0%        6.0% AFUDC %to Net Profit                 5.0%
46.8% 56.4% 57.2% 52.2% 53.8% 53.5% 53.4% 53.1%                                              52.0% 50.2%                 49.5%      48.5%    Long-Tenn Debt Ratio              46.0%
53.2% 43.6% 42.8% 47.8% 46.2% 46.5% 46.6% 46.9%                                              48.0% 49.8%                 50.5%      51.5%    Common Equity Ratio               54.0%
Pension Assets-12/17 $586.5 mill.                                            1434.3 1803.9 1916.4 1797.1 2020.7 2215.7 3168.0 3408.6                                      3493.9 3614.5                3775 3840          Total Capital ($mill)               4()50 Oblig $696.8 mill.
1839.7 1964.1 2118.0 2213.3 2435.6 2690.1 3758.0 4059.5                                      4214.9 4358.3                4465 4620          Net Plant ($mill)                   4975 Pfd Stock None 7.0%       6.0%          5.9%        7.0%     5.5%      5.5%        4.8%        5.2%         5.9%           5.6%        5.5%       _5.5% Return on Total Cap'I                6.0%
Common Stock 49,397,196 shs.                                                   8.9%       9.3%          9.4% 10.8%           9.0%      9.1%         8.2%       8.6%         9.8%           9.0%        9.0%        9.0% Return on Shr. Equity                9.5%
as of 2/9/18                                                                   8.9%       9.3%          9.4% 10.8%           9.0%      9.1%         8.2%       8.6%         9.8%           9.0%        9.0%        9.0% Return on Com Equity            E     9.5%
MARKET CAP: $2.7 billion (Mid Cap)                                             2.3%       3.2%          3.5%        4.7%     3.2%      3.5%         3.8%       3.0%         4.1%           3.4%        3.5%        3.5% Retained to Com Eq                   3.5%
ELECTRIC OPERATING STATISTICS                                                   74%        66%          63%          56%      65%       61%          54%       65%           58%            62%         64%          64% All Div'ds to Net Prof               64%
2015 2016 2017 BUSINESS:
  %Chaie Retail Sales (KVv!i)              -.1          -.7      +3.8                            NorthWestern Corporation (doing business as North-                        5%; other, 4%. Generating sources: hydro, 36%; coal, 29%; wind, Avg. In ust. Use (MWH~              30133 29784 30987 Western Energy) supplies electricity & gas in the Upper Midwest                                                    6%; other, 4%; purchased, 25%. Fuel costs: 31% of revenues. '17 Avg.lndust.Revsifi;;      (&#xa2;)           NA           NA           NA and Northwest, serving 433,000 electric customers in Montana and                                    reported deprec. rate: 3.0%. Has 1,600 employees. Chairman:
Capacity at Peak )                      NA           NA           NA South Dakota and 286,000 gas customers in Montana (87% of                                           Stephen P. Adik. President & CEO: Robert C. Rowe. Inc.: Dela-Peak load, Wn1er (Mw)                2096 2138 2133 Annual Load Factor(%&                    NA           NA           NA gross margin), South Dakota (12%), and Nebraska (1 %). Electric                                     ware. Address: 301 O West 69th Street, Sioux Falls, South Dakota
  %Change Cu~omers r~nd)                +1.3         +1.2        +1.3 revenue breakdown: residential, 40%; commercial, 51 %; industrial,                                   57108. Tel.: 605-978-2900. Internet: www.northwesternenergy.com.
F~ed Charge Cov. (%)                   252          253         275          We estimate that NorthWestern's                                                             wholesale customers (versus the compa-ANNUAL RATES Past                           Past Est'd '15-'17 earnings will advance moderately this                                                       ny's request for a 20% allocation). This of change (per sh)         10Yrs.           5Yrs.        to '21-'23          year. In 2018, the company will benefit                                                     forced NorthWestern to take a $0.12-a-Revenues                      -2.0% -3.0%                   2.0%             from a full year's effect of a $5.1 million                                                 share charge in 2012. Management is "Cash Flow''                   5.5%          5.0%          4.0%              gas rate hike that took effect in Montana                                                   deciding whether pursuing this matter Earnings                       8.0%          7.0%           3.5%
Dividends                      5.5%          7.0%           4.5%             last September. The refinancing of debt in                                                  further is worthwhile.
Book Value                     5.5%          8.0%           3.5%             the fourth quarter of 2017 is another plus.                                                 Another legal matter is pending. The Cat-           QUARTERLY REVENUES ($ mill.)                                However, there will be some dilution from                                                   Montana commission disallowed recovery Full endar        Mar.31 Jun.JO Sep.JO Dec.31                        Year         the equity issued in 2017 and 2018 via its                                                  of certain costs associated with a plant 2015         346.0      270.6      272.7        325.0        1214.3 at-the-market program. Our 2018 share-                                                      outage in 2013. This forced NorthWestern 2016        332.5       293.1      301.0       330.6         1257.2         earnings estimate, which we trimmed by                                                      to take a $0.13-a-share charge in the 2016.
2017        367.3       283.9      309.9       344.6         1305.7         $0.05 a share, is within NorthWestern's                                                     The utility is seeking relief in the Montana 2018         365        300        315         340           1320           targeted range of $3.35-$3.50.                                                              District Court. It expects a decision within 2019         375        310        325         350           1360           An electric rate case is upcoming in                                                        the next 12 months.
Cal-              EARNINGS PER SHARE A                        Full Montana. The utility expects to file an ap-                                                 The board of directors raised the divi-endar Mar.J1 Jun.JO Sep.JO Dec.J1 Year                                       plication by September, with an order due                                                   dend in the first quarter. The hike was 2015          1.09         .38         .51          .93         2.90        by mid-2019. NorthWestern has some. as-                                                     $0.10 a share (4.8%) annually, the same as 2016            .82        .73         .92          .92         3.39        sets that are not reflected in rates. How-                                                  a year earlier. NorthWestern is targeting a 2017          1.17         .44         .75          .98         3.34        ever, regulation in Montana has worsened                                                    payout ratio in a range of 60%-70%.
2018           1.15         .45        .80        1.05 .3.45                in recent years, which is a cause for con-                                                  This stock has a dividend yield and 3-2019          1.20          .45        .85        1.05          3.55        cern. Still, a partial year of rate relief                                                  to 5-year total return potential that Cal-         QUARTERLY DIVIDENDS PAID a* t                    Full         would benefit earniifs in 2019.                                                             are above the utility average. This fol-endar Mar.31 Jun.30 Seo.30 Dec.31 Year                                        NorthWestern ha a setback in the                                                            lows a price decline of more than 10%
2014            .40        .40         .40          .40         1.60 U.S. Court of Appeals. The utility ap-                                                      since the start of 2018. This has been a 2015            .48        .48         .48          .48         1.92        pealed an unfavorable ruling from the                                                       bad year for utility equities, but the falloff 2016            .50        .50         .50          .50         2.00        Federal , Energy Regulatory Commission,                                                     has been greater than most in this indus-2017            .525       .525        .525         .525        2.10        which ruled that just 4% of the cost of a                                                   try. There isn't a clear reason why.
2018            .55                                                         gas-fired plant could be allocated to                                                       Paul E. Debbas, CFA                                               April 27, 2018 (A) D!luted EP~. Exel. gain (loss). on discont. (B) Div'ds historiC!!IIY p~id in late Mar., June, on com. eq. in MT in '14 (elec.): 9.8%_; in '1.7 Company'~ Financ_i~I Strength                                                                                B+
ops.: 05, (6&#xa2;); 06, 1&#xa2;; nonrec. gains: '12, 39&#xa2; Sept. & Dec.
* D1v'd reinvestment plan avail. (gas): 9.55%; in SD 1n '15: none specified; 1n Stock's Pnce Stab1lrty                                                                                             95 net; '15, 27&#xa2;. '15. EPS don't add due to round- (C) Incl. defd charges. In '.17: $14.42/sh. (D) In NE in '07: 10.4%; earned on avg. com. eq., '17: Pric~ Growth ~ersi~t.ence                                                                                    85 1ng. Next earnings report due late July. mill. (E) Rate base: Net orig. cost. Rate allowed 9.5%. Regulatory Climate: Below Average.*                                                                        Earnings Predrctabrlrty                             85 .~ .
&#xa9; 2018 Value Line, Inc. All rights reseived. Factual material is obtained from sources believed to be reliable and is provided without warranties of anN kind.*-                                                                                 ;
THE PUBLISHER IS NOT RESPONSIBLE FOR AflY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. o part; I                                                     I      I '      *        *I I                     '
of tt may be reproduced, resold, stored or transmitted in anyprinted, electronic or other form, or used for generatin or ma1keting any printed or electronic ublication, seivice or product

18-KCPE-480-RTS 34 ,32 IP/ERATIO 16,7(Trailing:                           17.1) RELATIVE Q91 DIV'D OGE ENERGY CORP. NYSE-OGE                                                                                             RECENT IPRICE                                                           Median: 16.0 P/E RATIO ,                         YLD 4.3%
3 Raised 6/1/18                            High:           20.7       18.1         18.9        23.1           28.6           30.1          40.0        39.3         36.5        34.2         37.4        35.4                          Target Price Range TIMELINESS                                                               Low:            14.6          9.8         9.9        16.9          20.3           25.1          27.7        32.8         24.2        23.4         32.6        29.6                           2021 2022 2023 SAFETY                        2 Lowered 12/18/15                      -
LEGENDS 0.76 x Dividends p sh TECHNICAL 4 Raised 6/15/18                                                                                        l--+---l---+---+---+--+---+----11---+---l---+- --!-----1--+80
                                                                         . , , . i~i~f~eb~r/~!e~i~n~~e BETA .95 (1.00 = Markel)                                              2-for-1 spltt 7/13                          t---+-----l--+-----1~r.1rnc+----t--+----t--+----t--+--- &#xa3;*1u1-                                                                          --l---+-----+-60 r--t---l---+---+-.,.-----+---+---+---+---l---+---+ ---l---+---+-50
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to Sell 1 o o 2 o o o o o 1---1---+---1---+---+--1----1---1----1---1----1 ---.=--1------i % TOT. RETURN st,e ,-7.5 Institutional Decisions toBuy to Sell 3Q2017 4Q2017 1Q2018 Percent 18 151 155 Hld'sjOOO 145781 124353 126569 ra e 155 138 188 h 184 ~ ~re; 1 2 - ~ 1111 1 6
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                                                                                                                                                                                                                                      '"                  1 yr.
3 yr.
5yr.
mis STOCK 2.2 24.6 21.1 VLAR!Tll" INDEX 14.3 29.1 :::
67.5 1-0 ""VA""LU=E.,..,Ll=NE'""P=UB,....,,L.,..,LC..,.1,,..,1'""*2=3-l 19.26 21.62 27.37 32.83 21.96 20.68 21.77 14.79 19.04 19.96 18.58 14.45 12.30 11.00 11.31 11.32 12.25 13.00 Revenues per sh                                                                                                                                                                            15.25 1.87             1.82             1.87              1.94              2.23          2.39       2.40         2.69         3.01          3.31            3.69          3.46       3.40         3.23         3.31        3.34        3.55      4.00 "Cash Flow" per sh                                    4.75
          .72               .87              .89              .92             1.23          1.32        1.25        1.33         1.50          1.73            1.79          1.94       1.98         1.69' 1.69               1.92        2.05       2.15 Earnings per sh A                                      2.50
          .67               .67              .67              .67               .67           .68        .70          .71         .73            .76            .BO           .85         .95        1.05         1.16        1.27         1.40      1.54 Div'd Decl'd per sh B
* 1.85 1.49             1.04             1.51             1.65              2.67           3.04       4.01         4.37         4.36          6.48            5.85          4.99       2.86         2.74         3.31        4.13        3.15       3.15 Cap'I Spending per sh                                 2.75 6.27             6.87             7.14             7.59               8.79          9.16 10.14 10.52 11.73 13.06 14.00 15.30 16.27 16.66 17.24 19.28 19.90 20.50 Book Value per sh c                                                                                                                 22.75 157.00 174.80 180.00 181.20 182.40 183.60 187.00 194.00 195.20 196.20 197.60 198.50 199.40 199.70 199.70 199.70 199.70 199.70 Common Shs Outst'g 0 199.70 14.1              11.8            14.1              14.9              13.7          13.8        12.4        10.8         13.3          14.4            15.2          17.7       18.3         17.7        17.7          18.3 Bold fig res are Avg Ann'I P/E Ratio                                        17.0
          .77               .67              .74              .79               .74           .73        .75          .72          .85           .90            .97           .99         .96          .89          .93         .91        Value Una      Relative PIE Ratio                                        .95 6.6% 6.5%                          5.3% 4.9% 4.0% 3.8%                                          4.5%         5.0% 3.7% 3.1% 2.9%                                     2.5% 2.6%                3.5%        3.9% 3.6%                  estin ~es      Avg Ann'I Div'd Yield                               4.3%
CAPITAL STRUCTURE as of 3/31/18                                                                  4070.7 2869.7 3716.9 3915.9 3671.2 2867.7 2453.1 2196.9 2259.2 2261.1                                                                 2450 2600 Revenues ($mill)                                           3050 Total Debt $3193.7 mill. Due in 5 Yrs $694.4 mill.                                                  231.4 258.3 295.3 342.9 355.0 387.6 395.8 337.6 338.2 384.3                                                                          405        425 Net Profit ($mill)                                       520 LT Debi $2500.1 mill. LT Interest $119.8 mill.                                                    30.4% 31.7% 34.9% 30.7% 26.0% 24.9% 30.4% 29.2% 30.5% 32.5% 15.5% 15.5% Income Tax Rate                                                                                                                15.5%
(LT interest earned: 4.3x)                                                                                                                                                                                                                                                                                 3.0%
1.7% 9.1% 5.7% 9.0% 2.7% , 2.6%                                                 1.7% 3.7%                 6.4% 15.0% 8.0% 7.0% AFUDC %to Net Profit Leases, Uncapitalized Annual rentals $4.8 mill.                                                   53.3% 50.6% 50.8% 51.6% 50.7% l\3.1% 45.9% 44.3% 41.1% 41.7% 43.0% 44.0% Long-Tenn Debt Ratio                                                                                                          45.5%
46.7% 49.4% 49.2% 48.4% 49.3% 56.9% 54.1% 55.7% 58.9% 58.3% 57.0% 56.0% Common Equity Ratio                                                                                                            54.5%
Pension Assets-12/17 $635.3 mill.                                                                4058.6 4129.7 4652.5 5300.4 5615.B 5337.2 5999.7 5971.6 5849.6 6600.7                                                                 6975      7345 Total Capital ($mill)                                 8275 Oblig $687.5 mill. 5249.8 5911.6 6464.4 7474.0 8344.B 6672.B 6979.9 7322.4 7696.2 8339.9                                                                               8660      8910 Net Plant ($mill)                                      9450 Pfd Stock None                                                                                                                                                                                                7.0% 7.0% 7.0% 7.0% Return on Total Cap'I                                                    7.5%
7.0%         7.9% 7.8% 7.8% 7.7%                                      8.6% 7.8% 6.9%
Common Stock 199,731,036 shs.                                                                     12.2% 12.7% 12.9% 13.4% 12.8% 12.8% 12.2% 10.2%                                                             9.8% 10.0% 10.0% 10.5% Return on 5hr. Equity                                               11.5%
12.2% 12.7% 12.9% 13.4% 12.8% 12.8% 12.2% 10.2%                                                             9.8% 10.0% 10.0% 10.5% Return on Com Equity E 11.5%
MARKET CAP: $6.9 billion (Large Cap)                                                               5.4% 6.0% 6.7% 7.7% 7.2%                                              7.3% 6.5% 4.0%                       3.3% 3.5% 3.0% 3.0% Retained to Com Eq                                                        3.5%
ELECTRIC OPERATING STATISTICS                                                                       55%          53%          48%           43%            44%            43%        47%          61 %         67%         64%          69%       72% All Div'ds to Net Prof                                  71%
                                                       *2015 2016 ~i~ 1-=B~U~Sl~N~E7SS~:~O~G~E~E~n-e-~~y-C-or-p-.i~s-a_h_o~ld~in-g-co_m_p~an-y~f~or-O~k~la~h-o--+i-ng_s_o_ur~re-s-:-co-a~l.-34-o/c-,;-g~as-.-2~5%~,;~w~in-d-,-4%-,;-p-u-rc-ha-s-ed-,-37~%-,.-F-u-el~
   %Change Retail Sales (KWH)                             *2.9              -1.1 Avg. lnlfust. Use (MWHl                                  754                NA            NA ma Gas and Electric Company (OG&E), which supplies electricity to costs: 40% of revenues. '17 reported depreciation rate (utility):
Avg.lndust.Revsyerl(\Ml(&#xa2;)                             5.05 5.17 5.30 842,000 customers in Oklahoma (84% of electric revenues) and 2.5%. Has 2,400 employees. Chairman, President and Chief Exec-Capali1ya1Peak(Mwl                                       NA                NA            NA western Arkansas (8%); wholesale is (8%). Owns 25.6% of Enable utive Offirer: Sean Trauschke. Incorporated: Oklahoma. Address:
Peak load, Summer !Mw)                               6537 6538 6~                                 Midstream Partners. Electric revenue breakdown: residential, 40%; 321 North Harvey, P.O. Box 321, Oklahoma City, Oklahoma 73101-Annual Load Factor(Y,)                                    NA                NA
   %Change Customers ~r-n~                              +1.2 +1.1                                1----=-=-------------------....;,..__________. .:. .____
                                                                                          +1.0 commercial, 26%; industrial, 9%; oilfield, 7%; other, 18%. General- 0321. Telephone: 405-553-3000. Internet: www.oge.com.                                                                                              --I F~edChargeCov.(%)                                       314               336           315 OGE Energy's utility subsidiary has a will not have to file a general rate case to 1-A-N_N_U_A~L-RA~T~ES--P-as-t--P-a-st-E-st-'d-,-                                           -_,---i general rate case pending. Oklahoma recover its major capital projects. Instead, 15 17 of change (per sh)                   10 Yrs.                5Yrs. to '21-'23                      Gas and Electric filed for a hike of $1. 9 OG&E will recover them through various Revenues                                 -8.0% -10.0%                               5.5%          million, based on a 9.9% return on a 53% regulatory mechanisms, such as a formula
   ~~~i~;iow"                                1:g~ .;:8~ i.i~                                         common-equity ratio. The requested rate plan it will file in October.
amount is small because it reflects the ef- We estimate respectable earnings Dividends                                  5.5%               8.5%                  8.0%
Book Value                                 7.5%               6.5%                  4.0%          fects of the new federal tax law; without growth this year and next. OG&E will QUARTERLY REVENUES ($ mill.)
tax reform, OG&E would have sought over                                                                  benefit from rate relief, assuming reason-Cal-                                                                                  Full                                                                                     to place a able regulatory treatment from the Okla-endar Mar.31 Jun.30 Sep.30 Dec.31 Year $70 million. The company wants
                                                                                                     $390 million project to modernize a gas- homa. commission. The lower tax rate ap-2015 480.1 549.9 719.8 447.1 2196.9 fired plant in rates; raise the depreciation plied to OGE Energy's income from its 2016 433.1 551.4 743.9 530.8 2259.2 2017 456.0 586.4 716.8 501.9 2261.1 rate; and boost its allowed ROE from the stake in Enable Midstream Partners will 2018 492.7 625                                     782.3 550                        2450         current 9.5%. The staff of the Oklahoma add an estimated $0.08 to share net this 2019 525                          675              825                575           2600         commission recommended a $43 million year. Our 2018 estimate is at the upper EARNINGS PER SHARE A                                                  reduction, based on a 8.75% return on a end of the company's targeted range of Cal*                                                                                  Full endar Mar.31 Jun.JO Sep.30 Dec.31 Year 53% common-equity ratio, and the state $1.90-$2.05.
                         .22              .44                                               1.69 attorney general proposed a $99 million OGE Energy stock is attractive for 2015                                                    .88               .15 2016                 .13              .35               .92               .29           1.69 cut, based on a return of 9.18% on a income-oriented accounts. The divi-2017                 .18              .52               .92               .30           1.92 common-equity ratio of 50%. New rates dend yield is above average, even by utili-2018                 .27               .50            1.00                .28           2.05 are expected to take effect at the start of ty standards. In addition, management ex-2019                 .20               .55            1.10                .30           2.15 October.                                                                                                     pects the board to raise the disbursement QUARTERLY DIVIDENDS PAID a
* Full Additional regulatory matters are up- by 10% in each of 2018 and 2019, as the Cal-endar Mar.31 Jun.30 Seo.JO Dec.31 Year coming. OG&E plans to file another rate distributions OGE Energy receives from application in December, with new tariffs Enable are a good source of cash. Rapid 2014 .225                          .225 .225 .25                                         .93                                                                                             driver dividend growth should continue beyond 2015 .25                           .25              .25                .275             1.03 taking effect in mid-2019. The main 2016 .275                          .275 .275                           .3025            1.13 of this case will be a $542 million project 2019, though not necessarily at the 10%
2017 .3025 .3025 .3025 .3325                                                            1.24 to install pollution-control equipment at a level.
2018 .3325 .3325                                                                                 coal-fired plant. In Arkansas, the utility Paul E. Debbas, CFA                                                                                                          June 15, 2018 (A) Dil. EPS. Exel. nonrecur. gain (losses): '02, historically paid in late Jan., Apr., July, &Oct.* Rate allowed on com. eq. in OK in '16: 9.5%; in Company's Financial Strength                                                                                                                                  A (20&#xa2;); '03, (7&#xa2;); '04, (3&#xa2;); '15, (33&#xa2;); '17, $1.18; Div'd reinvestment plan available. (C) Incl. de- AR in '11: 9.95%; earned on avg. com. eq., '17: Stock's Price Stability                                                                                                                                    90 gains on disc. ops.: '02, 6&#xa2;; '05, 25&#xa2;; '06, 20&#xa2;. ferred charges. In '17: $1.42/sh. (D) In mill.,                                                                     10.9%. Regulatory Climate: Average.                                   Price Growth Persistence                                             50 Next earnings report due early Aug. (B) Div'ds adj. for split. (E) Rate base: Net original cost.                                                                                                                                            Earnings Predictability                                              75*~
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtain.ad from sources believed to be reliable and is provided wtthout warranties of any kind.' -                                                                                                                        1 THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS                                                   OR  OMISSIONS       HEREIN. This    publication    is strictly for subscriber's   own,    non-commercial,   internal  use. No  part      I     I     I *
* l~:!1111'111       111 of nmay be reproduced, resold, s1ored or 1ransmnted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product

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TIMELINESS 4 Lowereda/aO/lB SAFETY                               1 5
Raised5/3/13 Lowered4/6/18 High:       51.7 42.9
                                                                                         '-'-L~o~w~:~-36_._8~_26_.3~~22.3 LEGENDS 38.0            42.7 32.3 48.9 37.3 l:""T'"no_18__,.1___(~_~~i-,- i~~;l_U)-+-~_TE~--,r,i_o_.9,-16l_~~D_3--,.6&deg;___[~
54.7 45.9 l--+---4--+---l--+---l--+---4---1---4--+---4--+----l-120
                                                                                                    ~::d~vi1~t~~:.r ~~le 1--+---+--+----1--+----1--+---+---+---+--+---+--+---+-100 61.9 51.5 71.1 51.2 73.3 56.0 82.8 62.5 92.5 75.8 85.6 73.8
                                                                                                                                                                                                                                                                                                  ----I 18-KCPE-480-RTS
                                                                                                                                                                                                                                                                                                     .. Target Price Range 2021 2022 2023 TECHNICAL
                                                                                            ... , Relative ~rice Strength                                                   /"...                                                                ,,,,11,*1                                                 * * * * * * * * *
* 80 6 1 00 t-B_E_TA.,.,.,.,,,.,;:r:__.,..,.(.-....      ,. M...,a..r1<.,.,.e,.,t:.....,",N,,.--,.--t o~~~~~/:,~a indicares recession t-t----t-/7!--'-j'"::,.;it;;:t:;;;;;r.71"1"":-;--r;'i,11iJIT"*,"r
                                    ., .,..,=..
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1 11111! 1 *1**1 11 11 11111 11 -"_.._,t-----=-=-~~-a:-:-::.::.:1:-    **::---t--t-*-**_*_*-t-*-*._._.i- 64 Ann'I Total
* 1,,                         I 1,                                                                                                                                                                                                                        48 Price                      Gain                        Return ""                          11*' 1......r:::             , ,,, 11 1*
High               90 (+10%1                                                7% ,***** *------ *'                       II .........                                                                                                                                                                                                 32 Low                75                       (-5%                            3%              *-c- * -* "* ..*" *1'i;*                              -             "' ******* *                                                   * -                                                                                                  24 Insider Decisions                                                                                                 **               -* *** *, *****                                           "* , """"*"             ,,* ***            ** ** * ** _                                                                                20 J J A S O N D J F 1---+--+---+--+----+--+----+--+----t---+----+--+----t---+----t---t----t-16 toBuy o o o o o o o o o                                                                                                                                                                                                                                                                                                             12 Oplions o o o 012 o o 112 tos,11 o o 3 o o 2 1 1 o                                                                                                                                                                                                                                                                      % TOT. RETURN 3/18 _ 8 Institutional Decisions ifilllffilmm THIS     VLARITIL" 2Q2017 3Q2017 4Q2017 Percent                                                   30                                                                                                                                                                                             STOCK       INDEX       .,.
toSuy                        194                      218                     182 shares               20                                                                                                                                                                                  1 yr.       -1.2         9.7       _
to Sell                      224 Hld's(DDDI 107032 104825 94333 185                     183 traded                10                                                      '"                       "'1nttffl "" ,. * * " *1111111111111111111 II,,
llll11111111U1111111lllll11 illUul!uJJW11111111111111111 3 yr.
5 yr.
39.0 65.3 24.3 68.8 i-;2;:;,0~02~2='=0,:,;0'="3-r2""'0="0""4"T":'20:i:,o:ei:5.-h:2=oo""'s,..,..,.2=0=07::'lf'!,200s 2009 2010 2011 2012 2013 2014 2015 2:H/0~16,!II/J,!2l'!,Ou,&,17~2!:-,0,.,,1=s"'-=20""'1=9+-@"",v.=A""'Lu=-E""LIN=E""'Pu=s.....L,...,LC"",,1.,,1...,.-2"'"3-l 28.90 30.87 31.59 30.16 34.03 35.07 33.37 32.50 30.01 29.67 30.09 31.35 31.58 31.50 31.42 31.90 32.80 34.30 Revenues per sh                                                                                                                                                                                                    39.75 7.01                    7.33                      6.93                    5.76          9.70       9.29       8.13         8.08            6.85         7.52           7.92             8.15         8.09        9.09          9.39         9.79 10.10 10.65 "Cash Flow" per sh                                              12.75 2.53                    2.52                      2.58                    2.24          3.17       2.96       2.12         2.26            3.08         2.99           3.50             3.66         3.58        3.92          3.95         4.43             4.50           4.70 Earnings per sh A                              5.50 1.63                    1.73                      1.83                    1.93          2.03       2.10       2.10         2.10            2.10         2.10           2.67             2.23         2.33        2.44          2.56         2.70             2.86           3.02 Div'd Decl'd per sh e
* 3.50 9.81                    7.60                      5.86                    6.39          7.59       9.37       9.46         7.64            7.03         8.26           8.24             9.36         8.38        9.84         11.64 12.80 11.25 10.80 Cap'I Spending per sh                                                  11.00 29.44 31.00 32.14 34.57 34.48 35.15 34.16 32.69 33.86 34.98 36.20 38.07 39.50 41.30 43.15 44.80 46.35 48.00 Book Value per sh c                                                                                                                                                                                                54.00 91.26 91.29 91.79 99.08 99.96 100.49 100.89 101.43 108.77 109.25 109.74 110.18 110.57 110.98 111.34 111.75 112.00 112.25 Common Shs Outst'g 0 113.00 14.4                    14.0
* 15.8                                       19.2          13.7       14.9       16.1         13.7            12.6         14.6           14.3             15.3         15.9        16.0          18.7          19.3 Bold fig res are Avg Ann I P/E Ratio                                          15.0
          .79                      .80                      .83                   1.02           .74         .79        .97          .91             .80\         .92            .91              .86          .84         .81          .98           .97            Value Line               Relative PIE Ratio                         .85 estlniates 4.5%                    4.9%                     4.5%                     4.5%           4.7%       4.8%       6.2%         6.8%           5.4%          4.8%          5.3%             4.0%         4.1%         3.9%          3.5%         3.2%                                       Avg Ann'I Div'd Yield                  4.2%
CAPITAL STRUCTURE as of 12/31/17                                                                                3367.1 3297.1 3263.6 3241.4 3301.8 3454.6 3491.6 3495.4 3498.7 3565.3                                                                            3675 3850 Revenues ($mill)                                         4500 Total Debl$4829.4 mill. Due in 5 Yrs $1188.4 mill.                                                               213.6 229.2 330.4 328.2 387.4 406.1 397.6 437.3                                                                   442.0 497.8                     505            535 Net Profit ($mill)                              630 LT Debt $4789.7 mill. LT Interest $213.6 mill.                                                                  23.4% 36.9% 31.9% 34.0% 36.2% 34.4% 34.2% 34.3% 33.9% 32.5% 18.0% 18.0% Income Tax Rate                                                                                                                          18.0%
Incl. $13.4 mill. Palo Verde sale leaseback lessor notes.                                                                                                          17.5% 11.2% 11.7% 12.8%                                   9.7% 10.0% 11.6% 11.8% 14.1% 13.9% 13.0% 10.0% AFUDC %to Net Profit                                                                                       8.0%
(LT interest earned: 4.4x)                                                                                      46.8% 50.4% 45.3% 44.1% 44.6% 40.0% 41.0% 43.0% 45.6% 48.9% 48.0% 48.5% Long-Tenn Debt Ratio                                                                                                                    45.5%
Leases, Uncapitalized Annual rentals $13.4 mill.                                                                53.2% 49.6% 54.7% 55.9% 55.4% 60.0% 59.0% 57.0% 54.4% 51.1% 52.0% 51.5% Common Equity Ratio                                                                                                                      54.5%
Pension Assets-12/17 $3057.0 mill.                                                                              6477.6 6686.6 6729.1 6840.9 7171.9 6990.9 7398.7 8046.3 8825.4 9796.4                                                                            9985 10480 Total Capital ($mill)                                11175 Oblig $3394.2 mill. 8916.7 9257.8 9578.8 9962.3 10396 10889 11194 11809 12714 13445 14075 14625 Net Plant ($mill)                                                                                                                               16125 Pfd Stock None 4.7%         4.8%            6.5%         6.4%          6.8%              7.1%        6.4%         6.4%          6.0%         6.1%             6.0% 6.0% Return on Total Cap'I                                   6.5%
Common Stock 111,799,789 shs.                                                                                     6.2%         6.9%            9.0%         8.6%           9.8%             9.7%         9.1%        9.5%          9.2%         9.9% 10.0% 10.0% Return on Shr. Equity                                           10.5%
as of 2/16/18                                                                                                     6.2%         6.9%            9.0%         8.6%           9.8%             9.7%         9.1%        9.5%          9.2%         9.9% 10.0% 10.0% Return on Com Equity E 10.5%
MARKET CAP: $9.0 billion (Large Cap)                                                                                .3%          .7%           3.1%         2.8%          4.1%              4.1%         3.5%        3.9%          3.5%         4.2%             3.5% 3.5% Retained to Com Eq                                       4.0%
ELECTRIC OPERATING STATISTICS                                                                                      96%          89%            66%           68%            58%             58%          62%          59%           62%          58%              63%            63% All Div'ds to Net Prof                          63%
   %Change Retail Sales (KW!i)
                                                             .                 2015
                                                                               +1.3 2016
                                                                                                +.3 20  !~ *1--B-U-SI_N....ES_S_:_P-in....na_c_le_W_e.._s_tC-a-p-ita"'"1-c-or-po_r...at-io-n-is_a.._h_o_ld-ing_,_co_m_p-a-_,_c_o_m_m_e....rc-ia-l,-40_%....,;_i-nd-u-st...ria-1,-5-%-,;"'"o-th-e-r,-5-%-.-G-en-e-ra-ti-ng_..so-u-rc-es-:-t Avg. lnlfust. Use (Ml'llff                                                    658           640        620      ny for Arizona Public Service Company (APS), which supplies elec-                                               nuclear, 29%; gas & other, 26%; coal, 22%; purchased, 23%. Fuel Avg.lndust.Revs1.erl(\l,li(&#xa2;)                                                8.17          8.37       8.34      tricity to 1.2 million customers in most of Arizona, except about half                                          costs: 28% of revenues. '17 reported deprec. rate: 2.8%. Has 6,300 Capacitya!Peak(MWl                                                          9250          9192       8438       of the Phoenix metro area, the Tucson metro area, and Mohave                                                    employees. Chairman, President & CEO: Donald E. Brandt. Inc.:
Peak Load, Summer (Mw)                                                      7031          7051         36 Annual Load Factor(%)                                                        48.3          48.0      ~6 ~       County in northwestern Arizona. Discontinued Suncor real estate                                                 AZ.. Address: 400 North Fifth St., P.O. Box 53999, Phoenix, AZ.
   %Change Customers (yr-end)                                                   +1.3          +1.3       +1.8      subsidiary in '10. Electric revenue breakdown: residential, 50%;                                                85072-3999. Tel.: 602-250-1000. Internet: www.pinnaclewest.com.
1-------------------------------------------t F~edChargeCov.(%)                                                             438           416        425      Pinnacle West's utility subsidiary has                                                                          crease this year. Pinnacle West raised 1-A-N_N_U_,A._L_RA-'-'TE'-S--Pa_s_t--P-as_t_E-st-,d-,- -.,--1 15 17 asked the Arizona Corporation Coin-                                                                             its 2018 earnings guidance by a dime a ofchange(persh)                                    10Yrs.                        5Yrs.          to'21-'23       Inission for a rate increase. Although                                                                          share, to $4.35-$4.55, due largely because Revenues                                                   -.5%                    1.0%            4.0%         the rate order last year for Arizona Public                                                                     the company raised its expectation for the "Cash Flow''                                              1.5%                     5.0%            5.0%         Service froze base tariffs mid-2020, the                                                                        Allowance for Funds Used During Con-Btrcl~R~s                                                 tg~ ~:g~ ~:g~                                         ruling also allowed APS to file for recovery                                                                    struction, a noncash credit to income. Ad-Book Value                                                2.0%                     4.0%            4.0%         of an environmental project at the Four                                                                         ditional expense-management initiatives Comers coal-fired station through a rider                                                                       are another factor. We raised our estimate Cal-endar QUARTERLY REVENUES ($ mill.)
Mar.31 Jun.30 Sep.30 Dec.31 Full Year       (surcharge) on customers' bills. The utility                                                                                        a by $0.10 share, to $4.50.
2015              671.2                    890.7 1199.1 is .seeking an increase of $65 million                                                                          We forecast higher profit growth in 734.4      3495.4 2016              677.2                    915.4 1166.9                                739.2      3498.7       (about 2%), and no change in the allowed                                                                       2019. The aforementioned rate rider 2017              677.7                    944.6 1183.3                                759.7      3565.3      return on equity of 10%. A decision is ex-                                                                      should help.
* In addition, the utility's 2018              700                       975 1225                                   775        3675        pected in time for the rider to take effect                                                                     strong (and rising) customer growth rate is 2019              725                    1025 1300                                      800       3850        at the start of 2019. The project should be                                                                     stimulating modest kilowatt-hour sales Cal-                             EARNINGS PER SHARE A                                                Full completed soon at a cost of $390 million.                                                                       growth, despite the effects of energy ef-endar               Mar.31 Jun.30 Sep.30 Dec.31                                                       Year      The costs that the company will incur this                                                                      ficiency. Our $4.70-a-share earnings es-2015                       .14                   1.10                      2.30            .37       3.92     year will be deferred for recovery begin-                                                                       timate would produce an increase of 4% .
2016                       .04                   1.08                      2.35            .47       3.95     ning next year under the rider.                                                                                 This untnnely stock has a dividend 2017                       .21                   1.49                      2.46            .27       4.43     Another large capital project is under                                                                          yield and 3- to 5-year total return 2018                       .25 1.30 2.60                                                   .35       4.50     construction. APS is building five gas-                                                                         potential that are about average, by 2019                       .25                   1.35 2.70                                 .40       4.70     fired units and retiring two at an esti-                                                                        utility standards. Perhaps conservative Cal-                    QUARTERLY DIVIDENDS PAID e
* Full mated cost of $500 million. This will in-                                                                       investors will find this acceptable, given endar Mar.31                                 Jun.30 Seo.30 Dec.31                                     Year      crease the utility's generating capacity by                                                                     the equity's top-notch Safety rank and the 2014                   .568                  .568                         .568           .595        2.30 290 megawatts. Costs associated with this                                                                       company's high rating for Financial 2015                   .595                  .595                         .595           .625        2.41 project will be deferred until APS recovers                                                                     Strength. However, like most utility is-2016                   .625                  .625                         .625           .655        2.53     these. in its next base rate increase,                                                                          sues, the recent price is within our 2021-2017                   .655                  .655                         .655           .695        2.66     presumably in mid-2020.                                                                                         2023 Target Price Range .
2018                   .695                                                                                   We estnnate a Inodest earnings in-                                                                               Paul E. Debbas, CFA                                                       April 27, 2018 (A) Diluted EPS.                                Exel. nonrec. gain (losses): '16 EPS don't sum due to rounding. Next earn- avail. (C) Incl. defd chgs. In '17: $14.34/sh.                                                                                              Company's Financial Strength                                    A+
'02, (77&#xa2;); '09, ($1.45); '17, 8&#xa2;; gains (losses) ings report due early May. (B) Div'ds historical- (D) In mill. (E) Rate base: Fair value. Rate al-                                                                                                                   Stock's Price Stability                                          95 from disc. ops.: '05, (36&#xa2;); '06, 10&#xa2;; 'OB, 28&#xa2;; ly pd. in early Mar., June, Sept., & Dec. There lowed on com. eq. in '17: 10.0%; earned on                                                                                                                            Price Growth Persistence                                         70
'09, (13&#xa2;); '10, 18&#xa2;; '11, 10&#xa2;; '12, (5&#xa2;). '15 & were 5 declarations in '12.
* Div'd reinv. plan avg. com. eq., '17: 10.0%. Regul. Climate: Avg.                                                                                                                       Earnings Predictability                                          95~
&#xa9; 2018 Value Line, Inc. All righls reserved. Factual malarial is oblained from sources believed to be reliable and is provided wtthout warranlies of any kind.'
TH.E PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is slriclly for subscriber's own, non-commercial, internal use. No part:                                                                                                         I                     I'               :111111111~111 of tt may be reproduced, resold, slored or transmnted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product;

L)l,.,Hl,.,UUll,., I"U. .LU -       J 18-KCPE-480-RTS PORTLAND GENERAL NYSE-POR                                                                  IRECENT PRICE         40 ,92 IP/ERATIO 18 ,4Crailing:17.9)                        RELATIVE O Median: 16.0 P/E RATIO                    I 98 IDIV'YLDD 3.5%fl:I 21.4       22.7        26.0       28.1         33.3     40.3        41.0           45.2          50.1         45.6
* Target Price Range TIMELINESS             4 Lowered 3/23/18          High:
Low:
31.3 25.5 27.7 15.4        13.5         17.5       21.3       24.3         27.4     29.0        33.0           35.3          42.4         39.0                            2021 2022 2023 SAFETY                 2 Raised 5/4/12           LEGENDS TECHNICAL              5 Lowered 4/20/18 -. . . . ~i~e~         i"i1;1~1!sf ~~te Relatwe Price Strength 80 60 BETA .65 (1.00 = Market)
O~~~~~/:!a indicates recession                                            -                                                   ...                                                                        50 11111111*1 "U"l-23       t'KUJtl.llUN::i Ann'! Total                                                                                        -               u.or 1*,,111 111 ,
40 I                                                                   /                                                                                                                                    30 High Price        Gain       Return        ,.      ,1    111111       .,                                                            '                                                                                                              25 50                       9%
Low          35 Insider Decisions
(+20%1
(-15%         1%               .. ****..  ~K
                                                                         ,1111111
                                                                            ****111 11,11::* .. 11*  "'
I''                                                                                                                                     20 15 to Buy J J A S 0 N D J F 0 0 0 0 0 0 0 0 0                      ./
                                                            /                         I    - **
                                                                                                 *.......... ......**** ....*****" .......~-- ........** ......... *****-. .--******                                                                       10 Options     10 O O10 O 0 0 0 5                                                                                                                                                                                                                        -7.5 to Soll       0 0 0 0 0 0 0 0 1                                                                                                                                                                                            % TOT. RETURN 3/18 Institutional Decisions                                         I                                                                                                                                                                   THIS    VLARITH.'
2Q2017      3Q2017     4Q2017 Percent            21             I                                  11                   I  I                                                   I 1yr.
STOCK
                                                                                                                                                                                                                                      -6.0 INDEX 9.7 11~~~[111 ]~~~1111~~ij~l l1~~~ijl ~ 1
* to Buy to Soll 147 112 122 118 136 shares 91 traded 14                                                                                                             11*'' 11           11                     3yr.      19.9       24.3   --
7                                                                                                                                II                     5yr.      55.5       68.8 Hld'sJOOO) 88988 88359 81125                                                                                                                                                   111111111111 2002 2003 2004 2005F 2006 2007                                                                                         2012 2013 2014 2015                             2016 2017 2018 2019                                rs, VALUE LINE PUB. LLC 1-23
         ..            --         .. 23.14 24.32 27.87                     27.89        23.99       23.67       24.06      23.89 23.18 24.29 21.38                          21.62 22.54 22.70 23.50                       Revenues per sh                 25.75
         ..            --         .. 4.75 4.64 5.21                          4.71         4.07        4.82        4.96       5.15        4.93     6.08         5.37            5.78         6.16          6.40       6.85 "Cash Flow" per sh               8.00
         --            --         -* 1.02 1.14 2.33                          1.39         1.31        1.66        1.95       1.87        1.77     2.18         2.04           2.16          2.29         2.20        2.35 Earnings per sh A                 2.75
         ..            --         ..         -*        .68         .93        .97         1.01        1.04        1.06       1.08        1.10     1.12         1.18            1.26         1.34          1.42       1.50 Div'd Decl'd per sh 8
* t         1.80
         -*            --         --      4.08        5.94       7.28        6.12         9.25        5.97        3.98       4.01        8.40 12.87            6.73           6.57          5.77         6.35        5.10 Cap'! Spending per sh             5.00
         --           ..          -- 19.15 19.58 21.05                     21.64        20.50       21.14       22.07      22.87 23.30 24.43 25.43                          26.35 27.11 27.85 28.70                       Book Value per sh c             31.50
         ..            ..         -- 62.50 62.50 62.53                     62.58        75.21       75.32       75.36      75.56 78.09 78.23 88.79                          88.95 89.11                 89.25 89.40       Common Shs Outst'g "            90.00
         ..            --         ..         .. 23.4 11.9                    16.3         14.4        12.0        12.4       14.0        16.9     15.3         17.7            19.1         20.0 Bold fig res are         Avg Ann'I P/E Ratio               15.5
          ..           --         ..         --       1.26         .63        .98          .96          .76        .78         .89         .95      .81          .89           1.00         1.01          Value Uno       Relative PIE Ratio                  .85 estin ates
         ..            --         ..         ..      2.5%       3.3%        4.3%        5.4%        5.2%        4.4%       4.1%         3.7%     3.3%        3.3%            3.1%          2.9%                           Avg Ann'! Div'd Yield           4.2%
CAPITAL STRUCTURE as of 12/31/17                                        1745.0 1804.0 1783.0 1813.0 1805.0 1810.0                            1900.0      1898.0         1923:0 2009.0                  2025 2100 Revenues ($mill)                        2325 Total Debi $2426 mill. Due in 5 Yrs $460 mill.                             87.0         95.0 125.0 147.0 141.0 137.0                           175.0       172.0           193.0 204.0                   195        210 Net Profit ($mill)                 255 LT Debt $2426 mill.               LT Interest $123 mill.                28.7% 28.8% 30.5% 28.3% 31.4% 23.2%                                  26.0%       20.7%           20.6% 25.3%                 12.5% 12.5% Income Tax Rate                       12.5%
Incl. $49 mill. capitalized leases.                                                                                                                                                      8.8%         7.0% 5.0% AFUDC %to Net Profit                    4.0%
17.2% 31.6% 17.6%                     5.4%       7.1% 14.6%           33.7%       19.8%           16.6%
(LT interest earned: 3.1x)
Leases, Uncapitalized Annual rentals $9 mill.                           46.2% 50.3% 53.0% 49.6% 47.1% 51.3%                                   52.7%      47.8%           48.4% 50.1%                 47.0% 50.5% Long-Tenn Debt Ratio                 48.5%
Pension Assets-12/17 $629 mill.                                         53.8% 49.7% 47.0% 50.4% 52.9% 48.7%                                   47.3%      52.2%            51.6% 49.9%                53.0% 49.5% Common Equity Ratio                   51.5%
Oblig $869 mill.         2518.0 3100.0 3390.0 3298.0 3264.0 3735.0                             4037.0      4329.0          4544.0 4842.0                 4710        5190 Total Capital ($mill)            5500 Pfd Stock None                                                         3301.0 3858.0 4133.0 4285.0 4392.0 4880.0                             5679.0      6012.0          6434.0 6741.0                 6930       6985  Net Plant ($mill)                7000 5.0%         4.5%        5.4%       6.2%       5.9%         5.1%     5.8%        5.4%            5.6%          5.5%          5.5%       5.5%  Return on Total Cap'I            6.0%
Common Stock 89,114,522 shs.
as of 2/2/18                                                              6.4%         6.2%        7.9%        8.8%      8.2%         7.5%     9.2%        7.6%            8.2%          8.4%          8.0%       8.5%  Return on Shr. Equity            9.0%
6.4%         6.2% . 7.9%             8.8%      8.2%         7.5%     9.2%        7.6%            8.2%          8.4%          8.0%       8.5%  Return on Com Equity       E     9.0%
MARKET CAP: $3.6 billion (Mid Cap)                                        2.0%         1.5%        3.0%       4.1%        3.5%        2.9%     4.6%        3.3%            3.5%          3.6%          3.0%       3.0% Retained to Com Eq                3.5%
ELECTRIC OPERATING STATISTICS                                              69%          76%         62%         54%        57%         61%      50%          56%             57%          58%           64%         63% All Div'ds to Net Prof            63%
2015       2016         2017                                                                                                       28%; coal, 15%; wind, 8%; hydro, 8%; purchased, 41%. Fuel costs:
  %Cha?e Retail Sales (KWH)               +.6        -2.1      +3.9       BUSINESS: Portland General Electric Company (PGE) provides Avg. In ust. Use (MWH~             17485 16146 16041                    electricity to 875,000 customers in 52 cities in a 4,000-square-mile                            30% of revenues. '17 reported depreciation rate: 3.6%. Has 2,900 Avg.lndust.Revs~           (I)        5.01       4.99        4.94       area of Oregon, including Portland and Salem. The company is in                                 employees. Chairman: Jack E. Davis. President and Chief Execu-CapacityatPeak ~                     4609 4730 4743                     the process of decommissioning the Trojan nuclear plant, which it                               tive Officer: Maria M. Pope. Incorporated: Oregon. Address: 121 Peak load, Summer! )                 3914 3726 3976                     closed in 1993. Electric revenue breakdown: residenlial, 48%; com-                              S.W. Salmon Street, Portland, Oregon 97204. Telephone: 503-464-Annualloadfactor(Y,/                    NA          NA         NA
  %Change Customers yr-end)             +1.2       +1.2        +1.3       mercial, 33%; industrial, 11 %; other, 8%. Generaling sources: gas,                             8000. Internet: www.portlandgeneral.com.
F~ed Charge Cov. (%)                   243         271        298       Portland General Electric has filed a                                                           Unrecovered costs associated with the rate case. The utility requested an in-                                                         Carty gas-fired plant continue to be a ANNUAL RATES Past                          Past Esl'd '15-'17                                                                                                           drag on earnings. The facility was com-of change (per sh)          10Yrs.        5Yrs.        to '21-'23       crease of $89 million (4.8%), based on a re-Revenues                       -1.5%       -2.0%          3.0%          turn of 9.5% on a common-equity ratio of                                                        pleted in 2016, several months after PGE "Cash Flow"                     1.5%        3.0%          5.5%          50%. An order from the Oregon Public                                                            declared the contractor of the project in Earnings
* 4.0%         3.5%          4.0%                                                                                                          default of the construction agreement.
Dividends                       9.0%        3.5%          6.0%          Utility Commission (OPUC) is expected in Book Value                      3.0%        3.5%          3.0%          December, with new tariffs taking effect at                                                     However, $123 million of the plant's $637 the start of 2019.                                                                              million cost are not reflected in rates. PGE Cal-           QUARTERLY REVENUES ($ mill.)                  Full                                                                                                     filed suit against the contractor's insurer, endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                  Earnings are likely to decline this year. Favorable weather patterns helped                                                         seeking to collect a $145.6 million perform-2015 473.0 450.0 476.0 499.0 1898.0                                                                                                                                    ance bond, plus damages. The company ex-2016 487.0 428.0 484.0 524.0 1923.0 the bottom line in 201 7, but the weather 2017 530.0 449.0 515.0 515.0 2009.0                                    in early 2018 turned the other way. In                                                          pects resolution of this matter to take two
 . 2018 530                 455       515        525          2025        fact, the Portland area had its second-                                                       . to four years, but was citing the same time 2019 555                 470       530        545          2100        warmest January on record. We have                                                              frame two years ago. Unrecovered costs EARNINGS PER SHARE A                              lowered our earnings estimate by $0.20 a                                                        and litigation expenses reduced earnings Cal-                                                         Full endar Mar.31 Jun.JO Sep.30 Dec.31 Year                                  share, to $2.20. Our revised estimate is                                                        by $0.09 a share in 2017, and the loss will 2.04 within PGE's guidance of $2.10-$2.25 a*                                                         widen to an estimated $0.12 a share this 2015            .62          .44       .40         .57 2016            .68          .42       .38         .68        2.16     share .                                                                                         year due to the lower tax shield from the 2017            .82          .36       .44         .67        2.29     There is a possible risk to earnings                                                            reduced federal tax rate.
2018             .70         .42       .43         .65        2.20     this year. PGE is going to ask the OPUC                                                         We forecast an earnings recovery in 2019            .75          .45       .45         .70        2.35     for permission to defer (for future                                                             2019. We assume normal weather condi-QUARTERLY DIVIDENDS PAID 8
* t                  Full recovery) costs in 2018 associated with the                                                     tions and reasonable treatment in the Cal-endar Mar.31 Jun.30 Seo.JO Dec.31 Year                                  upgraded customer information system the                                                         aforementioned rate case.
company expects to complete soon. If the                                                        This untimely stock has a dividend 2014          .275        .275       .28        .28           1.11                                                                                                     yield and 3- to 5-year total return 2015          .28         .28        .30        .30           1.16     OPUC doesn't approve this request and 2016          .30         .30        .32         .32          1.24     the utility must incur these costs, this                                                        potential that are about average for a would reduce earnings by $0.10 a share                                                          utility.                         ,
2017          .32         .32        .34         .34          1.32 2018          .34         .34                                          this year.                                                                                       Paul E. Debbas, CFA                                           April 27. 2018 (A) Diluted EPS. Exel. nonrecurring losses: '13, Div'd reinvestment plan avail. t Shareholder in- 9.5%; earned on avg. com. eq., '17: 8.5%. , Company's Financial Strength*                                                                               B++
42&#xa2;; '17, 19&#xa2;. '15 EPS don't sum due to round- veslment plan avail. (C) Incl. deferred charges. Regulatory Climate: Average. (F) '05 per-share Stock's Price Stability                                                                                      95 ing. Next earnings report due late July. In '17: $4.92/sh. (D) In mill. (E) Rate base: Net data are pro forma, based on shs. oulstanding Price Growth Persistence                                                                                           65 (B) Div'ds paid mid-Jan., Apr., July, and Oct.
* orig. cost. Rate allowed on com. eq. in '18: when stock began trading in '06.                                                                               Earnings Predictability                         so***
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wtthout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial,                                       internal  use. No part   ~To s~bscribe call 1-800-VALUEL~EJ of tt may be reproduced, resold, stored or transmttted in any printed, electronic or other form, or used .for generating or marketing any printed or electronic publication, service or product:

L.J\,,,ll\,,,UUl\,,, I'.Ul'U -                J 18-KCPE--480-RTS XCEL ENERGY NDQ-XEL                                                                                     I RECENT PRICE 45 ,61 IP/ERATIO 18 ,8                        (Trailing: 19.7)
Median: 15.0 RE~_JIVE PIE RATIO 1,00 IDIV'YLDD 3.4o'o*/( 1.iu,,, **                   1 TIMELINESS               4 Lowered 3/23118                     High:          25.0        22.9       21.9       24.4          27.8            29.9          31.8       37.6             38.3               45.4            52.2         48.4                       *~ Target Price Range Low:            19.6        15.3       16.0       19.8          21.2             25.8         26.8       27.3             31.8               35.2           40.0          41.5 SAFETY TECHNICAL 8          50 1 00 1 Raised 5/1/15 5 Lowered 4/27/18 1--E-TA,.,-.*.,,..,.(.-..,...,=,..M.,.ark.,.e,.l)....,,....--1
                                                                -~=~
LEGENDS
                                                                , , , , Relative ~rice Strength
                                                                &deg;~t~~~/:!a          indicates recession   t--t----t---+---t----t----tt---t::=::::--1--.;;m'tl--;;----tt--- +----t~--t----t'- 50 2021 2022 2023 00 60
            ~u,n-23 rt<uJt:i; 11uN:;                                                                                                                                                                   -       .,,.:--,_,,,.,... 11 o                                      * *** * * ***
* 40 1
Price Gain An~~tJ~a 1---1---l---1---l---l--..,,e.l=-'~~----+.:irn:;::;;:pill!*ii                                                                                t:'i:."::"'"1'.11'.!~11 '..::"1---l---*-l-*_::*.:.*:.:**:4:-"'.--l---l---l---l--30 High         50 (+10%)                        6%                                                                                ........ , ...,, .... ,, ' ... ., '*                                                                                                                                   25 Low          45                (Nil)          3%             ,,, .... ,..... ..11*' .:;'.., .;;,,,.*           ~                  '                                                                                                                                                                    20 Insider Decisions                                                                     _. _.,. *, -*                                                                                                                                                                                                    15 J J A S             O    N D J F ****_                      -....                          ********* -.. ******               -** -.....*.                                                00 Ii to Buy       O O O 1              0   0 0 0 0                                                                                                                "**     "     ** *.,. *****                                              "                                                                10
: 10. * -
Options      O O O O              O   O o O12 tos,n        OO        1 0        0   1 1 0 0              1-------------+--+----+--+-------- ----------1                                                                                                                                                     %TOT.RETURN3/18                       -  7 ,5 Institutional Decisions                                                                                                                                      I                                                                                                         THIS     VLARITH."
to Soll to Buy 2Q2017 294 242 Hld's(DD0) 416718 418292 379245 3Q2017 286 246 4Q2017 280 216 Percent shares traded 15 t 5
I                    I              I                     -
* II               ~ - - - i - - - < 1 yr.
3 yr.
5 yr.
STOCK 5.6 44.5 79.4 INDEX 9.7 24.3 68.8 l-:2=0"='02.,.,..,2=0=0=3T"2=0=0,...,.4-r-=20=0=5--2=oo=s,...,...,,2"'"00=7 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019                                                                                                                          &#xa9;VALUELINEPUB.LLC 1-23 23.89 19.90 20.84 23.86 24.16 23.40
* 24.69 21.08 21.38 21.90 20.76 21.92 23.11 21.72 21.90 22.46 22.55 22.90 Revenues per sh                                                                                                                                                                      25.25 3.14         3.35            3.27           3.28           3.61          3.45         3.50      3.48        3.51          3.79           .4.00          4.10      4.28               4.56              5.04            5.47         5.90        6.15 "Cash Flow" per sh                           7.25
           .42        1.23            1.27            1.20           1.35         1.35         1.46      1.49        1.56          1.72            1.85          1.91      2.03               2.10              2.21            2.30         2.45        2.55 Earnings per sh A                             3.00 1.13           .75             .81             .85            .88           .91        .94        .97       1.00          1.03            1.07          1.11      1.20                1.28             1.36             1.44        1.52        1.60 Div'd Decl'd per sh e
* 1.90 6.04         2.49            3.19           3.25           4.00          4.89         4.66      3.91        4.60          4.53            5.27          6.82      6.33               7.26              6.42            6.54         8.25        7.95 Cap'I Spending per sh                         6.75 11.70 12.95 12.99 13.37 14.28 14.70 15.35 15.92 16.76 17.44 18.19 19.21 20.20 20.89 21.73 22.56 23.55 24.85 Book Value per sh c                                                                                                                                                                    28.00 398.71 398.96 400.46 403.39 407.30 428.78 453.79 457.51 482.33 486.49 487.96 497.97 505.73 507.54 507.22 507.76 509.50 518.00 Common Shs Outst'g " 522.50 NIVI~         11.6            13.6           15.4           14.8          16.7         13.7      12.7        14.1          14.2            14.8          15.0      15.4                16.5             18.5            20.2 Bold fig res are Avg Ann'I PIE Ratio                                   16.0 NMF             .66             .72             .82           .80            .89        .82        .85        .90            .89             .94           .84      .81                     .83           .97            1.02        Value Una        Relative P/E Ratio                              .90 6.6%         5.2%            4.7%          4.6%            4.4%                                                                                                                                                                       estln ates 4.0%        4.7%       5.1%       4.5%           4.2%            3.9%         3.9%      3.8%             3.7%                 3.3%            3.1%                           Avg Ann'I Div'd Yield                       4.0%
CAPITAL SlRUCTURE as of 12/31/17                                                         11203 9644.3 10311 10655 10128 10915 11686 11024 11107 11404 11500 11850 Revenues ($mill)                                                                                                                    13250 Total Debt $15791 mill. Due in 5 Yrs $4262 mill.                                          645.7
* 685.5 727.0 841.4 905.2 948.2 1021.3 1063.6 1123.4 1171.0                                                                              1240        1320 Net Profit ($mill)                            1575 LT Debt $14520 mill. LT Interest $646 mill.
34.4% 35.1% 37.5% 35.8% 33.2% 33.8% 33.9% 35.8% 34.1% 30.7%                                                                                     9.0% 9.0% Income Tax Rate                                     9.0%
Incl. $151 mill. capitalized leases.
(LT interest earned: 3.5x)                                                               15.9%' 16.8%. 11.7%                   9.4% 10.8% 13.4% 12.5%                                   7.7%                7.8%            9.4% 11.0% 10.0% AFUDC %to Net Profit                                       7.0%
52.2% 51.6% 53.1% 51.1% 53.3% 53.3% 53.0% 54.1% 56.3% 55.9% 58.0% 57.0% Long-Term Debt Ratio                                                                                                                58.0%
Leases, Uncapitalized Annual rentals $238 mill.                                          47.1% 47.7% 46.3% 48.9% 46.7% 46.7% 47.0% 45.9% 43.7% 44.1% 42.0% 43.0% Common Equity Ratio                                                                                                                 42..0%
Pension Assets-12/17 $3088 mill.                                                         14800 15277 17452 17331 19018 20477 21714 23092 25216 25975 28450 29775 Total Capital ($mill)                                                                                                                34800 Oblig $3828 mill.
Pfd Stock None                                                                          17689 18508 20663 22353 23809 26122 28757 31206 32842 34329 36775 39050 Net Plant ($mill)                                                                                                                    42900 6.0%       6.2%        5.7%          6.5%            6.1%          6.0%      6.0%             5.8%                5.7%            5.8%         5.5% 5.5% Return on Total Cap'I                               6.0%
Common Stock 508,064,983 shs.                                                             9.1%       9.3%        8.9%          9.9% 10.2%                    9.9% 10.0% 10.0% 10.2% 10.2% 10.5% 10.5% Return on 5hr. Equity                                                                           10.5%
as of 2/19/18                                                                             9.2%       9.4%        8.9%          9.9% 10.2%                    9.9% 10.0% 10.0% 10.2% 10.2% 10.5% 10.5% Return on Com Equity E 10.5%
MARKET CAP: $23 billion (Large Cap)                                                       3.8%       3.7%       3.6%           4.3%            4.7%          4.5%      4.5%             4.3%                4.0%            3.9%         4.0% 4.0% Retained to Com Eq                                   4.0%
ELEClRIC OPERATING STATISTICS                                                              59%        61%        59%            56%             54%          54%        55%               57%                61%             62%          62%        62% All Div'ds to Net Prof                          63%
2015 2016 20~~ +---B-US_I_N....                     ES_S_:_X_c....
el-En-e-rg....y-l-nc-.-is.._th-e-p-a...re-n-t-of_._N_ort-h-er-n...S-ta-te_s_._m_i_ll.-e-le...ct-ric-,-1-.9...*m-i-ll.-g-as....-E-le-c.-r... ev-.-b-re-ak-d-ow_n_:-re-si-de-n-tia...l,-3-1_%_;-i
   %Change Relail Sales (K'Ml)                        -.6           +.3 LargeC&IUse(Ml',ll)-                       23521 22519 22642 Power, which supplies electricity to Minnesota, Wisconsin, North sm. comm'I & ind'I, 36%; lg. comm'I & ind'I, 18%; other, 15'/o. Gen-Large C&IRevs. per KWH(&#xa2;)                      6.10            6.17          6.36 Dakota, South Dakota & Michigan & gas to Minnesota, Wisconsin, erating sources not available. Fuel costs: 40% qf revs. '17 reported Capacifya!Peak(Mwl                                NA             NA            NA North Dakota & Michigan; Public Service of Colorado, which sup- depr. rate: 3.1 %. Has 11,500 employees. Chairman, Pres. & CEO:
Peak Load, Summer (Mw)
Annual Load Factor(%)
19583 20423 195 NA              NA            Jl        plies electricity & gas to Colorado; & Southwestern Public Service, Ben Fowke. Inc.: MN. Address: 414 Nicollet Mall, Minneapolis, MN
                                                                                  +.9 which supplies electricity to Texas & New Mexico. Customers: 3.6 55401. Tel.: 612-330-5500. Internet: www.xcelenergy.com.
   %Change Customers ~r-en~                         +.9             +.9 F~edChargeCov. (%)                              358             342           330 1---------------------------
Xcel Energy is awaiting orders on rate 2019. Xcel's goal                                                                                            --------------
for long-term earnings
,_A_N_N_U~A~L-RA~TE-S--Pa_s_t--P-as-t-Es_t_'d-,- -.,--<
15 17 cases in three states. The largest *ones                                                                        growth is 5%-6% annually.                                            .                         .
ofchange(persh)                  10Yrs.              5Yrs.            to'21-'23          are Public Service of Colorado's multiyear                                                                     Xcel's utilities have some proposals Revenues                            -1.0%                  .5%           2.5%            electric and gas applications. The utility                                                                     pending involving renewable energy.
   "Cash Flow"                          4.0%               6.0%             6.5%            requested electric hikes totaling $245 mil-                                                                    The aim is to retire coal-fired units and re-B!rci~~Js                            ~:~~               ~:~~             ~j~             lion from 2018 through 2020. and gas in-                                                                        place them with renewab1es. gas, and Book Value                           4.5%               4.5%             4.5%            creases totaling $139 million over that                                                                        storage - and to do this without raising Cal-           QUARTERLYREVENUES($mill.)                                   Full       span. Each filing is based on a 10% return                                                                      rates for customers. SPS received approval endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                   on a 55.25% common-equity ratio. An in-                                                                         in New Mexico, and awaits a decision in 2015 2962 2515 2901                                        2646 11024 terim gas increase of $.63 million took ef-                                                                    Texas, for a $1.6 billion project to add 2016 2772 2500 3040 2795 11107                                                         feet at the start of 2018; and the company                                                                     wind in the two states. P.S. of Colorado ex-2017 2946 2645 3017 2796 11404                                                         is asking for a $75 million interim gas                                                                        pects a ruling in July on its plan to spend 2018         2900 2650 3050 2900 11500                                                 raise at the start of June. Southwestern                                                                       up to $1.5 billion to add wind, solar, and 2019 3000 2700 3150 3000 11850                                                         Public Service asked the regulators in                                                                          gas.
Cal-                EARNINGSPERSHAREA                                    . Full       Texas and New Mexico for a total of $97                                                                        The board of directors raised the com-endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                   million, based on a _10.25% return on a*                                                                        mon dividend, effective with the April 1-::-:,..,,-=--+--_..,.,,.--_=-:,----:_,...,---:.4.,--+--=c-:.-::--1 2015             45              39              84                1        2 10 58% common-equity ratio. Rulings are ex-                                                                        paYillent. The increase was $0.02 a share 2016            .47             .39             .90            .45          2.21       pected this summer in New Mexico and                                                                            (5.6%) quarterly, the same as in recent 2017            .47             .45             .97            .42          2.30       early in the fourth quarter (retroactive to                                                                     years. Xcel's goals for the dividend are 2018            .55             .45 1.00                       .45          2.45       January of 2018) in Texas.                                                                                      growth of 5%-7% annually and a payout 2019            .58             .47 1.03                       .47          2.55       Rate relief is boosting Xcel's earning                                                                          ratio of 60%-70%.
t--C-al---+--Q-UA-R-TE-R-LY_D_IV_ID-EN-=D,.,.S.,,.PA'"'ID-B-.--i-F-ul--1I                   power and enabling the company to                                                                              This untiDlely stock has a dividend endar Mar.31 Jun.30 Sec.30 Dec.31 Year                                                   reduce the gap between its earned                                                                              yield and 3- to 5-year total return and allowed returns on equity. Man-                                                                            potential that are about average, by m~
2014 2017
                   *28
:~~
                   .34
                                   .3o
:~~
                                   .36
                                                 .3o j~
                                                 .36
                                                                 .3o
:~~
                                                                 .36 u:
1.1 8 1.42 agement's earnings guidance for 2018 is
                                                                                            $2.37-$2.47 a share. Our estimate of $2.45 is near the upper end of this range. We utility standards. This might be accept-able for conservative accounts, given the issue's top rank for Safety..
2018           .36             .38                                                      forecast more-modest profit growth in                                                                           Paul E. Debbas, CFA                                               April 27, 2018 (A) Diluted EPS. Exel. nonrecurring gain                                           1&#xa2;. '17 EPS don't sum due to rounding. Next                              tangibles. In '17: $5.92/sh. (D) In mill. (E) Rate                                 Company's Financial Strength                                A+
(losses): '02, ($6.27); '10, 5&#xa2;; '15, (16&#xa2;); '17,                                  earnings report due early May. (B) Div'ds his-                           base: Varies. Rate allowed on com. eq.                                             Stock's Price Stability                                    100 (5&#xa2;); gains (losses) on discontinued ops.: '03,                                    torically paid mid-Jan., Apr., July, and Oct.                            (blended): 9.6%; earned on avg. com. eq., '17:                                     Price Growth Persistence                                     55 27&#xa2;; '04, (30&#xa2;); '05, 3&#xa2;; '06, 1&#xa2;; '09, (1&#xa2;); '10,
* Div'd reinvestmenl plan available. (C) Incl. in-                       10.4%. Regulatory Climate: Average.                                                Earnings Predictability                                    100,
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed lo be reliable and is provided wtthout warranties of any kind. i -                                                                                                             ,                                   f THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part, I                                                                                       I      I '
* 1*e:11Ilall!llll :Ill 1111-                '.*
of It may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product'.
* Schedule AHG - 4 18-KCPE-480-RTS Alliant Enerl:I (LN!}
Date         Hii:h       Low      Close   1/B/E/S Growth Estimates                LNT 7/3/2017 $ 40.36     $   39.54 $  39.71  Current Qtr.                                   7.30%
7/10/2017 $ 40.21     $   39.36 $  39.97  Next Qtr.                                      9.30%
7/17/2017 $ 41.39     $   39.81 $  41.38  Current Year                                   9.80%
7/24/2017 $ 41.66     $   40.31 $  40.47  Next Year                                      6.10%
7/31/2017 $ 41.40     $   40.31 $  41.09  Next 5 Years (per annum)                       5.85%
8/7/2017 $ 41.75     $   41.03 $  41.37  Past 5 Years (lier annuml                      4.21%
8/14/2017 $ 42.32     $   41.38 $  42.24  Source: YahooFinance; July 18, 2018 8/21/2017 $ 43.09     $   42.17 $  42.87 8/28/2017 $ 43.23     $   42.54 $  42.57 9/4/2017 $ 43.24     $   42.56 $  43.19 9/11/2017 $ 43.69     $   42.27 $  42.90 9/18/2017 $ 42.91     $   41.72 $  41.73                 Value-Line                    EPS             DPS 9/25/2017 $ 42.32     $   41.16 $  41.57                          Past 10 Years          5.00%              7.50%
10/2/2017 $ 42.14     $   41.05 $  41.92                           Past 5 Years          6.50%              6.50%
10/9/2017 $ 43.46     $   41.84 $  43.05                  Est '15-'17 to '21-'23         6.50%              6.00%
10/16/2017 $ 43.97     $   42.78 $  43.87 10/23/2017 $ 43.95     $   42.72 $  43.75                                   2017        2018            2019          '21 to '23 10/30/2017 $ 44.39     $   42.88 $  43.83,  $                               1.26 $          1.34  $            1.42  $       1.66 11/6/2017 $ 44.29     $   43.51 $  43.68  Source: June 15, 2018; Value-Line 11/13/2017 $ 45.55     $   43.69 $  44.40 11/20/2017 $ 44.49     $   44.01 $  44.22 11/27/2017 $ 45.38     $   44.11 $  44.83                NYSE:LNT                      Mean 12/4/2017 $ 45.22     $   43.96 $  44.94                      LT Growth(%)                  5.91               6.00          6.00      5.73    0.13                  3 12/11/2017 $ 45.10     $   43.56 $  44.43  Source: SNL/S&P Global 12/18/2017 $ 44.37     $   42.18 $  42.50 12/25/2017 $ 42.97     $   42.18 $  42.61                                             ---  - ------- -- ---- - - - - - - - - -              ------
S.75                        ---                                                                                                           6.75 1/1/2018 $ 42.72 1/8/2018 $ 41.58 1/15/2018 $ 40.17 40.92 39.49 39.33 41.08 39.53 39.41 l
6.50                                                                                                                                      6.50 1/22/2018 $ 40.54     $   39.45 $  40.30 1/29/2018 $ 40.18     $   38.46 $  38.91 2/5/2018 $ 39.34     $   36.84 $  38.42             G.25                                                                                                                           \          6.25 2/12/2018 $ 39.81     $   37.89 $  39.75 2/19/2018 $ 39.70     $   38.01 $  39.42     fe 2/26/2018 $ 39.82     $   37.85 $  38.22     Cl      6.00   '                                                                                                                                  6.00 3/5/2018 $ 38.99     $   37.91 $  38.71 3/12/2018 $ 40.22     $   38.75 $  40.13 S.7S                                                                                                                                      5.75 3/19/2018 $ 40.58     $   39.38 $  39.45 3/26/2018 $ 41.04     $   39.43 $  40.86 4/2/2018 $ 41.45     $   40.34 $  41.02             5.50                                                                                                                                      liSO 4/9/2018 $ 41.36     $   40.38 $  41.11 4/16/2018 $ 42.30     $   41.23 $  41.54                    I 4/23/2018 $ 43.13     $   41.45 $  43.06                    :~.--- -.--~---,                       ,....._,
4/30/2018 $ 43.47     $   42.04 $  43.27 S.25
                                                                              ~      ~       ~       ~     -~     ~           ~     ~
                                                                                                                                            ~      ~    ~
                                                                                                                                                            -r--i
                                                                                                                                                             ~   ~            ~       ~'b     ..!tJ     ~q;.
5.25 5/7/2018 $ 43.29 5/14/2018 $ 41.78 41.02 40.30 41.66 40.57
                                                                          ~     ./ <JI&deg; ~.:I ,,~ ',, ',~# '~l~ 'i~
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                                                                                                                                                                                          .;,~
                                                                                                                                                                                                    .f 5/21/2018 $ 40.94     $   40.11 $  40.79                                                                                   0,1~
5/28/2018 $ 41.81     $   40.47 $  40.63 6/4/2018 $ 40.76     $   38.99 $  39.23           - L T Growth       -     LT Growth 6/11/2018 $ 40.08     $   38.22 $  39.96 6/18/2018 $ 41.28     $   39.86 $  41.09 6/25/2018 $ 42.78     $   41.07 $  42.32 7/2/2018 $ 43.42     $   42.15 $  43.41 Mimmum                      $   36.84 $ 38.22 Maximum          $ 45.55              $ 44.94 Mean                                  $ 41.56 Source: l'ahooFmance, July 18, 2018

Schedule AHG - 4 l 8-KCPE-480-RTS Allete, Inc. (ALE)
Date         High        Low      Close      1/B/E/S Growth Estimates            ALE 7/3/2017 $  72.20   $   70.55 $  71.26     Current Qtr.                             1.40%
7/10/2017 $   71.67   $ 69.79   $  70.29     Next Qtr.                              11.10%
7/17/2017 $   73.53   $ 69.90   $  73.45     Current Year                             6.90%
7/24/2017 $   73.76   $ 71.69   $  72.57     Next Year                                7.90%
7/31/2017 $   75.12   $ 72.31"  $  73.. 98   Next 5 Years (per annum)                 6.00%
8/7/2017 $  75.17   $. 73.08  $  73.30   : Past 5 Years (per annum)                 5.88%
8/14/2017 $   75.26   $ 72.86   $  75.07     Source: YahooFinance; July 18, 2018 8/21/2017 $   77.02   $ 74.70   $  76.81 8/28/2017 $   77.73   $ 76.68   $  77.52 9/4/2017 $  79.27   $ 77.31   $  79.14 9/11/2017 $   79.61   $ 77.00   $  78.41 9/18/2017 $   78.35   $ 76.88   $  76.91                 Value-Line                 EPS        DPS 9/25/2017 $   78.16   $ 76.55   $  77.29                           Past 10 Years      1.50%     3.50%
10/2/2017 $   78.85   $ 76.55   $  78.31                            Past 5 Years      5.50%     3.00%
10/9/2017 $   79.69   $ 77.98   $  78.38                  Est '15-'17 to '21-'23     5.00%      4.50%
10/16/2017 $   79.54   $ 77.58   $  78.93 10/23/2017 $   79.85*  $ 77.89   $  79.69                                   2017     2018       2019     '21 to '23 10/30/2017 $   80.00   $ 76.76   $  76.93      $                            2.14 $      2.24  $
* 2.34  $ 2.70 11/6/2017 $   77.74   $ 75.20   $  76.34     Source: June 15, 2018; Value-Line 11/13/2017 $   78.59  $. 76.02   $  77.50 11/20/2017 $   78.69   $ 77.03   $  78.18 11/27/2017 $   80.93   $ 77.52   $  80.21                NYSE : ALE                 Mean 12/4/2017 $   81.24   $ 78.19   $  79.33                       LT Growth (%)            6.60       6.00       7.80      6.00   0.85 12/11/2017 $   79.50   $ 76.70   $  77.90     Source: SNUS&P Global 12/18/2017 $   78.53   $ 73.40   $  73.45 12/25/2017 $   74.97  $ 72.96    $  74.36                              -------------------------------------
7.50    I -----                                                                            7.50 1/1/2018 $  74.42  $ 72.53    $  73.55 1/8/2018 $  74.13  $ 72.14    $  73.00                    I I
1/15/2018 $   74.04  $ 71.80    $  71.98 1/22/2018 $   73.97  $ 71.85    $  72.84 7.00                                                                                       7.00 1/29/2018 $   72.63  $ 70.26    $  70.42 2/5/2018 $   70.64  $ 66.64    $  69.89 2/12/2018 $   69.97  $ 67.20    $  69.34 2/19/2018 $
2/26/2018 $
69.98 70.06
                                      $ 67.56
                                      $ 67.88 69.98 68.58        t
                                                                 ~
                                                                 !:;
6.50                                                                                       8.50 3/5/2018 $   68.72  $ 67.07    $  68.08 3/12/2018 $   71.20  $ 68.06    $  71.07 3/19/2018 $   72.61  $ 70.06    $  70.12 3/26/2018 $   72.80  $ 70.13    $  72.25            6.00                                                                                       6.00 4/2/2018 $   72.66  $ 70.40    $  71.72 4/9/2018 $   72.65  $ 71.04    $  71.67 4/16/2018 $   74.78  $ 71.88    $  73.10 4/23/2018 $   77.44  $ 73.11    $  77.08            5,'50     - - - - - ~ - - - ---                                                            550 4/30/2018 $   79.86  $ 75.72    $  79.62                       ~     ~      ~     ~      ~    ~     ~     ~      ~    ~    ~ ~     ~ ~ ~ ~ ~ ~
5/7/2018 $
5/14/2018 $
79 .40 77.50
                                      $ 75.98
                                      $ 73.76 77.78 74.49
                                                                           //////~///~//////#
5/21/2018 $   76.15  $ 74.28    $  76.00                                                                           Dato 5/28/2018 $   78.12  $ 75.53    $  76.12 6/4/2018 $   76.56  $ 72.78    $  73.11          -    LT Growth       -    LT Growth 6/11/2018 $   73.28  $ 70.46    $  73.11 6/18/2018 $   76.65  $ 73.06    $  76.31 6/25/2018 $   78.62  $ 76.39    $  77.41 7/2/2018 $   79.50  $ 76.97    $  79.45 M1rumwn                    $ 66.64    $  68.08 Maximwn          $  81.24             $  80.21 Mean                                  $  74.78 Source: YahooFmance, July 18, 2018

Schedule AHG- 4 18-KCPE-480-RTS Ameren Core. !AEEl Date         Hi!lh        Low       Close   1/B/E/S Growth Estimates               AEE 7/3/2017 $ 54.92     $    53.54 $  54.14  Current Qtr.                                -1.30%
7/10/2017 $ 54.63      $    53.59 $  54.43  Next Qtr.                                     2.40%
7/17/2017 $ 56.58      $    54.18 $  56.53  Current Year                                  7.40% .
7/24/2017 $ 56.67      $    55.60 $  56.16  Next Year                                     6.20%
7/31/2017 $ 57.65      $    56.02 $  57.50  Next 5 Years (per annum)                     6.30%
8/7/2017 $ 58.75     $    57.55 $  57.95  Past 5 Years ( per annum      l               7.79%
8/14/2017 $ 59.75      $    57.91 $  59.21  Source: YahooFinance; July 18, 2018 8/21/2017 $ 60.58      $    59.06 $  60.37 8/28/2017 $ 60.79      $    59:56 $  59.80 9/4/2017 $ 60.28     $    59.31 $  60.09 9/11/2017 $ 60.91      $    58.59 $  59.81 9/18/2017 $ 59.85      $    58.34 $  58.51              Value-Line                      EPS           DPS 9/25/2017 $ 59.78      $    57.56 $  57.84                           Past 10 Years       -1.00%        -4.00%
10/2/2017 $ 58.90      $    57.67 $  58.78                            Past 5 Years        0.50%         2.00%
10/9/2017 $ 60.74      $    58.80 $  60.41               Est '15-'17 to '21-'23           7.50%         5.50%
10/16/2017 $ 61.74      $    60.13 $  61.56 10/23/2017 $ 61.96      $    60.52 $  61.80                                   2017       2018          2019        '21 to '23 10/30/2017 $ 62.83      $    61.48 $  62.19   $                               1.78 $         1.85    $     1.94   $          2.35 11/6/2017 $ 63.15      $    61.95 $  62.48  Source: June 15, 2018; Value-Line 11/13/2017 $ 64.89      $    62.54 $  63.30 11/20/2017 $ 63.66      $    62.62 $  62.98 11/27/2017 $ 64.36      $    62.96 $  63.75             NYSE:AEE                         Mean 12/4/2017 $ 64.02     $    62.06 $  63.19                    LT Growth(%)                   6.57          6.62              7.10       6.00         0.45         3 12/11/2017 $ 63.71      $    60.32 $  60.94  Source: SNL/S&P Global 12/18/2017 $ 61.22      $    58.29 $  58.69 12/25/2017 $ 59.44      $    58.28 $  58.99 1/1/2018 $ 59.03     $    57.23 $  57.39           6.70              - -------- - -                                                                                            6.70 1/8/2018 $ 58.09     $    55.42 $  55.52 1/15/2018 $ 55.94     $    54.83 $  55.16 6.60                                                                                                                        B.60 1/22/2018 $ 57.09     $    55.26 $   56.92 1/29/2018 $ 56.74     $   *54.77 $   54.89 2/5/2018 $ 55.72     $    51.89 $   55.42                                                                                                                                      B.5<J 6.50 2/12/2018. $ 56.85     $    54.32 $   56.32 2/19/2018 $ 56.39      $    54.23 $   56.35      I 2/26/2018 $ 56.46 3/5/2018 $ 55.32 53.47 53.08 54.03 53.99 a*
                                                                 !:i 6.40                                                                                                                        6.40 3/12/2018 $ 55.64      $    53.88 $   55.49 3/19/2018 $ 55.96      $    53.91 $   54.01          6.30                                                                                                                        6.30 3/26/2018 $ 56.79      $    54.10 $   56.63 4/2/2018 $ 57.92     $    56.15 $   57.13 6.W                                                                                                                         6.20
                                                                                                                                                                                              ,~
4/9/2018 $ 57.55     $    55.01 $   55.51 4/16/2018 $ 57.49      $    55.67 $   56.27 4/23/2018 $ 58.72     $    56.30 $   58.60
                                                                                                                                                 #'I, . #'., .,.....~,.,
6.10                  -----~---                                                                                             6.10 4/30/2018 $ 59.18 5/7/2018 $ 58.98 57.65 58.44 58.90 58.54
                                                                         .#,fl       ;" ".;,'<f'
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5/14/2018 $ 57.06     $    55.72 $   56.26 5/21/2018 $ 59.23      $   55.80 $   58.87                                              '
Date 5/28/2018 $ 59.79      $   58.06 $   58.11 6/4/2018 $ 58.59      $   56.19 $   56.69
                                                                   -    LT Growth         -   LTGruwth 6/11/2018 $ 57.02      $   55.21 $   56.97 6/18/2018 $ 58.82      $   56.97 $   58.68 6/25/2018 $ 61.25      $   58.74 $   60.85 Mm1mwn                        $   51.89 $   53.99 Maximum          $   64.89              $   63.75 Mean                                    $   58.17 Source. 2an00FmaI1Ce, July 18, 2018

Schedule AHG - 4 18-KCPE-480-RTS American Electric Power (AEP)
Date          High        Low   Close  lffi/E/S Growth Estimates             AEP 7/3/2017 $ 69.69 $ 68.47*   $  69.15 Current Qtr.                              13.30%
7/10/2017 $ 69.53 $ 68.11     $ 68.17  Next Qtr.                                     6.40%
7/17/2017 $ 69.99 $ 68.12     $ 69.98  Current Year                                  5.40%
7/24/2017 $ 70.81 $ 68.59     $ 70.43  Next Year                                     6.20%
7/31/2017 $ 71.20 $ 70.03     $ 70.88  Next 5 Years (per annum)                     5.79%
8/7/2017 $ 71.61 $ 70.37    $ 70.56  Past 5 Years (per annwn)                      2.52%
8/14/2017 $ 72.63 $ 70.46     $ 72.16  Source: YahooFinance; July 18, 2018 8/21/2017 $ 73.77 $ 72.13     $ 73.57 8/28/2017 $ 74.29 $ 73.27     $ 73.54 9/4/2017 $ 74.37 $ 73.24    $ 74.19 9/11/2017 $ 74.59 $ 72.29     $ 73.03 9/18/2017 $ 73.11 $ 70.44     $ 70.57                 Value-Line                 EPS              DPS 9/25/2017 $ 71.21 $ 69.93     $ 70.24                         Past 10 Years          3.00%         4.00%
10/2/2017 $ 71.63 $ 69.55     $ 71.53                          Past 5 Years          5 .50%        4 .50%
10/9/2017 $ 73.91 $ 71.45     $ 73.16                 Est '15-'17 to '21-'23       4.50%           5.00%
10/16/2017 ..$ 73.99 $ 72.52   $ 73.98 10/23/2017 $ 74.90 $ 72.53     $ 74.02                                  2017     2018              2019       '21 to '23 10/30/2017 .$ 74.92 $ 73.57    $ 74.08   $                              2.39 $ 2.51              $    2.63    $       3.05 11/6/2017 $ 75.84 $ 73.56     $ 74.78  Source: June 15, 2018; Value-Line 11/13/2017 $ 77.93 $ 74.70     $ 76.38 11/20/2017 $ 77.06 $ 76.02     $ 76.47 11/27/2017 $ 77.97 $ 76.45     $ 77.24                NYSE : AEP                Mean 12/4/2017 $ 78.07 $ 75.86     $ 76.93                     LT Growth(%)                  5.92           6.00           6.00      5.76   0.11       8 12/1112017 $ 77.22 $ 75.77     $ 76.54  Source: SNL/S&P Global 12/18/2017 $ 76.91 $ 73.62     $ 73.65 12/25/2017 $ 74.00 $ 72.94     $ 73.57                                                                  ------ --~--~--               ------------------,        6.00 6.00 1/1/2018 $ 73.42 $ 70.31    $ 70.80 1/8/2018 $ 71.53 $ 67.23    $ 67.46 1/15/2018 $ 68.59 $ 67.11     $ 67.76 1/22/2018 $ 69.80 $ 68.04     $ 68.75 5.50                                                                                                             5.50 1/29/2018 $ 68.98 $ 67.52     $ 67.75 2/5/2018 $ 68.42 $ 63.32     $ 64.72 2/12/2018 $ 67.52 $ 64.19     $ 67.26 2/19/2018 $ 67.50 $ 65.43 2/26/2018 $ 67.76 $ 64.60
                                               $ 67.37
                                               $ 65.18     st 5.00                                                                                                             5.00 3/5/2018 $ 66.72 $ 64.65     $ 65.65 3/12/2018 $ 67.92 $ 65.57     $ 67.81 3/19/2018 $ 68.34 $ 66.25     $ 66.39 3/26/2018 $ 69.24 $ 66.56     $ 68.59          ~-f,IJ  I 4/2/2018 .$ 69.42 $ 67.69    $ 68.53 4/9/2018 $ 69.14 $ 66.46     $ 67.34 4/16/2018 $ 69.67 $ 67.42 4/23/2018 $ 70. 98 $ 68.19 4/30/2018 $ 70.81 $ 68.52
                                               $ 68.46
                                               $ 70.55
                                               $ 69.39 4.00    I-~-
                                                                         ~       ~      ~      ~           ~       ~        ~         ~       ~    ~  ~      ~   ~   ~     ~   ~
4.00 5/7/2018 $ 69.45 $ 66.03     $ 67.16             '\~ff , /       .,<*#' /      . /.           . .ii>
                                                                                                              ..#      .       .,. ."~ '~ ,/' /         ,i'r!' /   $~  ,l,& ~.#
5/14/2018 $ 67.40 $ 64.46     $ 64.93 5/21/2018 $ 67.40 $ 64.58     $ 67.22                                                                                      O~tc 5/28/2018 $ 68.43 $ 66.43     $ 66.68 6/4/2018 $ 67.12 $ 63.67     $ 64.11        -     LT Growth      -    LT Growth 6/11/2018 $ 65.13 $ 62.71     $ 65.05 6/18/2018 $ 67.82 $ 64.94     $ 67.35 6/25/2018 $ 70.30 $ 67.57     $ 69.25 7/2/2018 $ 71.16 $ 69.12     $ 71.13 Minimum                     S 62.11 $ 64.1-1 Maximwn           $ 78.07           $ 77.24 Mean                                $ 70.22 Source: YaiiooFmance, July 18, 2018

Schedule AHG - 4 18-KCPE-480-RTS Consolidated Edison (ED}
Date        Hii:h       Low        Close   1/B/E/S Growth Estimates                  ED 7/3/2017 $ 81.28    $    80.04  $ 80.53   Current Qtr.                                 -1.70%
7/10/2017 $ 81.22    $    80.04  $ 80.73   Next Qtr.                                     0.70%
7/17/2017 $ 82.98    $    80.49  $ 82.93   Current Year                                  3.60%
7/24/2017 $ 82.98    $    81.24  $ 82.38   Next Year                                     4.20%
7/31/2017 $ 83.62    $    82.15  $ 82.80   Next 5 Years (per annum)                     3.39'Yo 8/7/2017 $ 84.16    $    82.51  $ 82.87   Past 5 Years (iier annum      l               2.66%
8/14/2017 $ 84.07    $    82.04  $ 83.53   Source: YahooFinance; July 18, 2018 8/21/2017 $ 84.87    $    83.31  $ 84.48 8/28/2017 $ 84.92    $    83.76  $ 83.99 9/4/2017 $ 85.68    $    83.82  $ 85.53 9/11/2017 $ 86.16    $    83.44  $ 84.44 9/18/2017 $ 84.55    $    81.58  $ , 81.59              Value-Line                      EPS            DPS 9/25/2017 $ 82.35    $    80.02  $ 80.68                         Past 10 Years           2.50%           1.50%
10/2/2017 $ 81.93    $    80.26  $ 81.56                           Past 5 Years          2.00%          2.00%
10/9/2017 $ 84.09    $    81.40  $ 83.08                 Est '15-'17 to '21-'23          3.00%          3.50%
10/16/2017 $ 85.08    $    82.28  $ 84.86 10/23/2017 $ 86.33    $    84.24  $ 85.92                                     2017      2018            2019       '21 to '23 10/30/2017 $ 87.58    $    85.27  $ 87.04    $                                2.76 $        2.86     $     2.96    $ 3.30 11/6/2017 $ 88.08    $    86.12  $ 87.19   Source: June 15, 2018; Value-Line 11/13/2017 $ 89.58    $    86.22  $ 86.53 11/20/2017 $ 87.25    $    85.86  $ 86.90 11/27/2017 $ 89.57    $   .86.82  $ 88.82                NYSE:ED                        Mean 12/4/2017 $ 89.26    $    87.30  $ 88.92                     LT Growth (%)                   3.18          3.53         4.00       2.00        0.85        3 12/11/2017 $ 89.70    $    86.93  $ 88.24   Source: SNL/S&P Global 12/18/2017 $ 88.27    $    84.35  $ 84.75 12/25/2017 $ 85.45    $    84.18  $ 84.95 1/1/2018 $ 84.94   $    81.03  $ 81.74           ,.511                                             *-  - ------ ---------                ------------               ,.50 1/8/2018 $ 82.91    $    79.18  $ 79.49 1/15/2018 $ 79.86    $    77.77  $ 78.27 1/22/2018 $ 80.61    $    78.37  $ 80.40 1/29/2018 $ 80.65    $    77.89  $ 77.96
                                                                    ,.oo                                                                                                               4.00 2/5/2018 $ 78.72    $    74.57  $ 76.89 2/12/2018 $ 77.98    $    75.66  $ 77.77 2/19/2018 $ 77.93    $    75.46  $ 77.63 2/26/2018 $ 78.04    $    73.73  $ 74.35       ie 3.50                                                                                                               3.50 3/5/2018 $ 76.34    $    73.98  $ 75.24       Cl 3/12/2018 $ 77.58    $    75.18  $ 77.45       ~
3/19/2018 $ 78.22    $    75.4!  $ 75.58 3/26/2018 $ 78.40    $    75.62  $ 77.94 3.00                                                                                                              3.00 4/2/2018 $ 79.39    $    76.67  $ 78.56 4/9/2018 $ 79.12    $    76.07  $ 76.69 4/16/2018 $ 79.19    $    76.95  $ 77.60 4/23/2018 $ 80.78    $    77.40  $ 80.43 4/30/2018 $ 80.82    $    78.01  $ 79.25            2.50          -- ------ - - - - - - -         ------------------------                                            .2.00
                                                                               ~       ~         ~       ~         ~        ~       ~       ~     ~      ~     ~       ~   ~  ~  ~   ~
5/7/2018 $ 79.39
* 5/14/2018 $ 77.18 5/21/2018 $ 76.39 74.88 73.35 73.38
                                                  $ 76.83
                                                  $ 73.97
                                                  $ 75.91 c;i~ .f,.;<t'   ,,l'~ . /.       . ~~
                                                                                                              .                 f
                                                                                                                     .._<Y~ ......    $#      ~~f.  -s-$   4".,,   ~/~~ ~J~ ,/ /   /
5/28/2018 $ 76.99    $    75.22  $ 75.54                                                                                     Dale 6/4/2018 $ 76.06    $    72.01  $ 72.75 6/11/2018 $ 73.78    $    71.12  $ 73.73         - L T Growth          -      LTGrcwtl\
6/18/2018 $ 75.98    $    73.41  $ 75.76 6/25/2018 $ 78.91    $    75.97  $ 77.98 7/2/2018 $ 78.99   $    77.55  $ 78.99 M1mmum                     $     71.12 $   12.15 Maximum          $ 89.70               $   88.92 Mean                                   $   80.75 Source: YahooFmance, July 18, 2018

Schedule AHG- 4 18-KCPE-480-RTS Duke Enerl:l: (!!UK)
Date         Hii:h      Low    Close    1/B/E/S Growth Estimates                    DUK 7/3/2017 $ 83.84 $ 82.72   $  83.42   Current Qtr.                                    8.90%
7/10/2017 $ 84.27 $ 82.80    $  83.84   Next Qtr.                                   NIA 7/17/2017 $ 85.23 $ 83.60    $  85.20   Current Year                                    3.70%
7/24/2017 $ 85.28 $ 83.60   $  84.91   Next Year                                       4.40%
7/31/2017 $ 86.58 $ 84.65    $  86.48   Next 5 Years (per annum)                        4.22%
8/7/2017 $ 86.90 $ 85.16   $  85.70   Past 5 Years (!!er annuml                        1.33%
8/14/2017 $ 86.97 $ . 85.61 $  86.38   Source: YahooFinance; July 18, 2018 8/21/2017 $ 87.55 $ 86.11   $  87.23 8/28/2017 $ 87.95 $ 86.73   $  87.09 9/4/2017 $ 88.03 $ 86.79   $  87.78" 9/11/2017 $ 88.40 $ 86.53   $  87.30 9/18/2017 $ 87.31 $ 84.22    $  84.25                 Value-Line                       EPS                 DPS 9/25/2017 $ 85.16 $ 83.40    $  83.92                            Past 10 Years          2.50%               10.00%
10/2/2017 $ 84.74 $ 83.52   $  84.64                                 Past 5 Years      0.50%                2.50%
10/9/2017 $ 87.60 $ 84.69   $  86.79                  Est '15-'17 to '21-'23           5.50%               4.50%.
10/16/2017 $ 88.06 $ 86.42     $  87.93 10/23/2017 $ 88.55 $ 86.71     $  87.95                                        2017      2018               2019      '21 to '23 10/30/2017 $ 89.50 $ 87.56     $  88.52    $                                   3.49 $        3.64     $         3.80  $      4.40 Il/6/2017 $ 89.74 $ 87.61   $  88.89   Source: June 15, 2018; Value-Line I 1/13/2017 $ 91.80 $ 88.45   $  88.52 Il/20/2017 $ 89.20 $ 88.29    $  88.78 11/27/2017 $ 89.72 $ 88.19     $  88.73                NYSE:DUK                          Mean 12/4/2017 $ 89.43 $ 87.45   $  88.05                      LT Growth (% l                   4.21               4.50          5.00       .3.00               0.80              5 12/Il/2017 $ 88.39 $ 86.72     $  87.84   Source: SNL/S&P Global 12/18/2017 $ 88.15 * $ 83.75   $  84.17 12/25/2017 $ 84.58 $ 83.56     $  84.11 4.75                  - - - ----            ----- - -        -- - - ------------~-----                                                       4.75 1/1/2018 $ 84.42 $ 81.35   $  81.94 1/8/2018 $ 82.31 $ 78.55   $  78.90 1/15/2018 $, 79.27 $ 76.64  $  76.82             4.50                                                                                                                                         4.50 1/22/2018 $ 79.22 $ *76.85  $  78.83 1/29/2018 $ 78.65 $ 76.43   $  76.53 2/5/2018 $ 77.59 $ 72.93   $  76.10             4.25                                                                                                                                         4.25 2/12/2018 $ 77.30 $ 74:66    $  76.70 2/19/2018 $ 77.30 $ 74.82    $  77.22       'ie 4.00                                                                                                                                         4.00 2/26/2018 $ 79.63 $ 74.58 3/5/2018 $ 77.67 $ 74.87 75.35 76.13 Cl 3/12/2018 $ 77.73 $ 76.06    $  77.59                                                                                                                                                          3.75 3.75 3/19/2018 $ 77.87 $ 75.03    $  75.17 3/26/2018 $ 77.91 $ 75.23    $  77.47 -
4/2/2018 $ 78.90 $ 76.57   $  78.16             3.50                                                                                                                                         3.50 4/9/2018 $ 79.05 $ 75.96   $  76.67 4/16/2018 $ 79.42 $ 76.80    $  77.68 I
4/23/2018 $ 80.75 $ 77.57    $  80.50             3.25
                                                                           ~
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3.25 4/30/2018 $ 80.85 $ 78.82 5/7/2018 $ 80.13 $ 76.88 79.88 77.91                 ~             ~ ...-t'-~' ~~
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(;'
                                                                                                                                                                          ,JP-it'*
j,'"' .f'(f' 4'             /'"' -l 5/14/2018 $ 78.22 $ 73.13   $  73.80 5/21/2018 $ 76.02 $ 73.35   $  75.81                                                                                             O~t, 5/28/2018 $ 77.57 $ 75.49   $  76.08 6/4/2018 $ 76.50 $ 72.83   $  73.12           -    LT Growth           -    LT Growth 6/11/2018 $ 74.40 $ 71.96   $  74.30 6/18/2018 $ 77.67 $ 74.04   $  77.43 6/25/2018 $ 80.15 $ 77.47   $  79.08 7/2/2018 $ 80.62 $ 78.90   $  80.61 Mm1mum                     $ /1.96 $   /3.12 Maximum           $ 91.80          $  88.89 Mean                               $  81.78 Source: YahooFmance, July 18, 2018

Schedule AHG - 4 18-KCPE-480-RTS Edison International {EIX)
Date         High         Low       Close   1/B/E/S Growth Estimates           EIX 7/3/2017 $ 78.46      $   76.44  $  76.83  Current Qtr.                            8.20%
7/10/2017 $ 78.47      $   76.38  $  77.45  Next Qtr.                              -9.10%
7/17/2017 $ 79.01      $   77.32  $  78.98  Current Year                         . -8.90%
7/24/2017 $ 79.35      $   78.08  $  78.25  Next Year                             10.20%
7/31/2017 $ 79.44      $   77.75  $ 79.29   Next 5 Years (per annum)               3.19%
8/7/2017 $ 80.26      $   78.94  $ 79.53   Past 5 Years (per armum)                2.53%
8/14/2017 $ 81.33      $   78.70  $ 78.94   Source: YahooFinance; July 18, 2018 8/21/2017 $ 81.26      $   78.91  $ 80.75 8/28i2017 $ 81.32      $   79.54  $ 79.96 9/4/2017 $ 80.78      $   79.40  $ 80.74 9/11/2017 $ 81.58      $   80.34  $ 81.20 9/18/2017 $ 81.41      $   78.22  $ 78.28               Value-Line                EPS         DPS 9/25/2017 $ 79.45      $   76.93  $ 77.17                       Pas( IO Years       2.50%      6.00%
10/2/2017 $ 77.88      $   76.55  $ 77.62                        Past 5 Years       2.50%      9.00%
10/9/2017 $ 79.88      $   77.39  $ 77.99               Est '15-'17 to '21-'23      4.50%      8.00%
10/16/2017 $ 79.83      $   76.93  $ 79.60 I0/23/2017 $ 80.20      $   78.55  $ 79.47                                2017     2018        2019     '21 to '23 10/30/2017 $ 80.64      $   78.63  $ 79.52    $                           2.23 $       2.45  $    2.57  $    3. IO 11/6/2017 $ 80.43      $   78.68  $ 80.06   Source: June 15, 2018; Value-Line 11/13/2017 $ 83.38      $   80.16  $ 80.89 11/20/2017 $ 81.14      $   79.72  $ 80.55 11/27/2017 $ 81.96      $   80.34  $ 80.76              NYSE : EIX                Mean 12/4/2017 $ 81.19      $   67.80  $ 71.80                   LT Growth(%)               4.10       3.93       7.00    2.48 1.55       5 12/11/2017 $ 73.23      $   67.28  $ 69.71   Source: SNL/S&P'Global 12/18/2017 $ 71.11      $   62.67  $ 65.23 12/25/2017 $ 65.30      $   63.19  $ 63.24          7.00  i                                                        -----~-------------               7,00 1/1/2018 $ 63.73     $   62.03  $ 62.98 1/8/2018 $ 64.34     $   61.25  $ 61.42 1/15/2018 $ 62.64      $   60.64  $ 62.12 1/22/2018 $ 62.84      $   61.52  $ 62.46                                                                                                           6.00 6.00 1/29/2018 $ 67.56      $   61.16  $ 61.60 2/5/2018 $ 61.96      $    57.63 $ 58.94 2/12/2018 $ 61.37      $    58.69 $ 61.05 2/19/2018 $ 62.56      $    58.87 $ 62.17 i
                                                                ~   5.00                                                                                             5.00 2/26/2018 $ 62.62      $    59.04 $ 59.59
                                                                !:;
3/5/2018 $ 60.84      $    58.80 $ 59.38 3/12/2018 $ 65.15      $    59.12 $ 65.15 3/19/201.8 $ 65.27     $    61.77 $ 62.16 4.00                                                                                             4.00 3/26/2018 $ 63.78      $    61.47 $ 63.66 4/2/2018 $ 64.11     $    62.09 $ 63.38 4/9/2018 $ 63.86      $    62.60 $ 63.44 4/16/2018 $ 65.82 4/23/2018 $ 66.60 63.30 63.73
                                                   $ 64.12
                                                   $ 65.79
                                                                                                                                                ,------- .---- ___.J 3.00 4/30/2018 $ 66.10      $    62.54 $ 63.69 5/7/2018 $ 63.74     $    60.23 $ 62.29 5/14/2018 $ 62.51      $    60.49 $ 61.25 5/21/2018 $ 63.37      $    60.87 $ 62.98 5/28/2018 $ 62.95      $    60.53 $ 60.84 6/4/2018 $ 61.61     $   '58.80 $ 59.61        -    LT Growth     -    LT Growth 6/11/2018 $ 60.54      $    58.60 $ 60.44 6/18/2018 $ 61.78      $    60.04 $ 61.70 6/25/2018 $ 63.72      $    61.60 $ 63.27 7/2/2018 $ 65.30     $    62.86 $ 65.28 Mirumum                      $    5).63 $ 58.94 Maximum          $ 83.38                $   81.20 Mean                                    $   69.71 Source: I' ahooFmance, July 18, 2018

Schedule AHG - 4 18-KCPE-480-RTS El Paso Electric (EE}
Date         Hii:h        Low      Close   1/B/E/S Growth Estimates            EE 7/3/2017 $ 51.90      $ --50.30 $  51.05  Current Qtr.                           -1.10%
7/10/2017 $ 51.30     $ 50.25    $  51.05  Next Qtr.                              10.20%
7/17/2017 $ 53.35     $ 50.85    $  53.00  Current Year                            5.00%
7/24/2017 $ 53.10     $ 51.45    $  51.65  Next Year                               5.10%
7/31/2017 $ 53.73      $ 51.55   $  53.35  Next 5 Years (per annum)               5.20%
8/7/2017 $ 54.03    $ 52.83    $  53.45  Past 5 Years (Iler annum}              14.71%
8/14/2017 $ 54.25     $ 53.00    $  53.95  Source: Y ahooFinance; July 18, 2018 8/21/2017 $ 55.60     $ 5l65     $  55.35 8/28/2017 $ 55.85     $ 54.85    $  55.40 9/4/2017 $ 55.95     $ 54.95    $  55.95 9/11/2017 $ 56.58     $ 54.35    $  55.15 9/18/2017 $ 55.40      $ 54.30   $  54.65               Value-Line                EPS       DPS 9/25/2017 $ 55.75      $ 54.58   $  55.25                       Past 10 Years      6.50%
10/2/2017 $ 57.00     $ 55.30    $  56.85                        Past_ 5 Years               18.00%
10/9/2017 $ 58.70     $ 56.85    $  58.10               Est '15-'17 to '21-'23    4.50%       7.00%
10/16/2017 $ 58.05     $ 56.00    $  57.25 10/23/2017 $ 58.70     $ 56.75    $  58.40                                2017    2018       2019      '21 to '23 10/30/2017 $ 58.45     $ 55.45    $  57.60   $.                           1.32 $     1.42  $     1.52  $     1.85 11/6/2017 $ 58.65     $ 57.25    $  57.75  Source: Jnne 15, 2018; Value-Line 11/13/2017 $ 60.70     $ 57.50    $  60.20 11/20/2017 $ 60.70     $ 59.15    $  59.65 11/27/2017 $ 61.15     $ 59.30    $  60.25               NYSE:EE                  Mean 12/4/2017 $ 61.10     $ 58.55    $  58.90                    LT Growth(%)            5.10        5.10        5.20      5.00   0.10     2 12/11/2017 $ 59.40     $ 57.98    $  59.10  Source: SNL/S&P Global 12/18/2017 $ 59.45     $ 54.75    $  55.15 12/25/2017 $ 55.60     $ 54.60    $  55.35 1/1/2018 $ 55.75     $ 53.65    $  54.25            S.00                                                                                               8.00 1/8/2018 $ 55.10     $ 50.70    $  51.05 1/15/2018 $ 52.15     $ 50.70    $  51.65 1/22/2018 $ 52.30     $ 51.15    $  51.60 1/29/2018 $ 52.38     $ 50.95    $  5_1.05          7.00                                                                                                7_oo 2/5/2018 $ 51.45     $ 48.15    $  50.75 2/12/2018 $ 51.45     $ 49.70    $  51.30 2/19/2018 $ 51.40     $ 49.65    $  50.55      ie 2/26/2018 $ 51.35     $ 48.05    $  48.60      ~    6.00                                                                                                6.00 3/5/2018 $ 49.60     $ 48.05    $  48.50      I-3/12/2018 $ 49.60     $ 48.25    $  49.60 3/19/2018 $ 50.70     $ 48.85    $  48.85 3/26/2018 $ 51.25     $ 48.80    $  51.00           6.00                                                                                                5.00 4/2/2018 $ 51.30     $ 49.60    $  50.35 4/9/2018 $ 50.50     $ 48.50    $  48.90 4/16/2018 $ 50.40     $ 48.90    $  49.05                  IL_____
4/23/2018 $ 51.55     $ 49.05    $  51.35           ,.oo                                                                                                ,.oo 4/30/2018 $ 56.90     $ 49.45    $  55.05                     ~    ~      ~     ~     ~     ~      ~     ~      ~    ~     ~ ~     ~ ~   ~ ~ ~
5/7/2018 $ 56.65 5/14/2018 $ 56.80
                                       $ 54.50
                                       $ 54.33 56.55 55.40               / / / / / / / / / / / / / ~ / / / ~"'"'                                                (fi' 5/21/2018 $ 58.25     $ 55.20    $  58.05                                                                         Dato 5/28/2018 $ 59.13     $ 57.65    $  58.60 6/4/2018 $ 59.15     $. 55.60   $  55.95         -    LT Growth     -    LTGruwth 6/11/2018 $ 56.20     $ 54.75    $  55.70 6/18/2018 $ 58.85     $ 55.80    $  58.80 6/25/2018 $ 59.35     $ 57.70    $  59.10 7/2/2018 $ 60.10     $ 58.25    $  60.05 Mm1mum                      $    48.05 $ 48.50 Maximum          $ 61.15               $  60.25 Mean                                   $  54.44 Source: l'ahooFmance, July 18, 2018

Schedule AHG - 4 18-KCPE-480-RTS IDACORP, Inc (IDA}
Date          Hir;h      Low    Close  1/B/E/S Growth Estimates                 IDA 7/3/2017 $ 85.73 $ 83.75    $  84.64 Current Qtr.                                  4.00%
7/10/2017 $ 85.15 $ 83.46     $  84.07 Next Qtr.                                    -3.90%
7/17/2017 $ 87.90 $ 83.60     $  87.84 ClllTent Year                                 0.20%
7/24/2017 $ 87.83 $ 85.59     $  86.00 Next Year                                     3.60%
7/31/2017 $ 87.63 $ 85.31     $  86.56 Next 5 Years (per annum)                      3.55%
8/7/2017 $ 88.23 $ 86.23    $  86.78 Past 5 Years (Iler annuml                     2.88%
8/14/2017 $ 87.90 $ 86.26     $  87.15 Source: YahooFinance; July 18, 2018 8/21/2017 $ 89.75 $ 86.44     $  89.54 8/28/2017 $ 89.94 $ 88.36     $  89.32 9/4/2017 $ 91.60 $ 89.17    $  91.40 9/11/2017 $ 91.98 $ 89.05     $  90.06 9/18/2017 $ 90.06 $ 87.74     $  87.75               Value-Line                     EPS           DPS 9/25/2017 $ 89.06 $ 87.61     $  87.93                        Past 10 Years          7.50%          5.50%
10/2/2017 $ 89.25 $ 87.55    $  88.44                          Past 5 Years         4.50%         10.50%
10/9/2017 $ 91.61 $ 88.18    $  90.34                Est '15-'17 to '21-'23         3.50%          6.50%
10/16/2017 $ 92.26 $ 89.79     $  91.68 10/23/2017 $ 93.22 $ 90.10     $  93.18                                   2017      2018           2019      '21 to '23 10/30/2017 $ 93.79 $ 91.06     $  92.71  $                                2.24 $        2.40    $      2.56  $     3.05 11/6/2017 $ 95.57 $ 92.50    $  95.17 Source: June     is, 2018; Value-Line 11/13/2017 $ 98.43 $ 95.08     $  97.23 11/20/2017 $ 97.98 $ 96.20     $  96.55 11/27/2017 $ 100.04 $ 96.19    $  98.23              NYSE:IDA                       Mean 12/4/2017 $ 99.03 $ 95.95    $  97.16                    LT Growth(%)                  3.91           4.00        5.00          2.74     0.93          3 12/11/2017 $ 97.26 $ 93.92     $  95.51 Source: SNL/S&P Global 12/18/2017 $ 96.13 $ 90.03     $  90.66 12/25/2017 $ 92.43 $ 89.81     $  91.36                                                         --------~
5.25                                        -                                                                                  5.25 1/1/2018 $ 91.40 $ 87.23    $  87.69 1/8/2018 $ 88.31 $ 82.08    $  83.32 1/15/2018 $ 84.70 $ 82.62    $  83.86 5.00                                                                                                                           5.00 1/22/2018 $ 86.74 $ 83.10    $  86.07 1/29/2018 $ 86.57 $ 83.25    $  83.39 2/5/2018 $ 84.32 $ 79.59    $  83.57 4.75                                                                                                                           4.75 2/12/2018 $ 85.53 $ 82.02     $  85.27 2/19/2018 $ 85.05 $ 82.23     $  84.98      ,:.
                                                                                                                                                                                                     !::j 2/26/2018 $ 85.25 $ 80.45 3/5/2018 $ 83.00 $ 80.29 81.61 81.95 I
t.:J ,1_5(1                                                                                                                         ,.so Gl 0
                                                                                                                                                                                                     ~
I-3/12/2018 $ 86.22 $ 81.54     $  86.10      ..J                                                                                                                                      !ii' 3/19/2018 $ 87.95 $ 84.25     $  84.34 3/26/2018 $ 88.60 $ 84.45     $  88.27           4.25                                                                                                                           4.25 4/2/2018 $ 88.77 $ 85.55    $  87.25 4/9/2018 $ 87.86 $ 84.82    $  85.74 4/16/2018 $ 89.83 $ 85.85     $  89.08           *.oo                                                                                                                           *.00 4/23/2018 $ 94.16 $ 89.23     $  93.63 4/30/2018 $ 96.01 $ 91.84     $  94.04 5/7/2018 $ 94.34 $ 90.08    $  91.24           3.75                              --
                                                                                 -, - - - - - - - , - - -                                                                                       3.75 5/14/2018 $ 91.71 $ 87.34    $  87.90                       B/,112017        1211812017        1/lll201S      1/29/21118       2127/201&   ,1/211/2018   S/"12.018 ij/21/2ll1B 5/21/2!)18 $ 91.23 $ 87.66   $  90.58                                                                                    0dtt!
5/28/2018 $ 93.56 $ 87.03    $  91.51 6/4/2018 $ 91.43 $ 86.28    $  87.01         -     LT Growth       -     LT Growth 6/11/2018 $ 88.56 "$ 85.23   $  88.34 6/18/2018 $ 91.63 $ 88.28    $  91.26 6/25/2018 $ 93.28 $ 91.40    $  92.24 7/2/2018 $ 93.95 $ 91.79    $  93.90 Mm1mum                     $ 19.59 $  81.61 Maximum          $ 100.04          $  98.23 Mean                               $  89.08 Source: YahooFmance, July 18, 2018

Schedule AHG - 4 18-KCPE-480-RTS Northwestern Core. (!ill:'.E}
Date        Hii:h         Low      Close    lffi/E/S Growth Estimates                  NWE 7/3/2017 $ 61.58 $ 59.85        $  60.30   Current Qtr.                               NIA 7/10/2017 $ 60.75 $ 59.09        $  59.68   Next Qtr.                                      -1.40%
7/17/2017 $ 61.80 $ 58.99        $  61.77   Current Year                                    3.60%
7/24/2017 $ 61.14 $ 58.42        $  58.54   Next Year                                      -0.30%
7/31/2017 $ 60.36 $ 57.58        $  60.28   Next 5 Years (per annum)                       3.16%                         0.0241 8/7/2017 $ 61.36 $ 59.77       $  60.18   Past 5 Years (Iler annwn}                     11.96%
8/14/2017 $ 60.70 $ 58.63        $  59.24   Source: YahooFinance; July 18, 2018 8/21/2017 $ 60.97 $ 59.16        $  60.78 8/28/2017 $ 60.97 $ 59.78        $  60.23
* 9/4/2017 $ 60.52 $ 59.56       $  60.24 9/11/2017 $ 60.82 $ 58.21        $  58.96 9/18/2017 $ 59.06 $ 57.74        $  57.75                Vaine-Line                       EPS          DPS 9/25/2017 $ 58.23 $ 56.87        $  56.94                          Past 10 Years            8.00%         5.50%
10/2/2017 $ 57.98 $ 56.44        $  57.37                           Past 5 Years            7.00%         7.00%
10/9/2017 $ 59.04 $ 57.29        $  58.44                 Est '15-'17 to '21-'23           3.50%          4.50%
10/16/2017 $ 59.41 $ 58.24        $  58.70 10/23/2017 $ 59.46 $ 57.50        $  59.22                                   2017          2018         2019          '21 to '23 10/30/2017 $ 59.97 $ 58.46        $  59.78    $                              2.10 $ 2.20            $        2.30     $ 2.60 11/6/2017 $ 61.17 $ 59.28        $  60.34   Source: June 15, 2018; Value-Line 11/13/2017 $ 62.12 $ 60.11        $  61.60 11/20/2017 $ 62.28 $ 61.32        $  62.22 11/27/2017 $ 64.38 $ 62.02        $  63.76               NYSE:NWE                          Mean 12/4/2017 $ 64.47 $ 62.46        $  63.28                      LT Growth(%)                   3.01           3.01           3.02               3.00        0.01         2
              - 12/11/2017 $ 63.33 $ 60.82        $  61.60   Source: SNL/S&P Global 12/18/2017 $ 62.13 $ 58.48        $  59.27 12/25/2017 $ 59.91 $ 58.66        $  59.70 l.50                                                                                                                                    3.5()
1/1/2018 $ 59.82 $ 57.00        $  57.41 1/8/2018 $ 57.80 $ 55.33        $  55.40 1/15/2018 $ 55.50 $ 53.01        $  53.21                                                                                                                                                      1 1/22/2018 $ 54.75 $ 53.13        $
54.36                l.00                                                                                                                                  I 3.00 1/29/2018 $ 54.51 $ 52.71           52.86
                 .2/5/2018 $ 53.35 $ 50.01        $  52.13 2/12/2018 $ 52.61 $ 50.64 2/19/2018 $ 52.50 $ 50.89 52.27 52.50
                                                                    .c
* 2.5D
                                                                    'i I 2.51l 2/26/2018 $ 52.76 $ 50.54        $  51.06            e                                                                                                                                         I
                                                                    ,_Cl                                                                                                                                        I 3/5/2018 $ 52.13 $ 50.46        $  51.07          .... 2.00                                                                                                                                  I 2.00 3/12/2018 $ 52.07 $ 50.65        $  51.90                                                                                                                                                      I 3/19/2018 $ 53.31 $ 51.47        $  51.52 I
3/26/2018 $ 54.19 $ 51.63        $  53.80 4/2/2018 $ 54.51 $ 52.43 4/9/2018 $ 54.33 $ 52.74 53.89 53.27 1.51l I 1.51) 4/16/2018 $ 55.20 $ 53.45        $  53.85 4/23/2018 $ 55.65 $ 53.72        $  55.36                1.00                                                                                                                           _ . r -I 1.00 4/30/2018 $ 55.80 $ 54.15        $  55.53                                                                   ~                                      .            ._q,
                                                                                    ~::,             ~          ~
                                                                                                                                   -,,,#''I,
                                                                                                                                                         ,...q,           ~
                                                                                                                                                                       <&sect;'"               "~       "q,   ~
5/7/2018 $ 55.67 $ 52.95        $  53.72
                                                                                'l'tf      'I~
                                                                                              ..._,<f'
                                                                                                           ,l'~     .._.g;ref'                 *<i>....$           ...~      /        ,P,#   re"fY"'   J6' 5/14/2018 $ 53.99 $ 52.77        $  53.21 5/21/2018 $ 54.63 $ 52.88        $  54.49                                                                                               Oat@
5/28/2018 $ 55.10 $ 52.98        $  53.00 6/4/2018 $ 53.89 $ 51.53        $  52.01             --LT Growth         -          LT Growth 6/11/2018 $ 54.33 $ 51.53        $  54.25 6/18/2018 $ 56.81 $ 54.16        $  56.70 6/25/2018 $ 57.74 $ 56.64        $  57.25 7/2/2018 $ 58.65 $ 56.84        $  58.63 M1mmwn                        $  50.01 $  51.06 Maximwn          $ 64.47               $  63.76 Mean                                   $  56.88 Source: l'ahooFmance, July 18, 2018

Schedule AHG- 4 18-KCPE-480-RTS OGE Enerl:;l: (OGE}
Date          Hii:h        Low      Close  1/B/E/S Growth Estimates                 OGE 7/3/2017 $ 35.01      $   34.09 $  34.22 Current Qtr.                                -1.90%
7/10/2017 $ 34.90       $   33.95 $  34.57 Next Qtr.                                   -6.50%
7/17/2017 $ 35.42       $   34.26 $  35.42 Current Year                                 4.70%
7/24/2017 $ 35.92       $   35.33 $  35.80 Next Year                                    4.50%
7/31/2017 $ 36.14       $   35.35 $  35.91 Next 5 Years (per annum)                    4.30%
8/7/2017 $ 36.40      $   35.27 $  35.42 Past 5 Years (iier annum}                    0.60%
8/14/2017 $ 35.75       $   35.25 $  35.59 Source: YahooFinance; July 18, 2018 8/21/2017 $ 36.36       $   35.53 $  36.22 8/28/2017 $ 36.51       $   35.67 $  35.76 9/4/2017 $ 36.21      $   35.55 $  36.15 9/11/2017 $ 36.67       $   35.77 $  36.31 9/18/2017 $ 36.41       $   35.69 $  35.84                 Value-Line                  EPS         DPS 9/25/2017 $ 36.39       $   35.70 $  36.03                            Past 10 Years      4.5%        5.5%
10/2/2017 $ 36.36       $   35.00 $  35.58                             Past 5 Years       1.0%       8.5%
10/9/2017 $ 37.30       $   35.65 $  36.82                  Est '15-'17 to '21-'23       6.0%        8.0%
10/16/2017 $ 37.21       $   36.62 $  37.09 10/23/2017 $ 37.32       $   36.35 $  37.08                                    2017    2018         2019     '21 to '23 10/30/2017 $ 37.20       $   35.60 $  35.63  $                                 1.27 $      1.40   $   1.54   $     1.85 11/6/2017 $ 36.00       $   34.93 $  35.01 Source: June 15, 2018; Value-Line 11/13/2017 $ 36.01       $   34.89 $  35.20 11/20/2017 $ 35.27       $   34.72 $  34.90 11/27/2017 $ 36.00       $   34.81 $  35.23                NYSE:OGE                    Mean 12/4/2017 $ 35.67       $   33.97 $  34.46                         LT Growth (%)           4.10       4.10        4.30       3.90   0.20         2 12/11/2017 $ 34.72       $   33.47 $  34.15 Source: SNL/S&P Global 12/18/2017 $ 34.40       $   32.65 $  33.01 12/25/2017 $ 33.20       $   32.60 $  32.91 1/1/2018 $ 33.07      $   32.47 $  32.50            7.0D             -  ----*---*--- - - - - - - - - - - - - -                                                   7_00 1/8/2018 $ 32.84      $   30.70 $ 30.74 1/15/2018 $ 31.78       $   30.76 $ 31.42 1/22/2018 $ 32.54      $   31.47 $ 32.14 1/29/2018 $ 32.36      $   31.31 $ 31.35             6.00                                                                                                         6.00 2/5/2018 $ 31.54      $   29.59 $ 30.39 2/12/2018 $ 31.66       $   30.34 $ 31.56 2/19/2018 $ 33.06       $   30.74 $ 32.95      "''&sect;:
2/26/2018 $ 33.00       $   30.85 $ 31.19       e Cl     5.0D                                                                                                         5.00 3/5/2018 $ 32.08      $   30.76 $ 31.35      !:;
3/12/2018 $ 32.17       $   31.14 $ 32.00 3/19/2018 $ 32.39       $   31.38 $ 31.43 3/.26/2018 $ 32.83      $   31.43 $ 32.77             *. 00                                                                                                        ,.oo 4/2/2018 $ 32.98      $   31.94 $ 32.37 4/9/2018 $ 32.31      $   31.49 $ 31.61 4/16/2018 $ 32.91       $   31.69 $ 32.47 4/23/2018 $ 33.16 4/30/2018 $ 34.37 32.38 32.70
                                                  $ 32.91
                                                  $ 34.17 l.00
                                                                                                 ~     ~        ~
                                                                                                                      ~      ~
                                                                                                                                     ~     ~
                                                                                                                                                  ~ ~
                                                                                                                                                          ~     ~
                                                                                                                                                                       ~    ~    ~
3.00
                                                                                    ~     ~
5/7/2018 $ 34.59      $   33.46 $ 34.23
                                                                            ....~
ti' #<f- .;,"~ .,,/       ,._I' ,.l~    .}# ...~# ,i\"'1' ~.# $~ . ~'6'
                                                                                                                                                       .     /'    a.I' -;}~  ~"~
5/14/2018 $ 34.30      $   33.22 $ 33.35 5/21/2018 $ 34.49      $   33.29 $ 34.39                                                                              Dato 5/28/2,018 $ 35.42      $   34.17 $ 3(38 6/4/2018 $ 34.81      $   33.48 $ 33.75           -     LT Growth        -   LT Growth 6/11/2018 $ 34.61       $   33.19 $ 34.22                                                                                           -J 6/18/2018 $ 35.08       $   34.11 $ 34.96 6/25/2018 $ 35.54       $   34.77 $ 35.21 7/2/2018 $ 35.39      $   34.94 $ 35.28 M1mmum                       $   29.59 $  30.39 Maximum          $  37.32              $  37.09 Mean                                   $  34.06 Source: 'i'ahooFmance, July 18, 2018

Schedule AHG - 4 18-K.CPE-480-RTS Pinnacle West ~NW}
Date        Hii:h         Low      Close  1/B/E/S Growth Estimates                      PNW 7/3/2017 $ 85.87     $    84.14 $  84.67 Current Qtr.                                  NIA 7/10/2017 $ 85.68     $    83.95 $  85.13 Next Qtr.                                           8.50%
7/17/2017 $ 87.25     $    84.95 $  87.23 Current Year                                        2.80%
7/24/2017 $ 87.38     $    85.75 $  86.14 Next Year                                           5.80%
7/31/2017 $ 88.95     $    85.35 $  88.06 Next 5 Years (per annum)                           3.78%
8/7/2017 $ 89.11     $    87.95 $  88.53 Past 5 Years (iier annum          l               -8.83%
8/14/2017 $ 89.91     $    88.41 $  89.29 Source: YahooFinance; July 18, 2018 8/21/2017 $ 90.41     $    88.63 $  90.02 8/28/2017 $ 90.87     $    89.46 $  89.86 9/4/2017 $ 90.16     $    88.94 $  90.01 9/11/2017 $ 90.92     $    87.79 $  89.27 9/18/2017 $ 89.29     $    86.14 $  86.15               Value-Line                          EPS              DPS 9/25/2017 $ 87.17     $    83.95 $  84.56                             Past 10 Years           4.00%           2.50%
10/2/2017 $ 85.89     $    84.14 $  85.33                              Past 5 Years           5.00%           2.50%
10/9/2017 $ 88.04     $    85.17 $  87.38               Est '15-'17 to '21-'23               5.00%            5.50%.
10/16/2017 $ 88.84     $    86.79 $  88.78 10/23/2017 $ 89.22     $    87.04 $  88.91                                       2017       2018              2019       '21 to '23 10/30/2017 $ 89.21     $    86.23 $  89.12  $                                    2.70 $          2.86       $   3.02     $ 3.50 11/6/2017 $ 90.00     $    88.14 $  88.34 Source: June 15, 2018; Value-Line 11/13/2017 $ 92.48     $    88.28 $  90.05 11/20/2017 $ 90.25     $    88.93 $  89.52 11/27/2017 $ 92.30     $    89.23 $  91.01             NYSE:PNW                             Mean 12/4/2017 $ 91.52     $    88.66 $  90.75                          LT Growth(%)                  4.54           4.85              5.00       3.46   0.64                   4 12/11/2017 $ 91.28     $    88.20 $  89.54 Source: SNL/S&P Global 12/18/2017 $ 89.90     $    84.81 $  85.14 12/25/2017 $ 85.55     $    84.26 $  85.18 1/1/2018 $ 85.55     $    82.02 $  82.42         6.00                    ----*---                                                                                                                        6.00 1/8/2018 $ 83.18     $    79.11 $  79.22 1/15/2018 $ 79.92     $    78.55 $  79.08 1/22/2018 $ 81.33     $    78.81 $  80.94 1/29/2018 $ 80.65     $    77.69 $  77.73         5.50                                                                                                                                                    5.51) 2/5/2018 $ 78.35     $    73.81 $  76.29 2/12/2018 $ 78.88     $    75.61 $  78.69 2/19/2018 $ 80.41     $    75.92 $  80.15  -~e                                                                                                                                                                  ....r-G1 2/26/2018 $ 80.83     $    76.06 $  76.92    Cl   5.00                                                                                                                                                    5.00  c!
                                                                                                                                                                                                                                 ~
3/5/2018 $ 78.3)     $    75.21 $  76.38    I-
                                                              ..I                                                                                                                                                                5' 3/12/2018 $ 78.00     $    75.96 $  77.97 3/19/2018 $ 80.14     $    77.40 $  77.76 3/26/2018 $ 80.21     $    77.73 $  79.80        .f.fAJ                                                                                                                                                   4.50 4/2/2018 $ 80.54     $    78.~2 $  79.75 4/9/2018 $ 80.37     $    77.14 $  78.14 4/16/2018 $ 80.73     $    77.55 $  78.02 4/23/2018 $ 81.85     $    77.95 $  81.61 4.0D                                                                                                                                                     4.00 4/30/2018 $ 81.61     $    78.24 $  80.20                  ...._"\      .(\       ,:'I      ,:,       !'o.'b     ~'ti      .....~      ~      ~   ~                                   ...._'b    ...._ra.
5/7/2018 $ 80.48 5/14/2018 $ 78.39 76.96 75.97 78.12 76.54
                                                                       .J'(E' /              .,,,#'     ,~--~-     ./' ../             /           /       ~,f-' ,   /
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5/21/2018 $ 78.63     $    75.82 $  78.39                                                                                             Date 5/28/2018 $ 80.29     $    77.48 $  77.58 6/4/2018 $ 77.86     $    73.90 $  74.40      - L T Growth               -     LTGrawlh 6/11/2018 $ 76.21     $    73.41 $  76.11 6/18/2018 $ 78.44     $    75.69 $  78.29 6/25/2018 $ 81.25     $    78.24 $  80.56 7/2/2018 $ 82.41     $    80.57 $  82.38 Mm1mum                      $    13.41 $  14.40 Maximum         $  92.48               $  91.01 Mean                                   $  83.23 Source: i'ahooFmance, July 18, 2018

Schedule AHG - 4 18-KCPE-480-RTS Portland General (POR}
Date         Hii:h        Low      Close     1/B/E/S Growth Estimates                 POR 7/3/2017 $ 45.83      $ 44.55 $ 44.87    Current Qtr.                                  8.30%
7/10/2017 $ 44.99      $ 44.20 $ 44.59    Next Qtr.                                    -2.30%
7/17/2017 $ 46.35      $ 44.41 $ 46.35    Current Year                                 -3.90%
7/24/2017 $ 46.16      $ 44.27 $ 44.44    Next Year                                     7.30%
7/31/2017 $ 45.57      $ 44.45 $ 45.46    Next 5 Years (per annum)                     2.65%                           0.023 8/7/2017 $ 46.57      $ 45.24 $ 45.90    Past 5 Years (Iler annum}                     5.87%
8/14/2017 $ 46.68      $ 45.61 $ 46.40    Source: YahooFinance; July 18, 2018 8/21/2017 $ 47.40      $ 46.27 $ 47.14 8/28/2017 $ 47.60      $ 47.02 $ 47.33 9/4/2017 $ 47.91      $ 47.10 $ 47.87 9/11/2017 $ 48.22      $ 46.60 $ 46.96 9/18/2017 $ 47.04      $ 45.48 $ 45.58                  Value-Line                     EPS           DPS 9/25/2017 $ 46.31      $ 45.53 $ 45.64                            Past 10 Years         4.00%          9.00%
10/2/2017 $ 46.54      $ 45.52 $ 46.07                             Past 5 Years         3.50%          3.50%
10/9/2017 $ 47.07      $ 45.95 $ 46.25                   Est '15-'17 to '21-'23         4.00%          6.00%
10/16/2017 $ 46.35      $ 44.70 $ 45.37 10/23/2017 $ 47.68      $ 45.25 $ 47.67                                      2017      2018           2019         '21 to '23 10/30/2017 $ 48.18      $ 47.10 $ 47.76     $                                1.34 "$       1.42     $      1.50    $      1.80 11/6/2017 $ 48.69      $ 47.48 $ 48.28    Source: June 15, 2018; Value-Line 11/13/2017 $ SO.II      $ 48.35 $ 49.34 11/20/2017 $ 49.45      $ 48.38 $ 48.48 11/27/2017 $ 49.85      $ 48.23 $ 49.49                 NYSE:POR                       Mean 12/4/2017 $ 49.84      $ 48.23 $ 48.68                       LT Growth(%)                  3.02             3.00          3.80              2.25     0.63            3 12/11/2017 $ 48.87      $ 47.00 $ 47.79    Source: SNL/S&P Global 12/18/2017 $ 48.12      $ 45.36 $ 45.61 12/25/2017 $ 45.83      $ 45.00 $ 45.58 1/1/2018 $ 45.65     $ 43.63 $ 43.86                ~-5()        -- --*----- -- -- ------                                                                                               ,.50 1/8/2018 $ 44.02     $ 42.38 $ 42.62 1/15/2018 $ 42.99      $ 42.25 $ 42.40 1/22/2018 $ 42.85      $ 41.89 $ 42.27 1/29/2018 $ 42.47      $ 41.00 $ 41.40                ,.oo                                                                                                                                ,:oo 2/5/2018 $ 41.62      $ 39.40 $ 40.47 2/12/2018 $ 41.41      $ 39.77 $ 41.20 2/19/2018 $ 41.14      $ 39.86 $ 41.08           'ie 2/26/2018 $ 41.27      $ 39.41 $ 39.74                l.50                                                                                                                                3.50 3/5/2018 $ 40.42      $ 39.02 $ 39.18          "...
I-3/12/2018 $ 40.09      $ 39.07 $ 40.05 3/19/2018 $ 41.06      $ 39.09 $ 39.11 3/26/2018 $ 40.76      $ 39.27 ~ 40.51                l.00                                                                                                                                3,00 4/2/2018 $ 40.66      $ 39.56 $ 40.21 4/9/2018 $ 40.54      $ 39.18 $ 40.22 4/16/2018, $ 41.21     $ 40.07 $ 40.17 4/23/2018 $ 42.59      $ 40.15 $ 42.33                                  -, - - - - - -       --           .      -                   --------     --      --.-- ~,..-------, - --         2.51) 4/30/2018 $ 42.93      $ 41.63 $ 42.76 2.5D
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5/7/2018 $ 42.81 5/14/2018 $ 41.09
                                        $ 40.56 $ 41.05
                                        $ 39.66 $ 39.78
                                                                                                                    /           "
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                                                                                                                                            ~of'    -v'#        /     ~I~      ~
5/21/2018 $ 41.92      $ 39.66 $ 41.87 0.ilt!I 5/28/2018 $ 42.93      $ 41.46 $ 42.27 6/4/2018 $ 42.41      $ 39.99 $ 40.21              -    LT Growth       -    LT Growth 6/11/2018 $ 41.43      $ 39.60 $ 41.40 6/18/2018 $ 42.59      $
* 41.12 $ 42.41 6/25/2018 $ 43.29      $ 42.39 $ 42.76 7/2/2018 $ 43.96     $ 42.47 $ 43.95 Mtmmum                       $   39.02 $ 39.11 Maximum          $ 50.11               $  49.49 Mean                                   $  43.97 Source: I' ahooFmance, July 18, 2018

ScheduleAHG- 4 18-KCPE-480-RTS Xcel Energy IXEL}
Date         High         Low        Close     1/B/E/S Growth Estimates               XEL 7/3/2017  $  46.06   $    45.18 $ 45.69    Current Qtr.                                4 .40%
7/10/2017  $  46.08   $    45.41 $ 45.92    Next Qtr.                                   2.10%
7/17/2017  $  47.42   $    45.85 $ 47.42    Current Year
* 5.70%
7/24/2017  $  47.70   $    46.55 $ 47.16    Next Year                                   6.60%
7/31/2017  $  48.12   $    46.96 $ 47.97    Next 5 Years (per annum)                   5.86%
8/7/2017  $  48.72   $    47.79 $ 48.19    Past 5 Years (per annum)                    4.18%
8/14/2017  $  49.22   $    48.19 $ 49.00    Source: YahooFinance; July 18, 2018 8/21/2017  $  49.60   $    48.93 $ 49.37 8/28/2017  $  49.70   $    49.19 $ 49.36 9/4/2017  $  50.30   $    49.17 $ 50.23 9/11/2017  $  50.56   $    48.59 $ 49.08 9/18/2017  $  49.10   $    47.29 $ 47.41              Value-Line                       EPS          DPS 9/25/2017  $  47 .97  $    46.69 $ 47.32                        Past 10 Years           5.50%        4.50%
10/2/2017  $  47.80   $    46.86 $ 47-.39                        Past 5 Years           5.00%        5.50%
10/9/2017  $  49.08   $    47.37 $ 48.61               Est '15-'17 to '21-'23          5.50%         5.50%
10/16/2017  $  49.41   $    48.26 $ 49.26 10/23/2017  $  49.83   $    48.56 $ 49.21                                     2017     2018         .2019      '21 to '23 10/30/2017  $  49.92   $    48.93 $ 49.59     $                               1.44 $       1.52 $       1.60 $       1.90 11/6/2017  $  50.57   $    49.29 $ 50.20    Source: June 15, 2018; Value-Line 11/13/2017  $  52.22   $    50.13 $ 50.89 11/20/2017  $  51.05   $    50.35 $ 50.71 11/27/2017  $  51.84   $    50.61 $ 51.36            NASDAQ : XEL                      Mean 12/4/2017  $  51.58   $    50.40 $ 51.20                    LT Growth(%)                   5.67         5.60        6.30         5.00      0.40       7 12/11/2017   $  51.45   $    50.16 $ 50.78    Source: SNL/S&P Global 12/18/2017   $  50.86   $    48.12 $ 48.25 12/25/2017   $  48.41   $    47.53 $ 48.11               5.90                                                                                                                 5.00 1/1/2018  $  48.36   $    46.63 $ 46.79 1/8/2018  $  47.22   $    45.06 $ 45.15 1/15/2018  $  45.86   $    44.89 $ 45,13 5.80                                                                                                                 5.80 1/22/2018  $  46.10   $    45.12 $ 45.70 1/29/2018  $  45.78   $    44.45 $ 44.48 2/5/2018  $  44.75   $    41.51 $ 43.35 2/12/2018  $  44.88   $    43.04 $ 44.68               5.70                                                                                                                 5.70 2/19/2018 2/26/2018 44.82 44.92 43.50 $ 44.77 42.65 $ 43.03
                                                                 ]
3/5/2018  $  44.02   $    42.57 $ 43.28               5.50                                                                                                                 5.60 3/12/2018  $  44 .23  $    43.23 $ 44.13 3/19/2018  $  45.19   $    43.66 $ 43.74 3/26/2018  $  45.87   $    43.81 $ 45.48 5.50                                                                                                                 5.50 4/2/2018  $  45.99   $    44.68 $ 45.47 4/9/2018  $  45.80   $    43.93 $ 44.48 4/16/2018  $  46.01   $    44.49 $ 45.10 4/23/2018  $  47.38   $    45.12 $ 47.10               o.40 '                                                    -             -   -           ,   -
* 4/30/2018 5/7/2018 5/14/2018 47.37 46.54 45.41 45.93 $ 46.39 44.58 $ 45.26 .
43.44 $ 43.70
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5/21/2018  $  45.30   $    43.28 $ 45.19                                                                                      Dal@
5/28/2018  $  45.87   $    44.63 $ 44.74 6/4/2018  $  44.93   $    42.27 $ 42.72            -     LT Growth         -     LT'Growth 6/11/2018 "$  43.43   $    41.99 . $ 43.33 6/18/2018  $  44.39   $    43.25 $ .43.85 6/25/2018  $  46.24   $    43.90 $ 45.68 7/2/2018  $  46.63   $    45.70 $ 46.59 Mm1mum                      $    41.SI $ 42.12 Maximum          $ 52.22                 $ 51.36 Mean                                     $  46.77 Source: YaliooFmance, July 18, 2018

Schedule AHG - 5 18-KCPE-480-RTS Internal Rate of Return Analysis Summary 2            3            4             5              6              7              8               9             IO           II          12         13                 14 Short-Term Growth EPS Growth                      Long-Term Growth Years 5 Through 250 Average ST Growth LT Growth                 2019           2018
* 2020            2021          2022          2023        2024       2025       2021 through 2264 IRR         Price      Estimate      Estimate      Dividends        YearO           Year!           Year2         Year3         Year4       Year5      Year6    Year 7 through Year 250 Allete Inc.                       7.82%    $ 74.78           5.53%          4.30% $          2.34 $      (72.44)   $      2.47 $          2.61 $         2.75 $       2.90 $      3.03 $     3.16 $             2,215;022 Alliant Energy Corp.              8.23%    $ 41.56           6.06%          4.30% $*         1.42 $      (40.14)   $       1.51 $         1.60 $         1.69 $       1.80 $      1.87 $     1.95 $             1,371,882 Ameren Corp.                      8.19%    $ 58.17           6.47%          4.30% $          1.94 $      (56.23)   $      2.07 $          2.20 $         2.34 $       2.49 $      2.60 $     2.71 $             1,902,961 American Electric Power Co.       8.51%    $ 70.22           5.30%          4.30% $          2.63 $      (67.59)   $      2.77 $          2.92 $         3.07 $       3.23 $      3.37 $     3.52 $             2,468,566 2.96 $
                                                                                                                                       - 3.16 $          3.26 $       3.37 $      3.51 $     3.66 $             2,569,661 Consolidated Edison Inc.          8.12%    $ 80.75           3.27%          4.30% $                      (77.79)   $      3.06 $
Duke Energy Corp.                 9.44%    $ 81.78           4.61%          4.30% $          3.80 $      (77.98)   $      3.98 $          4.16 $         4.35 $       4.55 $      4.75 $     4.95 $             3,473,721 Edison International              8.39%    $ 69.71           4.95%          4.30% $          2.57 $      (67.14)   $      2.70 $          2.83 $         2.97 $       3.12 $      3.25 $     3.39 $             2,379,957 El Paso Electric Co.              7.42%    $ 54.44           5.45%          4.30% $          1.52 $      (52.92)   $       1.60 $         1.69 $         1.78 $       1.88 $      1.96 $     2.04 $             1,434,756 IDACORP Inc.                      7.39%    $ 89.08           4.37%          4.30% $          2.56 $      (86.52)   $      2.67 $          2.79 $         2.91 $       3.04 $      3.17 $     3.30 $             2,318,531 NorthWestern Corp.                8.58%    $ 56.88           3.54%.         4.30% $          2.30 $      (54.58)   $      2.38 $          2.47 $         2.55 $       2.64 $      2.76 $     2.88 $             2,018,138 OGE Energy Corp.          '       9.47%    $ 34.06           5.60%          4.30% $          1.54 $      (32.52)   $       1.63 $         1.72 $         1.81 * $     1.92 $      2.00 $     2.08 $             1,461,907 Pinnacle West Capital Corp.       8.28% $ 83.23              4.70%          4.30% $          3.02 $      (80.21)   $      3.16 $          3.31 $         3.47 $       3.63 $      3.79 $     3.95 $             2,770,873 Portland General Electric Co. 7.93% $ 43.97              3.92%          4.30% $          1.50 $      (42.47)   $_      1.56 $         1.62 $         1.68 $       1.75 $      1.82 $     1.90 $             1,335,299 Xcel Energy Inc.                  8.18% $ 46.77              5.63%          4.30% $          1.60 $      (45.17)   $       1.69 $         1.79 $         1.89 $       1.99. $     2.08 $     2.17 $             1,520,796 Mean      8.28%
Min     7.39%
Max      9.47%
Column 1)   Proxy group
: 2) Internal rate of return calcuation -- Investors' discount rate that equates the stock price to the stream of future dividends
: 3) Average stock price July 2, 2017 through July 3, 2018
: 4) Average of short-term growth rates used in first 5 years
: 5) Long-term nGDP growth rate used after 2024
: 6) 2019 dividends reported by Value-Line
: 7) Year O Cashflow; stock price less 2019 dividend 8 through 11 ) Annual cashflow growing at short-term growth rate 12 through 250)   Annual cashflow growing at long-term growth rate

STATE OF KANSAS                            )
                                           ) ss.
COUNTY OF SHAWNEE                          )
VERIFICATION Adam H. Gatewood, being duly sworn upon his oath deposes and says that he is the Managing Financial Analyst for the State Corporation Commission of the State of Kansas, that he has read and is familiar with the foregoing Direct Testimony, and that the statements contained therein are true and correct to the best of his knowledge, information and belief.
Adam H. Gatewood Senior Managing Financial Analyst Utilities Division State Corporation Commission of the State of Kansas Subscribed and sworn to before me this 12th day of September, 2018.
A
* PAMELA J. GRIFFETH
        ~ Notary Public - State of Kanse11 My Appl. Expires <> t'-' 7, o/
My Appointment Expires: August 17, 2019

CERTIFICATE OF SERVICE 18-KCPE-480-RTS I, the undersigned, certify that a true and correct copy of the above and foregoing Direct Testimony was served by electronic service on this 12th day of September, 2018, to the following:
JAMES G. FLAHERTY, ATTORNEY                                                    MARTIN J. BREGMAN ANDERSON & BYRD, L.L.P.                                                        BREGMAN LAW OFFICE, L.L.C.
216 S HICKORY                                                                  311 PARKER CIRCLE PO BOX 17.                                                                     LAWRENCE, KS 66049 OTTAWA, KS 66067                                                               mjb@mjbregmanlaw.com Fax: 785-242-1279 jflaherty@andersonbyrd.com GLENDA CAFER, ATTORNEY                                                         TERRIPEMBERTON,ATTORNEY CAFER PEMBERTON LLC                                                            CAFER PEMBERTON LLC 3321 SW 6TH ST                                                                 3321 SW 6TH ST TOPEKA, KS 66606                                                               TOPEKA, KS 66606 Fax: 785-233-3040                                                              Fax: 785-233-3040 glenda@caferlaw.com                                                            terri@caferlaw.com THOMAS J. CONNORS, ATTORNEY AT LAW                                             TODD E. LOVE, ATTORNEY CITIZENS' UTILITY RATEPAYER BOARD                                              CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                          1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                               TOPEKA, KS 66604 Fax: 785-271-3116                                                             Fax: 785-271-3116 tj.connors@curb.kansas.gov                                                     t.love@curb.kansas.gov
* DAVID \IV. NICKEL, CONSUMER COUNSEL                                           SHONDA RABB CITIZENS' UTILITY RATEPAYER BOARD                                             CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                          1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                               TOPEKA, KS 66604 Fax: 785-271-3116                                                             Fax: 785-271-3116 d.nickel@curb.kansas.gov                                                      s.rabb@curb.kansas.gov DELLA SMITH                                                                   ROBERT J. HACK, LEAD REGULATORY COUNSEL CITIZENS' UTILITY RATEPAYER BOARD                                             KANSAS CITY POWER & LIGHT COMPANY 1500 SW ARROWHEAD RD                                                          ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105 TOPEKA, KS 66604                                                               PO BOX 418679 Fax: 785-271-3116                                                             KANSAS CITY, MO 64141-9679 d.smith@curb.kansas.gov                                                       Fax: 816-556-2787 rob.hack@kcpl.com

CERTIFICATE OF SERVICE 18-KCPE-480-RTS DARRIN R. IVES, VICE PRESIDENT, REGULATORY               RONALD A. KLOTE, DIRECTOR, REGULATORY AFFAIRS AFFAIRS                                                   KANSAS CITY POWER & LIGHT COMPANY KANSAS CITY POWER & LIGHT COMPANY                        ONE KANSAS CITY PLACE ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105       1200 MAIN, 19TH FLOOR PO BOX 418679                                            KANSAS CITY, MO 64105 KANSAS CITY, MO 64141-9679                               Fax: 816-556-2110 Fax: 816-556-2110                                        ronald.klote@kcpl.com darrin.ives@kcpl.com TIM RUSH, DIR. REGULATORY AFFAIRS                         ROGER W. STEINER, CORPORATE COUNSEL KANSAS CITY POWER & LIGHT COMPANY                        KANSAS CITY POWER & LIGHT COMPANY ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105        ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105 PO BOX 418679                                            PO BOX 418679 KANSAS CITY, MO 64141-9679                               KANSAS CITY, MO 64141-9679 Fax: 816-556-2110                                        Fax: 816-556-2787 tim.rush@kcpl.com                                         roger.steiner@kcpl.com ANTHONY WESTENKIRCHNER, SENIOR PARALEGAL                  BRIAN G. FEDOTIN, DEPUTY GENERAL COUNSEL KANSAS CITY POWER & LIGHT COMPANY                        KANSAS CORPORATION COMMISSION ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105        1500 SW ARROWHEAD RD PO BOX 418679                                             TOPEKA, KS 66604 KANSAS CITY, MO 64141-9679                                Fax: 785-271-3354 Fax: 816-556-2787                                        b.fedotin@kcc.ks.gov anthony.westenkirchner@kcpl.com AMBER SMITH, CHIEF LITIGATION COUNSEL                     ROBERT VINCENT, LITIGATION COUNSEL KANSAS CORPORATION COMMISSION                            KANSAS CORPORATION COMMISSION 1500 SW ARROWHEAD RD                                     1500 SW ARROWHEAD RD TOPEKA, KS 66604                                          TOPEKA, KS 66604 Fax: 785-271-3167                                         Fax: 785-271-3354 a.srnith@kcc.ks.gov                                       r.vincent@kcc.ks.gov JUDY JENKINS HITCHYE, MANAGING ATTORNEY                   ANDREW J. FRENCH, ATTORNEY AT LAW KANSAS GAS SERVICE, A DIVISION OF ONE GAS, INC.           SMITHYMAN & ZAKOURA, CHTD.
7421 W 129TH ST                                           7400 W 110TH ST STE 750 OVERLAND PARK, KS 66213-2713                              OVERLAND PARK, KS 66210-2362 Fax: 913-319-8622                                         Fax: 913-661-9863 judy.jenkins@onegas.com                                   andrew@smizak-law.com JAMES P. ZAKOURA, ATTORNEY                                CATHRYN J. DINGES, CORPORATE COUNSEL SMITHYMAN & ZAKOURA, CHTD.                                WESTAR ENERGY, INC.
7400 W 110TH ST STE 750                                   818 S KANSAS AVE OVERLAND PARK, KS 66210-2362                              PO BOX 889 Fax: 913-661-9863                                         TOPEKA, KS 66601-0889 jim@smizak-law.com                                        Fax: 785-575-.8136 cathy.dinges@westarenergy.com

CERTIFICATE OF SERVICE 18-KCPE-480-RTS DAVID L. WOODSMALL WOODSMALL LAW OFFICE 308 E HIGH ST STE 204 JEFFERSON CITY, MO 65101 Fax: 573-635-7523 david.woodsmall@woodsmalllaw.com Isl Pamela Griffeth Pamela Griffeth Administrative Specialist

Enclosure IV to WM 19-0008 Joint MotiorHo Approve Stipulation (Docket No. 15-WCNE-093-GIE)
(28 pages)

20150210140017 Filed Date: 02/10/2015 State Corporation Commission of Kansas BEFORE THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS In the Matter of the 2014Wolf Creek                    )
Decommissioning Cost Study as Provided by Wolf         )
Creek Nuclear Operating Corporation on August 29,      )  Docket No. 15-WCNE-093-GIE 2014 in Accordance with the Commission's Order in      )
Docket Number 163,561-U on December 9, 1992            )
and the Commission's Order in Docket No. 13-           )
  *WCNE-204-GIE on June 13, 2013.                         )
JOINT MOTION TO APPROVE STIPULATION AND AGREEMENT AND TO CONVERT THE EVIDENTIARY HEARING IN THIS DOCKET TO A SETTLEMENT HEARING OR CANCEL THE HEARING COMES NOW the Staff of the State Corporation Commission of the State of Kansas.
("Staff' and "Commission," respectively), Wolf Creek Nuclear Operating Corporation ("Wolf
* Creek"), Kansas Gas and Electric Company d/b/a Westar Energy ("Westar"), Kansas City Power
   & Lig~t Company ("KCP&L"), and Kansas Electric Power Cooperative, inc. ("KEPCo")
(collectively referred to as the "Joint Movants") and respectfully move the* Commission for an Order approving the Stipulation and Agreement ("S&A") filed contemporaneously with this Motion. The S&A is attached as Exhibit 1. The Parties also request the Commission convert the February 24, 2015 evidentiary hearing set out in the procedural schedule contained in the October 16, 2014 Order Setting Procedural Schedule and Design.ating Prehearing Officer in this docket to a settlement hearing:.
I.         INTRODUCTION *
: 1.      On August 29, 2014, Wolf Creek filed its 2014 Decommissioning Cost Analysis for the Wolf Creek Generating Station, in accordance with the Commission's December 9, 1992 Order in Docket No. 163,561-U and the Commission's Order in Docket No. 13-WCNE-204-GIE
* on June 13, 2013. The December 9, 1992 Order directed the filing of a decommissioning cost 1

study every three years after September 1, 1993. The June 13, 2013 Order directed Wolf Creek and the owning utilities to update the estimates of the total capital costs of the Independent Spent Fuel Storage Installation ("ISFSI") project at Wolf Creek as part of the triennial decommissioning cost study filings. 1       *
: 2.      Westar, KCP&L, KEPCo and CURB filed petitions to intervene, which were granted.
: 3.      The Joint Movants and the Citizens' Utility Ratepayer Board ("CURB'') held several conference calls and met on February 9, 2015 to discuss settlement of this docket.
Following negotiations, the Joint Movants entered into an S&A {attached as Exhibit 1) for the
* purpose of determining a reasonable estimate of Wolf Creek decommissioning costs to be used in addressing accrual levels of the respective owner utilities' decommissioning trust accounts and the appropriate escalation factor (inflation rate). The Joint Movants and CURB also discussed a separate, future issue regarding the content of the 2017 triennial decommissioning cost study.
filing. Although CURB is not a signatory to the S&A, CURB has advised the Joint Movants that it does not oppose the S&A.
: 4.      Further, the Joint Movants have submitted pre-filed testimony to support* the
 . S&A, no party to the docket opposes the S&A, and the Joint Movants have included sufficient information within the S&A to respond to the Commission's five threshold questions used in reviewing an S&A for reasonableness.
See Docket No. 13-WCNE-204-GIE, In the Matter of a Generic Proceeding Regarding Wolf Creek Nuclear Operating Corporation to Receive Infonnation Concerning Spent Fuel, Pursuant to the Commission's May 12, 2012 Order in Docket No. 12-WCNE-136-GIE, Order Closing Docket, issued Jun. 13, 2013, Ordering ,r A.
2

II.        THE S&A MEETS THE LEGAL STANDARDS NECESSARY FOR COMMISSION APPROVAL OF SETTLEMENT AGREEMENTS AND SHOULD BE APPROVED.
: 5.       An order of the Commission must afford parties their due process rights, be supported l:,y substantial competent evidence, be in the public interest, conform_wit_h applicable law and if the order impacts rates those rates must be just and reasonable.
: 6.       All parties participated fully in the proceeding and no violation of due process claims has been raised. The S&A is either supported or not opposed by all parties to the docket. As noted e~rlier, the following parties* intervened in this docket: Staff, Wolf Creek, Westar, KEPCo, KCP&L and CURB. A procedural schedule was set on October 16, 2014 providing opportunity for Direct Testimony by the applicants, Wolf Creek, Westar, KEPCo and KCP&L, responsive Direct Testimony by Staff and CURB, Cross-Answering Testimony by Staff and CURB, and Rebuttal Testimony by the applicants. Additionally, all parties to the case participated on the January 30, 2015 conference call and in the Settlement Conference on February 9, 2015 wherein they- discussed a joint motion and settlem~nt agreement. Follow..:up communication regarding the joint motion and settlement agreement included all parties to the case. Therefore, the Joint Movants to the S&A believe that appropriate and sufficient opportunity was provided for all parties to the docket to be heard on any reasons for opposing the S&A.
: 7.       The S&A is supported by substantial competent evidence .. A decision of the
(.
Commission is unsupported by substantial competent evidence "only when the evidence shows the [Commission's] determination 'is so wide of the mark as to be outside the realm of fair debate.' " 2 The Kansas Supreme Court has also stated that the Commission "is not obligated to 2
Zinke.& Trumbo, Ltd v. Kansas Corp. Comm'n, 242 Kan. 470,474 (1988) (quoting Kansas-Nebraska Natural Gas Co. v. Kansas Corp. Comm 'n, 217 Kan. 604, 617).
3

render its finding of fact in minute detail . . . [h]owever, we require its findings to be specific 3
enough to allow judicial review ~f the reasonableness of the order." As noted above, the Joint Movants have provided the decommissioning cost study as well as the testimony of three witnesses, all o(which support the S&A. The cost for decommissioning funding*of.$765,060,000 and the escalation rat<? of 3 .15% agreed to in the S&A are supported by substantial competent evidence. As part of the Application in this docket, Wolf Creek provided the decommissioning cost study supporting the decommissioning cost estimate. Staff witness Leo Haynos testified in support of the cost estimate provided in the Application. Haynos Direct, at p. 12. On behalf of the applicants, Gregg Clizer testified that 3.15% is the appropriate escalation rate. Clizer Direct, at pp.
3-7. Staff witness Adam Gatewood testified in support of the escalation rate. Gatewood Direct, at pp. 2-3.
: 8. The S&A conforms with applicable law. An Order is "lawful" if it is within the
* statutory authority of the commission, .and if the *prescribed statutory and proc~dural
* rules are 4
followed in making the Order. The S&A deals with the decommissioning cost estimate required to be submitted to the Commission by Kansas statute for utilities owning a nuclear facility. Thus, the subject matter of the S&A is clearly within.the Commission's authority. It is also clear that the applicable statutory and procedural rules have been followed.              The S&A is the result of negotiations among and is supported or. not opposed by all of the parties to this proceeding.
Commission approval of the S&A under these circumstances would clearly be in compliance with applicaf?le law.
: 9. The S&A results in just and reasonable rates. Approval by the Commission of the S&A in. this docket will not have an immediate effect on rates charged to Kansas c1;1stomers.
Rate impact will not* occur until each owner company files its individual dockets wherein the Id at 475.
4 Central Kansas Power Co. v. State Corp. Comm'n, 221 Kan. 505, Syl. 1 (1977).

new decommissioning accrual will be included in their revenue requirement. See, e.g., Gatewood Direct, at pp. 1-2. However, because the decommissioning cost elements being stipulated to in this docket are fair, reasonable,. and fully supported by the eyidence, inclusion of the same in rates later should not cause such rates to become unjust or unreasonable.
: 10. Whether the results of the Stipulation are in the public interest. The Joint Movants agree the terms of this S&A are in the public interest and should _be approved by tq.e Commission. Each party to this proceedi_ng has a duty to protect the interests of the party it represents. The companies have* a duty *to both their customers and shareholders.            CURB
. represents the interests of residential and small commercial customers. The Staff is in the unique position of being required to weigh and balance the interests of the companies, the utility customers, and any other party to a proceeding. By signing or not opposing this S&A, these parties represent to the Commission that the total effect of the terms of the S&A represents an
* equitable balancing of the interests of all p~ies. It is also in the public interest to avoid the cost of litigation in this* matter and the unanimous settlement promotes administrative efficiency and reduces related litig~tion costs. Thus, the S&A is in the public interest, and should be_adopted by the Commission in its entirety.
: 11. As indicated above, the following testimony has been submitted in this docket in support of the S&A:
* Direct Testimony of Gregg Clizer for Wolf Creek, KCP&L, Westar and KEPCo.
* Direct Testimony and Testimony in Support of Settlement of Leo Haynos for Staff.
* Direct Testimony of Adam Gatewood for Staff.
                                                   .5
* Testimony in Support of Settlement. of Mary Britt Turner for Wolf Creek, .
KCP&L, Westar and KEPCo.
: 12. The Joint Movants ask that the testimony listed in par~graph 11 and the 2014 Decommissioning Cost Analysis performed by TLG Services, Inc. and submitted :with the Application be admitted into the record. Because a settlement supported or unopposed by all parties is being presented andthe terms of the S&A are supported by testimony in the record, the Parties do not believe that it is necessary for the Commission to hold an evidentiary hearing in this docket. The Parties believe that with the addition of testimony \ supporting the S&A to be filed on February 12, 2015, the record will allow the Commission to approve the S&A without the need for a settlement hearing. Thus, the Parties r~quest the Commission either convert the February 24, 2015 evidentiary hearing set out in the procedural schedule contained in the October 16, 20.14 Order Setting Procedural Schedule and Designating Prehearing Officer in this docket to a settlement hearing or cancel the hearing altogether if the Commission determines a hearing is unnecessary given the record.
WHEREFORE, the Joint Movants respectfully request that the Commission approve the S&A, convert the evidentiary hearing on this matter to a settlement hearing or cancel the hearing altogether, and for any further relief the Commission shall deem just and appropriate.
Respectfully *submitted, David Springe, (#15619)                         Samuel Feather (#25475)
Ni~i Christopher, (# 19311)                     Litigation Counsel Citizens' Utility Ratepayer Board               Kansas Corporation Commission 1500 SW Arrowhead Road                          1500 SW Arrowhead Road Topeka, KS 66604                                Topeka, KS 66604-4027 (785) 271-3200                                  (785) 271.:3196 _
(785) 271-3116 Fax                              (785) 271-3167 Fax 6

Cathryn J.'Dinges, (#20848)              William G. Riggins, (#12080)
Corporate Counsel                        General Counsel Kansas Gas and Electric Co.,             Kansas Electric Power Cooperative, Inc.
d/b/a Westar Energy, Inc.               P.O. Box 4877 __
818 South Kansas Avenue                  Topeka, KS 66604-0877 Topeka, KS 66612                         (785) 273-7010 (785) 575-1986                           (785) 271-4888 (Fax)
(785) 575-8136 (Fax)
Debbie L. Rendell                        Roger W. Steiner, (#26159)
Wolf Creek Nuclear Operating Corporation Corporate Counsel             .
1550 Oxen Lane NE, PO Box 411            Kansas City :&#xa3;lower & Light Company Burlington, KS 66839                     1200 Main Street, 16th Floor    _ *
(620) 364,.4105                          Kansas City, MO 64105 (620) 364-4017 (Fax)                     (816) 556-2314 (816) 556-2787 (Fax) 7

Exhibit 1 BEFORE THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS In the Matter of the 2014Wolf Creek                      )
Decommissioning Cost Study as Provided by Wolf           )
Creek Nuclear Operating Corporation on Augu~t 29,        )   Docket No. 15-WCNE-093-GIE 2014 in Accordance with the Commission's Order in        )
Docket Number 163,561-U on December 9, 1992              )
and the Commission's Order in Docket No. 13-             )
WCNE-204.:.GIE on June 13, 2013.                         )
STIPULATION AND AGREEMENT This Stipulation and Agreement ("S&A") is _entered into by and between the Staff of the State Corporation Commission of the State of Kansas ("Staff' and "Commission," respectively),
Wolf Creek Nuclear Operating Corporation ("Wolf Creek"), Kansas Gas and Electric Company d/b/a Westar Energy ("Westar"), Kansas City Power & Light Company ("KCP&L"), and Kansas Electric Power Cooperative, Inc. ("KEPCo") (cqllectively referred to as the "Parties").
: 1.      On August 29, 2014, Wolf Creek filed its 2014 Decommissioning Cost Analysis for the Wolf Creek Generating Station, in accordance with the Commission's December 9, 1992 Order in Docket No. 163,561-U.          The December 9, 1992 Order directed the filing of a decommissioning cost study every three years after September l, 1993.
: 2.      Westar, KCP&L, KEPCo and CURB filed petitions to intervene, which were granted.
: 3.      On January 30, 2015, the Parties held a conference call to discuss settlement of the issues in this docket. The Parties also discussed settlement at the Settlement Conference held on February 9, 2015. The terms of the resulting S&A are set forth below.
1.

Exhibit 1 I.      TERMS OF THE STIPULATED SETTLEMENT AGREEMENT
: 4.      This S&A is entered into for the purpose of determining a reasonable estimate of the Wolf Creek Generating Station decommissioning costs to be used in addressing accrual levels of the respective owner utilities' Decommissioning Trust Accounts.
: 5.      The cost for decommissioning funding is agreed to be $765,060,000 in 2014 dollars as set forth in the Decommissioning Cost Analysis for the Wolf Creek Generating Station filed in this docket on August 29, 2014, which is hereby incorporated by reference. This number will be used by Westar, KCP&L and KEPCo in their respective proposals for setting an accrual level for each company's Decommissioning Trust Account.
* This will be done in individual company dockets, separate from the instant docket.
: 6.      Westar, KCP&L and KBPCo agree to use an escalation rate of 3.15% per year to escalate the 2014 decommissioning' cost estimate of $765,060,000 from 2014 dollars to the appropriate dollar amount in the yeat that the decommissioning*costs will occur.
: 7.      The Parties agree that Wolf Creek, KCP&L, Westar and KEPCo shall jointly file a new decommissioning financing plan that addresses each of the* 11 requirements of K.S.A. 66-128m(b) by September 1, 2017; however, just as the review process is currently split into two phases - a joint phase for the decommissioning cost study and the escalation factor, and a utility-specific phase for the individual utility financing plans - the utilities may determine to ~le certain of the requirements separately at the time of the joint filing _so long as all 11 requirements are covered.
: 8.      The Parties agree that further discussion is necessary regarding the other issues raised by Staff5 and will continue to discuss those issues in *this docket. CURB, while not .a See Direct Testimony of Leo M. Haynos, filed Jan. 5, 2015, p. 12, lines 8-23.
2

Exhibit 1 signatory, has indicated its support of such discussions. The Parties believe that a resolution can be achieved and suggest the following schedule be adopted by the Commission:
On or before February 15. 2016 - The Parties will report to the Commission as to the status of discussions to resolve the separate issues under this docket.
On or before September 1, 2016-' The Parties will file a resolution with the Commission for approval; or, in the event .the Parties' reach an impasse after good faith efforts to reach consensus on a resolution to the separate issues, the Parties shall file a report with the Commission within 30 days of determining such impasse but no later than October 31, 2016.
: 9.       In support of the S&A, the Parties pre-filed the testimony and schedules of the following witnesses:
* Direct Testimony of Gregg Clizer for Wolf Creek, KCP&L, Westar and KEPCo.
* Direct Testimony artd Testimony in Support of Settlement of Leo Haynos for Staff.
                  *. Direct Testimony of Adam Gatewood for Staff.
                  *
* Testimony in Support of Settlement of Mary Britt Turner for Wolf Creek, KCP&L, Westar and KEPCo.
The Application also included the 2014 Decommissioning Cost Analysis performed by TLG Services, Inc., which cost study is the primary subject of this docket.
II. RESERVATIONS
: 10.      Except as specified in, this S&A, none of the Parties to the agreement shall be
. deemed to have approved or acquiesced in any. question of the Commission authority, 3

                                       .  '                                             Exhibit 1
* IN* WITNESS HERETO, the Parties have executed and approved this S&A effective by subscribing their signatures below.
Respectfully submitted, David Springe, (#15619)                      Samuel Feather (#25475)
Niki Christopher, (#19311)                   Litigation Counsel Citizens' .U:tility Ratepayer Board          Kansas Corporation Commission
 . 1500 SW   . Arrowhead Road 1500 SW Arrowhead Road Topeka, KS 66604                             Topeka, KS 66604-4027 (785) 271-3200                               (785) 271-3196 (785) 271-3116 Fax                           (785) 271-3167 Fax Cathryn J. Dinges, (#20848)               . William G. Riggins, (#12080)
Corporate Counsel                            General Counsel Kansas Gas and Electric Co.,                 Kansas Electric Power Cooperative, Inc.
d/b/a Westar Energy, Inc.
* P.O. Box 4877 818 South Kansas Avenue                      Topeka, KS 66604-0877 Topeka, KS 66612                         * . (785) 273-7010
. (785).575-198.6                               (785) 271-4888 (Fax)
(785) 575-8136 (Fax)
                                                /4/ *;e~ 'HI.* Steu,e,,.
Debbie L. Rendell                            Roger W. Steiner, (#26159)
Wolf Creek Nuclear Operating Corporation     Corporate Cpunsel
  -1550 Oxen Lane NE, PO Box 411                Kansas City Power & Light Company Burlington, KS 66839                         1200 Main Street, 16th Floor (620) 364-4105                              _Kansas City, MO 64105 (620) 364-4017 _(Fax)                        (816) 556-2314 (816) 556-2787 (Fax) 5

./i Enclosure V to WM 19-0008 Order Approving Unanimous Settlement Agreement (Docket No. 18-KCPE-480-RTS)
(34 pages)

20181213103959 Kansas Corporation Commission THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS Before Commissioners:                      Shari Feist Albrecht, Chair Jay Scott Emler Dwight D. Keen In the Matter of the Application of Kansas                    )
City Pow~r & Light Company to Make                            )        Docket No. 18-KCPE-480-RTS Certain Changes in its Charges for Electric                   )
Service.                                                      )
ORDER APPROVING UNANIMOUS SETTLEMENT AGREEMENT This matter comes before the State Corporation Commission of the State of Kansas (Commission) for consideration and decision. Having reviewed the pleadings and record, the Commission makes the following findings:
: l.      On May l, 2018, Kansas City Power & Light Company (KCP&L) filed for a $32.9 million revenue increase, including property tax rebasing. 1 As a result of the Commission's approval of the merger of KCP&L's parent company, Great Plains Energy, Inc. 'with Westar Energy, Inc., on May 24, 2018 (the merger), KCP&L reduced its requested revenue increase to
   $22.6 million.2 This Application was accompanied by the direct testimony from 14 witnesses.
: 2.      On June 26, 2018, Darrin Ives, Vice President - Regulatory Affairs for KCP&L, filed supplemental direct testimony to reflect the Commission's approval of the merger and reduced. KCP&L's requested revenue requirement, including property tax rebasing, from
   $32,948,941 to $22,673,415. 3
: 3.      The Commission has jurisdiction to supervise and control electric public utilities, as defined in K.S.A. 66-IOla, doing business in Kansas. 4 The Commission has the power to 1 Application, May I, 2018, ,r 3.
2 Supplemental Direct Testimony of Darrin R. Ives, June 26, 2018, p 2.
3 Id.                             .
4 K.S.A. 66-101.

require all electric utilities governed by the Electric Public Utilities Act to establish and maintain just and reasonable rates. 5
: 4.      Notice of.the proposed rate increase, public hearing, and evidentiary hearing was provided by mail for each customer in KCP&L's service territory as well as by publishing notice in the major newspapers in the region. The Commission received comments from the public at the August 23, 2018 public hearing in Overland Park. The Commission also received 876 public comments through its Office of Public Affairs and Consumer Protection. 6 The Commission issues this Order with due consideration of those comments.
: 5.      The Citizens' Utility Ratepayer Board (CURB); Wal-Mart Stores, Inc .. (Walmart);
Midwest Division - OPRMC, LLC d/b/a Overland Park Regional Medical Center (OPRMC);
Kansas Gas Service; American Fuel & Petrochemical Manufacturers (AFPM); Magellan Pipeline Company, L.P. (Magellan); Petroleum Marketers and Convenience Association of Kansas, Inc.
(PMCA); Olathe Public Schools USD 233; Johnson Co.unty Community College; Spring Hill School District USD 230; and Blue Valley Schools - Unified School District No. 229 were granted intervention.
: 6.      On September 12, 2018, David Banks filed direct testimony on behalf of Olathe Public Schools USD 233; Johnson County Community College; Spring Hill School District USD 230; and Blue Valley Schools- Unified School District No. 229 (the Schools). After opining that schools are paying inordinately high rates for electric service, Banks advocated for a separate schools tariff for educational institutions to take service as a separate customer class. 7 5 K.S.A. 66-IOlb.
6 The public comments were entered into the record by the Notice of Filing of Public Comments on October 23, 2018.
7 Direct Testimony of David VI_. Banks, Sept. 12, 2018, p. 13.
2
: 7. Also, on September 12, 2018, Paul Raab filed direct testimony on behalf of Kansas Gas Service; Steve Chriss filed direct testimony oll behalf of Walmart; Andrea C. Crane, Brian Kalcic, and Stacey Harden filed testimony on behalf of CURB; and Tim Stringer, Justin Grady, William Baldry, Adam Gatewood, Roxie McCullar, Justin    .
Prentiss, Darren Prince,. Brad Hutton,
*Joshua Frantz, Chad Unrein, Andria Jackson, and Dr. Robert Glass filed direct testimony on behalf of .Commission Staff (Staff).
: 8. On September 19,2018, Raab, Kalcic, and Chriss filed cross-answering testimony.
: 9. On October 3, 2018, Albert Bass, Jr., Charles Caisley, Brian File, Jeffrey Fle~nor, Melissa Hardesty, Darrin Ives, Ronald Klote, Bradley Lutz, .Marisol Miller, Linda Nunn, Tim Rush, Thomas Sullivan, Dane Watson, and Kimberly Winslow filed rebuttal testimony on behalf ofKCP&L.
            .10~: On October 15, 20i8, .Staff, CURI3, KCP&L, Walmart, OPRMC, the Schools, AFPM, Magellan, PMCA, and Kansas Gas Service (the Signatories) filed a Joint Motion for Approval of Unanimous Settlement Agreement.             The Unanimous Settlement Agreement (Unanimous Settlement Agreement), is attached as Attachment A and incorporated by reference.
: 11. The Signatories agree that the Unanimous Settlerrterit Agreement resolves* all revenue requirement issues in this Docket. 8 Under the terms of the Unanimous Settlement Agreement, KCP&L will experience an overall annual revenue requirement decrease of $10.7.
million, before the Property Tax Surcharge (PTS) rebasing. The $10.7 mill.ion includes $7.5 million of merger savings, as required by the Settlement in the 18-KCPE-095-MER Docket.
Including the PTS, under the Unanimous Settlement Agreement, KCP&L's revenue requirement decreases by $3,916,417. 9 9
8
        ,1.
Unanimous Settlement Agreement, Oct. 15, 2018,, 12.
Id.,
3

             .12.      Other key terms included in the Unanimous Settlement Agreement are:*
* KCP&L will distribute a one-time bill credit of$36,915,958 for tax savings related to the period of January 1, 2018, through December 27, 2018, to customers with the first billing cycle that starts 60 days after this Order; 10
* KCP&L's approved ROE will be 9.3%, resulting in an overall rate of return of 7.07% and a capital structure with a 50.91 %-49.09% debt-equity ratio. 11
* KCP&L will create a regulatory liability to capture the K~nsas jurisdictional amount of depre~iation expense included in KCP&L's revenue requirement
                     . beginning with the retirement of the Montrose units to accumulate in the regulatory liability account until new customer rates are established in KCP&L's next KCP&L general rate case. 12
                .*     KCP&L's Kansas jurisdictional, non-tran*smission related property tax ~xpense in base rates is $46,558,678. 13
* The Residential Customer charge increases from $14.00 to $14.25. 14
* The Signatories will ask the Commission to initiate a general, investigation to evaluate whether KCP&L should implement a school tariff. 15
* KCP&L will collaborate with Staff and Walmart to explore alternative rate designs for    commercial      customers,     focusing     on     more transparent and simple .
demand/energy rates. 16 10 Id., ,r 9.
11 Id., ,r 8.
12 Id., ,r 12.
13 Id., ,r 19.
14 Id., ,r 22; see also Direct Testimony of Robert H. Glass, Sept. 12, 2018, p. 14..
15 Unanimous Settlement Agreement,,r 34.
16 Id., ,r 35.
4
* The Signatories agree that the Unanimous Settlement Agreement resolves all revenue allocation, class cost of service and rate design issues under this Docket. 17
: 13. On October 15, 2018, Andrea Crane (CURB), Darrin Ives (KCP&L), David Banks (the Schools), and Justin Grady and Dr. Robert Glass (Staff) each filed testimony in support of the Unanimous Settlement Agreement.
: 14. On October 22, 2018, KCP&L filed an estimate of the rate case expense incurred and expected to be incurred in this Docket, indicating that it had originally anticipated $1,603,100 in total rate case expense. However, as a result of the Unanimous Settlement Agreement, KCP&L has lowered its expected total rate case expense to $632,272. 18
: 15. On October 24, 2018, the Commission held a hearing on the Unanimous Settlement Agreement. KCP&L, Staff, CURB, Walmart, OPRMC, the Schools, Kansas Gas Service, and AFPM, Magellan, and PMCA appeared by counsel. KCP&L, Kansas Gas Service, the Schools, and Staff made opening statements. The Commission heard live testimony from 4 witnesses: Ives (KCP&L), Banks (the Schools), and Grady and Glass (Staff).
: 16. The law generally favors compromise and settlement of disputes between parties when they enter into an agreement knowingly and in good faith to settle the dispute. 19 When approving a settlement, the Commission must make an independent finding that the settlement is supported by substantial competent evidence. in the 'record as a whole, establishes just and reasonable rates, and i~ in the public interest. 20 17 Id., ,r 36.
18 KCP&L Rate Case Expense Filing, Oct. 22, 2018, p. 2.
* 19Krantzv. Univ. of Kansas, 271 Kan. 234, 241-42 (2001).
20 Citizens' Util. Ratepayer Bd v. Kansas Corp. Comm 'n, 28 Kan. App. 2d 313, 316 (2000), rev denied March 20, 2001.
5
: 17. The Unanimou~ Settlement Agreement is a "Unanimous settlement agreement" as defined by K.A.R. 82-l-230a. Therefore, there is no need to apply the five-factor test. 21
: 18. Substantial competent evidence possesses something of substance. and relevant consequence, which furnishes a substantial basis of fact to reasonably resolve the issues. 22 Whether another trier of fact could have reached a different conclusion given the same facts is irrelevant; a court can only find that a Commissio.n decision is not supported by substantial competent evidence when the evidence shows "the [Commission's] determination is so wide of the mark asto be outside the realm of fair debate."23 The Commission has reviewed the record in this Docket that consists of pre-filed testimony from a total of 34 witnesses, including 15 on behalf of KCP&L, live testimony of 4. witnesses, and the Joint Motion for Approval of Unanimous Settlement Agreement, supported by testimony from Aridrea Crane (CURB), Darrin Ives (KCP&L), David Banks (the Schools), and Justin Grady and Dr. Robert Glass (Staff).
: 19. Having reviewed the record as a whole, the Commission finds and concludes that
                                                                                                                 \
substantial competent evidence supports approval of the Unanimous Settlement Agreement in its entirety. Every electric public utility in Kansas is required to provide reasonably efficient and sufficient service and establish just and reasonable rat~s. 24 Under Kansas Supreme Court precedent, rates must fall within a "zone of reasonableness" which balances t_he interests of investors versus ratepayers, present versus future ratepayers, and the public :interest.25 The Signatories agree the Unanimous Settlement Agreement results in just and reasonable rates. 26 Accordingly, we find the 21 See Order Approving Contested Settlement Agreement, ,r,r 9~ IO (280 Order), Docket No. 08-ATMG-280-RTS (May 12, 2008) ..
22 Farmland Indus., Inc. v. Kansas Corp. Comm 'n, 25 Kan.App.2d 849, 852 (1999).
23Id. at 851.                                                     *
* 24 K.S.A. 66-lOlb.
25 Kansas Gas, 239 Kan. 483,488 (1986).
26 Testimony in Support ofUnanimous Settlement Agreement of Andrea C. Crane, Oct. 15, 2018, ,r 12; Testimony in Support ofUrtanimous Settlement Agreement of Darrin R. Ives, Oct. 15, 2018, ,r 12; Testimony in Support of Unanimous Settlement Agreement of Justin T. Grady, Oct. 15, 2018, ,r 11.
6

Unanimous Settlement Agreement fairly represents a balance of the interests of the Signatories, reaches a reasonable result that is supported by the evidence, and is in the public interest.
: 20. The requirement of just and reasonable rates incorporates the "zone of reasonableness" test, and is used to determine whether the rate is within an elusive range of reasonableness in calculating a fair rate of retum. 27 The Commission acts within its discretion in 28 finding an "in-between point, where the rate is most fair to the utility and its customers." The Commission considered the competing interests it must take into account in setting rates, and finds the agreed upon revenue requirement under the Unanimous Settlement Agreement falls within the "zone of reasonableness." There is substantial evidence in the record that the agreed-upon rates will provide KCP&L with sufficient revenues and cash flows to meet its financial obligations, yet will keep rates as low as possible while maintaining reliable service for its customers. Accordingly, the Commission finds and concludes that the approval of the Unanimous Settlement Agreement will result in just and reasonable rates for KCP&L and its customers.
: 21. The Commission finds that approval of the Unanimous Settlement Agreement is in the public interest. The Signatories agree the terms of the Unanimous Settlement Agreement are in the public interest and should be approved by the Commission.29 The Signatories explain that the terms of the Unanimous Settlement Agreement represent an equitable balancing of the interests of
                   &deg; all Signatories.3 Furthermore, the public interest is served by minimizing the cost of litigation, and passing those cost savings on to ratepayers. 31 27 Kansas Gas, 239 Kan. at 490.
28Jd.
29 Testimony in Support of Unanimous Settlement Agreement of Andrea C. Crane, ~112-13; Testimony in Support of Unanimous Settlement Agreement ofDarrin R. Ives, 113; Testimony in Support of Unanimous Settlement Agreement of Justin T. Grady, ~ 13.
3
  &deg;Testimony in Support of Unanimous Settlement Agreement of Andrea C. Crane, ~ I I; Testimony in Support of Unanimous Settlement Agreement of Darrin R. Ives, 113; Testimony in Support of Unanimous Settlement Agreement of Justin T. Grady,~~ 13-14.
31 See Testimony in Support of Unanimous Settlement Agreement of Justin T. Grady, 1 15.
7
: 22. The Commission finds that the agreed-upon rates under the Unanimous Settlement Agreement will provide KCP&L with sufficient revenue to meet its financial obligations and provide safe and reliable service at just and reasonable rates to its customers. After considering all of the terms of the Unanimous Settlement Agreement, the Commission finds and concludes that it is in the public interest. The Unanimous Settlement Agreement is a balanced agreement that is fair to all affected parties. Therefore, the Commission finds the proposed rate design is fair and reasonable, and is in the public interest.
: 23. After a careful review and consideration of the evidence in the record, the Commission finds that the attached Unanimous Settlement Agreement is supported by substantial competent evidence in the record as a whole, will result in just and reasonable rates, and is in the public interest. The Commission approves the Unanimous Settlement Agreement in its entirety.
: 24. The new rates and tariffs will be effective December 20, 2018.
: 25. As part of the Unanimous Settlement Agreement, the Signatories requested a general investigation docket to evaluate whether KCP&L should establish a separate tariff or tariffs for schools. The Signatories anticipated the initiation of this general investigation docket by July 1, 2019. The Commission agrees that such a general investigation is appropriate. Accordingly, the I
Commission directs KCP&L and the Schools to file comments in this docket delineating the scope of the general investigation into a possible school tariff by February 5, 2019. Those comments should be limited to 12 pages. Staff is directed to file a Report and Recommendation based on those comments by March 18, 2019.
THEREFORE, THE 'COMMISSION ORDERS:
A.      The Unanimous Settlement Agreement is approved in its entirety. The terms of the attached Unanimous Settlement Agreement are incorporated into this Order.
8

B.
* KCP&L's Kansas jurisdictional, non-transmission related property tax expense in base rates is $46,558,678 and shall be the basis for property tax balance used for purposes of future PTS filings when the new rates take effect on December 20, 2018.
C.       The $10.7 million overall revenue requirement decrease as provided under the Unanimous Settlement Agreement is approved. After rebasing amounts previously recovered through KCP&L's Property Tax Surcharge, the Commission approves a total revenue decrease of
$3,916,417.
D.*      KCP &L and the Schools are each directed to file comments suggesting the scope of a general investigation into a possible school tariff. Those comments are due by February 5, 2019, and should be limited to 12 pages. Staff is directed to file a Report and Recommendation
(
based on those comments by March 18, 2019.
E.       Any party may file and serve a petition for reconsideration pursuant to the require~ents and time lim~ts established by K.S.A. 77-529(a)(l). 32 F.       The Commission retains jurisdiction over the subject matter _and parties to enter further orders as it deems necessary.
BY THE COMMISSION IT IS SO ORDERED.
Albrecht, Chair; Emler, Commissioner; Keen, Commissioner 12/l?/2018 Dated:
LynnM. Retz Secretary to the Commission BGF 32 K.S.A. 66-l 18b; K.S.A. 77-503(c); K.S.A. 77-53 l(b).
9

ATTACHMENT A BEFORE THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS In the Matter of the Application of Kansas                )
City Power & Light Company to Make                        )                Docket No. 18-KCPE-480-RTS Certain Changes in Its ~barges for Electric               )
Service.                                                  )
UNANIMOUS SETTLEMENT AGREEMENT As a result of discussions between the parties to this d.ocket, the Staff of the State Corporation Commission of the State of Kansas ("Staff' and "Commission," respectively),
Kansas City Power & Light Company ("KCP&L" or "the Company"), the Citizens' Utility Ratepayer Board ("CURB"), Wali:nart, Inc. ("Walmart"), Midwest Division - OPRMC, LLC d/b/a Overland Park Regional Medical Center ("OPRMC"), Olathe Unified School District 233
("USD 233"), Spring Hill Unified School District 230 ("USD 230"), Blue Valley Unified School District 229 ("USD 229"), and Johnson County Community College ("JCCC"), (referred together as "Schools"), 1 Kansas Gas Service, Inc., a division of ONE Gas, Inc. ("KGS"), and American Fuel & Petrochemical Manufacturers ("AFPM"), Magellan Pipeline Company, L.P.
("Magellan"), and Petroleum Marketers and Convenience Association of Kansas, Inc. ("PMCA")
(referred to collectively as the "Signatories" or the "Signatory Parties"), hereby submit to the Commission for its consideration and approval the following Unanimous Settlement Agreement
("Settlement"):
I.       KCP&L'S APPLICATION
        . 1.       On May 1, 2018, KCP&L filed an Application with the Commission to make certain changes in its rates and charges for electric service, which was docketed as the above-1 USD 233, USD 230, and USD 229 sign this agreement subject to approval by their respective Boards ofEducation.
These entitities commit to notify the Commission of board approvals a*s they occur through filings in*this docket.
I

ATTACHMENT A captioned proceeding.          The filing was made in accordance with Kansas Statutes Annotated
("K.S.A.") &sect; 66-117, and Kansas Administrative Regulations ("K.A.R.") &sect; 82-1-231 (b )(3).
2~       The schedules filed with KCP&L's .Application indicated a gross revenue
*requirement deficiency of $26.2 million, excluding the rebasing of property taxes, based upon normalized operating results for the test year ending September 30, 2017, adjusted for known and measurable changes in revenues, operating and maintenance expenses, cost of capital and taxes, and .other adjustments explained . in the
* testimony and schedules supporting this .
. Application. The Company's requested increase was $32.9 million with the inclusion of the property tax reb~sing.
: 3.
* On June 26, 2018, KCP&L filed supplemental testimony incorporating into its Application the terms of the agreement approved by the Co111mission in Dp_cket No. 18-KCPE-095-MER2 issued on May 24, 2018 ("18-095 Docket", 18-095 Settleme,nt Agreement", and "18-095 Order"). 3 With the 18-095 Settlement Agreement incorporated into KCP&L's position, the revenue requirement deficiency became $15.9 million, excluding property tax rebasing.
: 4.        Staff filed its direct testimony on September 12, 2018, recommending* a revenue decrease of approximately $J .2 million, excluding property tax rebasing. CURB filed_ its direct and cross-answering testimony on September 12, 2018 and September 19, 2018, respectively; recommending a revenue decrease of approximately $12.2 million, ,excluding property tax rebasing. Staff and CURB also addressed policy and rate design issues. Other intervenors filed direct and cross-answering testimony primarily addressing rate design issues, 2
In the Matter of the Application of Great Plains Energy Incorporated, Kansas City Power & Light Company and Westar energy, Inc. for Approval ofthe Merger of Westar Energy, Inc. and Great Plains Energy Incorporated 3
On Aug. 10, 2018, KCP&L filed the Corrected Supplemental Direct Testimony* of Darrin Ives to correct a transposed number contained in Mr. Ives' Supplemental Direct testimony.
2

ATTACHMENT A
: 5.      Consistent with the Commission's Procedural Order, KCP&L filed rebuttal testimony on October 3, 2018. The parties held settlement discussions on October 9 - 10, 2018, and reached this Settlement, as described below.
II.      TERMS OF SETTLEMENT AGREEMENT
: 6.      The Signatory Parties have agreed to a total revenue requirement amount, revenue allocations, and -rate design adjustments, without specifically addressing the underlying issues and disagreements regarding those issues, except as set forth herein. This Settlement resolves all issues in this matter, with such Settlement providing no precedent for future cases as to the_
underlyi_ng issues or positions of the parties on those issues. "In the event the Commission either does ~ot approve this Settlement in total, or materially change*s the Settlement terms, then the Settlement shall be voidable by any Signatory negatively affected by such modification. The following set forth the terms of this Settlement:*
A.       Revenue Requirement
: 7.      The Signatory Parties agree that KCP&L's overall annual revenue requirement decrease will be $10.7 million, not including the Property Tax Surchaq~e ("PTS") rebasing. This amount includes $7 .5 million of merger savings, as required under the 18-095 Settlement Agreement. With the PTS included, the revenue requirement decrease is $3,916;4 l 7.
(1)   - ROE, Capital Structure, Cost of Debt
: 8.      The Signatory Parties agree that KCP&L;s revenue requirement is based on the
                                                               ~
cost of capital as follows:
3

ATTACHMENT A
                   '                     Return on Rate Base A                B             C Percent of     Component       Weighted Capitalization        Cost       Avg. Cost I    Debt                      50.91 %    . 4.93%              2.51%
2    Common Equity             49.09%        9.30%             4.56%
3               Totals       100.00%                           7.07%
(2)    Tax Cut and Jobs Act
: 9.       KCP&L will provide to customers a one,-time bill credit of $36,915,958 for tax savings related to the period of January 1, 2018, through December 27, 2018.             It will be distributed to customers with the first billing cycle that starts 60 days after the Commission issues its order in this case. KCP&L agrees to sync up the timing of these tax credits with the timing of the merger related up-front bill credits that will be provided pursuant to the
* Commission's Merger Order and to use the Merger Order processes to determine the tax credit amounts. If the effective date of new rates from this case is different than December 27, 2018, the amount refunded to customers shall be adjusted to reflect the number of days between January 1, 2018, and the effective date of rates from this case using the annual amount of
  $37,354,878 for such calculation.
: 10.      Amortization expense associated with the excess accumulated deferred income taxes will be recorded by the Company using the following periods:
EXCESS DEFERRED INCOME TAXES ("EDIT") AMORTIZATIO NS IN KCP&L-KS REVENUE REQUIREMENT -TOTAL COMPANY AMOUNTS Increase/ (Decrease)
EDIT Amount to Amortize            Years/Amortize to Tax Expense Average Rate Assumption Method Plant-Protected ($403,638,981)           ("ARAM")                $ (10,362,524)
Plant-Unprotected ($130,978,754)             5 yr                $ (26,195,751)
NOL $65,110,179                             ARAM                     $2,187,842 4

ATTACHMENT A Miscellaneous ($1,205,360)                     10 yr                   $ (120,536)
Total         $ (34,490,969)
: 11. The Signatory Parties agree that EDIT amortization from July 1, 2018 through the effective date of rates will be established in   a regulatory liability and will not be recorded to the income statement until the Company addresses the amortization of this deferred
* regulatory Iia.bility in the next KCP&L general rate case filed after the KCP&L 2018 general rate case is completed.
(3)    Depreciation
: 12. For settlement purposes only, Staffs depreciation rates will be adopted .
Additionally, KCP&L will create a regulatory liability to capture the Kansas jurisdictional amount of depreciation expense included in KCP&L's revenue requirement beginning when the Montrose units are retired and depreciation expense is no longer recorded to the income statement associated with the Montrose units. The depreciation amounts ~ill accumulate in the regulatory liability account until new customer rates are established in the next KCP&L general rate case filed after this 2018 general rate case is completed.           At that time, the regulatory liability account will be closed into accumulated depreciation. Additionally, the closing of this regulatory liability into accumulated depreciation will be reflected in rates that are established in that rate case.
(4)     Revenue Adjustments
: 13. The Signatories agree that KCP&L's sales revenues and unit sales will be utilized for purposes of setting rates.
: 14. KCP&L and Staff will work together to resolve normalization data requirement shortfalls noted by Staff in this case. Prior to the filing of the next rate case filing, the data issues will be resolved to the statisfaction of all parties ..
5
                                                                                                          \

ATTACHMENT A (5)     Clean Charge Network
: 15. The Signatories agree that the CCN tariff rate schedule proposed by the Company and the rates contained therein shall be adopted. The Settlement does not address inclusion or exclusion .in rate base or cost of service of the plant, costs, or expenses related to the CCN. The Settlement* does not address recovery of the CCN except for the tariffed rate and therefore any party can assert any position regarding CCN cost recovery in KCP&L's next general rate proceeding after the five year merger moratorium.
(6)     AccountingAdiustments
: 16. There will be no change in .the Wolf Creek NDT funding level from the amount currently in rates. This does not reflect agre~ment with any particular method in calculating the appropriate funding level.
: 17. KCP&L will continue the accounting for Asset*Retirement Obligations ("ARO")
as adopted in May 2018 for th~ KCP&L-KS jurisdiction. ARO settlements will reduce the ARO regulatory asset for settlement costs as they are incurred and are recorded to the reserve at the time of payment rather than waiting until the end of the life of the ARO.
: 18. The CIP/Cybersecurity Tracker as approved in Docket No. 15-KCPE-115-RTS will continue in this case. The base amount of the tracker is set at $4,592,958 (Total Company) for CIP and $933,304 (Total Company) for Cybersecurity.
(7)     Other Issues
: 19. The Signatories agree_ that the Kansas jurisdictional, non . .transmission related property tax expense in base rates is $46,558,678 and shall be the basis for property tax balance used for purposes of future PTS filings for the time period the new rates are applicable. This 6

                                                                                        . ATTACHMENT A
. includes the additional property tax rebase amount of $~,783,583 to be included in base rates in this case.
: 20. For the purposes of calculating KCP&L's pension tracker going forward, the Signatories agree that the base rates agreed to in this Settlement include the following expenses associated with KCP&L's pension and OPEB plans (amounts provided are total Company):
OPEB Expense:                         . $1,852,965 Amortization of Tracker 1:              ($1,357,860)
Pension Expense:                        $45,653,251 Amortization of Tracker l':             $1,858,774 TRACKER BALANCES AS OF JUNE 30, 2018:
OPEB           Tracker 1                ($6,789,299)
Tracker2                 $0 Pension        Tracker 1                $9,293,870 Tracker 2                ($76,278,533)
: 21. A list of regulatory assets and liabilities and their associated amortization periods is attached hereto as Attachment A.
: 22. The Signatories agree this Settlement resolves ~II revenue requirement issues.
7

ATTACHMENT A B.       Allocation of Revenue Requirement Among Customer Classes and Rate Design Matters
(])      Revenue Allocation
: 23.      The Signatories agree to the following revenue decrease allocation among the customer classes:
Proposed     Proposed Revenue from Existing KANSAS RATE GROUP                                                    Decrease     Decrease Rates LARGE GEN SVC TOTAL                             * $162,402;701    . $(1,625,875)   -1.001%
MEDIUM GEN SVC TOTAL                               $69,285,911        $(693,648)   -1.001%
SMALL GEN SVC TOTAL                                $43,958,196        $(527,498)   -1.200%
RESIDENTIAL TOTAL                                 $295,423,478    . $(1,001,043)   -0.339%
Metered TOTALS                                    $571,070,286      $(3,848,065)
Lighting TOTAL:                                     $6,827,468         $(68,352)   -1.001 %
TOTAL                   $577,897,754      $(3,916,417)   -().678%
: 24.      In . accepting the allocation of the revenue decrease and resulting rates, the Signatories    agree that this Settlement does not indicate any specific class cost of service methodology or approach.
               * (2)      Residential Rate Design
: 25.      The* Residential Customer charge shall increase to $14.25.        The remaining residential class revenue requirement decrease        will be allocated to the energy blocks. The residential rates are as follows:
8

ATTACHMENT A Proposed Present Rates Rates
                                                                                                       -0.684%
CUSTOMER CHARGE (per month)
One Meter - Rate Code (2RS1A; 2RSDA; 2RS6A; 2RW6A; 2R01A):               14.00        14.25 Two Meter - Rate Code (2RS2A; 2RS3A; 2R\/v7A):                           14.00        14.25 ENERGY CHARGE (per kWh)
All rates less Other Use - SUMMER - Rate Code ( All less 2R01A):
First 1000 kWh per month                                              0.10751      0.10677 01.er 1000 kWh per month                                              0.10751      0.10677 Other Use - For all kWh - SUMMER - Rate Code (2R01A):                                  0.12551      0.12465 General Use -WINTER - Rate Code {2RS1A; 2RSDA):
First 1000 kWh per month                                              0.08300      0.08243 01.er 1000 kWh per month                                              0.08300      0.08243 General Use and Space Heat - One Meter'- WINTER - Rate Code (2RS6A; 2RW6A):
First 1000 kWh per month                                              0.07474      0.07423 01.er 1000 kWh per month                                              0.06524      0.06524 General Use and Space Heat-Two Meter-WINTER- Rate Code (2RS2A; 2RS3A; 2R\/v7A):
First 1000 kWh per month                                              0.07474      0.07423 01.er 1000 kWh per month                                               0.06527      0.06527 Other Use* For all kWh - WINTER* Rate Code (2R01A):
* 0.09862      0.09795 Separately Metered Space Heat - Rate Code (2RS2A; 2RS3A; 2R\/v7A):
For all kWh- SUMMER                                                   0.10751      0.10677 For all kWh -WINTER                                                    0.06524      0.06524 Time Of Day (Frozen) - Rate Code (2TE1A):
Customer Charge                                                           20.00        19.86 On-Peak - SUMMER                                                       0.17621     0.17500 Off-Peak - SUMMER                                                       0.07370     0.07320 For all kWh -WINTER                                                    0.07705     0.07652
: 26.         KCP&L will offer the following optional pilot rates as filed: Residential TOU rate _
and Residential Demand rate. With regard to those pilot rates the Signatories agree that:
: a.           KCP&L will be permitted to establish a regulatory asset or . liability account to track the revenue impact of rate switching for customers switching to- either the Residential TOU or Re~ide~tial Demand rates.
Further, customers will be allowed a one-year opt-out option consistent with the rebuttal testimony of KCP&L witness Kimberly Winslow.
: b.           Marketing and customer education costs associated with these tariffs and the Residential Distributed Generation tariff will be recorded in a regulatory asset account              with a budget cap of $2.2 million (Kansas jurisdiction). KCP&L will track and may seek recovery of these costs 9

ATTACHMENT A during KCP&L's next general rate case. KCP&L will collaborate with Staff with regard to marketing and education efforts, thereby providing, Staff with the opportunity to provide input on the reasonableness of those efforts and expenditures in. advance of proceeding. As part of this effort, KCP&L will provide detailed, line item budgets for expenses incurred in rriarketing and education efforts. Staff may request additional information*
related to these or any other expenses associated with marketing and custom.er education costs. In the event Staff disagrees with the level of expenditures, KCP&L shall have the right to argue the prudency of those
* expeditures during the next general rate proceeding.,
: 27. With regard to Residential Distributed Generation, the Signatories agree to the following:
: a. Adopt a three-part rate with modifications proposed by Staff witness Bob Glass:
(i)    the summer and winter demand charges shall be $9.00/kW and $3.00/kW, respectively; (ii)   the customer charge shall be $14.25 (equal to Residential Customer Charge for general use);
(iii)  the energy charge shall be $0.07688 energy charge per _
kWh; and (iv)   the demand measurement shall be a 60-minute interval.
(v)    The demand billing period shall be the daily hours of 2:00 pm through 7:00 pm Central Time, except for_ weekends, 10

ATTACHMENT A New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
: b. The Company will report annually to Staff and CURB the following information for the Residential Distributed Generation rate:
(i)     number of residential DG customers taking service from the rate, (ii)    the total demand and energy charges paid during the year, (iii)   annual energy consumption data by customer, and (iv)    annual total bill amounts (less riders) by customer.
This same information will be provided annually regarding the Residential
                                                                                           /
TOU rate and the Residential Demand rates.
(3)   Non-Residential Rate Design
: 28. The Signatories agree that the rate design for the Non-Residential decrease, established in the Revenue Requirement section above, will be applied in the following manner.
* a. Small General Service (i)     Decrease all components equally based on class revenue allocatioq
: b. Medium & Large General Service (i)    A reduction to all energy charges by 2%
(ii)   Increase the remaining non-energy bill components on an equal percentage basis to achieve the class revenue reduction.
11

ATTACHMENT A C.      Lighting (i)    Decrease all components equally to all non-LED lighting rates bas_ed on class revenue allocation.
: 29. The Signatories agree to KCP&L's LGS Off-Peak rider as proposed with revisions as presented by KCP&L witness Miller in rebuttal testimony.
(4)    LED Lighting
: 30. The Signatories accept Staffs recommendation to approve* KCP&L's. plan and related pricing for street and private area lighting with price modifications and regulatory accounting treatment for revenues and costs as proposed by Staff witness Ellis.
(5)    Programs
: 31. With regard to the Solar Subscription Program the Signatories agree as follows:
: a. KCP&L shall be authorized to pursue a build option or Power Purchase Agreement ("PPA") for solar resources.
: b. KCP&L's selection of either a build option or PPA for solar resources will be based on least cost to customers.
: c. The revenue requirement for inclusion in rates for a Company-owned solar built project will be levelized over the life of the project if the cost of the solar resource exceeds $10 million.        For projects under this amount, parties reserve their ability to address the methodology for inclusion in KCP&L's revenue requirement at the time the solar resource is included in a future general rate proceeding.
: d. KCP&L will not build or enter into a PPA for a solar project until the project ,is 75% subscribed, and the cost of any unsubscribed portion will 12

ATTACHMENT A be borne 75% by KCP&L and 25% by customers. The 25% borne by customers will be reflected in the ECA.
: 32. With regard to the Renewable Energy Rider the Signatories agree as follows:
: a. The Signatories agree to KCP&L's redesigned tariff and related provisions as described in the rebuttal testim.ony of KCP&L witness. Brad Lutz,      1 which provides for:
(i)    Accommodation of the revisions belo*w recommended by Walmart Witness Steve Chriss.
: 1.      Revision of the process to first enroll customers for a resource tranche of the program to be apportioned on an allocation of the available resource based on expressed interest.
: 2.      Inclusion of a renewal provision that gives the participating customer the option to renew its
                                 .Participation prior to offering that capacity to other
* customers.
: 3.      Use of enrollment agreements with twenty-year terms. Lesser terms of five-year, -ten-year, and fifteen-years will be allowed at a cost premium to the twenty-year rate.
: 4.       Inclusion of more flexible transfer terms as noted in Paragraph 4 of the Definitions and Conditions 13

ATTACHMENTA section of the exemplar tariff in the rebuttal testimony of Brad Lutz.
(ii)   The redesigned tariff shall:
: 1.      Be consistent with the Westar DRPS tariff.
: 2.      Use separate Participation Agreements.
: 3.      Allow for smaller participation limits.
: a. Requiring a peak demand of 200 kW and subscription in 200 kW increments up to 1,000   kW    and    500   kW       increments thereafter.
: b. Participation    agreement      will     include provisions allowing Schools, municipalities, and goverments to .aggregate accounts to meet participation limits.
: 4. Include a KCP&L commitment to make a subsequent tariff filing to establish the renewable resource, term, and price. KCP&L will also provide the price premium for shorter term enrollment. Staff and CURB agree to make all reasonable efforts to review and provide a recommendation concerning the filing within the time associated with the PPA offer terms.33.
The Signatories agree to KCP&L's Standby Service Rider as filed.
: 34. The Signatories agree to the following with regard to the Schools:
: a. The Comn:iission should initiate a general investigative docket on or before July 1, 2019, to evaluate whether KCP&L should implement one or more School tariffs and how such a tariff(s) should be designed and 14

ATTACHMENT A implemented. If the investigation results in the implementation of School tariffs that are not revenue neutral to KCP&L, then a regulatory asset/liability will be created to allow KCP&L recovery of those revenues and associated deferred return at the weighted-average cost of capital at the time of the next general rate proceeding follow~ng the rate moratorium period resulting from the Merger.
: b. While KCP&L has the ability to dedicate in-house personnel to the study of the school tariff issue, the Signatories understand that investigative proceedings often become more expansive than originally anticipated, resulting in the necessity for engagement of 'outside technical and legal consultants. As such, KCP&L shall be allowed the opportunity to seek a regulatory asset to recover those costs relating to the engagement of outside consultants resulting from the investigation, should such engagement become necessary.
: c. If KCP&L impleme~ts one or more School tariffs, KCP&L agrees to separately identify Schools tariff customers in the class cost of service study filed in its -next rate case.. *However, during the investigation contemplated in paragraph 33.a., the parties may explore- alternative methods of providing transparency regarding School rates and may agree to inodify or eliminate the requirement to identify School tariff customers in the Company's class cost of service study.
: d. KCP&L agrees to assign key account representatives to assist the Schools in evalutating usage characteristics to determine the appropriate rate 15

ATTACHMENT A schedules for each of the respective Schools' accounts and to discuss other rate opportunities such as the renewable energy rider.        Key account representatives will be promptly assigned and will contact each of the Schools no later than 30 days following a final order approving this agreement.
: 35.      KCP&L will collaborate with Walmart and Staff during the moratorium period on rate design issues for the purpose of exploring alternative rate designs for non-residential, non-lighting, rate classes. Specifically, KCP&L will review demand/energy rates and rates that may offer more transparency and simplicity.
: 36.      The Signatories agree this Settlement resolves all revenue allocation, class cost of service and rate design issues.
C.       Modification to the Procedural Schedule.
: 37.      Due to the presentation of this Settlement that resolves all contested issues, the Signatories recommend to the Commission the following:
(I)    The prehearing conference scheduled for October 15, 2018, the
                  /
evidentiary hearings scheduled for October 23-26, 20 I 8, and post-hearing briefing of this matter be cancelled.
(2)    The prefiled testimony submitted in this case, including testimony filed in I
support of this Settlement Agreement on October 15, 2018, be entered into the record of this docket.
                .(3)    The Commission issue its decision based upon the written record.
16

ATTACHMENT A (4)     If the Commission prefers to hold a hearing on this Settlement Agreement, the Commission convert the October 23, 2018 evidentiary hearing date to a hearing on the Settlement Agreement.
III.
* MISCELLANEOUS PROVISIONS A.      The Commission's Rights
: 38. Nothing in this Settlement is intended to impinge or restrict, in any manner, the exercise by the Commission of any statutory right, including the right of access to information, and any statutory obligation, including the obligation to ensure that KCP&L is providing efficient and sufficient service at just and reasonable rates.
B.      Waiver of Cross-Examination
: 39. In the event the Commission conducts a hearing, the Signatory Parties waive cross-examination on all testimony filed prior to the filing of this Settlement Agreement.
C.      Negotiated Settlement
: 40. This Settlement represents a negotiated settlement that fully resolves the issues raised in this proceeding. The Signatory Parties represent that the terms of this Settlement constitute a fair and reasonable resolution of the issues addressed herein. Except as specified herein, the Signatory Parties shall not be prejudiced, bound by, or in any way affected by the terms of this Settlement (a) in any future proceeding; (b) in any proceeding currently pending under a separate docket; and/or (c) in this proceeding should the Commission decide to not approve this Settlement in the instant proceeding. If the Commission accepts this Settlement Agreement in its entirety and incorporates the same into a formal order without material modification, the Signatory Parties shall be bound by its terms and the Commission's order 17

..                                                                                        ATTACHMENT A incorporating its terms as to all issues addressed herein and in accordance with the terms hereof, and will not appeal the Commission's order on these issues.
D.
* Interdependent Provisions
: 41.      The provisions of this Settlement have resulted from negotiations among the Signatory Parties and are interdependent. In the event that the Commission does not approve and adopt the terms of this Settlement in total or materially changes the Settlement terms,
* the Settlement shall be voidable and no Signatory Party hereto shall be bound, prejudiced, or in any way affected by .any of the agreements or provisions hereof.             Further, in the event the Commission does not approve and adopt the terms of this Settlement in total, this Settlement shall be considered privileged and not admissible in evidence or made a part of the record in any proceeding. In the event of a termination pursuant to this Section, the Settlement shall be null and void and of no further effect, with all rights, duties, and obligations of the Signatory Parties thereafter restored as if this Settlement had never been executed; provided, that the Signatory Parties may, in the sole discretion of each Party, agree to attempt to modify the Settlement in a
   *manner that would resolve the adver~e effect of the material change of condition.
18

ATTACHMENT A IN WITNESS THEREOF, the Signatory Parties have executed and approved this Settlement Agreement, effective as of the 12th day of October 2018, by subscribing their signatures below.
By:   . /d/ f ) ~ ie 'IIIU Darrin R. Ives '
Vice President, Regulatory Affairs Kansas City Power & I;.,ight Company One Kansas City Place 1200 Main Street - 31st Floor Kansas City, MO 64105 Telephone: (816) 556~2522 Facsimile: (816) 556-2110 darrin.ives@kcpl.com KAN~AS_;CITY POWER & LIGHT COMPANY.
By:     /d/ 'i&/6&#xa2;1/UIU#t Robert Vincent, #26028 Senior Litigation Counsel 1500 SW Arrowhead Road Topeka, KS 66604 Telephone: (785) 271-3273 .
Facsimile: (785) 271-3354 r.vincent@kcc.ks.gov STAFF OF THE KANSAS CORPORATION COMMISSION By:
David W. Nickel, # 11170 Todd Love, #13445 Consumer Counsel ,
Citizens' Utility Ratepayer Board 1500 SW Arrowhead Road Topeka, KS 66604 Telephone: (785) 271-3200 Facsimile: (785) 271-3116 d.nickel@~URB.kansas.gov CITIZENS' UTILITY RATEPAYER BOARD 19

ATTACHMENT A By:
David L. Woodsmall, #15944 Woodsmall Law Office 308 E. High Street, Suite 204 Jefferson City, MO 65101 Telephone: (573) 797-0005 david.woodsmall@woodsmal Ilaw .com WALMART, INC. and MIDWEST DIVISION-OPRMC, LLC D/B/A OVERLAND PARK REGIONAL MEDICAL CENTER By: /,/-jZ).        ~
James P. Zakoura, #07644 Andrew J. French, #24680 Smithyman & Zakoura, Chartered 750 Commerce Plaza II 7400 West 110th St.
Overland Park, KS 66210 Telephone: (913) 661-9800, Ext. 119 Facsimile: (913) 661-9863 jim@sinizak-Iaw.com andrew@smizak-law.com OLATHE UNIFIED SCHOOL DISTRICT 233, SPRING HILL UNIFIED SCHOOL DISTRICT 230, BLUE VALLEY UNIFIED SCHOOL DISTRICT 229, and JOHNSON COUNTY COMMUNITY COLLEGE 20

ATTACHMENT A By:   /4~1/.~
James G. Flaherty, #11177 ANDERSON & BYRD, LLP 216 S. Hickory- P.O. Box 17 Ottawa, Kansas 66067 Telephone: (785) 242--1234 Facsimile: (785) 242-1279 jflaherty@andersonbyrd.com Judy Jenkins Hitchye, #23300 7421 West 129th Street Overland Park, Kansas 66213 Telephone: (913) 319-8615 judy.jenkins@onegas.com KANSAS GAS SERVICE, A DIVISION OF ONE GAS, INC.
By: . /4  pe<<,,ije,,, S, 9'4/1#
* Jennifer S. Griffin, #17814 314 East High Street .
Jefferson City, MO 65101 Telephone: (573) 761-5006 Facsimile: (573) 893-5398 Grant Harse, #24666 2345 Grand Blvd., Suite 2200 Kansas City, MO 64108 Telephone: (816) 292-2000 Facsimile: (816) 292-2001 AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS, MAGELLAN PIPELINE COMPANY, L.P., and PETROLEUM MARKETERS AND CONVENIENCE ASSOCIATION OF KANSAS, INC.
21

KCPL-KS Regulatory Assets & Liabilities Amortization Schedule (Docket No. 18-KCPE-480-RTS)
Per Rate Case Annual        Unamortized Original     Amortization Amortization Amortization Amortization      Balance at Account               Descriotion       Adiustment #  Vintal!e  Balance        Period       Bel!in        End        Amount          12/31/2018 182329   Iatan 1 and Common             RB-25, CS-111     1       2,855,631       47         Dec-10       Nov-57           60,758         2,364,503 2         631,250      44.9        Jan-13       Nov-57           14,059           546,896 2,911,399 182515   2011 Flood Exoense                 CS-110                  924,928       10         Jan-13       Dec-22           92,493           369,971 182543   Customer Mieration                 CS-130                  191125         5         Dec-18       Nov-23           38,225           191125 182546   La Cygne Depreciation Deferral  RB-27, CS-113            2,957,141       25         Oct-15       Seo-40          118,286         2,572,713 182556   Rate Case Expense                   CS-80                  203,212        5         Dec-18       Nov-23            40,642          203,212 TBD      Merger Transition Costs             CS-95                7,692,018       10         Dec-18       Nov-28          769,202         7,692,018 254000   Emission Allowance                  RB-55              (36,987 2321      22         Dec-10       Nov-32       (1 681,2381      (23,375 664) 254555   Wolf Creek Budaeted Plant          CS-133                  183,350!       5         Dec-18       Nov-23           116,670!          (83,3501 254556   LaCv11ne Budgeted Plant            C5-131               (1,985,865)       5         Dec-18       Nov-23         (397173)        (1,985,865) 254556   LaCvl!ne Deoreciation Deferral     CS-132                   (11,666)      5         Dec-18       Nov-23            (2,333)          (11,666) 254665   CIP - Cvber Tracker                 CS-88        1      12,182,3631       5         Dec-18       Nov-23         (436 4731       (2,182,363)
Attachment A Page 1 of 1

CERTIFICATE OF SERVICE 18-KCPE-480-RTS I, the undersigned, certify that the true copy of the attached Order has been served to the following parties by means of electronic service on _ _   12_1_
1_31_2_0_18_ _ _ __
JAMES G. FLAHERTY, ATTORNEY                                           MARTIN J. BREGMAN ANDERSON & BYRD, L.L.P.                                               BREGMAN LAW OFFICE, L.L.C.
216 S HICKORY                                                         311 PARKER CIRCLE PO BOX 17                                                             LAWRENCE, KS 66049 OTTAWA, .KS 66067                                                     mjb@mjbregmanlaw.com Fax: 785-242-1279                 ~
jflaherty@andersonbyrd.com GLENDA CAFER, ATTORNEY                                                TERRIPEMBERTON,ATTORNEY CAFER PEMBERTON LLC                                                   CAFER PEMBERTON LLC 3321 SW6TH ST
* 3321 SW6TH ST TOPEKA, KS 66606                                                      TOPEKA, KS 66606 Fax: 785-233-3040                                                     Fax: 785-233-3040 glenda@caferlaw.com                                                   terri@caferlaw.com THOMAS J. CONNORS, ATTORNEY AT LAW                                    TODD E. LOVE, ATTORNEY CITIZENS' UTILITY RATEPAYER BOARD                                     CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                  1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                      TOPEKA, KS 66604 Fax: 785-271-3116                                                     Fax: 785-271-3116 tj.connors@curb.kansas.gov                                            t.love@curb.kansas.gov DAVID W. NICKEL, CONSUMER COUNSEL                                     SHONDA RABB CITIZENS' UTILITY RATEPAYER BOARD                                     CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                  1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                      TOPEKA, KS 66604 Fax: 785-271-3116                                                     Fax: 785-271-3116 d.nickel@curb.kansas.gov _                                            s.rabb@curb.kansas.gov DELLA SMITH                                                           ROBERT J. HACK, LEAD REGULATORY COUNSEL CITIZENS' UTILITY RATEPAYER BOARD                                     KANSAS CITY POWER & LIGHT._COMPANY 1500 SW ARROWHEAD RD                                                  ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105 TOPEKA, ~S 66604                                                      PO BOX 418679 Fax: 785-271-3116                                                     KANSAS CITY>Mo 64141-9679 d.smith@curb.kansas.gov                                               Fax: 816-556-2787 rob.hack@kcpl.com

CERTIFICATE OF SERVICE 18-KCPE-480-RTS DARRIN R. IVES, VICE PRESIDENT, REGULATORY             RONALD A. KLOTE, DIRECTOR, REGULATORY AFFAIRS AFFAIRS                                                KANSAS CITY POWER & LIGHT COMPANY KANSAS CITY POWER & LIGHT COMPANY                     ONE KANSAS CITY PLACE ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105     1200 MAIN, 19TH FLOOR.
PO BOX 418679                                         KANSAS CITY, MO 64105 KANSAS CITY, MO 64141-9679                            Fax: 816-556-2110
     .Fax: 816-556-2110                                    .ronald.klote@kcpl.com darrin.ives@kcpl.com TIM RUSH, DIR. REGULATORY AFFAIRS                      ROGER W. STEINER, CORPORATE COUNSEL
(
KANSAS CITY POWER & LIGHT COMPANY                     KANSAS CITY POWER & LIGHT COMPANY ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105    ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105 PO BOX 418679                                         PO BOX 418679 KANSAS CITY, MO 64141-9679                            KANSAS CITY, MO 64141-9679 Fax: 816-556-2110                                     Fax: 816-556-2787 tim.rush@kcpl.com                                     roger.steiner@kcpl.coin ANTHONY WESTENKIRCHNER, SENIOR PARALEGAL               BRIAN G. FEDOTIN, DEPUTY GENERAL COUNSEL KANSAS CITY POWER & LIGHT COMPANY                     KANSAS CORPORATION COMMISSION ONE KANSAS CITY PL, 1200 MAIN ST 19TH FLOOR (64105    1500 SW ARROWHEAD RD PO BOX 418679                                         TOPEKA, KS 66604 KANSAS CITY, MO 64141-9679                            Fax: 785-271-3354 Fax: 816-556-2787                                     b.fedotin@kcc.ks.gov anthony.westenkirchner@kcpl.com                                                               I .
AMBER SMITH, CHIEF LITIGATION COUNSEL                 ROBERT VINCENT, LITIGATION COUNSEL KANSAS CORPORATION COMMISSION                         KANSAS CORPORATION COMMISSION 1500 SW ARROWHEAD RD                                  1500 SW ARROWHEAD RD
  .. TOPEKA, KS 66604                                       TOPEKA, KS 66604 Fax: 785-271-3167                                     Fax: 785-271-3354 a.smith@kcc.ks.gov                                    r. vincent@kcc.ks.gov JUDY JENKINS HITCHYE, MANAGING ATIORNEY               JENNIFER .S. GRIFFIN KANSAS GAS SERVICE, A DIVISION OF ONE GAS, INC.       LATHROP & GAGE, L.C.
7421W 129TH ST                                        314 East High Street OVERLAND PARK, KS 66213-2713                          Jefferson City, MO 65101 Fax: 913-319-8622                                     Fax: 816-292-2001 judy.jenkins@onegas.com
* jgriffin@lathropgage.com GRANTHARSE                                            ANDREW J. FRENCH, ATIORNEY AT LAW LATHROP & GAGE, LC.                                   SMITHYMAN & ZAKOURA, CHTD.
2345 Grand Blvd.                                      7400W 110TH ST STE 750 Suite 2200                                            OVERLAND PARK, KS 66210-2362 Kansas City, MO 64108
* Fax: 913-661-9863 Fax:* 816-292-2001                                    andrew@smizak-law.com gharse@lathropgage.com

CERTIFICATE OF SERVICE 18-KCP E-480-RTS JAMES P. ZAKOURA, ATIORNEY                                  CATHRYN J. DINGES, CORPORATE COUNSEL SMITHYMAN & ZAKOURA, CHTD.                                  WESTAR ENERGY, INC.
7400W110TH STSTE750                                         818 S KANSAS AVE OVERLAND PARK, KS 66210-2362                                PO BOX889 Fax: 913-661-9863                                           TOPEKA, KS 66601-0889 jim@smizak-law.com                                          Fax: 785-575-8136 cathy.dinges@westarenergy.com DAVID L. WOODSMALL WOODSMALL LAW OFFICE 308 E HIGH ST STE 204 JEFFERSON CITY, MO 65101 Fax: 573-635-7523 david.woodsmall@woodsn:ialllaw.com ISi DeeAnn Shupe DeeAnn Shupe
                                                   \

BEFORE THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS In the Matter of the Application of   )
Westar Energy, Inc. and Kansas Gas    )
and Electric Company to Make          ) Docket No. 15-WSEE-115-RTS Certain Changes in Their Charges for  )
Electric Service.                     )
DIRECT TESTIMONY PREPARED BY Adam H. Gatewood UTILITIES DIVISION KANSAS CORPORATION COMMISSION JULY9,2015

Direct Testimony of Adam H. Gatewood                                                          DocketNo. 15-WSEE-115-RTS Contents Introduction ................................................................................................................................................ 3 Executive Summm*y ................................................................................................................................... 4 Standards for a Reasonable Rate of Return ............................................................................................. 12 I(CC Proxy Group .................................................................................................................................... 17 Discounted Cash Flow (DCF) Model ...................................................................................................... 20 Application of the DCF Model ................................................................................................................ 24 Forecasted Growth Rates for the DCF Model ......................................................................................... 25 DCF Results ............................................................................................................................................. 32 Internal Rate of Return Analysis .............................................................................................................. 37 Capital Asset Pricing Model Analysis ..................................................................................................... 38 Staff Response to Mr. Sonuna's Direct Testimony ................................................................................ .46 Response to Westar Proxy Group ............................................................................................................ 48 Response to Westar DCF Analysis .......................................................................................................... 48 Response to Westar's Capital Asset Pricing Model ................................................................................ 52 Response to Westar's Risk Premium Study............................................................................................. 56 Response to Westar's Request for Flotation Costs .................................................................................. 59 Response to Westar's Claim of Needing a Premium on its ROE ............................................................ 60 Response to Proposed ROE Adjustment Mechanism .............................................................................. 63 Capital Structure ...................................................................................................................................... 63 Cost of Debt ............................................................................................................................................. 65 Wolf Creek Decommissioning Trust Annual Accrual.. ........................................................................... 65 2

Direct Testimony of Adam H. Gatewood                           DocketNo. 15-WSEE-115-RTS SCHEDULES Data and Chart of A and Baa Rated Public Utility Bond Yields: 1919 to 2015     AHG-1 Regulatory Research Associates Reports on Major Rate Case Decisions            AHG-2 Proxy Company Selection and Screening                                          AHG-3 KCC Proxy Group                                                                AHG-4 Value Line Investment Survey Repmis for KCC Proxy Group                        AHG-5 Prices and 2015 Dividends for KCC Proxy Group                                  AHG-6 Forecasted 2016 Dividend Yields for KCC Proxy Group                            AHG-7 Summary of Historic and Forecasted Earnings Growth for KCC Proxy Group         AHG-8 Internal Rate of Return (IRR) Calculation for KCC Proxy Group                  AHG-9 Annual Decommissioning Accrnal Calculation Based on KCC Inputs                 AHG-10 1 Introduction 2 Q       Would you please state your name and business address?
3 A       My name is Adam H. Gatewood.           My business address 1s 1500 Southwest 4         Alrnwhead Road, Topeka, Kansas, 66604.
5 Q       Who is your employer and what is your title?
6 A       I am employed in the Utilities Division of the Kansas Corporation Commission as 7         a Managing Financial Analyst.
8 Q       What is your educational and professional background?
9 A       I graduated from Washburn University with a B.A. in Economics and a Masters 10         of Business Administration. I have filed testimony before the Commission in 11         more than 100 proceedings. I have also filed testimony before the Federal Energy 12         Regulatory Commission.
13 Q       What is the purpose of your testimony?
14 A       My testimony addresses the appropriate rate of return (ROR) for Westar Energy 15         (Westar or WR). I also address Westar's annual funding level of its Wolf Creek 3

Direct Testimony of Adam H. Gatewood                               DocketNo. 15-WSEE-115-RTS 1         Decommissioning Trust Fund and the related testimony filed by Susan North.
2 Executive Summary 3 Q       Please Summarize Westar's requested ROR?
4 A       Westar is requesting a 7.99% rate ofreturn that consists of the components in the 5          following table:
Westar Energy Rate of Return Proposed Rate of Return in Section 7 of Application Test Year Ended September 30, 2014 Updated to December 31, 2014 I          i Weighted; Weight i     Cost       Cost i
                 'Long-term Debt                       46.25%j     5.69%!. 2.63%!
I
                 'Common Equity                        53.12%1    10.00%!     5.31%!
iPost 1970 ITC                         0.63%1     7.99%:     0.05%!
7.99%i j Sources: Section 7 6
7 Q       Please summarize your response to Westar's Application.
8 A       I do not agree with Westar's proposed return on equity capital.             Westar is 9         requesting a 10.00% return for its shareholders; my analysis determined that a 10         9 .25% retum fot shareholders is appropriate in the current capital markets.
11         Regarding the issue of Westar's annual funding of its Decommissioning Trust, I 12         recommend Westar increase its annual accrual from $3,150,000 to $5,772,700.
13         This change is accounted for in Adjustment IS-4 of Staff Schedules.
14 Q.      Please Summarize Staff's proposed range of return on equity (ROE) and rate 15         of return (ROR).
16 A.      As shown in the following table, Staff is proposing that the Commission set 17         Westar's ROE in a range of9.00% to 9.50%. Staff has set a 50 basis point range 4

Direct Testimony of Adam H. Gatewood                             DocketNo. 15-WSEE-115-RTS 1         and recommends an ROR of 7.59% and an ROE of 9.25%, which is the mid-point 2         of Staffs range.
Range of Staff Proposed Rate of Return Assuming Staffs Proposed Capital Structure Return on Equityi    9. 00%     9.25%i     9.50%
Rate ofReturn'     7.46%      7.59%1     7.72%;
3 4 Q       Please summarize why you believe 9.25% is a reasonable ROE.
5 A       I have completed an analysis of Westar's capital costs using traditional financial 6         models and applying the Hope and Bluefield benchmarks.                My analysis 7         demonstrates that capital costs have declined since the Commission set Westar's 8         allowed ROE at 10.00% by the Commission in Docket No. 05-WSEE-981-RTS.
9         As I discussed in Docket 15-KCPE-116-RTS (15-116 Docket), I am also applying 10         a degree of gradualism or moderation in that I do not recommend a reduction in 11         the ROE that reflects the full extent of the decline in capital costs. I apply a 12         degree gradualism by recommending Westar's ROE be set in the range of 9.00%
13         to 9.50%. I arn setting only a 50 basis point range - as opposed to the 100 basis 14         point range that I typically use - primarily because I believe 9.00% is appropriate 15         as the low-end of my range.
16 Q       What is the dollar amount of the difference in ROE positions'?
17 A       Using Staff's capital structure and cost of debt, a 10 basis point change in the 18         allowed ROE results in about a $4.4 million change in Staffs revenue 19         requirement for Westar.      This relationship is an approximation and assumes 5

Direct Testimony of Adam H. Gatewood                              Docket No. 15-WSEE-115-RTS 1         Staffs proposed rate base shown in Staff Schedule REV REQ.
2 Q.      Why should gradualism be considered in this case.
3 A.      I am applying the same principle of gradualism to Westar as I did in my 4         recommendation for KCPL filed on May           11th in the 15-116 Docket.       As I 5         discussed in that Docket, I have never recommended gradualism before and only 6         do in these two Dockets because I believe that a 9.00% lower bound for the ROE 7         is appropriate due to three factors. First, Westar' s embedded debt costs have 8         declined from 6.25% to 5.69% since the Order in Docket 05-WSEE-981-RTS was 9         issued in December of 2005, Westar's last fully litigated rate case. Capital costs 10         measured by the yield on investment grade utility bonds have also declined. As 11         shown in the following table, the prevailing yield on public utility bonds declined 12         from the 5.80% - 6.00% range in 2005 to 4.50% - 4.91 % range in 2015. Over this 13         time period, the yield on Baa utility bonds has declined by 135 basis points (5.93 14         - 4.58 = 1.35). A longer historical perspective of yields on public utility bonds is 15         shown in Schedule AHG-1 which contains a chart and the underlying data of 16         monthly observations of yields on "A" and "Baa" rated utility bonds from 1919 17         through 2015 reported by Moody's Investor Services.
6

Direct Testimony of Adam H. Gatewood                                                                      DocketNo. 15-WSEE-115-RTS Yield on Baa Utility Bonds Jan-05;                5.95:
Feb-05                  5.76:
Mar-05                  6.oo*
Apr-05                  5,95!
May-05                   5.88:
Jun-05                 5.70.
Jul-05                 5.80!
Aug-05                  5.80 Seir05                  5.83 Oct-05                  6.08:
Nov-05:                 6.19[
Dec-05 1                6.14)
Jan-06                 6.06.
Average!                 5.93; Nov-14f                 4.75; Dec-14                  4.70 Jan-15 i               4.39:
Feb-15i                 4.44:
Mar-15!                 4.51.
Apr-15:                 4.51:
Mai-ls!      ,           4.91:
Average;                 4.s8:
Source: Moody's !'
1 Yield on Baa Utility Bonds 10.00 9.00 8.00 7.00 6.00 4.00 2.00 1.00 0.00       .,.,                                                                                            .,.,
                                                   ,-.    <-  en   en
                                               'D
                                                                                                    ~ <'I <'l M 9 ~                                  8 5:      '.2 0                                 :i:&sect; ::i"" '
C\
9&sect;                0   9 ~        0    0
                                         "     ~              ~          &sect;         &sect;                &sect;          &sect;
::i
                                        ....."     .....&sect; .=;      3
                                                                   ..., ..., ..:; ..., ~ ..., ..:; ..... ..., ..., ..., ..... ..., ....."'"
                                                                                          &sect;              ::i       ::i 2
3         Second, a 9.25% ROE provides a 500 basis point spread over the current market 4         cost of Westar's long-term debt. I observed recent trades of Westar bonds. Those 7

Direct Testimony of Adam H. Gatewood                                       DocketNo. 15-WSEE-115-RTS 1          trades are in the range of 3 .98% to 4.36% during the months of May and June of 2           2015. 1 3           Third, and last of all, just as I stated in my 15-116 Docket testimony, authorized 4           ROEs below 10.00% are a fairly recent development. Before recommending an 5           ROE below 9.00%, I believe it is prudent to wait to see if the cunent capital 6           market conditions continue.
7  Q        Since 2005, the time of Westar's last litigated rate case, what has been the 8           trend in allowed returns?
9  A        For 2005, the average allowed ROE granted to electric utilities was 10.54%. For 10           the first quarter of 2015, that average was 10.37%. It is important to note that the 11           recent average includes four observations from Virginia that are "asset specific" 12           determinations which appear to include some level of incentive or premium that 13           distinguish them from the traditional rate case proceeding that we have before us.
14           Without those four cases, the average for this time period is 9.67%. Attached as 15           Schedule AHG-2 are Regulatory Research Reports: Major Rate Case Decisions 16           publications for 2014 and the first quarter of 2015.
17  Q        You recently filed testimony in the 15-116 Docket recommending a 9.25%
18           ROE for Kansas City Power & Light (KCP&L). Is your recommendation 19           for Westar based on your analysis of KCP &L in that Docket?
20  A        No. My recommendation in this Docket is based on my analysis of Westar and the 21           required return necessary for Westar to attract capital. The 15-116 Docket and 1
Based on the lowest and highest yields to maturity rep01ted by FINRA for Westar debt series 4.625% due 2043; 4.10% due 2043; and 4.125% due 2042 in the months of May and June of 2015.
8

Direct Testimony of Adam H. Gatewood                                        DocketNo. 15-WSEE-115-RTS 1         this Docket are occuning at essentially the same time. These two electric utilities 2         risk profiles are similar with nearly identical credit ratings by the major rating 3          agencies. As a result of these Dockets occuning in the same capital markets 4         enviromnent and the fact that we are dealing with two electric utilities of nearly 5         identical risk, it is expected that Staffs recommendations would (and should) be 6         the same.
Credit Ratings
                           /<;;reat Plains Energy   ' .Moody's      S&P :Fitch Ratings
                           !Long-term Rating         Baa2      'BBB+
                           ,Outlook                 :Stable    !Stable
:Westar Energy
                           !Long-term Rating       !Baal        BBB+    !BBB
                           !outlook                !stable     ;Stable  :Positi~-e
: Sour_ce: SNL.com 7
8 Q.      Please summarize Staff's cost of equity estimates.
9 A.      The mid-point of my recommended range of 9.25% recogmzes that by most 10         measures capital costs have declined since Westar's last fully litigated rate case in 11         2005.
9

Direct Testimony of Adam H. Gatewood                                      DocketNo. 15-WSEE-115-RTS Summary of Staff's Cost of Equity Estimates Discounted Cash Flow Analysis Based on the Average of Short-Term Growth Forecasts
                                        & Long-Term nGDP Forecasts Mean: ..           8.65%i Low               8.47%[
High[             8.84%:
Internal Rate of Return Analysis Using Short-Te1m Growth BPS & Long-Term nGDP Forecast                   i I
* Mean'                8.53%/
Low               7.18%\
High!            10.01%[
i Capital Asset Pricing Model Forecasted Data:             6.64%[
Historic Datai             9.40%f Changes in Bond Yields Since Order in 05-WSEE-981-RTS Docket          i Allowed Return on Equity Granted in 981 Docket',            10.00%\
Decrease in Yield on Moody's :Saa Uility Bonds j            1.35%!
Staff RecommendaHon:                 9.25%
Indicated Range' 9.00% ;         9.50%
1 2         As you can see from the table, the models, particularly the DCF model that 3         regulators traditionally rely on, indicate that the cost of equity is less than 9.00%,
4         even with the recent decline in the stock prices of electric utilities. At this time, I 5         am not comfortable advocating for an allowed return below 9. 00% for a retail 6         electric utility as it has only been three years since allowed returns fell below the 7          10% threshold. If capital market conditions persist at the cunent level, I expect 8         we will see challenges to that 9.00% threshold.
9 Q       Please summarize your disagreement with Westar's cost of equity estimates.
10 A       The primary disagreement is that of estimating growth.                     This is the same 10

Direct Testimony of Adam H. Gatewood                                                                               DocketNo. 15-WSEE-115-RTS 1           disagreement that the Commission has heard in rate cases during the past three 2           years. This disagreement is not confined to electric utilities; it has occuned-and 3           will likely continue to occur-in electric utilities, natural gas distribution, 4           telephony, electric transmission, and natural gas pipeline utilities as well. The 5           table below summarizes the findings of Westar's cost of equity models and a 6           synopsis of what I believe to be the short comings of each of Westar' s models. I 7           will elaborate on each model later in my testimony.
i                                            i Summary ofWestar's Cost of Equity Estimates
                                                                    & Growth Rates i
Range of
    ! Methodology             Output                                                                 Discussion
    'SingleStageDCF I      9.47%     9.52%1     /Mr. Somma's DCF analysis relies on a single stage DCF using 3 to 5 yearforecasts of
                                                'imnual earnings growth rate~. For his proxy group the average ear_nings growth rate _is ts.86%.
* i                      ;
i    '                      .         .         . .                      i                   .
    'cAPM            .. : I0.86%   1L76Jiol. . !Mr, Sonuna'&sect;. C:Af'l\1_afllllysjs i~. ~a_se<I.<>n_hJ~.a~&sect;llll1R.1i<ln th~t th_e "llla_r}fet" or S<%P590.
Jn<lt1,t '!".i.11 rt1!t1In 1:3)'.jo/ci allll_ually: J:Iis a.ria_Iys is ~~~ll!lles !P.,3,(tl1e &sect;.8.::P.?OQ .
f\vjll re!!Jize imnual earnings grml'.th greater Iha.~ 11.00%
:                      :                     I                      i
    ;Risk Premiwn         10.33%   10.38%      !Mr. &sect;_onuna calc~atedari_s!f3ire111illltl_ba~edonthe differe_nce ~etwet1n the returns                      .
:' granted
                                                     . . . .by. .state
                                                                  . . .! commissions        and the prevailing1 interest
                                                                          .................................                    rates. '
8 9 Q.        What support do utility executives and equity analysts usually provide when 10           discussing why an ROE should not be lowered below ROE's set for other 11           utilities?
12 A.        Commissions and Commission Staff frequently hear from utility executives and 13           equity analysts regarding their belief that Commissions should refrain from 14           lowering allowed returns below those reported for other utilities because such a 15           decision will impair the utility's access to additional capital. Those pleas are 16           devoid of any statistical or factual support.                                           Furthermore, no utility has ever 17           provided Staff empirical evidence to suppo1i its contention that a Commission's 18           decision has impaired its ability to access necessary capital. However, what I 11

Direct Testimony of Adam H. Gatewood                                               DocketNo. 15-WSEE-115-RTS l          have observed is that Kansas utilities continue to issue long-tenn debt at attractive 2          rates.
3 Standards for a Reasonable Rate of Return 4 Q        What is the role of rate of return in setting a revenue requirement for public 5          utilities?
6 A        The rate of return (ROR) earned on the utility's rate base is part of the revenue 7         requirement equation. The ROR is a cost of providing the utility service.
8        Revenue Requirement = ROR (gross plant- accum. Depr.) + Operating Exp. + Income Taxes 9          In the revenue requirement formula, the ROR expresses the utility's return on its 10         net plant investment. The utility's ROR is its weighted average cost of the 11          capital. That is, the cost of each of the various forms of capital supplied by 12         investors which includes debt, preferred equity, common equity and any hybrid 13          securities multiplied by their respective weight in the utility's capital structure.
14          The cost or return associated with each of these forms of capital is unique and it is 15          a function of risks associated with that form of capital.
C?mponents of an Allowed Rate of Return Weighted i !        .
Debt       A           :    Ratlo of Debt      Weighted A\erage Capital:      \erage ! x        Ca ital           Cost of Debt Interest Rate            p Allowed Equity                     :Ratio ofEquity      WeightedA,erage Return on Capital:                'x !    Capital    . = : Cost of Equity Equity        I               I Sum Equals Allowed Rate of Return for the Utility 16 17         The cost of debt generally relies on a contractual agreement with the investor, 12

Direct Testimony of Adam H. Gatewood                                   Docket No. 15-WSEE-115-RTS 1          making its cost relatively easy to detennine because the cost is explicit within the 2           contract. Likewise, the ratios of the capital components are relatively easy to 3           determine because, under most circumstances, these ratios are traceable to the 4           utility's financial documents. It is the allowed ROE that requires the most time 5           and attention when setting the ROR because it is a cost that we cam1ot trace back 6           to a contractual agreement. It is best described as a forward looking discount rate 7           and equates to the rate that is necessary to induce equity investors to commit their 8           capital to the enterprise.
9  Q        What standards should commissions apply to making this decision?
10  A        The standards used to gauge the fairness and reasonableness of an allowed ROR 11           were ailllounced by courts as the result of appeals of decisions issued by 12           regulatory agencies. Financial analysts and policy-makers rely on the courts' 13           decisions as a guide in estimating the appropriate cost of capital. The opinions do 14           not miiculate precisely how to estimate or model a reasonable cost of capital.
15           Instead, the decisions provide critical questions for policy makers and analysts to 16           consider in determining a reasonable return for a regulated utility.
17           In general, United States Supreme Court decisions state that returns granted to 18           regulated public utilities should: 1) be commensurate with returns on investments 19           of similar risk; 2) be sufficient to assure the financial integrity of the utility under 20           economic management; and 3) change over time with changes in the money 21           market and business conditions.2 An imp01iant take-away from these decisions is 2
Smyth v. Ames 169 U.S. 466 (1898).Wilcox v. Consolidated Gas Co., 212 U.S. 19, 48-49 (1909).
Bluefield Water Works & Improvement Company v. Public Service Commission of West Virginia, 262 U.S. 679, 692-3 (1923).
Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591, 603 (1944).
13

Direct Testimony of Adam H. Gatewood                                     DocketNo. 15-WSEE-115-RTS 1           that the Court has afforded regulatory agencies a significant amount of latitude in 2           establishing what is an appropriate ROR for a utility. The Kansas Supreme Couti 3           has recognized and generally follows this body of law. 3 This Commission has 4           noted that fact in Orders issued in previous Dockets. 4 5  Q        Discuss how financial analysts apply the standards established by the Court.
6 A         For a ROR to meet the legal standards, the return should be as specific as possible 7           to the utility in question, in that the allowed return should consider the mix of debt 8           and equity capital the subject utility employs to finance its rate base and provide a 9           return for each of those components of its capitalization.
10           There are several court cases that, as a group, are viewed as the keystone to 11           measuring the adequacy of a utility's allowed return.                The earliest of these 12           decisions go back to an era when it was not only the "rate of return" at issue but 13           also the fundamental measurement of the investment in the utility enterprise 14           commonly referred to as rate base. This is less of an issue today as regulators, 15           utility management, and investors readily accept actual historic-depreciated value 16           as a measure of investment to estimate the value of a utility's rate base, as 17           opposed to reproduction cost or market value. The Cami's decision in Bluefield 18           addressed both rate base and ROR. 5 Treatises on rate of return for public utilities, 19           such as The Cost of Capital - A Practitioner's Guide, generally agree that 20           Bluefield lays out the four standards for a fair return.
3 Kansas Gas & Elec. Co. v. State Corp. Comm'n, 239 Kan. 483,491, 720 P.2d 1063, 1072 (1986).
4 Order: 1) Addressing Prudence; 2) Approving Application, in Part; & 3) Ruling on Pending Requests, Docket No. 1O-KCPE-415-RTS; November 22, 201 O; 37-3 8.
5 Bluefield Water Works & Improvement Co. v. Pub. Svc. Comm 'n of West Virginia, 262 U.S. 679, 692-3 (1923).
14

Direct Testimony of Adam H. Gatewood                                            DocketNo. 15-WSEE-115-RTS 1           I) Comparable Earnings - a utility is entitled to a return similar to that being 2                earned by other enterprises with similar risks, but not as high as those earned 3                by highly profitable or speculative ventures; 4           2) Financial Integrity - a utility is entitled to a return level reasonably sufficient 5                to assure financial soundness; 6           3) Capital Attraction - a utility is entitled to a return sufficient to support its 7                credit and raise capital; and 8           4) Changing Level of Returns - a fair return can change along with economic 9                conditions and capital markets. 6 10           As a financial analyst preparing rate of return analyses, I take from Blue.field that 11           the Court requires that a rate order allow a utility an opportunity to earn a return 12           that is consistent with the utility's risk profile and consistent with observations in 13           the capital markets.
14           The Court's decision in Hope, 7 like that in Blue.field, dealt with both valuation of 15           rate base as well as rate of return on that rate base. With respect to the rate of 16           return, the Court in Hope affirmed the four standards set out in Blue.field.
17 Q         Is a reasonable return necessarily equal to the return granted to other 18           utilities in other jurisdictions?
19 A         No. Relying on the allowed returns granted to other utilities in other jurisdictions 6
The Cost of Capital-A Practitioner's Guide by David C. Parcell; Prepared for the Society of Utility and Regulatory Financial Analysts; 1997; pp. 3-13 to 3-14.
7 Federal Power Comm 'n. v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944). *603 [8] [9] The rate-making process under the Act, i.e., the fixing of 'just and reasonable' rates, involves a balancing of the investor and the consumer interests. Thus we stated in the Natural Gas Pipeline Co. case that 'regulation does not insure that the business shall produce net revenues.' But such considerations aside, the investor interest has a legitimate concern with the financial integrity of the company whose rates are being regulated. From the investor or company point of view it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business. These include service on the debt and dividends on the stock. By that standard the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital. The conditions under which more or less might be allowed are not important here. Nor is it irnpo1iant to this case to determine the various permissible ways in which any rate base on which the return is computed might be arrived at. For we are of the view that the end result in this case cannot be condemned under the Act as unjust and unreasonable from the investor or company viewpoint.
15

Direct Testimony of Adam H. Gatewood                              DocketNo. 15-WSEE-115-RTS 1         runs the risk of overlooking: (1) changes in the capital markets; (2) differences in 2         other state Commissions' ratemaking policies; and (3) political pressures or other 3         state-specific factors. Commissions have to recognize that such a practice also 4         creates a degree of circular reasoning.        Such a comparison also requires a 5         commission to place weight on a piece of data as evidence when they simply do 6         not have any specific facts from those reported cases to know how other state 7         commissions arrived at their decision or even what evidence was presented in 8         those Dockets. At best, returns authorized at other state commissions serve as a 9         rough benchmark of an average return on equity, as well as an indicator of a 10         downward or upward trend in returns.        Simply put, the authorized returns of 11         separate utilities in other jurisdictions facing different risks are of limited 12         evidentiary value and are largely irrelevant to the Hope and Bluefield standards.
13 Q       Should the rate of return incorporate a return on equity that contains some 14         level of "cushion" to the cost of equity to compensate for potential future 15         changes in the capital markets?
16 A       No, it should not.       Utilities seek rate adjustments on a regular basis as 17         demonstrated by the Kansas jurisdictional electric and gas utilities over the past 18         decade. Thus, there are periodic reviews of capital costs, that is, the allowed 19         return on equity and allowed return on debt is not set once and left at the level in 20         perpetuity. This provides protection to consumers and investors alike, in that the 21         periodic reviews eliminate the need for the Commission to inject any forecasting 22         of trends into their decision. As the cost of capital changes over time - and it will 23         change - the allowed return will be updated in future proceedings. In my view, 16

Direct Testimony of Adam H. Gatewood                             DocketNo. 15-WSEE-115-RTS 1          Court decisions do not require Commissions to speculate about the peaks and 2         troughs of our economy and capital markets; all of the directives from the Court 3          cases focus on the observations of the here and now.
4 KCC Proxv Group 5 Q       How did you estimate Westar's cost of equity?
6 A       To estimate Westar's cost of equity, I perfonned DCF and CAPM analyses on a 7         proxy group of similarly situated electric utility companies.
8 Q       Why is it necessary to select a proxy group to estimate the cost of equity for 9         Westar?
10 A       A proxy group aids us in meeting the standards set out in Hope and Bluefield, as it 11         focuses our analysis on a group of companies that are in the same industry and 12         exposed to similar risks. Financial theory tells us that investors require a return 13         that is commensurate with risk. Therefore, a proxy group similar in risk to Westar 14         provides us with a comprehensive picture of investors' expectations.
15 Q       Were you able to select a group of electric utilities similar in risk to Westar?
16 A       Yes, I found 22 proxy companies.
17 Q       How did you select a proxy group for your cost of equity analysis?
18 A       Using the following parameters, I was able to select a group of electric utilities 19         similar in risk to Westar (a table of the selection process is shown on Schedule 20         AHG-3):
17

Direct Testimony of Adam H. Gatewood                                    DocketNo. 15-WSEE-115-RTS 1                  First, I began with the companies followed by Value Line Investment 2                  Survey and categorized as electric utilities.           As a starting point, this 3                  parameter is impotiant as it assures us the companies generally derive 4                  their earnings in the same industry as Westar by operating as ROR 5                 regulated electric utilities within the United States. Value-Line coverage 6                  also ensures that the common stock of these companies is publicly traded.
7                 There are 45 electric utilities followed by Value-Line.
8                  Second, from that group of 45 electric utilities, I selected those with credit 9                 ratings similar to Westar's credit rating. Westar's long-term credit rating 10                 is Baal by Moody's, BBB+ by Standard & Poors', and BBB by Fitch.
11                 The three ratings are relatively similar to each other.
Credit Ratings
                             ! Great Plains Energy    Moody's        S&P Fitch Ratings
                             *Long-term Rating       Baal      ;BBB+
Outlook               Stable    ;_Stabl_e
                             !Westar Energy
                             /Long-term Rating       Baal      [BBB+      BBB
                             ;,Outlook               Stable    'Stable   ,Positive Source: SNL.com 12 13     I selected electric utilities with credit ratings one notch either side of Westar' s rating.
14     Credit ratings are a recognized broad indicator of a utility's financial health, financial 15     risk, and business risk. Selecting those electric utilities with credit ratings very close 16     to Westar's enables me to observe investors' required retum for that level of risk.
17     The following table shows the entire scope of credit ratings designations set by S&P 18     and Moody's:
18

Direct Testimonv of Adam H. Gatewood                                         DocketNo. 15-WSEE-115-RTS Credit Rating Range for Proxy Selection
: i.         I.
S&P     i  Moody's \
AAA     l    Aaa M+          Aal M          Aa2 M-          Aa3 A+           Al A           A2 Proxy        A-          A3    i Selection   BBB+         Baal   :Westar Long-term Rating I
Range      BBB          Baa2   i i
BBB-         Baa3   I                         i BB+         Bal                              lI BB          Ba2 BB-         Ba3                              i B+           Bl B           B2 B-          B3 j CCC+         Caal CCC          Caa2 CCC-         Caa3 cc           Ca C
D           D 1
2                  The electric utilities followed by Value-Line fall in the range of AA-/Aa3 3                 to BBB-/Baa3. Nanowing the range to one rating above and below that of 4                  Westar's rating reduced the proxy group to 35 companies.
5
* Third, I eliminated those companies with pending mergers or acquisitions 6                  (M&A). M&A transactions bring about added uncertainty and speculation 7                 regarding the financial projections for earnings and dividends, growth 8                 potential, and financial health of the surviving entity.                    This parameter 9                 eliminated four companies from my proxy group.
10                 Fomih, the proxy group companies had to exhibit a stable dividend policy 11                 both in the recent past and going forward. A stable dividend is an attribute 12                 of a financially sotmd utility company.                  By any measure, Westar is 19

Direct Testimony of Adam H. Gatewood                               DocketNo. 15-WSEE-115-RTS 1                  financially sound; members of the proxy group must reflect that same 2                  attribute. This parameter did not eliminate any of the remaining 31 3                  electric utilities.
4                  The four parameters above have been adopted in recent cost of equity 5                  analyses filed at the Federal Energy Regulatory Commission (FERC) and I 6                  agree that these four parameters generally anive at a group of companies 7                  with commensurate investment risk to that of Westar. For this group of 31 8                  electric utilities, I gathered information on their sources of revenues and 9                 the focus of their asset base. The intent of this additional parameter is to 10                 increase the proxy groups' focus on the electric utility industry. Although 11                  each of the companies is categorized as electric utilities by Value-Line, 12                 most of them derive some revenues from other industries; some are 13                  combination natural gas distribution and electric utilities while others are 14                 more diverse with operations outside of the public utility industry. I set 15                 the threshold for electric utility revenues at 70%, which eliminated 9 of 16                 the 31 electric utilities. The remaining 22 companies derive 73 % to 100%
17                 of their revenues from the electric utility business.         It is these 22 18                 companies that I analyzed to estimate Westar's cost of equity capital. The 19                 selection process is shown in Schedule AHG-3 and the Proxy Group is 20                 shown in Schedule AHG-4.
21 Discounted Cash Flow {DCF) Model 22 Q       Does the DCF model meet the legal standards discussed earlier in your 20

Direct Testimony of Adam H. Gatewood                            DocketNo. 15-WSEE-115-RTS 1         testimony?
2 A        Yes, a cost of equity estimate derived from the DCF model meets the legal 3         standards discussed above if the model incorporates cunent information from the 4         capital markets via cmTent stock prices and accurate data that investors use to 5         establish their discount rate. The market based info1mation ensures the cost of 6         equity estimates evaluate investors' required rate of return or discount rate that 7         reflects the economic environment.
8 Q       Has the DCF model been an accepted model for regulators to estimate the 9         cost of equity?
10 A       Yes. The DCF model is the most widely used model for regulatory bodies setting 11         allowed returns. Regulatory agencies may incorporate more than one model to 12         anive at an estimate. If more than one is used, the DCF model is always one of 13         the models. If only one model is used, it will be the DCF model. Regulatory 14         agencies rely on the DCF analysis because, with reasonable inputs, it is a tool that 15         meets the legal standards that investors have used to value all sorts of investments 16         vehicles.
17 Q       What is the underlying basis for the DCF model?
18 A       The DCF model is an investment valuation model used to value different and 19         diverse types of investments such as real estate, bonds, and common stocks. The 20         DCF model is a useful tool to value any investment that involves regular, periodic 21         cash flows. The notion of discounting a future receipt of cash back to the present 22         so as to place a price or value on an investment goes back centuries. The fo1mal 21

Direct Testimony of Adam H. Gatewood                              DocketNo. 15-WSEE-115-RTS 1         presentation of the DCF model as we use it today dates back to the 1930's in 2          Irving Fisher's book The Theory of Interest and John BmT Williams' 1938 text 3         The Theory of Investment Value. These two authors expressed the DCF model in 4         modern economic terms.
5          The premise of the DCF model in the valuation of common stock is that investors 6          determine the value of a company's common stock by discounting its future 7          dividend payments back to the present. The cornerstone of the DCF model is the 8         process of discounting those future cash flows back to the present at the investors' 9         required ROR. An investor's required rate ofreturn is risk sensitive and sensitive 10         to the retmns available on investments of comparable risk throughout the global 11          capital markets. In other words, as the risk of the investment increases, so will the 12          investors' required return. A higher required rate ofretmn decreases the present 13         value of the stream of dividends that equates to the price of the stock. So, all 14          other variables being equal, investors price the riskier of two common stocks 15          lower because the cash flows or dividends are discounted back to the present at a 16         higher rate.
17          The form of the DCF model that regulatory agencies are accustomed to seeing is 18          often referred to as the Gordon Growth Model, which is a model that values the 19         present value of a stream of cash flows (dividends) growing at a constant rate into 20         perpetuity. The basic form of this DCF equation is:
21           Stock Price = Annual Dividend I (Req 'd Rate ofReturn - Dividend Growth Rate)
D0 (1 + g)
Po= (Ke - g) 22                  where:
23                  Po= the value of the common stock or asset 22

Direct Testimony of Adam H. Gatewood                                  DocketNo. 15-WSEE-115-RTS 1                 Do= the cunent dividend of the stock or annual cash flow from the asset 2                 g = the annual growth rate of the dividend or cash flow forever 3                 Ke = cost of equity or required rate of return for the stockholders 4         This is the form of the equation commonly found in texts regarding finance, 5         investments, and asset valuation. Such texts are inclusive of both theory and 6         practical application.
7         Regulatory agencies responsible for setting rates and revenue requirements want 8         to know the investors' required rate of return or Ke in the equation. So, we solve 9         the equation for that variable. The equation below shows the algebraic isolation 10         of the investors' required rate of return. By isolating investors' required rate of 11         return in the equation, we can estimate it by knowing the stock's dividend yield 12         and the annual dividend growth rate expected by investors. That form of the 13         equation is:
D0 (1 + g)
Ke=        Po      +g 14         This equation is frequently written out as:
15     Req 'd Rate ofReturn = (Current Annual Dividend/Current Stock Price) + Dividend Growth Rate 16                     Req'd Rate ofReturn= Dividend Yield+ Dividend Growth Rate 17         Or as commonly abbreviated by regulatory agencies 18                                            Ke= y + g 19         where: y = Dividend Yield 20                  g = Expected Dividend Growth 21 22         Through a handful of inputs, the DCF model distills down to an equation, a 23         complex cognitive process performed by investors. As with any equation that 23

Direct Testimony of Adam H. Gatewood                             DocketNo. 15-WSEE-115-RTS 1           attempts to model behavior, there are a host of assumptions that come along with 2           it. Generally those assumptions are:
   .)
* Investors evaluate common stock in the classical economic framework.
4
* Investors discount the expected cash flows at the same rate (Ke) in every 5                   future period.
6
* Ke con-esponds only to the specific stream of future dividends, rather than 7                   earnings, and constitutes the source of value.
8
* The discount rate (Ke) must exceed the growth rate (g).
9
* The constant growth rate will continue for an indefinite future.
10
* Investors require the same discount rate (Ke) each year.
* 11
* There is no external financing.
12  Q       Why is it reasonable to accept these assumptions?
13  A       A certain number of assumptions come along with any financial or economic 14          model, especially ones that are attempting to emulate investors' behavior. The 15          question becomes whether the assumptions are so contrary to investors' behavior 16          in the real-world that the model output becomes meaningless or illogical. I do not 17          believe the assumptions of the DCF model are contrary to investor behavior.
18          Moreover, there are methods I use to evaluate whether an output falls outside of 19          the realm of reality. For example, the output can be compared with the returns 20           available on other investments such as long-term corporate bonds.
21   Application of the DCF Model 22   Q       How did you calculate the dividend yield (y) component of the DCF model?
23   A       The dividend yield (y) is the easiest of the two components to measure. It is 24           calculated by dividing the stock's annual dividend payment per share by its 25           market price per share. For example, a company paying an annual dividend of 26           $2.00 per share with a market price of $76.00 has a dividend yield of 2.63%.
24

Direct Testimony of Adam H. Gatewood                             Docket No. 15-WSEE-115-RTS 1 Q       What is the source of the dividend information?
2  A       Historic and current dividend information is easily obtained from public sources.
3          The DCF model requires a forward looking dividend payment which is often the 4          cmTent year's dividend payment increased by the expected growth rate or the 5          forecasted growth rate for next year.        I obtained the dividend per share 6          information from Value-Line Investment Survey.         The Value-Line rep01is for 7          each of the proxy companies are attached as Schedule AHG-5. I obtained the 8          stock prices for the dividend yields from Y ahooFinance. The stock prices and 9          2015 annual dividend observed for each of the proxy companies appears on 10          Schedule AHG-6.         The projected 2016 annual dividend rate and resulting 11          dividend yields appear on Schedule AHG-7. The dividend used to calculate the 12          dividend yield is the 2015 dividend rate multiplied by the projected growth rate so 13          as to reflect the expected 2016 dividend payment.
14  Q       Is it proper to use the dividend rate of a full year in the future?
15  A       Yes it. is a proper application, although this method is likely a slightly higher 16          dividend rate than merely escalating the cunent quarterly dividend rate by the 17          projected growth estimate. This method ensures that the DCF analysis contains a 18          truly forward dividend rate, throughout the eight month process of setting 19          Westar' s new revenue requirement.
20  Forecasted Growth Rates for the DCF Model 21  Q       Please discuss the importance of the second component, the growth rate (g) 22          in the DCF equation.
25

Direct Testimony of Adam H. Gatewood                              DocketNo. 15-WSEE-115-RTS 1 A        The "g" represents the anticipated annual growth rate in cash flows that investors 2         expect to receive tln*ough dividends from the stock.        This is a difficult and 3          contentious issue in a DCF analysis for two reasons. First, it is a key element in 4         the DCF model because the growth rate has a one-for-one effect on the utility's 5         allowed return. All other factors being equal, a higher growth rate results in a 6         higher return on equity for the utility. Second, there is an element of subjectivity 7         to selecting the growth rate due to the uncertainty about future earnings and 8         dividends. It is difficult to uncover what growth rate estimates investors rely on 9         when they value a stock and where they obtain that information.
10 Q       How did you estimate the growth rate in the DCF model?
11 A       The appropriate growth estimate is that which is expected by the market and 12         factored into investors' analyses to estimate a stock prices.      That is, it is the 13         growth estimate investors used to determine the stock price.            Determining 14         precisely how investors estimate the growth rate used in evaluating common 15         stocks is difficult.      Earnings per share growth forecasts are commonly 16         incorporated into the DCF model. Investment firms that publish growth forecasts 17         publish tln*ee to five-year ammal earnings growth estimates and that is about as far 18         into the future as analysts forecast for a specific company. I discussed earlier that 19         the DCF model assumes the grovvth rate continues in perpetuity, well beyond the 20         tln*ee to five-year window of analysts' forecasts for earnings and dividends.
21 Q       How do investors estimate the dividend growth rate beyond the three to five 22         year horizon of the short-term growth forecasts?
26

Direct Testimony of Adam H. Gatewood                                  DocketNo. 15-WSEE-115-RTS 1  A       For a long-tenn perspective of potential growth, investors rely on forecasts of the 2           broad economy.         There are sources for long-te1m growth estimates of this 3           country's gross domestic product (GDP) that extend out more than 20 years.
4           Mathematically, a growth estimate rolled out over 20 years is for all practical 5           purposes a perpetuity in the world of discounting future cash flows. Academic 6           texts and investment professionals use these forecasts in DCF models as a forecast 7           of potential long-term growth. GDP refers to the market value of all final goods 8           and services produced within a country in a given period. Nominal GDP (nGDP) 9           is that measure of goods and services which includes effects of price changes -
10           better known as inflation. Inflation must be included because the DCF analysis is 11           interested in the nominal required return or cost of equity, and investors' 12           expectations of inflation are contained in their required return. Keep in mind that 13           the "head-line" GDP reported in the media is real GDP; GDP less the inflation 14           experienced over the measurement period.
15  Q        Is it accepted practice to use nGDP growth estimates in the DCF model?
16  A        Yes, in the federal regulatory arena, similar to the responsibilities of the KCC, the
. 17           FERC uses nGDP to estimate the cost of equity. FERC has reviewed the issue of 18           long-te1m growth estimates used in DCF models; it took comments from 19           concerned parties that included state commissions, customers, investment 20           bankers, and interstate pipeline companies. 8 Testimony from these pmiies made it 21           clear that long-term estimates of nGDP m*e a common component of valuation 22           analyses conducted by investment professionals. From that proceeding, FERC 23           concluded that long-term growth estimates of nGDP should be the estimate of 8
Transcript from Technical Conference held on January 23, 2008, FERC Docket PL07-2-000.
27

Direct Testimony of Adam H. Gatewood                                 DocketNo. 15-WSEE-115-RTS 1           long-tenn growth in the DCF models used to estimate required returns for 2           interstate pipeline companies because that is consistent with investor behavior. 9 3           In June of 2014, FERC concluded that the same methodology should be used in 4           setting the required returns for electric transmission companies. 10 5 Q         Is there academic support for this issue?
6 A         Yes, valuation analysts have carefully considered the long-run growth rates used 7           to value assets. Using an incol1'ect growth estimate will lead to inconectly 8           valuing an asset. Academic research supports has shown that nGDP growth 9           forecasts are an impo1tant input to valuation studies because the analyst has to 10           consider whether a company's annual earnings can grow faster than the broad 11           economy.      In two of his books devoted to the subject of asset valuation, 12           Investment Valuation: Tools and Techniques for Dete1mining the Value of Any 13           Asset, 2nd Edition and Damodaran on Valuation:                  Secmity Analysis for 14           Investment and Corporate Finance, 2nd Edition, Dr. Aswath Damodaran discusses 15           the nature of a stable growth rate for DCF models.             He argues for viewing 16           nominal economic growth as the absolute maximum when using a stable-growth 17           model, such as the DCF model we are using.
18            "The stable growth rate cannot exceed the growth rate of the economy in which a 19          firm operates, but it can be lower. There is nothing that prevents us from 20           assuming that mature firms will become a smaller part of the economy and it may, 21           in fact, be the more reasonable assumption to make. Note that the growth rate of 22           an economy reflects the contributions of both young, higher growth firms and 23           mature, stable growth firms. If the former grmv at a rate much higher than the 24           growth rate of the economy, the latter have to grow at a rate that is lower. "
25           (Damodaran on Valuation: Security Analysis for Investment and Corporate 26           Finance, 2nd edition; Aswath Damodaran; p.148.
9 Policy Statement, FERC Docket PL07-2-000 (April 17, 2008); FERC Opinion No. 486, FERC Docket RP04-274 (Oct. 19, 2006).
10 Opinion No. 531; June 19, 2014; 147 FERC 61,234; para 36.
28

Direct Testimony of Adam H. Gatewood                                    Docket No. 15-WSEE-115-RTS 1
2             "The growth rate of a company cannot be greater than that of the economy but it 3            can be less. Firms can become smaller over time relative to the economy. Thus, 4            even though the cap on the growth rate may be the nominal growth rate of the 5            economy, analysts may use growth rates much lower than this value for individual 6            companies." (Damodaran on Valuation: Security Analysis for Investment and 7            Corporate Finance, 2nd edition; Aswath Damodaran; p.159) 8 9            It is worth noting that Professor Damodaran cites the nGDP growth projection as 10            a ceiling for long-term growth in most valuation studies.               Ce1iainly there are 11            industries that will exceed the average for a period of time, but even for those 12            industries experiencing rapid growth, that would not continue forever.                  For 13           purposes of my analysis, it is not realistic to place a mature industry like electric 14           utility services in a group of companies that should experience rapid growth over 15           an extended period of years.
16  Q        In that discussion, your source states that nominal economic growth is a 17           ceiling for long-term earnings growth. Is the ceiling the appropriate number 18           for an investor to use when valuing a common stock?
19  A        There is research that casts doubt on using the forecasted nGDP as the growth 20           ceiling in valuation studies as nGDP may actually overstate the growth potential 21           for a company's earnings. Research by Bernstein and Arnott warns practitioners 22           that a portion of nGDP growth is created by new enterprises and that portion of 23           nGDP growth does not contribute to the earnings growih of existing enterprises. 11 11 Earnings Growth: The two Percent Dilution; William J. Bernstein and Robert D. Arnot; Financial Analysts Journal; September/October 2003, pp 47-55.
29

Direct Testimony of Adam H. Gatewood                                                         DocketNo. 15-WSEE-115-RTS nuo      il/l!'Orim1/       (()//Cr'JIIS  ,,,aytd ii key role ill Ille /111/1111arkel          or tile l99Us.
13otfi represc11tfwulamcnlol /7mus in logic. Ho//, arc dc111011slmlily 1111/r11c.
First, n1a11y im.11':,tors /Jdir*I'Cd /Ital eami11gs could grow fas/a than tile 111c1croeco110111.11. l11 fhcl, e11mi11gs 11111st grmu slowl'I' llit111 CDP l1crn11sc the grmui/14cxisli11g e11/l'rpris1*s co11tri/1ufc*s 011/y parl tf CDP grmut/1; the role 0/1'/I f l'f'J)l't'/11'11 rial Cl1f Ji[a/ isl/I, //,c* C/'l'tl / io11 u( /ICW l'llf erprises, is a key driver of CDP grow/Ii, 1111d it docs 110/ co11trilJ11/c lo //,c growi/1 i11 &#xa3;'&#xa3;1/'lli11gs lll1d tfioid1*11tfs ,!f cxisli11g c11/c1priscs. J)11ri11g Ille* 20/lt cc11/ 11ry, grow/11 iJI s/ock prices 1111d dividends mis 2 1wrn'11/ fess t/11m 1111dl'rlyi11g 11111C1H'Co110111ic xrowi/1. Scco,rd, 1111111y i11vcstors /Jdi<*vcd Iha/ stock buybacks would pa111it t'l//'lliligs lo srmu/i1s/cr !lt1111 CDP Tlic iJIIJIOl't1111/ mclri( is )I()/ the zio/111111'
         ,!f ll/ly/1/lcks, /iouwv,*r, !JIii 11d huylwcks stock b11yl1acks less 11cw shnrc issu1111ce, w/Jc//,er i11 exist i11g 1*11/crprise::,; or lllro11sl1 I POs. Wt' 1fr11m11s/ mlc, 11si11g Jwo 11/r'f/Jodologics, lllfll tl11ri11g lite 20//1 ce11/ 11ry, news/Jan* iss11m1ce in 1111111y 1111tio11::; 11/11/os/ ahu11ys cxn*,*dcd slock                 in,y!Jacks l,y 011 avc1*11xe of 2 percent or 11wrc o year.
1 2 Q         Does their view that nGDP growth is a ceiling on long~term earnings growth 3           exist outside of academia?
4 A         Yes, Bernstein and Arnott have both published in peer-reviewed academic 5          journals, books on investment strategy, as well as building careers in the field of 6           asset management and investment strategy.                                Furthennore, institutions directly 7           involved in asset valuation and asset management that apply valuation models to 8           analyze potential acquisition and merger transactions recognize that estimates of 9           firm-specific growth are a driver to the value of an asset; overstating growth 10           would cause a model to overestimate the value. These expe1is also warn of a 11           ceiling to earnings growth rates as being no more than that of broad economic 12           growth.
13           "Growth rate: Few companies can be expected to grow faster than the economy l4          for long periods. The best estimate is probably the expected long-term rate of 15           consumption growth for the industry's products, plus inflation. " (Valuation:
16           Measuring and Managing the Value of Companies; Tim Koller, Mark Goedhart, 17          and David Wessels; McKinsey & Co; 4th ed; p275.)
30

Direct Testimony of Adam H. Gatewood                             Docket No. 15-WSEE-115-RTS 1         The following quote from J.P. Morgan Asset Management (JPMAM) addresses 2         the limits on earnings growth on a macro-level.         This statement by JPMAM 3         addresses the macro or economy-wide measures of profits and it is consistent with 4         the firm-specific view expressed by asset valuation experts in that analysts must 5         be aware of the forecasted growth rates applied in valuation models and how 6         those growth forecasts comport with broad measures of forecasted economic 7         growth.
8          "One common mistake is to assume that earnings and dividends received by 9         investors can grow in line with-or even in excess of-overall economic growth 10          (GDP) in pe,petuity. Granted, it is almost a truism that aggregate earnings must 11         grow at the same pace as the overall economy in the ve1y long run; otherwise, 12         profits would eventually outstrip the size of the entire economy or dwindle to an 13         insignificant share of it. But not all of this earnings growth accrues to existing 14         shareholders. On the contrary, a large portion of economic growth comes from 15         the birth of new enterprises. Some commentators suggest (for example, Bernstein 16         and Arnott, 2003; Cornell, 2010) that new enterprises account for more than half 17         of GDP growth in the US., while in some rapidly developing economies new 18         enterprises may account for the lion's share of overall economic growth. " (Long-19         term Capital Market Return Assumptions: 2015 Estimates and Thinking Behind 20         the       Numbers;        J.P.      Morgan        Asset     Management;        p.25 21         https ://am. jpmorgan. com/lu/institutional/ltcmra) 22 23 Q       Do you believe this information justifies incorporating long-run nGDP 24         growth forecasts in cost of equity analyses of utility companies?
25 A       Yes, in a general rate proceeding such as this, the Commission is attempting to 26         asce1iain the discount rate investors apply to the future cash flows from an 27         investment in these utilities; therefore, the Commission should emulate investors' 28         analytical practices as much as possible to determine their discount rate. As noted 29         above, investment professionals include a long-run growth forecast for the general 30         economy when applying valuation models like the DCF and capital asset pricing 31

Direct Testimony of Adam H. Gatewood                             DockctNo. 15-WSEE-115-RTS 1         model, and that measure of macro-economic growth serves as the upper bounds of 2          a firm-specific analysis. Therefore, the Commission should consider that same 3          information.
4 DCF Results 5 A       Please discuss the results of your DCF analysis.
6 Q       The results of my DCF analysis appear in the following table. As I have set out 7         the foundations for the DCF analysis in the previous pages, in this section I will 8         discuss the specific information that I relied on for the DCF model and interpret 9         the results.
32

Direct Testimony of Adam H. Gatewood                                                                         DocketNo. 15-WSEE-115-RTS Cash Flow Westar 15-WSEE-115-RTS
                                            ' Stall's
                                               'l - Discounted
                                                   ~   - .                       i   -- . -- -
2                  3               4                5                6 I
Dividend Yield              Grov,th               Cost ofTh]uity Low                High            Rate             Low               High iA!lete Inc                              :ALE                    3.88%1           H_S'Yo ..        5.36%i          9.23%!           9.81% 1
     *iAlli~t Energy Corp                         L.NT                  3.61 o/~ 1       3.90%:           5.12%;          8.72%;           9.02%!
lAmeren Corp                              iAEE                    4.03%1           4.38%'           5.20%           9.23%:           9.58%1 i American Electric P\\T Co                 i\EP                  3.86%[           4.17%:           4,79%           8.&sect;5Jto'         8.96%1
      !A~;ia Corp             *  *              'AVA                    4.03%[           4.41%'           U9%             9.22%            9.60%1
:CMS Ene~gy Corp                          ,CMS                    3.40%1           3.74%;           5.23%           8.63%i           8.97%1 iC:.onsolidated Edisol} Inc                 El)                   4.26%[           4.5~%'           3.44o/o         7.70%            8.02%1
:Dominion Res9urces Inc                     D                     3.68%i           4,00_%1          5,49%.          9.16%            9A2%l iDuke Energy Corp New                     :DUK                    4.20%1           4.56%;          4.61%            8.8lo/.i         9.17%1
      !Edison International                     lEIX                    2.69%i           ~.03%;           3.72%.          6.41'i'o         6.75%;
      !:l~l Paso Electric Co                    iEE                     3.12%1           3.56%1          4 ..82%.         7.94o/o          8.37o/oi iEmpire District Electric Co 1
                                                !EDE                    4:251%1          4.78%!          4.36%'           8.. 64%          9.14%:
Great.Plains Energy Inc                 !GXP                    3.81%)           4.16%            5.29%/          9.10%i           9.45%j lIDACORP Inc                              !IDA                    HWYol            3.36o/oi         3.69%i          6.73%:           7.05%!
      ;NorthWestern Corp.            .          :NWE                    3.66%[           4.01%i          4.94%1           8.60%'           8.95%!
IOGE Energy Corp                          :cxrn                   3.29%1           3.55%           4.i9%;           7.48%i           7.74%!
IPacific Gas and Electric Co.             :Pc.G                  ),50o/ol          3.77%'      . . .?,26o/oi        8.75%1
      !Pinna;leWest c;;pita!Corp                iPN\V                   3,90%1           4.37%           4.47%:           8.31%;           8.84%i
      !Portl~d General Electri; Co.             iPOR                    3.26%)           3.61%!          4.88%:           8.13%:           8.48%!
I1ECO Energy                              )E                      4.72%1           5.24%1           5.64%;         10.36%!          10.88%!
J w~.s.t.rr!,11~rgy_Inc                   *WB                   .3.79%i            4.24%:          4,29'l"oL        8.Q~o/o         *8.53%i i Xcel Energy Inc                         !XEL                    3.78%1           4.09%:          4.54%1           8.32%1           8.63%1 i Average:              3.72% 1          4.09%;          4.75%            8.47%1           8.84%1
                                                                                       ******** .... --~ er*
Average oflow&High 6.41%:
M,.?'Yo 10.88%1 1*K~C proxy gr_oup Pricing March
                                       - .May;
                                          -     I 2: 2016 fore casted dividend/ observed high stock price I       3: 2016 forecastcd divid~nd / ob;~rv~d l~w sto~k price 4 *gro\Vth.rate, _ave~age of long-run and shorJ:run foreca;;t~d grm,th 5 *Min Dividen_d Yield+ Gro,,1h Rate 6: Max Dividend Yield+ Grav.th Rate N_o observatios \\ere climillat~d as i]logical or outliers. The test for low outliers is yield on Baa utHity bonds
     . plus 199.ba;;is points (4.60% +1.00%== 5,60%)                            '
I 1
2             To calculate the expected dividend, I multiplied the reported 2015 annual 3             dividend by the forecasted growth rate to move the current 2015 dividend ahead 4             one full year so as to reflect the expected dividend rate in year one. The data for 5             each proxy company is shown on Schedule AHG-7. That 2016 annual dividend is 6             divided by the pricing data gathered for each of the proxy companies from the 7            time period of March 1, 2015, through May 31, 2015, on a weekly basis. The 8            high and low prices for each week are shown on Schedule AHG-6.                                                                The low 9             dividend yield is computed using the expected 2016 dividend divided by the 33

Direct Testimony of Adam H. Gatewood                                                                    DocketNo. 15-WSEE-115-RTS 1                average of the weekly high prices while the high dividend yield is computed using 2                the weekly low prices.
3 Q               How did you arrive at a growth rate for each proxy company?
4 A              The growth rate is the average of the short-term growth rates 12 and the long-run 5                forecast of nGDP of 4.38%. Schedule AHG-8 summarizes all of the observed 6                growth forecasts; both historical and forecasted.
l                         I j Summary of G_rowth Rates I
Value:I,ine Historic Data                       Forecasted Earnings Growth Rates 15-WSEE-115-R'IS                          DPS Growth                  EPS Gro\\th               Val~e Li~e        !
10 Year f 5 Year              10 Year I 5 Year ,         DPS I EPS               !BES ; FactSet
     !Allele Inc                      !ALE          0.00%!         2.00%:        7.00%i       1.00%1      4.00%[      7.00%[      6.00%1      6.00%[
     !Alliant Energy Corp             :LNT          3.50%;         6.50%)        8.00%/       6.50%!      4.50%/      6.00%[      5,45%[      6.10%!
     !Alneren Corp      - -           !AEE        :450%1         -9.00%!        -2.50%!     -4.00%!       2.00%1      5.00%1      5.85%!      7.22%!
   . IAnlerican_Electric PwrCo.       ;Al:!'      -l.50%i          4.00%!        0,50%j       1.50%J     _5,0_()%!    5.50%1      5.10%;      5.oo%J
     !Avista Corp                     !A,VA         2.sgo;,!     l!'.50o/ol      7.50'Y,i    6.50%;       4.00%!      7.00_%! s:oo%i 0.00%1
:GM$.)~ne[gy_C:orp               ;<::Iv!&sect;_     0.00%1 _23.50%i              0.00%!     12.00o/o!     6.50%1      5.50%1      6.73%!      6.00%1
     ;Collsolidates! Edison Inc.      '.ED_          i.O:<i%l J.OOo/oi           3,~0o/oj .. 2.50%'       2,50.o/ol   foor,i      2.48o/ol   2.00%1 iD<nninioll :Rcs_ourccs Inc      :p__ -        5.59_%!        7.0Q_o/ol     3.QO%i      2,50o/oj     7.50%!      8.00%:      5.89o/ol    5.90%1 LDuke Energy Corp                '.DUK        _0.00%\        2.50o/oi       0.00%1      3.50%/       2.50%!      5.00%\      4.4_9%i. 5.00o/oi
:Edison International            ,EIX          O.OO%i         2.50%1       10.00%1      4.50%!      10.00%1      3.00%!      0.70%1      5,SO'Yoi i El Paso Electric Co            [EE           0.00%!         0.00%i       13.50%[      6.50%i       5.00%l      3.50%1      7.00%1      O.OO%J
     ;Empire Distr. Electric          :EDE        -2.50%1        -4.50%j         2.50%,      5.00%:       3.00%1      3.00%1      5.00%i      5.00%!
: Great Plains E~e~gy Inc        i GXP       -6.50%[ -1:1.50'.lfo!         -3.50%i     -2.00%i
                                                                                                       '  5.50%!      5.00%1      6.80%i      6.80%!
     ! Idacorp, Inc -
:Northwestern Corp
   \QQE _Et1_ergy Corp             _.
:m
:IDA OGE O.OO%i O,OO%i
:I.Q0%)
5.50%1 3.00%'.
3.00%i 9.00%!
0.00%1 9.50%!
10.00o/oi 8.00%)
7.50%!
6.00%!
6.50%i 10.00%1 1.00%[
6.50%!
3.00_o/oi 4.00%j 5.00%1 4.00%\
4.00%:
5.00%;
5.00%i IP~cific Gas 8:Electdc Co        iF'C.G        0.00%;         3.00%1       14.50%[     -5.00%1       2.50%!      8.50%j      4.71%i      5.20%1 iPh1nac_le "Y_estCapital Corp    :P_N\\'     _ 3,50%!         3.00%:        3.50%[      8.00o/~I     3.50o/o:    1,00%:      4.70%!      5.00'loi iPortland General Electric Co    ,POR          0.00%!         2.50%!        0.00%1      3.00%[       6.00%i      6.00%i      4.72%!      5.40%1 t '!ECO Energy              - -  Frn         -1._50o/o[       2.00%[        i.~0%/      0.00%1       2.00%1      6.00%!      9.20%i      5.50%1 i Westar Energy Inc              iwiz          3.50%i         3.50%1        6.50%1      9.00%[       3.00%1      6.00%!      3.40%1      3jo%i
:Xcel Energy Inc                 iXEL         2.50%:         3.50%/         7.00%i      6.00%i       6.00%[      4.50%1      4.58%1      5.00%/
lMean
                                      ;
1.12%!         3.02%t        5,61%j      4.40%1       4.89%!      5.09%[      5.04%1      5.19%:
I 1
i           '                      i Min       -6.50%[_     7 12.50o/o[      -3.50%l     -5.00%[       2.QO%[      1.00%i      0.70%:      2.00%i
                                      !M~           9.50%1. 23.50'.%        1450%!
                                                                                   .   .!   12,00%;    ' 10.00%!      850%!       9.20%1      722% 1 7
8 Q              What are your observations of the short-run growth forecasts?
9 A              The average of the short-rnn growth forecasts for the proxy group is 5.12% with a 12 For each proxy company, I gathered four short-run, three to five year growth forecasts - earnings and dividend growth projections from Value-Line Investment Survey, analysts' earnings growth projections reported by FactSet through SNL Financial, and earnings growth projections reported by Thomson Financial Network reported by YahooFinance. FactSet and Thomson Financial Network aggregate analysts' earnings forecasts and report the mean of those estimates. Value-Line produces its own growth forecasts and publishes on a quarterly basis. The Value-Line report for each company appears in Schedule AHG-5.
34

Direct Testimony of Adam H. Gatewood                                DocketNo. 15-WSEE-115-RTS 1          range of 2.50% to 6.90%.
2  Q        How do the forecasts compare to historic growth rates realized by the proxy 3           group?
4  A        As you can see in the previous table, the averages from each forecast source fall 5          under the ten year historic averages and are greater than the five year historic 6          averages. All of the growth forecasts are positive although there are several 7          individual observations of negative historic growth for both the five and 10 year 8          periods.
9  Q         How did you estimate long-run nominal GDP growth?
10  A       I averaged the long-run nGDP forecasts of the Energy Infonnation Agency (EIA) 11          in its 2015 Annual Energy Outlook and the Social Security Administration (SSA).
12          Both forecasts extend to 2090.
Nominal GDP Forecasts Energy Information Administration--
2015 Annual Energy Outlook (2013 - 2090) 4.25%
Social Security Administration--
2014 Annual Report to the Board of Trustees 4.50%
ofOADSI (2014 - 2090)
Average      4.38%
13 14          These two forecasts are consistent with the other long-run forecast for real GDP 15          shown in the following table, as both the EIA and SSA forecasts of nominal GDP 16          incorporate an inflation forecast of 1.8% to 2.0%, thus expecting real growth in 17          the range of 2.4% to 2.6%. The following table is taken from EIA's 2014 Annual 18          Energy Outlook. The first two lines contain EIA's forecasts from 2014 and 2013 19          respectively. Like the EIA and SSA, the Office of Management & Budget 35

Direct Testimony of Adam H. Gatewood                                                                              DocketNo. 15-WSEE-115-RTS 1            (0MB) and Congressional Budget Office (CBO) are agencies of the U.S.
2            Government. ISH Global Insight and INFORUM (University of Maryland) are 3            subscription services and, of course, ExxonMobile is one of the largest 4            corporations in the world.                              From a diverse group of interests, there is some 5            consensus that long-run economic growth in real te1ms will be in the range of 6            2.5%. Applying the 1.8% to 2.0% inflation forecasts would result in a nominal 7            growth rate of 4.3% to 4.5%. This is in stark contrast to Mr. Somma's growth 8            forecast of 5.62% in his DCF analysis and 11.28% growth used in his CAPM; 9            both dramatically exceed the consensus forecasts from these seasoned, 10            professional services. Mr. Somma's 5.61 % nGDP is built on his unsupportable 11            belief that real GDP will grow at an annual rate of 3.27%, which is about 100 12            basis points greater than any of these professional forecasts.
Table CPI. Comparisom of awrage annual econo1nir growth projections, 2012--10 Average annual percentage growth rates Projedion                                                        2012-2015              2012-2025           2025-2040            2012-2040 AE02014 (Referera:e case)                                             2.6                   2.5                   24                 2.4
                                                                                                                                               -~ ""
AE02013 (Reference case)                                              2.6                   2.6                   24                 2.5 IHSGI (May 2013}                                                      2.6                  2.5                   24                 2.5 0MB (January 2014)'                                                    2.7                  2.6 CBO (February 2014)'                                                  2.6                   25 IN FORUM (November 2013)                                              2.4                   26                    2.3                2.4 Social Se<:urity Administration (August 2013)                         3.0                   27                    2.2                2.4 IEA (2013i . . .             -       .        ..                     2.6                   2.8                                      2.4 ExxonMobil                                                                                 2.5                   2.2                2.4
_OEG (January 2013}                                                    2.7                   27                    2.5                2.6 n = not reported C( not applicab]t!.
          'OMO and CBO projections end In 2024, and growth rates cited are for 2012-24. AEO projeclicr.s end in 2040.
          'IEA pub!ishesU.S. grov,1h rates fer cutain Intervals: 2011-15 growth is 2.6"%, 2011-20 growth is 2 8%, and 2011-35 grcwlh is 2A%.
CP-2                                U.S. Energy Information Adminl,tralion I Annual Engrgy Outlook 2014 13 14            This table was published in the 2014 edition of the Annual Energy Outlook. The 15            2015 did not contain a similar table. A check of ExxonMobil's 2015 Energy 16            Outlook indicates its forecasts for GDP growth are 10 basis points higher than 17            those published in 2014. I have not found any evidence that growth projections 36

Direct Testimony of Adam H. Gatewood                            DocketNo. 15-WSEE-115-RTS 1          shown in this 2014 table have changed significantly.
2 Q        How is the long-run nGDP forecast applied in your DCF analysis?
3 A       The long-run nGDP growth forecast of 4.38% is averaged with the short-run 4          growth forecasts. The result is the sustainable growth estimate used in the DCF 5          calculations for each of the proxy companies. In my analysis, I give equal weight 6         to short-run and long-run growth forecasts. The weighting is certainly debatable.
7         At FERC, in both natural gas pipeline and electric transmission rate cases, the 8          short-run growth is afforded a two-thirds weighting. In the regulated electric 9         utility industry, there is seldom a dramatic difference between a well-reasoned 10          short-run growth estimate and a sound long-run forecast of nGDP, so the 11         weighting is not going to cause a significant change in the results. Regardless of 12         the small difference, a long-run nGDP estimate is one component of any sound 13         DCF analysis, as it recognizes the upper-threshold of growth potential.
14 Internal Rate of Return Analysis 15 Q       Please discuss the internal rate of return (IRR) analysis that you performed.
16 A       An IRR analysis of an investment is a form of a discounted cash flow analysis, 17         only with a more cumbersome equation than the Gordon Growth Model that we 18         applied in the previous section. In the age of spreadsheets, the IRR equation is 19         not that much harder to manage than the dividend yield plus growth DCF model, 20         and as the IRR model allows us to apply the growth forecasts to their respective 21         forecast periods, the IRR model provides important information to policy makers.
22         In the IRR analysis, we are able to apply the five year growth forecasts to the 37

Direct Testimony of Adam H. Gatewood                                           DocketNo. 15-WSEE-115-RTS 1          intended five years of dividends with the remaining years growing at the long-run 2         nGDP forecasted growth rate.
3          The IRR calculations appear in Schedule AHG-9.                            The following table 4         summarizes the results of the IRR.                     Recognizing that the sho1i-term growth 5         forecasts are given much less weight than in the DCF analysis, the average for the 6         proxy group in the IRR analysis is about 20 basis points higher than the DCF 7         results.
Internal Rate of Return I
                                   !Allete Inc                           8.96%,
IA1Iiant_E11ergy C<lrp                8.45% .
IAmeren Corp                          8.98%,
f American Electric Pwr Co            8.66%:
8099%1
                                ** !itsJ~~~: Corp                    1*  8 27%:
                                  *iConsolidated Edison Inc              s:73%i
                                   !Dominion Res.ources Inc              8.64%l
                                   ;Duke Energy Corp New                 9.0i%i
                                  .!Ediso11 I11te_rnatio11al             z.!.8%!
iEI Paso Electric Co                  7.91%:
iJ::mpjre District Electric Co        9.10%1
                                   ! Great Plains Energy Inc             8.75%!
iIDACORP Inc                          7.52%;
                                   ;NorthWestern C:CJrp.                 8.SQ'Yoi iQQE Elnergy Corp                     7.87%'
iPacific Gas and Electric Co.         8.35%!
                                   ;Pinnacle West CaJ)ital Corp i        8.69%
1 iPortl~d Genenil Elect~ic Co. !       8.03%:
                                   ;1ECO Energy                         10.01%
lWest.or Ilnergy Inc                  8.52%,
l Xcel Energy Inc                     8.50%
Mean!    8.53%,
Min!    7.18%
Max[   10.01%
8 9 Capital Asset Pricing Model Analysis 10 Q       Please describe the capital asset pricing model (CAPM).
11 A       The CAPM offers an explanation of the positive relationship between risk and 38

Direct Testimony of Adam H. Gatewood                                 DocketNo. 15-WSEE-115-RTS 1          ROR required by investors. 13 It is appealing to regulators because it meets the 2           legal standards I discussed as it incorporates cun-ent data from the financial 3           markets and the unique risks of the utility in question.
4                    Ke =Rf+ Beta (Rm - Rf)           or 5                    Ke= Rf+ Beta (Rp) 6                           where:
7                  Ke=      required return on equity 8                  Rf=      return on the risk-free security 9                  Rm=       expected return from the market 10                  Rp=      risk premium required by investors to purchase common stocks 11                           instead of risk-free securities often calculated as Rm- Rf 12                  Beta= volatility of the security's or po1ifolio's return relative to the 13                           volatility of the market's return 14           Rf 15           The Rf estimate is the interest rate investors believe represents a riskless return.
16           Although it is a simple concept, the answer is not universally agreed upon. The 17           90-day U.S. Treasury Bill yields are used as the risk-free rate because they 18           possess no default-risk and the time to maturity is sho1i enough to minimize risks 19           from inflation. The 30-year U.S. Treasury Bond is also used as a risk-free rate of 20           return. This is not universally accepted because the value of U.S. Treasury Bonds 21          fluctuates as interest rates change. An investment in U.S. Treasury Bonds is a 22           risk-free investment if the investor plans to hold it until maturity. The risk-free 23          instrument chosen will have an effect on the results of the CAPM analysis.
24           Whichever instrument is selected, it should be used consistently in the equation.
25          Beta 26          The beta coefficient measures the volatility of retmn earned by the utility's stock 27          relative to the volatility of the returns earned by the broader equity market. The 13 The theoretical suppmi for the CAPM is the work done by Hany Markowitz ("Pmifolio Selection,"
Jomnal of Finance, March, 1952). W.F. Sharpe added the concept of a risk-free rate of return to the Markowitz model ("A Simplified Model of Po1ifolio Analysis," Management Science, January, 1963).
39

Direct Testimony of Adam H. Gatewood                             DocketNo. 15-WSEE-115-RTS 1         broad equity market is frequently measured using the S&P 500 Index.              This 2         measure provides a look at the risk and volatility of a stock relative to other 3         investments. A stock with a beta of one is just as volatile as the market, .5 and the 4          stock is half as volatile as the market, and 1.25 it is twenty-five percent more 5          volatile than the market.
6         Rm 7         Rm is the expected return on the stock market as measured by a broad market 8         index such as the S&P 500. This represents the total return consisting of the price 9         change of the index plus dividends earned for the year.
10         Rp 11         The risk premium is the difference between investors' expected return from the 12         stock market and their expected return from the risk-free investment over the 13         same time period. The risk premium is written as Rm-Rf. The market return and 14         the risk-free return should be taken from the same time period so as to accurately 15         measure the additional return required by investors to take on the risk of common 16         stocks over the risk-free investment. Rp is calculated using the historic market 17         returns discussed above and the historic returns on U.S. Treasury Bills or Bonds 18         from the same time period.
19 Q       Please discuss your CAPM analysis.
20 A       I took two distinct approaches to the CAPM analysis. I performed one analysis 21         using historic measures of returns from the stock and bond markets and a second 22         analysis using forecasted returns. The results using historic returns are drastically 23         higher; 9.20% compared to 6.64%.
24         Both forms of my CAPM analysis incorporate the beta coefficients for the proxy 40

Direct Testimony of Adam H. Gatewood                                               DocketNo. 15-WSEE-115-RTS 1          group. As you can see in the following table, the average for the group, as well as 2         Westar, is 0.75 meaning the total return of the proxy group on average is about 3         75% of the broad market. This is a clear indication that electric utilities like 4         Westar and the proxy group are less volatile than the broad stock market, and 5         investors expect a return lower than that expected of the market.
Beta Coefficients of Proxy Grou_p
                                 !t\llete Inc                     :ALE
                                                                   .- ~.       0.80j iAlliant Energy Corp               LNT        0.801 iAmere~ Corp                     fAEE         0.75!
[American_Electric P\\r Co       iAEP 1AVA 0,79!
                                 ; A,ista Corp                                 o.soi JCMS Energy Corp                 ;CMS         0.75[
lConsolidated lcdison Inc         IED          0.601
                                !i-Dominion
                                      -- *- Resources. Inc-
                                                                  'D           0,70[
I
                                 , Duke Energy Corp New           ,DUK         0.601 i  Edison International           iEIX         0.75!
JEl f'.aso E!i<>t~ic .~~.         1EE          ojoJ J Empire District Electric Co    [EDE         Q.70!
iGreat Plains Energy Inc            GXP        0.85i iIDAC()RP Inc                    iJDA         o.so!
I
                                 ,NorthWestern Corp.                NWE        0:10!.
IOGE Energy Cof]) -               'OGE         O.~Oi
                                !Pacific Gas and Electric Co.       PCG        0.65!
1 Pinn_acle West C~pital C:<lrJJ iPNW    : -- 0.70l
:l'ortlan~ General Electric_Co.   ,POR
* o.soi i1ECO Energy                      IIB          o.s5i iWestar Energy Inc                !WR          0.75!
iXcel Energy Inc                  IXEL         0.65i 0.74!
                                 ;Source: Value-Line Investment Survey 6
7 Q       Please describe the forecasted-CAPM analysis.
8 A       For the forecasted-CAPM, I relied on the expected returns published JPMAM in 9         its annual publication, Long-Term Capital Market Assumptions.                               JPMAM 10         publishes 10 to 15 year forecasts of expected returns on dozens of investment 11         asset classes. What is unique about this product is that JPMAM publishes not 12         only the forecasted return, but also an extensive discussion that explains how they 41

Direct Testimony of Adam H. Gatewood                                              Docket No. 15-WSEE-115-RTS 1          anived at those forecasted returns. 14 JPMAM provides the following discussion 2          of how it uses the long term capital market return assumptions (LTCMRA) in its 3          own business as well as its intended audience. As you can see in the following 4          table, JPMAM forecasts an annual return on common stocks of 7 .60%.                             The 5          Commission should compare this forecast to Mr. Somma's expectations for the 6          stock market; he expects annual returns of 13 .25%. Mr. Somma' s expectations 7          are far above the expected.
How do investors use the LTCMRAs?
The Long-Term Capital Market Return Assumptions are used v1idely by investment teams throughout J.P. Morgan Asset Management as well as by institutional investors-including pension plans. insurance companies. endowments and foundations-to ensure that investment policies and strategic asset allocations are developed based on a comprehensive and consistent set of "real world" views.
In addition the LTCMRAs allow the resulting investment characteristics and return profiles to be tested and analysed, facilitating a more effective communication and underwriting of the implied risk and return profile.
When used, as is most often the case, to review an existing strategic asset allocation, the LTCMRAs can help investors to better assess and quantify the trade-offs available to them across multiple dimensions. Tllese trade-offs include: the relative risk premia between more and less volatile assets: the risk premia associated with investing outside of their own domestic asset classes: whicll opportunities exist to increase portfolio diversification: and which nominal or real return target is achievable with a given level of portfolio volatility and vice versa.
8 9          Following the calculations and inputs through the CAPM equation in line 2 of the 10          following table, the forecasted return on a risk-free investment, 10 Year U.S.
11         Treasury Bonds, is subtracted from the expected return on common stocks 14 Long-term Capital Market Return Assumptions: 2015 Estimates and Thinking Behind the Numbers; J.P.
Morgan Asset Management; p.7; h!.tJ?s://am.ipmorgan.com/lu/institutional/ltcmra 42

Direct Testimony of Adam H. Gatewood                                                              DocketNo. 15-WSEE-115-RTS 1         resulting in a risk premium of 3.19%.                                  This risk premium 1s essentially the 2          additional return necessary to induce investors to take on the added risk associated 3         with common stocks over the risk free investment. The beta coefficient is applied 4         to the risk premium to asce1iain how much of a risk premium is necessary for 5         investors to, in this instance, take on risks of investing in electric utility stocks as 6         opposed to the risk free U.S. Treasury Bond. As the electric utilities like the 7         proxy group and Westar are less risky than common stock in general, their risk 8         premium is 2.39%.
Capifal Asset Pricing Model --Forecasted RiskPremium Using Forecasted
                                                   .       Market
                                                               .. . Returns
                                                                       .    &. Treasury
                                                                                 .       !Bond Yields Proxy Group & Westar Beta I)\ForecastedReturns on Common Stocks                                       7.60%\
2)/Forecasted Total Return on 10 Year T-Bonds                                4.41%[
i
: 3) Resulting Ris~ Premium                                                    3.19%:
: 4) iBeta Coefficient l      --    -
xi         0.75   i 5): Risk.Premium                                                             2.39%1 6)!Forecasted Yield on lQYear T-Bonds                               +:       4.25%1
: 7) Forecasted Cost of Equity 6.64%:
: 1) !Forecasted 10 to 15 Year Annual Return Arithmetic return on stocks for large companies
                       ;                                                     **                 ***-* *+
                       !by J.P. Morgan Asset Management 2015 Edition.
: 2) \Forecasted 10. to 15 Year Annual Return Arithmetic return on intermediate term
                       !U.S. Bonds by J.P. Morgan Asset Management 2015 Edition:
3)tResultingriskpre~i~1 (1-2)                   ..          .    . .
4)/Beta coefficient of0.75 for the Proxy Group and Westar (Reported by Value-Line) l                                                             -  *
* 5)/row3 xrow4 = a%et specific risk premium 6)!Forec~t~d Yield on 10 y~ar         U.s: T~easu~ Bonds Forecasted by lJ.P. Morgan Asset Management 2015 Edition; Fixed Income Assumptions; Exhibit 2; p.56 I
: 7) Forecasted cost of equity capital row 5 + row 6 ! .
Sources::
J :p. Morgan Asset_Management, I AJng-term Capital Market Return Asstm1ptions 1 2015 Edition; J.P. Morgan A5set Management.
www.jpmorganinstitutional com/pages/jpmorgan/am/ia/research_ and_publica!ions/long-tenn_ capitalmarket i               i                                      .          '
9 43

Direct Testimony of Adam H. Gatewood                                         DocketNo. 15-WSEE-115-RTS 1           The expected risk free yield of 4.25% 15 is added to the beta specific risk premium 2          to arrive at the cost of equity for the given beta coefficient of 6.64% 100 basis 3           points less than the returns JPMAM is forecasting for the broad stock market 4           indexes. These results appear low by historical measures, although in the current 5           capital markets investors in Westar, long-term bonds are purchasing bonds with 6          the expectation for returns or around 3.80% to 4.00% in March 2015 through May 7           of 2015.
8 Q        Please discuss the historical-CAPM analysis.
9 A        I performed a CAPM analysis incorporating historic data of returns earned from 10           1926 through 2014. The process is the same as that applied in the Forecasted 11          CAPM.
15 JMAM is one source for forecasted data.. Another source is the Survey of Professional Forecasters published by the Federal Reserve Bank of Philadelphia; https://www.phi1ade1phiafed.org/research-and-data/rea1-time-center/survey-of-professiona1-forecasters/2015/survg 115 .cfm At page 17 in the February 13, 2015, edition the Survey, it is reported that for the next ten years, the mean expected annual return on the S&P 500 Index is 5.79% (20 forecasts) while the mean expected yield on 10 Year Treasury Bonds is 3.91% (25 forecasts). Forecasters project annual growth in real GDP over the next ten years of2.51 % and an annual inflation rate of 1.83% to 2.03%.
44

Direct Testimony of Adam H. Gatewood                                           DocketNo. 15-WSEE-115-RTS Capital Asset Pricing Mo~el -- Historic Risk Premium Based on Historic Risk Premiums from 1926 to 2014 Proxy Group & Westar I         '
i Beta I         I
: 1) !Total Returns on Common Stocks                                12.10%1
: 2) ITotal Return on Government Bonds                                6.40%!
                ,   I
: 3) i Resulting Risk Premium
* 5.70%1 i
4); Beta Coefficient                                        Xj       0.75 i
: 5) Risk Premium                                                     4}8%1 I
: 6) iYield on Government Bonds                               +i,,    5.12%!
: 7) iForecasted Cost of Equity                                       9.40%1' I
* I
                    ;
l)iHistoric returns on common stocks 1926-20141 I
: 2) !Historic returns on Long-term Government Bonds 1926-2014 3)1Resulting risk premium (1-2) 4)! Beta coefficient of0.75 for the Proxy Group and Westar (Reported by Value-Linc)
: 5) [row 3 x row 4 asset specific risk premium                  !'           '
: 6) 1 Historic Year-End Yield on Long~ term Government Bonds 1926-2014
: 7) iForecasted cost of equity capital row 5 + row 6, j Sources:
lIbbotson SBBI: 2015 Classic Yearbook & Value-Line Investment Survey 1
2         Keep in mind that, in relying on historic data, we are assuming that certain trends 3         observed in the past will continue in the future. Most notably, we would be 4         assuming that the historic risk premium relationship observed in the returns on 5         common stocks versus the returns on U.S. Treasury Bonds continues in the future.
6         The historic risk premium is 5.70% which is drastically greater than the 3.19%
7         risk premium expected by professional forecasters and institutional investors.
8         That difference is an indication that institutional investors and professional 9         forecasters do not expect the future nominal returns to be as great as those 10         experienced in the past.
45

Direct Testimony of Adam H. Gatewood                                        DocketNo. 15-WSEE-115-RTS 1 Staff Response to Mr. Somma's Direct Testimony 2 Q       What is the ROE Westar is requesting?
3 A        Westar is requesting an ROE of 10.00%.
4 Q       How did Westar arrive at a cost of equity estimate of 10%?
5 A       Westar witness Anthony Somma provided a cost of equity analysis. His findings 6         are summarized in this table which is from page 63 of his testimony.
Table 11 Adiusted ROE Recommendation Range          Weiflht  Weighted Range DCF Results                 9.47%     9.52%      50.0%    4.74%    4.76%
Forward CAPM Results       10.86%    11.76%      25.0%    2.72%    2.94%
Risk Premium Results       10.33%    10.38%      25.0%    2.58%    2.60%
10.03%   10.30%
Issuance Costs   0.12%    0.12%
Adjusted ROE   10.15%   10.42%
7 8         His cost of capital study anives at a range of 10.00% to 10.30%. As you can see 9         in the table, Mr. Somma places greatest weight, 50%, on the DCF analysis. He 10         weights the results of his CAPM and Risk Premium at 25% each.
11 Q       Generally, what are your criticisms of Mr. Somma's analysis?
12 A       Mr. Somma' s DCF analysis assumes an unsustainably high growth rate, adjusting 13         that growth rate to a level that reflects the realities of the cunent and prospective 14         economy lowers the result closer to Staffs DCF analysis. Mr. Som.ma's CAPM 15         and Risk Premium analysis contain too many points of disagreement at both the 16         theoretical and application level, that I recommend the Commission place no
*17         weight on them.
18 Q       Is it reasonable to expect corporate earnings and dividends to grow at a rate 46

Direct Testimony of Adam H. Gatewood                                      DocketNo. 15-WSEE-115-RTS 1            that is so much greater than forecasted nGDP?
2 A          No, it is not a reasonable expectation.             As I explained earlier, there is a 3            considerable amount of both academic research and professional application of 4            the DCF model that discuss the growth rate issue. The research from both realms 5            is very clear: the broad measure of economic growth, most always defined as 6            nGDP, is a necessary limit on dividends and earnings growth.
7 Q           Did you uncover any other evidence that Mr. Somma's CAPM analysis 8            overstates investors' required returns?
9 A          Yes, there are obvious indicators in Mr. Somma's CAPM.                     For instance, the 10            required return on the market is very high and well above reasonable 11            expectations. Mr. Somma's CAPM assumes that the annual average return on the 12            S&P 500 Index will be 13.25%. His forecasts for the equity market far exceed 13           historic return of 12.10% 16 and far exceed the expected returns for the future. As 14           a point of comparison, J.P. Morgan Asset Management forecasts an annual return 15            of 7.60 to 8.80% on common stocks over the next 10 to 15 years. 17 16 Q         Does Mr. Somma's CAPM analysis provide the Commission with useful data 17            to estimate Westar's cost of equity?
18 A         No, it does not. The Commission should not place any weight on Mr. Somma's 19            CAPM analysis as I have demonstrated that the inputs are not representative of 20           the capital markets and would not be relied on by investors.
16 Historic total return on the S&P 500 Index from 1926 through 2014 as reported in Ibbotson SBBI 2015 Classic Yearbook, Market Returns for Stocks, Bonds, Bills & Inflation; Morningstar.
17 Long-Term Capital Market Return Assumptions: 2015 Estimates and the Thinking Behind the Numbers.
https ://am.jpmorgan. com/us/institutional/ltcmra 47

Direct Testimony of Adam H. Gatewood                              DocketNo. 15-WSEE-115-RTS 1 Response to Westar Proxy Group 2  Q       Do you agree with the proxy group Mr. Somma used in his cost of equity 3           analysis?
4  A       No. Mr. Somma incorporates a market capitalization selection parameter that I do 5          not use in my selection.
6  Q       Do you believe the proxy group is a cause of the difference in ROE estimates 7          between you and Mr. Somma?
8  A       No, it is unlikely the cause of the difference as all of Mr. Somma's proxy 9          companies are in my analysis and, generally, except for the market capitalization 10          parameter, his selection criteria is similar to those that I used.      Given these 11          similarities, I will not spend time rebutting his proxy group.
12  Q       To be clear, are you using the same proxy group as Mr. Somma?
13  A       No. My proxy group is larger, consisting of 22 electric utilities, and it includes all 14           12 of the electric utilities in Mr. Somma's proxy group.
15  Response to Westar DCF Analysis 16  Q       On page 45 of his direct testimony, Mr. Somma states that his DCF analysis 17          results in a mean of 9.47% and a median of 9.52%. Why are his estimates so 18          much higher than your DCF analysis?
19  A       There are two reasons for the difference: 1) the growth rates he selects; and 2) his 20          exclusion of the results of one company. Mr. Somma shows the result of his DCF 21          analysis in Table 3 on page 45 of his testimony. Oddly enough, there are no 22          tables in his Direct Testimony that show his specific inputs for his DCF model; 23          that information only exists in his work papers.
48

Direct Testimony of Adam H. Gatewood                                        DocketNo. 15-WSEE-115-RTS 1 Q        Why do you disagree with the growth rates in Mr. Somma's DCF analysis?
2  A        I disagree because he relies solely on three to five year earnings growth forecasts 3           for his estimate of growth in his DCF model. Tln*oughout his testimony, he refers 4           to securities analysts' three to five year eamings growth forecasts as "long-te1m 5           forecasts." His methodology is contrary to the fundamentals of the DCF model 6           which views growth prospects well beyond Mr. Solllilla's three to five year 7           horizon.
8           I discuss growth rate selection for the DCF model earlier in my testimony.
9           Research demonstrates that securities valuation theory and its practical 10           application of the DCF model demands a long-term view of growth. Whether the 11           practitioner uses a two-stage DCF model, as I have or single stage DCF model as 12           Mr. Solllilla has done, the practitioner has to recognize that the DCF model 13           demands a long-term growth projection; a growth estimate that goes beyond the 14           tln*ee to five year window of analysts' earnings growth forecasts.
15  Q        'What are the sources for Mr. Somma's growth estimates?
16  A        He obtains three to five year forecasts of earnings growth from Value-Line 17           Investment Survey, Thomson Reuters, and Bloomberg. I do not object to any of 18           these sources for earnings growth rate estimates. I only object to Mr. Solllilla's 19           position that market participants use a tln*ee to five year forecast as that which 20           continues far beyond that time period. 18 21  Q        How do his growth forecasts compare to historic growth rates for electric 22           utilities?
18 His DCF calculations and the inputs to his DCF analysis appear only in his work papers (KCC #85).
49

Direct Testimony of Adam H. Gatewood                             DocketNo. 15-WSEE-115-RTS 1 A       Mr. Somma does not provide any sort of review, analysis, or historical context for 2         his growth rates, nor does he even disclose the growth rates in his testimony.
3         Which is an odd presentation when he in fact acknowledges that the growth rate 4         in the DCF model is " ... the most significant area of controversy among model 5         inputs." 19 Despite his acknowledgment that this is a critical input to a DCF 6         model, he never provides any historical context for this critical input.
7 Q       You stated earlier that a 4.38% annual growth in nGDP is forecasted for the 8         coming decades. How does that compare to the growth rates Mr. Somma 9         uses?
10 A       As you can see in the following table, the average three to five year annual 11         earnings growth forecast for Westar's proxy group is 5.86%; significantly greater 12         than the forecasted growth rate for the economy. Mr. Somma never attempts to 13         explain why it is reasonable for us to assume that his proxy group of electric 14         utilities will grow at a rate so much greater than the U.S. economy for many 15         decades into the future.
19 Somma Direct 15-WSEE-115-RTS; p43; line 1.
50

Direct Testimony of Adam H. Gatewood                                 Docket No. 15-WSEE-115-RTS Annual Growth Rates Contained in Mr. Somma's DCF Analysis Growth i
[Westar Energy, Inc.               . 4.22%1
:Ameren Corp                         7.08%j
                              /Allete Inc                          6.00%!
                              /Avista Corp                         4.75%1 IGreat Plains Energy Inc             5.24%!
iIdaCorp Inc
* excluded i IAlliant Energy Corp                 5.45%j i NorthWestern Corp                  6.87%!
I iOGE Energy Corp                     5.68%1 IPNM Resources Inc                   8.14%1
                              !Pinnacle West Capital               4.48%1 i Portland General Electric Co       7.23%!
i TECO Energy                        5.17%!
tMean                                5.86%1
                              \Median                              5.56%!
i i
                              !Source:   Response to KCC DR #85 1                            i 2 Q       You stated earlier that you disagree with the removal of IDACORP, Inc.
3         from the DCF results. Why do you disagree?
4 A       Mr. Somma concluded that the DCF outcomes for IdaCorp were too low to be 5         logically representative of the capital markets, so he removed that result from the 6         average. Mr. Somma stated that he removed IdaCorp from the average because 7         its DCF results " ... yielded a return on equity lower than the cost of debt that 8         Westar is requesting." 20       While that statement is true, it is not a reason for 9         removing that observation from the average. For an appropriate comparison, Mr.
10          Somma should be looking to the market cost of debt in the cunent capital markets 11         as opposed to the embedded or historic cost of debt. In the time period in which 12         Mr. Somma gathered pricing data, the yield on Baa/BBB rated utility debt was 13         about 4.30%. Thus, by a measure of cmTent, market derived bond yields, the 20 Somma Direct p44 51

Direct Testimony of Adam H. Gatewood                            DocketNo. 15-WSEE-115-RTS 1          estimates for IdaCorp should remain in the analysis. Leaving IdaCorp in the data 2           set lowers the average.
3          A test such as that applied by Mr. Somma is a common test used in cost of equity 4          studies as means to remove observations that are illogically low relative to other 5          investments. It is common place to assume to use observations on utility bond 6          yields as a benchmark. For instance, FERC has adopted a low-end limit of the 7          prevailing yield on utility bonds plus 100 basis points under the rationale that 8          investors would require a minimum risk premium of 100 basis points over the 9          available bond yield to induce them to purchase the common stock. As I pointed 10          out in the previous paragraph, the widely accepted benchmark is market yield; it 11          is not the historic or embedded yield as Mr. Somma relied on.
12  Q       If Mr. Somma had incorporated a long-run perspective in his growth 13          forecast and in IdaCorp, how much would that change the results of his DCF 14          analysis?
15  A       Giving the nGDP and his earnings growth rate forecast equal weighting would 16          lower the average of his DCF results 62 basis points. Shown in Table 3 on page 17          45 of Mr. Somma's Testimony, the average of 9.47% would decrease to 8.85%
18          which is comparable to the cost of equity estimates in Staffs DCF analysis.
19  Response to Westar' s Capital Asset Pricing Model 20  Q       Do you agree with the results of Mr. Somma's CAPM analysis?
21  A       No, I do not.      His CAPM analysis does not provide an accurate picture of 22          Westar's capital costs because of overly optimistic long-run growth rates.
23  Q       What is the result of Mr. Somma's CAPM analysis?
52

Direct Testimony of Adam H. Gatewood                                   DocketNo. 15-WSEE-115-RTS 1  A        Mr. Somma's CAPM analysis indicates a cost of equity in the range of 10.86% to 2           11.76%.
3   Q        Where is the growth rate applied in the CAPM?
4   A        In Mr. Somma's CAPM analysis, the three to five year annual earnings growth 5            rate estimate is used to calculate the market return (Rm) used in the CAPM.
6            Thus, the growth rate is a couple layers deep into the CAPM equation, but 7            nonetheless it has a tremendous impact on the end result of the CAPM. The 8            growth rate is used to estimate the expected return on the S&P 500 stock index.
9            The expected return on the market index becomes the foundation for the 10            calculation of the individual company. If the foundation or Rm does not comp01i 11            with capital market theory and realistic valuation practices, then the CAPM 12            analysis on the individual company will be inaccurate.
13  Q        What is the Rm supposed to represent?
14  A        In the CAPM the Rm is the return expected by investors through an index of the 15            stock market such as the S&P 500.
16  Q        What does Mr. Somma claim the S&P 500 will return in the future?
17  A        Mr. Somma estimated that the S&P 500 will return 13.25% annually for many, 18           many years into the future; a dizzyingly high return that is even higher than the 19           often cited historic return on common stocks of 12. 10% for 1926 through 2014. 21 20           Economic growth for the foreseeable future is forecast to be significantly lower 21           than that experienced in those 88 years. This forecast for the S&P 500 is solely 22           his own. He does not provide any support for this estimate or provide any 21 Ibbotson SBBI 2015 Classic Yearbood: Market Results for Stocks, Bonds, Bills, and Inflation 1926-2014; Mornningstar; p.40.
53

Direct Testimonv of Adam H. Gatewood                             DocketNo. 15-WSEE-115-RTS 1          co1Toborating studies indicating that market participants factor estimates similar 2          to his into their decisions. I have not come across any analytical work that could 3          support such a high return on common stocks in the coming decades.
4  Q       How does Mr. Somma arrive at his forecast of a 13.25% annual return from 5          the S&P 500?
6  A       He performs a DCF analysis on each of the 500 companies in the S&P 500 Index.
7          The calculation requires a dividend yield and a long-run growth rate estimate to 8          apply to each company's dividends. Just as with the DCF estimates for his proxy 9          group, the calculation of the dividend yield is relatively uncontroversial. It is his 10          growth rate estimates that cause an extraordinarily high cost of equity estimate.
11  Q       What growth does he apply to each of the 500 companies?
12  A       Mr. Somma uses the annual earnings growth rate estimate obtained from 13          Bloomberg, a source he also uses in his DCF analysis of his proxy group.
14          Bloomberg reports the consensus or average of analysts' growth forecasts. These 15          are three to five year earnings growth rate projections. Consensus estimates are 16          an average of growth estimates made by analysts.
17  Q       How does he apply the growth forecasts?
18  A       Mr. Somma's calculations assume that the three to five year earnings growth for 19          each company continues in perpetuity, forever. For any company with a negative 20          three to five year earnings growth forecast, he applied a growth rate of zero. That 21          is to say, he has biased his growih estimate by assuming that no company in the 22          S&P 500 will ever experience negative earnings growth. He did not provide any 23          support or evidence that market participants share his level of optimism. I have 54

Direct Testimony of Adam H. Gatewood                            DocketNo. 15-WSEE-115-RTS 1         not evaluated the effect of Mr. Somma zeroing out the negative growth 2         projections; I find that to be an unusual methodology to use in evaluating the 3          expected return for the market.
4 Q       With that unique methodology that Mr. Somma applies, what is the growth 5          rate that Mr. Somma assumes for the S&P 500?
6 A       Mr. Somma expects earnings of the S&P 500 Index to grow at annual rate of 7          11.28%; more than two and a half times the expected growth rate of the nation's 8         economy. Mr. Somma's CAPM is highly dependent on this extraordinarily high 9         earnings growth forecast. Incorporating a growth forecast that is more in line 10         with expected long-run growth will lower the results of his CAPM analysis 11         proportionally to the change in forecasted growth. A growth rate estimate that is 12         more in line with expectations will result in a CAPM result that is closer to my 13         CAPM results.
14 Q       Are there any notable data points in Mr. Somma's S&P 500 index?
15 A       In Mr. S01TI1na's analysis the forecasted growth rate for ExxonMobile is negative 16         for the next three to five years. That is not surprising given the sudden drop in 17         energy prices; it is conceivable that the company could experience a contraction 18         in earnings for a period of time.        Mr. Somma's CAPM analysis assumes 19         ExxonMobile, the second largest publicly traded corporation in the world, will 20         forever have a growth rate of zero. Mr. Somma does not attempt to reconcile his 21         application of the CAPM with the reality of the financial markets. Under Mr.
22         Somma's analysis, we would expect the price of Exxoru\1obile to collapse; it has 55

Direct Testimony of Adam H. Gatewood                             DocketNo. 15-WSEE-115-RTS 1         not collapsed, it has declined in value as have most energy companies, but it has 2         not collapsed.
3 Q       If Mr. Somma is projecting zero growth, in lieu of the negative growth rate 4         reported by Bloomberg, why would ExxonMobile continue to have value and 5          continue to be the second largest investment vehicle in the world?
6 A       I would surmise that it is because investors do not apply growth forecasts in the 7         same manner as Mr. Somma has done throughout his analysis.              Rather than 8         believing that analysts' three to five year earnings growth forecasts are the sole 9         forecasts for valuation analysis, market pmiicipants likely recognize that 10         Exxoru\1obile's three to five year growth forecast should not be used as an 11         estimate of growth in to perpetuity. That is why the stock has not collapsed and it 12         continues to be one of the largest corporations in the world. ExxonMobile is not 13         the only data point that exhibits a negative growth rate that was zeroed out by Mr.
14          Somma, there are several more examples in his analysis.
15 Response to Westar's Risk Premium Study 16 Q       Do you agree with the results of the Risk Premium study that begins on page 17         50 of Mr. Somma's Testimony?
18 A       I disagree with using this type analysis in setting Westar's allowed return because 19         this type of analysis has several sho1icomings that cast doubt on the applicability 20         of the results. Although the data provides an interesting view of regulatory and 21         financial history, I recommend the Commission disregard it in setting Westar's 22         allowed return.
56

Direct Testimony of Adam H. Gatewood                                DocketNo. 15-WSEE-115-RTS 1 Q        How is the risk premium study constructed?
2  A        Mr. Som.ma's risk premium analysis is based on observations of allowed returns 3          granted by state regulatory commissions to electric utilities in litigated cases and 4          the yield on 10 Year U.S. Treasury Bonds prevailing at the time of the rate case.
5          From these observations, he established a relationship between the risk premium 6          (the allowed ROE granted by commissions minus the prevailing yield on 10 Year 7          U.S. Treasury Bond) and the yield on the 10 Year U.S. Treasury Bond.
8  Q       Is this a new type of analysis for estimating the cost of equity?
9  A       ~* Som.ma's Risk Premium analysis is similar to that filed by several different 10          Kansas jurisdictional utilities in recent gas and electric rate cases. My criticism of 11          Westar's risk premium analysis is the same as in those recent dockets.
12  Q       Is the reasonable return on equity for Westar equal to the return granted to 13          other utilities in other jurisdictions many years ago?
14  A       No, relying on the allowed returns granted to other utilities in other jurisdictions 15          runs the risk of overlooking data in the present day capital markets, setting an 16          allowed return on what could be outdated information. At a minimum, such a 17          practice creates a degree of circular reasoning that could preclude a Commission 18          from setting an allowed return at any level other than some historic average when 19          cmrent economic conditions call for something different. Hope and Bluefield 20          emphasize that an allowed return changes with changes in the capital markets.
21  Q       What are your observations of Mr. Somma's risk premium study?
22  A       The Commission needs to be cautious in using Mr. Sornma's risk premium study 23          because it does not comport with the framework set out in the Hope and Bluefield 57

Direct Testimony of Adam H. Gatewood                            DocketNo. 15-WSEE-115-RTS 1          decisions, as there is no comparison of the risk of the electric utilities in the 2         historic data to the risk of Westar today. The Hope and Bluefield decisions state 3         that an allowed return must be commensurate with risks on similar investments; 4         Mr. Somma's risk premium study does not speak to that standard. It would be 5         comparable to merely performing a DCF analysis on all of the electric utilities, 6         without attempting to select a proxy group of comp1;trable risk. Both I and Mr.
7         Somma recognize that electric utility companies are different from one another.
8         That is why both of us culled through many publicly traded electric utilities to 9          anive at our respective proxy groups that we believe are similar in risk to Westar.
10         Keep in mind that research publications such as Value-Line cover about 45 11         companies in the electric utility industry, from which Mr. Somma selected 12 as 12         being of comparable risk to Westar; an indication that he believes that electric 13         utilities are not of equal risk.
14 Q       Have the electric utility industry and regulatory policies evolved and changed 15         over this period of time since 1980 that alters its risk profile?
16 A       Yes, I believe it has changed over this 35 year time period and Mr. Somma's risk 17         premium analysis fails to recognize any changes to the industry as merely 18         plugging in a recent interest rate does not measure changes in risk. For instance, 19         rate design, and trackers/riders/pass-through mechanisms have evolved over the 20         past two decades; these mechanisms lower the risk of utilities by shifting risk to 21         the consumer.      Mr. Somma fails to account for such changes in the industry.
22         Equally imp01iant as those formal mechanisms used in Kansas is this Staff's 23         willingness to update Westar's rate base well beyond the test-year balances which 58

Direct Testimony of Adam H. Gatewood                               DocketNo. 15-WSEE-115-RTS 1          is a tremendous benefit to Westar. Mr. Somma does not offer his thoughts on 2          whether the Kansas regulatory mechanisms and post-test-year updates are the 3          nonn for the industry either now or over history. Thus, based on Mr. Somma's 4          Testimony we cannot know whether those observations in the 1980's and 1990's 5          provide us with a risk premium measure that is applicable today.
6         *Risk premium studies such as these provide some historical perspective of the 7          changes in capital costs that occurred in the past three decades and, for that reason 8          alone, a review of the data is interesting. The fmdings in this risk premium 9          analysis are not compelling evidence because there is no distinction of risk among 10          the observations in the data.
11 Response to Westar's Request for Flotation Costs 12 Q        Has Westar requested recovery of flotation costs as part of its cost of equity?
13 A        Yes, Mr. Somma has requested an additional 12 basis points to recover the 14          flotation costs associated with issuing equity capital.
15 Q        Does Staff support the recovery of such expenses added to the allowed return 16          on equity?
17 A        No. Staff does not suppoli inclusion of flotation costs in its cost of equity because 18          Westar has not attempted to quantify the amount, if any, of umecovered costs 19          associated with it issuing common equity.
20 Q        How much does Westar's adjustment collect in flotation costs?
21 A        In the following table, I calculate the annual revenue requirement of Westar's 22          proposed 12 basis point adjustment to recover flotation costs.
59

Direct Testimony of Adam H. Gatewood                                     DocketNo. 15-WSEE-115-RTS Quantification of Westar's Proposedtiotation Cost Adjustment I
             /Total Rate Base (Application Section 3)                        *$   5,062,804,912 i iEquity Ratio of Capital Structure                                              53%;
i' Equity Financed R:.c1te Base                                  .$   2,683,286,603 j l
iFlotation Cost                                           0.12%.
             /Tax Gross Up Factor                                     0.6667
          . !Pretax Flotation Cost Collected in Rev Reg                0.18%
            !Annual Flotation Cost Charged to Westar Consumers                $       4,829,674 '
i 1
2             Westar does not quantify the dollar amount of this element on the revenue 3             requirement, nor does it explain why recovering this expense through the cost of 4             equity is efficient. I contend that it is not efficient because the cost of equity has 5             to be grossed up to recover the associated income taxes.
6 Q           Is there a more efficient way to recover those costs?
7 A           Yes, simply track the actual costs, and include a pro forma adjustment to the test 8             year operations to include those costs as an expense in the rate case. We could 9             certainly spread recovery of those costs over a several decades.
10 Q           If the Commission follows past practices and allows Westar an allowance for 11             flotation costs, does Mr. Somma's estimate of 12 basis points comport that 12             practice?
13 A           Yes, it does, as he has applied the flotation cost adjustment to common equity less 14             the retained earnings portion of common equity.             Historically, flotation cost 15             adjustments calculated in this manor are in the range of 10 to 12 basis points.
16 Response to Westar's Claim of Needing a Premium on its ROE 17 Q           Did you evaluate Mr. Somma's claim that Westar could justify a higher 18             return due to its "small size"?
60

Direct Testimony of Adam H. Gatewood                            DocketNo. 15-WSEE-115-RTS 1 A       Yes, the issue of higher return or a premium to the allowed return related to 2         "small size" is not new to the Commission, although I believe this is the first time 3          it has been made by one of our major utilities. The Commission is faced with this 4         argument from time to time in testimony from rural telephone companies in 5         Kansas Universal Service Fund audits.
6 Q       Has the Commission explicitly agreed that small utilities require a premium 7          on their allowed return?
8 A       My recollection of the past decade is that the Commission has not explicitly 9         agreed with the concept of small utilities requiring a premium or higher allowed 10         return solely due to their relative size. Those decisions have almost exclusively 11         been in telecommunications cases dealing with regulated entities that are much, 12         much smaller than Westar. If the Commission is unwilling to accept the notion of 13         a small-size premium on those companies, there would be good reason not to 14         adopt such a premium for a much larger entity like Westar.
15 Q       What is your position on the small-size premium?
16 A       I have consistently opposed this type of adjustment because it is not a widely 17         accepted premise in public utility finance (or even finance generally) that size as 18         measured by capitalization is a determinant of risk. The data used to support the 19         notion of a small company risk premium has shown that there is a survivorship 20         bias. The survivorship bias stems from the fact that a larger proportion of small 21         companies cease to exist than larger companies. The studies supporting a small 22         company premium frequently fail to measure the full extent of the loss incuned 23         by investors in those small companies that disappear. Accurately measuring those 61

Direct Testimony of Adam H. Gatewood                                            DocketNo. 15-WSEE-115-RTS 1           losses has been shown to eliminate measured small company premium.
2           There is a tremendous amount of data mining that has taken place on this very 3           topic and similar beliefs of market inefficiencies some believe create 4           opportunities for investors. Professor Burton Malkiel author of A Random Walk 5          Down Wall Street, addresses the measurement of a size premium along with 6           several other alleged measures of market inefficiencies in a 2003 journal article.
7          His conclusion is that if investors cannot replicate or exploit the alleged market 8          inefficiency, it likely does not exist. As this passage discusses, professionals have 9          attempted to profit from these alleged market conditions and it is not profitable. 22 l-.fany of the predictable patlerns that have been discovered may simply be the result of data mining. The ease of experimentingwith financial databanks of almost every conceivable dimension makes it quite likely that investigators will find some seemingly significant but wholl)' spurious correlation between financial variables or among financial and nonfinancial data sets. Given enough time and massaging of data series, it is possible to tease almost any pauern out of most data sets. Moreover, the published literature is likely to be biased in favor of reporting such results.
Significant eflccts are likely to be published in professional journals while negative results, or boring confirmations of previous findings. are relegated to the file drawer or discarded. Data-mining problems are unique to nonexperimental sci-ences, such as economics, which rely on statistical analysis for their insights and cannot test hypotheses by running repeated controlled experiments.
An exchange al a symposium about a decade ago between Robert Shiller, an economist who is sympathetic LO the argument that stock prices are partially predictable and skeptical about market efficiency, and Richard Roll, an academic financial economist who also is a portfolio manager, is quite revealing (Roll and Shiller, I 992). After Shiller stressed the importance of inefficiencies in lhe pricing of stocks, Roll responded as follows:
I have personally tried Lo invest money, my cliem's money and my own, in every single anomaly and predictive device that academics have dreamed up .... I have attempted lo exploit the so-called year-end anomalies and a whole variety of strategies supposedly documented by academic research. And I have yet lo mahe a niche! 011 any of these supposed 111arl1el inefficiencies ... a true market ine.fficiency ought lo be an exploitable opportunity. If there's nothing investors can exploit in a systematic way, time in and time out, then it's very hard lo say that information is not being properly incorporated into stock 10               prices.
22 The Efficient Market Hypothesis and Its Critics; Burton G. Malkiel; Journal of Economic Perspectives; Volume 17, Number 1, Winter 2003; pp 59-82.
62

Direct Testimony of Adam H. Gatewood                             DocketNo. 15-WSEE-115-RTS 1         It is clear from the research on this issue that it is possible to dredge the data 2          banks and find instances where there was some measure of a premium, but 3          investors establish their required return based on risk and there are more reliable 4          measures of the risk in an investment than the size of the company.
5  Response to Proposed ROE Adjustment Mechanism 6  Q       At page 71 of his Direct Testimony, Mr. Somma describes an ROE 7          adjustment mechanism. Do you believe the Commission should adopt such a 8          mechanism?
9  A       No. I have reviewed Mr. Somma's proposal. Staffs objection to this mechanism 10          is not based on the nuances of Mr. Somma' s proposal; it is based on the 11          conceptual notion of an annual adjustment to a utility's allowed return. Staff does 12          not support such a mechanism for Westar because it would set one critical 13          element of the revenue requirement for annual adjustment while there is no annual 14          adjustment for other key drivers of the revenue requirement.          Additionally, 15          Westar's allowed retum is evaluated in each general rate case and, given the 16          cunent climate of heavy capital expenditures there have been and will likely 17          continue to be, regularly filed general rate cases. I want to emphasize that 18          Staff is opposed to such a mechanism. If the Conunission has an interest in it, 19          Staff recommends that it be considered through a generic proceeding where 20          record is developed for the Commission to assess how this policy change would 21          affect the diverse group of stake-holders in Kansas.
22  Capital Structure 23  Q       Have you reviewed the capital structure proposed by Westar?
63

Direct Testimony of Adam H. Gatewood                                                                       DocketNo. 15-WSEE-115-RTS 1 A        Yes, I reviewed the capital structure Westar proposed in Section 7 and addressed 2          in the Direct Testimony of Susan M. North. Westar calculated its ROR using a 3          capital structure based on the test year ending September 30, 2014, applying 4          adjustments to reflect projected balances to December 31, 2014, and then pro 5          forma adjustments so that the capital structure reflects what it believes is a picture 6          of its capitalization beyond the test year.                                         Staff is accepting of post-test year 7          adjustments to capital accounts as these are relatively easy to verify.
I                     _I P_ro _Forma Capital_ Stru_cture_
Test Year Ended September 30, 2014 i_      __                                               I                           Used In the ROR i Septembef30, 2014'.              December 3{ 2014 j          Pro Forma         Pro _Forma .--  I I        Totals                        -Adjustrrents . l     Adiuslmenis I December 31, 2014 ,       Ratio Long:terrri__[l_ebt i $    3,215,356,038: 49.29%i $                 183,066 i  $   (125,000,000)\ $    3,090,539,104 !    46.2_5%'
GorroJOn Equity     i$     3,264,878,394_; - 50.05%! $          29,~77,61<i l  $  - 254,489,857 I $  _ 3,S49,i45,861 /    53.1_2%'
Post 1970 ITC       I$         42,801,587'    0.66&deg;-il $           (782,217)1  $            -   I$        42,019,370 i     0.63%1 I$     6,523,036,019 !             $        29,378,459 i   $    129,489,857 I $    6,681,904,335 I i                    i                                                      I Sourc_e: Section 7i_                                                                            l 8
9 Q        Do you agree with the capital structure proposed by Westar?
10 A        Generally, yes. I would only note that the proposed equity ratio is high relative to 11          Westar's equity ratio reported in the past. It is not outlandishly high, but it is 12          higher than that seen for more than a decade. As the difference is merely a couple 13          percentage points difference than the historic observations, I am not proposing 14          any adjustment to the capital structure. Staffis using Westar's capital structure as 15          shown in Section 7 ofWestar's Application.
64

Direct Testimony of Adam H. Gatewood                                 DocketNo. 15-WSEE-115-RTS Equity Ratio 50.00% .,__ _ __
49.00% .,__ _ __
48.00% + - - - - -
46.00%
45.00%
44.00%
2010   2011        2012       2013         2014 1
2 2010    2011          2012         2013           2014 Debt Ratio       53.46%   49.46%        51.11%       50.76%i        50.60%
Equity Ratio     46.54%   50.54%        48.89%;      49.24%:        49.40%
3 4 Cost of Debt 5 Q       What is Westar asking to recover as its cost of debt capital?
6 A       In Section 7, Schedule 7-C Westar calculates an embedded cost of long-term debt 7         of 5.687%.
8 Q       Do you agree with Westar's cost of debt?
9 A       Yes, that is the value that Staff will use to calculate the ROR.
10 Wolf Creek Decommissioning Trust Annual Accrual 11 Q       Please discuss the Wolf Creek Decommissioning issues in this Docket?
12 A       In this Docket, we are dealing with what is refened to as Phase-Two of the 13         triennial review of the Wolf Creek decommissioning cost estimate. In Phase-One 65

Direct Testimony of Adam H. Gatewood                                   Docket No. 15-WSEE-115-RTS 1          of the review, the Wolf Creek Owners23 submitted a decommissioning cost 2          estimate and a forecasted cost-inflation rate. Those two variables are used in 3          Phase-Two for each of the owners to calculate their annual accrual payment to its 4          decommissioning trust fund. The annual accrual payment is part of the operating 5          expenses recovered through their respective revenue requirements. Susan N01ih 6          presents Westar's proposal for Phase-Two.
7 Q        What is Westar's proposal for its annual accrual?
8 A        Westar has calculated an annual accrual of $3,150,070 to fund its portion of the 9          decommissioning costs. I disagree with Westar's proposal.
10 Q        Please describe the analysis.
11 A        The goal of the calculations shown in Exhibit SMN-1 of Susan North's Direct 12          Testimony is to estimate how much Westar must deposit each year in a trust 13          account so as to have sufficient funds in the future to pay its share of 14          decommissioning Wolf Creek at the end of its operations.                Westar's analysis 15          incorporates ten variables to anive at an estimate for the annual accrual.
16
* Decommissioning cost estimate set in Phase-One (15-W CNE-093-17                           GIE) 18
* Decommissioning timing set in Phase-One (15-WCNE-093-GIE) 19
* Remaining life of fund 20
* Westar's 47% ownership percentage 21
* Kansas jurisdictional allocation factor 22
* Trust fund investment mix 23
* Trust fund management fees 24
* Taxes on fund earnings 25
* Earnings on fund investments 26
* Cunent trust fund balance 23 Westar Energy owns 47% of Wolf Creek Nuclear Operating Corporation; Great Plains Energy owns 47%; and Kansas Electric Power Cooperative, Inc. owns the remaining 6%.
66

Direct Testimony of Adam H. Gatewood                              DocketNo. 15-WSEE-115-RTS 1         Now that the Commission has adopted a Decommissioning Plan in Phase-One, all 2         but two of the variables are readily discemable. That is to say, for most of the 3          inputs there is not much latitude in what constitutes a realistic input. The two 4          variables, the trust fund investment mix and the earnings on fund investments, are 5          difficult and somewhat speculative to forecast. Fo1iunately, these forecasts are 6         reviewed every three years; they are not set once and for all. Future Commissions 7         will have the opportunity to make adjustments in the future as new information 8          comes to light.
9 Q       Is the proposed investment asset mix reasonable?
10 A       The investment mix in Westar's analysis is a reasonable approximation because it 11         presents estimated asset allocation parameters that are likely to apply over the life 12         of the trust. Just as Westar modeled in Exhibit SMN-1, the investment mix 13         should change over time.        The trust does not exist into perpetuity; it has a 14         definitive liquidation date and, at the end of its life, it is expected to achieve a 15         specific goal. Thus, as it nears the end-date, the portfolio managers should 16         increase the use of less volatile, fixed income investments so as to protect the 17         value. With the lower volatility investment vehicles comes a lower return.
18         Exhibit SMN-1 correctly models that facet of the investment strategy.
19 Q       Are the forecasted returns reasonable?
20 A       I disagree with the forecasted returns that Westar used in Exhibit SMN-1.
21         Westar's forecasted returns are built largely from historic returns from 1985-2013 22         for the equity investments or historic risk premiums for this time period coupled 23         with the current interest rate on the 30 Year Treasury Bonds for the fixed income 67

Direct Testimony of Adam H. Gatewood                                   DocketNo. 15-WSEE-115-RTS 1          securities. My concern with a reliance on historic returns is that historic returns 2         embody a level of annual economic growth that is considerably higher than what 3         is likely in the future. It is generally the case that long-run projected returns on 4         both debt and equity investments are lower than those experienced in the recent 5         past. This trend is attributed to expectations for lower inflation relative to historic 6         averages and expectations for slower growth in GDP.
7 Q       What data did you rely on to review the forecasted returns in SMN-1 and the 8         adequacy ofWestar's proposed annual accrual?
9 A       I relied on the 10 to 15 year returns forecasted by J.P. Morgan Asset 10         Management. As you can see in the following table, J.P. Morgan's forecasts for 11         equity returns are much lower than Westar's forecasts, and its forecasts for returns 12         on cash or sho1i-terrn fixed income securities are higher than Westar's forecast.
Comparison of Forecasted Returns I                ,
I i J.P. Morgan Westar*        Forecasted** ;
                   /Large Capitalization Equities             11.40%1          7.60%[
ISmall Capitalization Equities             10.27%!
I 8.81%i
                   \International Equities                     7.65%t           8.10%j
                   !Core Bonds (Corporates)                    4.89%!          4.95%!
[High Yield Bonds                           7.63%1          6.40%1 iReal Estate
* 7.73%/           8.17%:
iCash & Equivalents                         0.98%i          2.00%i I
i*As filed in the testimony of Susan North (SMN-1)
                   !                                                  1 I
                   ;**Asset class forecasts of 10 to 15 year annual returns; J Long-term Capital Market Return Assumptions, !
:2015 Edition (U.S.); J.P. Morgan Asset Management.
13 14 Q       Why do you believe it is reasonable to use the forecasts from J.P. Morgan to 68

Direct Testimony of Adam H. Gatewood                                              DocketNo. 15-WSEE-115-RTS 1          estimate the annual accrual?
2 A        This infonnation was prepared by JPMAM who manages investments globally.
3          As such, these forecasts represent the expectations of an important market 4          participant that directly manages $1. 7 trillion. As an asset manager, JPMAM 5          does not have an incentive to skew the forecasts, as doing so could harm its ability 6          to effectively manage client money.                  In its 2015 publication, it provides the 7          following discussion of how investors can make use of these forecasts. 24 Our 8          evaluation of the decommissioning trust and capital costs fall within JPMAM 9          intended use.
How do investors use the LTCMRAs?
The Long-Term Capital Market Return Assumptions are used widely by investment teams throughout J.P. Morgan Asset Management as well as by institutional investors-including pension plans, insurance companies, endowments and foundations-to ensure that investment policies and strategic asset allocations are developed based on a comprehensive and consistent set of "real world" views.
In addition the LTCMRAs allow the resulting investment characteristics and return profiles to be tested and analysed, facilitating a more effective communication and underwriting of the implied risk and return profile.
When used, as is most often the case, to review an existing strategic asset allocation, the LTCMRAs can help investors to better assess and quantify the trade-offs available to them across multiple dimensions. These trade-offs include: the relative risk premia between more and less volatile assets; the risk premia associated with investing outside of their own domestic asset classes; which opportunities exist to increase portfolio diversification: and which nominal or real return target is achievable with a given level of portfolio volatility and vice versa.
10 11 Q        Precisely what changes do you propose malting to Exhibit SMN-1?
12 A        My recommendation is to change the expected returns on the various asset classes 24 Long-term Capital Market Return Assumptions: 2015 Estimates & Thinking Behind the Numbers; J.P.
Morgan Asset Management; p. 7; https://am.jpmorgan.com/lu/institutional/ltcmra 69

Direct Testimony of Adam H. Gatewood                                       DocketNo. 15-WSEE-115-RTS 1           from those proposed by Westar to the expected returns presented in the JPMAM 2           study shown in the previous table. The market balance of Westar's trust fund 3           needs to recognize income taxes that must be paid on the net amount of the trust 4           fund's umealized gains as those taxes will have to be paid sometime in the future.
5           Recognizing the tax liability reduces the balance of the trust fund. 25 6 Q         What is the effect of those changes to the trust balance and expected returns?
7 A         Changing the returns increases the annual accrual from $3,150,070 proposed by 8           Westar to $5,772,700.
9 Q         How has the trust performed?
10 A         Westar's Decommissioning Trust, accounting for the annual contributions, the 11           accumulated tax liability, and the market value at December 31, 2014, 12           experienced an annual return of 5.40% for the period of 1985 through 2014. My 13           calculations are shown in Schedule AHG-10. Westar projected returns shown in 14           Exhibit SMN-1 are substantially higher than its experience since 1985.
15 Q         Does this conclude your testimony?
16 A         Yes.
25 In response to KCC DR #334, Westar reported that the December 31, 2014, a fair value $185,015,632 that includes net unrealized gains of$20,929,450. At a 20% tax rate, the trust fund has a tax liability of
   $4,185,890.
70

Schedule AHG-1 15-WSEE-115-RTS Yield on Moody's Baa Utility Bonds January 1919 -May 2015

Schedule AHG-1 15-WSEE-115-RTS
),foody's Public Utility Bend D:tt:t Moody's Public L'tllity Bend Dau    Moody's Public: Utility Borid D:i.1:1 '.\foody's Public t:tility Bond D::e:i.  ).foody's Public Utility Bond Om    Moody's Public: l:tlity Bond Dau    Moody's P.Jblic Utility Bond Data B~            A                    Bu             A                     Bu             A                        Bu             A                        Bu            A                    Bu            A                      Bu           A
     !1111-19     6,89         6.35     J:m-24        6.i3         6.02     J:m-29        :5.4S          5.05       Jm-34           8.S6         6.56        J:!ll-39     4.66         3.6S   J:m-44          3.54        2.99      Jan-49       3.42         2.99 Feb-19       6.91         6.39    Feb-24         6.6'         6.00    Feb-29         5.51           5.10       Feb-34         7.SS         5.73        Feb-39        4.59         3.59   Feb-44          3.53        2.99     Feb-49        3.40         ~99
   ).far-l9       6.91         6.41   ).far-24        6.60         S.97   ?i.far-29       5.62           5.14      )..fu.J4        7.5S          5.66      )..far-39      4.53         3.54                   3.52        2.97   1-br-49         3.36         2.97 Apr-19       6.SS         6.18    Apr-24         6.55         S.94    Apr*29          5.69          5.14       Apr-34          7.18         5.44       Apr-39        4.62         3.55                   3.53        199      Apr-49        3.31         2.96
   )..uy-19       6.&4         6.27   ),fay-24         6.42        5.91   ).1'.:iy-29      5.66          5.14     11ay-34           7.17         S.39      M:i.y-J9       4.50         3.50                   3.53        299     May-49         330          2.95 JIJ!l-19     6.S4         6.19     Jun-24         6.32         S.19    Jun-29         5.72          5.23       Jun-3:4         7.20         5.40        JU11-39      4.41         3.47                    3.53       299       Jun-49       3.28         2.94 Jcl-19     6.79         6.16      Jul-24       6.23         5.6S      Jul-29        S.79          5,24        Jul-34         7.36         5.29         JuJ-39      4.39         3.43                   3.51        2.96       Jul-49      3.25         2.90 Aug-19        6.80         6.26    Aug-24         6.24         5.70   Aug*29          5.S9           5.30      Aui;-34          7.68         5.43      Aug-39         4.39         3.41  Au:;-44          3.51        2.94    Aug-49         3.25         2.S6 Scp-19       6.94         6.4-!   Sep-24         6.24         S.71    Sep-29          5.92          5.38       Sep-34          7.62         5.56       Sep-39        4.64         3.71   Sep-44          3.51        293      Sep-49        3.22         2.SS Oct-19       7.0!         6.41     Oet-24        6.21         5.65     Oct-29        5.91           5.34       Oct-34          7.38         5.40        Oet-39       4.4S         3.58   Oa-44           3.51        2.94      Oc:t-49      3.19         2.83 Nov-19        7.08         6.67    Nov<!.4        6.24         5.62    Nov-29         6.00           5.29      Nov-34           7.21         5.3S      ::S-ov-39      4.38         3.41  Nov-44           3.53        2.96    Xo.......49    3.17         2.Sl Dcc-19        7.25         6.79    Dee-24         6.t3         5.63    Dee-29         S.96           5.23      Dec-34           7.03         5.36       Dec-39        4.36         3.38  Do,-44           3.54        2.97    Dec:-49        3.16         2.7S J::n-20      7.30         6.S5     fan-25        6.12         5.61     fan-30        5.92           5.26       J:i.n-35       6.60          5.18        fan-40       4.30         3.34   JMl-45          3.50        2.99      J:tn-50      3.IS         2.76 Fcl>-20      7.4S         7.03    Feb-25         6.08         :5.52   Feb-30         S.93           5.29      Feb-JS          6.ZO          4.96       Fcb-40        4.23         3.35   Fcl>-<S         J.4S        2.98     Feb-SO        3.17         2.76
   ).far-20       7.59         7.()4  ).far-25        6.02         5.53   M:u-30          5.SO           S.!S      M:u~J:5          5.99         4.&ll.    )..br-40       4.14         3.34  M2r-45           3.4S        2.97    M.:ir-50       3.16         2.76 Apr-20        7.S&         7.36    Apr-25         5.99         5.52    Apr-30         S.71           5.15      Apr-35          S.94          4.79       Apr-40        4.06         325    Apr.45          3.49        2.95     Apr-SO        3.15         2.17
:,.uy-20       8.03         7.72   ).fay-25        5.85         5.25   ).fay-30        5.16           S.04     ).fay-35          5.51        4.61      M.ly-40         4.10         3.30  ~fay-45          3.47        l92    ).fay-50        3.lS         2.79 Jun-20 Jul-20 7.99 S.21 7.73 7.82 Jun-25 fo.1-25 S.S2 5.S3 S.25 5.37 Jun-30 Jul-30        '*"
s.n S.O!
4.99 Jun-JS Jul-35 5.41 5.22 4.53 4.42 fon-40 Jul-40 4.15 3.99 3.34 3.23 Jun-45 Jul-15 3.43 3.40 2.S7 2.S3 Jur,-50 Ju!-50 3.15 3.lS 1.i9 2.79 Aus-20         S.21         7.96   Aui;-25         5.S7         5.42   Au.i;-30        5.70           4.95      Aug-35          5.22         4.44       Auz;-40        3.98         3.21  Au&,-45          3,37        2.SO    Au:;-50        3.18         2.76 Sep-20       S.29         7.S3    Sep-25         s.ss         5.40    Sep-30         S.63           4.S6      Sep-JS          5.25         4.43        Sep-40        3.94         3.13  Sep-45           3.34        279      Sep-50        3.19         2.SO Oet-20       S.27         7.75    Oct-25         5.S3         5.39    Oct-30         5.82           4.SS       Oct-JS          5.24        4.40        Oc:t-40       3.92         3.15   Oct-45          3.29        2.79     Oct-SO        3.20         2.83 Nov-20        8.2$         7.73   Nov-25          5.Sl         5.43   Xov-3:0         6.15           4.96      Nov*].5          5.12        4.35       !'.ov-40       3.SS         3.11  Xov-45           3.22        2.77    ::,,;o.,..50   3.21         2.86 Ixc-20        S.36         7.96    Dec-25         s.ss         5.36    Dec-30         6.56           5.ll      Dec-35           5.07        4.19       D~-40          3.36         3.10  Dec-45           3.15        2.75    Dec-SO         3.21         2.S6 J:tn-21      8.51         7.74     J:i.n-26      5.Sl         5.29     fan-31        6.36           5.01       J:n-36         4.SS          4.21        J:n-41       3.S7         3.15   Jm,-4{;         3.07        2.69      Jm-51        3.21         2.S3 Feb-21       8.50         1.65    Feb-26         :5.76        5.21    Feb-31         6.:37          5.01      Feb-36          4.SO         4.17        Feb-41        3.90         3.20   Feb-16          3.00        2.67     feb-51        3.21         2S4 t,.far-21     S.51         7.61    Mar-26         S.80         5.23   Mar-31          6.IS           4.93      hfu-36          4.78          4.17      Mat-41         3.90         3.16  MM-46            2.96        266     MM-51          3.23         2.95 Apr-21       S.52         7.61    Apr-26         5.75         5.20    Apr-31         6.19           4,86       Apr-36         4.77          4.17       Apr-41        3.S6         3.t4   Apr-46          2.93        2.65     Apr*SI        3.31         3.09 May-21         S.54         7.66   M:.y-26         5.67         5.15   >,.fay-31       6.36           4.$4     Mly-36           4.76         4.14      M:ty-41         3.SS         3.0S  M:;-*46          3.02        2.69   May-SJ          JJS          3.13 Jun-21       S.62         7,6'    Jun-26         5.61         5.ll    Jun-31         6.60           ,(Si       Jun-36         4.72         4.12        Jun-fl        3.S3         3.03   Jun-46          3,04        2.70      Jun-51       3.45         3.21 Jul-21      S.'4         7.72      Jul-26       5.61         5.13      Jcl-31       6.47           4.83        Jul-36        4.62          4.07        Jcl-41       3.82         3.00    Jul-46         3.03        2.69       Jul-SJ      3.49         3.26 Aus-21         S.66         7.67   Aui;-26         S.62         5.15   Au;;-31         6.60           4.Sl      Aug-36          4.59          4.06      Au;-41         :uo          2.9S  Aui;:-46         3.02        2.il    Aui;:-51       3.4:l        3.19 Scp-21       8.30         732     Sep-26         :5.62        5.17    Sep-31         7.04           5.05       Sep-36         4.54         4.05        Sep-41        3.30         3.00  Sep-46           3.06        2.75     Sep-51        3.4-!        3.14 Oet-21       8.40         7.04    Oct*:!6        5.61         5.IS    Oct-31         8.01           5.54       Oc:t-36        4.53          4.04       Oct-41        3.82         3.00   Oct-46          3.06        2.76     Oet-51        3.49         3.17 Xov-21         7.92         6.55   :,.l'ov-26      5.SS         S.IS   Nov-31          7.SO           5.51      Nov-36          4.5]         3.95       Nov-41         3.S2         2.9S  Nov-46           3:.07       2.76   Ncw-51          3.49         3.24 Dec-21         7.68         6.:32   Dee-26         S.54         5.12   Dcc-31          S.S!           G.24      Dee-36          4.53         3.S3       De,:-41        3.35         3.06  Dcc-46           3.07        2..76   Dec-51         3.53         3.29 J:tn-22      7.'3         6.41    Jan-27         5.51         5.10    Jzn..32        8.18           6.17       J.:n-37        4.50         3.S2         hn-42        3.S3         3.09   fan-47          3.05        2.72      J:n-52       3.57         3.29 Feb-22        7.74         6.32    Feb-27         5.54         5.13    Feb-32         S.33           6.41      Feb-37          4.55         3.S9        Feb-42        3.Sl         3,09   Feb-47          3.03        2:n      Feb-52        3.55         3.23
   }.far-22       1.55         6.22   MM-27           5.54         5.13   M:ir-32         S.31           6.06      }.-fur-37       4.76          4.00      :),far-42      3.S4         3.12  MM-47            3.04        2.72    ).-fa.r-52     3.55         3.25
    ~-22
   "'>'22 7.29 6.86 6.06 5.93 Apr-27 M2y-27 Jun-27 5.49 5.50         '*"'
Apr-32 1Uy-32 9.56 10.21 6.SJ 7.36 Apr-37
                                                                                                                  }.{ay-37 4.98 5.02 4.07 4.00 Apr-42
                                                                                                                                                          ~Uy-42 3.79 3.76 3.09 3.10 Apr-47 M>)'-47 3.IJ.I 3.03 2.70 2.70 Apr-52 l\fay-52 3.54 3.54 3.23 3.22 Jun-22       6.92         5.91                   5.51         5.05    Jun-32        10.70           7.57       fan.Ji         5.17         3.99        Joo-42        3.73         3.12   fon-47          3.04        2.71      Jun-52       3.55         3.22 Jul-22      6.83         5.&9      Jul-27       5.48         s.os     Jul-32       10.11           7.28        Jul-37        :5.0S        3.94         Jul-42       3.68         3.10    Jul-47         3.03        273       Jul-52       3.53         3.22 Aus:-22        6.SS         S.S6   Auc-27          5.43         5.02   Aug.-32         7.92           G.35      Aus-37          S.04         H9         Au.;-42        3.67         3.10  Aug-47           3.02        2.73    Aus-S2         3.50         3.24 Sep-22       6.77         5.69    Sep-27         5.41         4.9S    Sep-,32        7.4S           5.91       Sep-37         5.25         3.96        Sep-42        3.66         3.08  Sep-47           3.06        2.SO     Sep-52        3.50         3.24 Oet-22       6.51         5.S3    Oct-27         5.39         4.95    Oet-32         i.Si           5.SJ       Oct-37         5.53         4.09        Oc:t-42       3.6:S        3.08   Oct-47          3.13        2.SS     Oct-52        3.50         3.26 Xov-22         656          5.S7   Nov-27          5JS          4.92   Nov-32          S.32           5.SS     );ov-37          5.59         4.08       1':ov-42       3.67         3.07  Nov-4i           3.IS        2.93    Nov--52        3.4i         3.24 De:-22         6.56         S.9S    Dec:*27        S.32         4.SS    Dec-31         S.41           5.SS      ~-37            S.60         4.03       Dec-12         3.6S         3.06  Dec-47           3.25        3.05    Dec-S2         3.50         3.22 Jun-23       6.59         5.&5    J:m-2S         S.24         4.S5    J:in-33        S.S6           5.39       Jm-38          5.59         4.01        J:m-13        3.65         J.OS   Jan-48          3.30        3.05     fan-53        3.51         3.25 Feb-23       6.6-0        5.33    Feb-2S         5.20         4.85    Feb-33         7.58           5.11       Feb-3S         5.79         4.03        Feb-4-3       3.61         3.02   Fcb-48          3.3i        3.05     Feb-53        3.53         3.30 r-.far-23     6.73         6.06   M:u'*2S         5.JS         4.82   ?i.far-33       7.SS           6.34      ).hr-JS         5.80         3.99       Ma:r-43        3.5S         3.01  ).llt-4S         3.29        3.02    Mu-53          3.56         3.36 Apr-23        6.7S         6.04    Apr-2S         :5.lS        4.S2    Ap:-33         7.1S           6.S9      Apr-JS          5.S2         4.0S        Apr-43        l.60         3.00  Apr-4S           3.28        2.97     Apr-53        3.62         3.47 May-23 Jun-23 Jul-23 6.78 6.80 6.79 6.00 6.06 6.02 Jun-28 Jul-28 5.23 5.38 5.38 4.$7 4.99 S.04 May-33 Jun-33 Jul-33 7.17 7.20 i.36 6.$0 6.11 5.91
                                                                                                                  ?..fay-3S Jun-JS Ju!-3S 5.32 5.33 5.01 3.95 3.95 3.S6 1fay-43 Jun-n Jul-43 3.60 3.60 3.55 3.00 2.98 2.96 M.ay-4S fon-4S fol-48 3.27 3.29 3.34 2.94 2.94 2.99
:-.tay-53 Jun-53 Ju!-53 3.76 3.SO 3.83 3.63 3.71 3.66 Aug-23         6.71         S.77   Au;;-2S         5.43         5.0S   Aug:-33         7.6&           5.9S      Aug-JS          4.93         3.S4       Aug-43         3.55         2.96  Aug-48           3.40        3.03    Aug-53         3.SS         3.61 Scp-23       6.Sl         S.95    Sep-2S         SAS          5.05    Sep-33         7.62           6.36       Sep-38         5.05         3.88        Sep-43        3.55         :.96   S,p--48         3.42        3.05     Sep-53        3.93         3.62 Oct-23       6.19         5.9S    Oct-ZS         5.43         4.99    Oct-33         7.3S           6.36       Oct-JS         4.90         3.79        Oc:t-43       3.53         2.97   Oa-4S           3.44        3.03     Oct-53        3.S6         3.49 Nov-23         6.78         6.00   :-:ov-2S        5.3S         4.9S   Nov-33          7.21           7.06      ~ov-38          4.71         3.73       Nov-43         3.55         2.9S  Nov-4S           3.4S        3.07    Nov-53         3.7S         3.40 Dec-23         6.SO         6.05   Dce-2S          5.32         5.05   Dec-33          7.03           7.22      Dec-38          4.77         3.74       Dee-43         3.55         2.99  Doc-4S           3.47        3.06    Dei:-53        3.72         3.3S

Schedule AHG-1 15-WSEE-115-RTS
)..foody's Public Uiiity BoodD:ita  )..foedy's Public Crility J3.ornl Dab         1foody's P..>blic Utility Bond Dm     Moody's Public Utility Bond D:tt:'! Moody's. Public 'wtility Bond Dm     Moody's Public 'Utility Bond Dau    Mcod}'s Public Uo1ity Bend D:it:i B~           A                      B~                A                           B,u           A                    Bu            A                      Bu             A                    B:u            A                    B,u           A J:m-54       3,72        3.32       J:m-59       4.71             4.52          fao-64         4.74         4,49     Jan-69       7.42         7.04      Jan-74         8.58         S.36     fa,-i-i9     10.29         9.90     fan-S4       14.05       13.39 FC0-54        3.69        3.13      Feb-59        4.77             4.50          F,b-6-1        4,74         4.50     Fob-69       7.39         7.13     Feb-74          S.6S         S.4'2   Feb-79        10.27         9.S4     Feb-S4       14.05       13.41 Mar-54          3.58        3.16     M~-59          4.59             4.47         r-W-64          4.73         4.51   tfar..69       7.61         7.'27   1iar-74          S.Sl         S.46   r,1:i.r.79     10.53        10.04    Mar-S4        14.56       13.87 Apr-S4        3.53        3.16      ,4..pr-59     4.6S             4.56          Apr-64         4.75         4.52     Apr-69       7.6S         7.30      Apr-74         9.04         ,.11    Apr-i9        10.56        IO.IO     Apr*S4       14.82       14.16 11.ty-54        3.51        3.14    i'>fay-59       4.S7             4.77        Mzy-64           4.73         4.53   M'ay-69        7.56         7.16    M:i.y-74         9.23         9.00   )..fay-79      10.70        !0.30    ~b.y-S4       15..2S      14.90 Jun-54       3.50        3.16       Jun-59       4.97             4.66          Juo-64         4.74         4.55     Jun-69       7.77         7.41      Jun-74         9.48         9.32     Jun-79       10. .56      10.14     l~-S4        JS.SO       15.09 Jul-54      3.48        3.14        Jul-59      5.03             4.SS            Jul-64       4.75         4.54      Jul-69      7.92         7.52       Jul-74        9.72         9.66      Jul-79      10.4S         9.9S      Jul-S4      15.50       14.S2 Aug-54         3.47        3.13     Aug-59         5.04             4.89         Allg.M          *US          4.54    Aus-69        7.S2         7.,14    Au:;_-74       10.14        10.03   Aus-79         10. .50      10.14    Aug-S4        \4.79       14.43 Sep-54        3.44        3.12      Sep-59        S.!7             5.03          Sep-54         4.T.i        4.53     S<p-69       S.11         7.63      Sep-74        10.59        10.45    Sep-79        10.7S        10.36     Sep-S4       14.51       14.17 Oct-54        3.41        3.12       Oa-59        5,29             4.96          0\."t-64       4.72         4.51     Oct-69       S.47         S.02      Oct-74        11.03        I0.7S     Oct-79       !I.S9        11.40     Oct*S4       14,17       13.SO
::,..'ov-54    3.39        :u1      ~ov-59         5.20             4.90         Nov-64          4.72         4.53    Xov-69        S.53         8.00     N'ov-74        Jl.38        I0.46   Nov-79         l2.4S        ll.S9    Nov-84        13.72       13.23 Dec-54         3.38        3.!I     Dec-59         5.13             4.96         Doo-64          4.i2         4.54    Dee-69        S.S9         S.59     Dec-74         11.40        10.27    D.x-79        12,51        11.79    Doo-S4        13.46       13.11 J::o-55      3.37        3.13       Jan-60       5.20             5.02          Jan-65         4.71         453      Jan-70       9.00         8.69      J:i.n-75      Jl.57        10.37     J:ui-SO      12.92        12.27     hn-SS        13.36       12.99
                                                                        ,.co Fcb-55 M'.u-55 3.3S 3.3S 3.14 3.15 Feb-60
                                        ?.hr--60 5.13 5.11             4.91 Feb-65 r...ra.-os 4.69 4.6S 4.51 4.50 Feb-70 M:u-70        '*"
S.Sl S.Sl S..31 Feb-75
                                                                                                                                                              ~far-75
                                                                                                                                                                             !l.32 10.94 9,99 9.i:!
Feb-SO
                                                                                                                                                                                                  )l.iaf.SO 14.42 1.5.26 13.55 14.65 Feb-as Mar-SS 13.44 14.19 13.0S 13.87 Apr-55        3.40        3.I5     Apr-60         4.96             4.79         Apr-65          4.69         4.49     Apr-70       S.94         8.31     Apr-75         10.S6        10.06    Apr-SO        14.35        l3.S7     Apr SS 0        14.11       13.61 M:iy-55         3.40        3.!9    May-60          5.08             4.86        t.fay-65         4.71         4.50   May-70         9.10         S.67    :\by-75         !0.95        10.23   May--30        !2.93        i2.53   :\Uy-SS        13.62       13.12 Jun-55        3.41        3.21       Jun-60       5.05             4.84          Jun-65         4.77         4.52     Jun-70       9.52         9.04      Jun-75        JO.S5        JO.IO    Jun-SO        12.63        12.21     Jun*SS       12,66       l2..l3 Jul-55       3.43        3.21        Jul-60      S.03             4.79           Ju!-65        4.7S         4.54      Jul-70      9.4S         9.06       Jul-75       JO.SO        JO.OJ      Ju1-S0      12.75        11.26      Ju!-SS      12.70       12.07 Aug-55          3.46        3.24    Aui;-60         4.81             4.64         Aug-65          4.79         4.5S   Aus-iO         934          s.ss    Aug-75          J0.S7        10.12   Aug-SO         13.50        1'2.96   Aug-SS       12.73        12.13 Sep-55        3.48        3.27     Sq,-60         4.71             4.57         S<p-65          4.82         4.63     Scp-70       932          S.S2     Sep-75         !O.S9        10.19    Sop-SO        14.07        13.43    Sep-S5        12.il       12.13 Oct-55        3.47        3.30      Oct-60        4.S2             4.61          Oct-65         4.SS         4,66     Oct-70       9.27         8.76      Ckt-75        10.S9        10.16    Oct-SO        14.43        13.SS     Oct-SS       !2.52       J:tO!
   ~ov-55          3.48        3.32     ~ov,..60       4.30             4.61         Nov-65          4.S9         4.71   :Sov-70        9.29         S.79     Nov-75         10.n         10.04   Noy-SO         14.79        14.12    NOY--&5       12.04       11.49 De,-,S         3.50        3.35     Doo-60         4.iS             4.65         D<<-65           4,97         4.S3    Dec-70        9.04         S.48     Dec-75         10.79        JO.I!   D.x-SO         15.19        14.63    Dte-85       ll.4S        10.97 Jm-56        3.50        3.31       fan"6I       4.79             4.64          Jon-66         4.99         4.86     Jan-71       S.76         8.15      Jan-76        10.55         9.90     fa.,_S.I     15.30        14.26     J:m-S6      11.24        10.79 Feb.56        3.50        3.29     Feb-61         4.76             4 . .59
* Feb-66         5.02         4.9:?   Fcb-71        S.SS         7.89      Feb-76        J0.31         9.71    Feb-SI        IS.S6        14.91    Feb-S6        10.74       10.26 Mu-56          3.51        3.29     :-.W-61        4.72             4.4S         M;u-66          5.19         5.14    Mlr*7l        S.63         8.05     }.far-71.i     10.17         9.67   Mar-SI         IS.SJ        15.!4    Mu-S6          9.91        9.48 Apr-56        3.59        3.40      Apr-6!        4.74             4.4S          Apr-66         5.39         5.25     Apr-71       S.5S         S.07      Apr-76         9.95         9.53    Apr-SI        16.14        15.4S     Apr-S6        9.63        9.14 i'>fay-56       3.62        3.4S    1hy-6l          4.77             4.52        :\Uy-66          5.44         5.1S   :\-fo.y-71     S.6S         SJ4     May-76           9.9!         9.55   ).by-SJ        16.66        16.25   :-.&y-S6       10.02        9.59 Jun-56       3.65        3.49       J<m-<il      4.7S             4.S7          Jun-66         5.52         5.40     Jun-71       8.79         S.45      Jun-76        10.01         9.54     Jun-81       16.30        15.74     Jun-S6       10.03        9.62 Jul-56       3.70        3.55        Ju!-61      4.S4             4.65           Jul-66        5.61         5.45      Jul-71      8.78         8.45       Ju!-76        9.SS         9.37      Jul-SI      16.98        16..21     JuJ.g6       9.69        9.37 Aus-56          3.S4        3.63     Au:;-61        4.90             4.73         Aus-66          5.79         5.SS. Aui;-il       a.ao         8.40     Aus;-76         9.67         9,13   Aus-SI         17.19        16.5S    Aug-S6         9.70        9.29 Sep-56 Oc:-56 4.02 4.15 3.72 3.79 S<p-61 Oct-61 4.91 4.92 4.73 4.71 S<p-66 Oct-66 6.06 6.07
                                                                                                                  .5.Sl 5.74 Sep-7!
Oct-71 S.59 8.43 8.18 S.10 Sep-76 Oct-76 9.47 9.41         '*'&deg; 8.79 Sc;>-St Oct-SI 17.76 17.71 17.16 17.21 Scp-S6 Oct-S6 9.96 9.52 9.52 9.52 Nov-56         4.15        3.S2     Nov,.61        4.S9             4.6S         Nov-66          6.06         5.63    Nov-71        S.47         7.96     Kov-76          9,34         S.76   Nov-SI         16.49        16.20    Nov-S6         9.69        9.28 Dec-56         4.IS        3.91     Dec-61         4.SS             4.65         Dee-66          6.09         5.67    Dcc-71        8.44         7.90     De.::-76        9.21         S.62   Dec-Sl         17.02        16.29    D~-S6          9.49        9.12 fan-57        4.26        3.96       Jan-62       4.86             4.65          fan-67         5.S3         l.46     Ja.....72    S.37         7.79      Jan-77         9.17         S.61     Jan-S2       17.SJ        16.83     Jan-S7        9.2i        S.95 Fc:>-57       4.26        4.05      Fcb-62        4.86             4.66         Feb-67          5.63         5.28    Feb-72        S.32         7.73      Feb-77         9.19         S.65    Fcb--&2       17.33        16.S4     Fd>-S.7       9.24        9.00
    )..iu-57       4.25        4.05     Milr-62        4.85             4.64         M:u-67          5.69         5.44    )..{:ir.72    8.26         7.77     :\fu-77         9.20         S.70   Mz-82          Ii.16        16.50    Mar-Si         9.19        S.93 Apr-57         4.14        4.01     Apr-62         4.SI             4.59          Apr-67         5.74         5.42    Aj<-72        S.30         7.S2      Apr-77         9.17         S.71    Apr-S2        17.00        16.31    ,\pr-S7        9.85        9.3S 1Uy-57          4.28        4.01    :-.Uy-62        4.74             4.51        :\fa.y-67        5.93         5.66   !.ily-71       8.30         7.S4    }.-by-77         9.13         5.7:   May-S2         !6.6S        16.04   M;ty-S7        10.40        9.91 Jun-57        4.33        4.09       Jun-62       4.6&             4.4S          Jun-67         6.14         l.S4     Jun-72       8.31         7.77      Jun-77         9.02         S.5S     Jun-32       17.21        16.42     Jun-S7       10.46       10.02 Jul-57      4.41        4.20        Jul-62      4.6S             4.50           Ju!-67        6.23         5.94      Ju!-72      8.36         7.82       Jul-77        S.97         S.SI      Jul-S2      17-09        16.42      Jul-S7      10.62       IO.IS Aug-Si          4.19        4.37     Aug-62         4.72             4.53         Aug-67          6.29         5.96   Aug-72         8.22         7.64     Au:;-77         S.91         S.49   Aug-82         16.37        15.83    Au:;-S7       10.90       10.45 Sep-Si        4.66        4.55     Scp-62         4.74             4.51          S<p-67         6.32         6.05     S.,,-72      8.01         7.61      Sq,-77         s.ss         S.46    Se;,-82       15,58        15.40    Sep-S7        11.58       ll.22 Oct-57        4.73        4.61      Oct-62        4.71             4.49          Oct-67         6.42         6.IS     Oct-7.?      7.94         7.66      Oct-77         9.01         S.61    Oct-S2        15.10        14.79     Oct-S7       ll.29       J0.75 Nov-57          4.S2        4.62    ~ov-62          4.65             4.45         Nov-67          6.63         6.4&    Nov-72        7.86         7.60     Nov-77          9.05         S.64   Xov-32         14.Sl        14.46    N'ov-87       ll.1S       lo.61 Dec-Si         4.Sl        4.36     Dee-62         4.66             4.44         Dee-67          6.9I         6.67    Dec-72        7.7S         7.4S     Dec-77          9.0S         S.64   Det:-S2        14.69        14.43    Dec-S7        11.09       1054 131'1-Si                                          4,65                           J:n-6S                                                                                               S.92                  l4.S6                  fan-SS       JO.SO Feb-58 MU-SS 4.60 4.23 4.15 3.93 3.%
4.13 Jan-63 Fd>-63 Mu-63 4.65 4.66 4.39 4.37 4.37 Fcb-6&
                                                                                     )..fat-6S 6.76 6.6S 6.75 6.37 6.41 J:m-73 Fro-73 Mar-73 7.77 7.SS 7.95 7.52 7.62 7.66 fan-78 Fcb-78 M::--7S 9.27 9.29 9.37 S.97 8.9S Jan-SJ Feb-SJ
                                                                                                                                                                                                  ~fat-S3 14.61 14.33 14.24 14.26 13.94 Feb-SS Mar-SS 10.23 10.43 9.96 9.70 9.$4 Apr-58        4.15        3.95      Apr-63        4.67             4.37         Apr-68          6.94         6.SS     A;ir-73      7.%          7.63      Apr-7S         9.54         9.09    Apr-SJ        14.07        13.61     Apr-SS       11.0S       10.40
   ~*-58           4.23        -tot    May-63          4.67             4.37        May-6S           6.99         6.62   :\1ay-73       7.91         7,63    .1,.13y-7S       9.70         9.2'2  h-tay-SJ       14.05        13.SO   May-SS         U.2S        10.72 Jir.-SS       4.20        3.99       Ju.n-63      4.67             4.37          Jun-6S         7.01         6.62     Jun*73       7.94         7.71      Jun-7S         9.7S         9.40     Jun-83       14.16        13.64     Jun-SS       11.00       10.53 Jul-SS       4.19        4.04        Jul-63      4.67             4.39           Jul-68        6.9:?        6.53      Ju!-73      8.10         7.S2       Jul-7S        9.73         9.5[      Jul-S3      14.01        13.58      Ju1-SS      11.22       10.75 Aus;-5S         4.44        4.29     Al.lg-63       4.66             4.3S         Au;-6S          9.72         6.27    Aus-73        S.47         8.04     Aus-73          9.53         9.32   Au:;-83        14.21        13.57    Aug-SS        11.39       l0.S9 Sep-5S        4.69        4.55      S<p-63        4,69             4.40          Sep-6S         6.67         6.27     Scp-73       8.61         3.04      Sep-7S         9.47         9.28    Sep--83       14.10        13.42     Sep..SS      !0.92       10.41 Oct-SS        4.74        4.56       Oct-63       J..66            4.41          Oct-6S         6.74         6.40     Oct-73       S.44         8.02      Oct-ii         9.69         9.46     Oct-83       13.9.5       13.25     Oct-SS       JO.JI       10.0!
:-:ov-ss Nov-Sl!.
Dec-5S 4.67 4.65 4.47 4.49 Nov-63 Dee-63 4.6S 4.73 4,42 4.46 Nov-6S Dee-6S 7.01 7.23 6.59 6.S7 Nov-73 Dec-73 S.44 8.51 8.15 S.24 Nov-78 Dcc-7S          '*"
to.OS 9.6S 9.70
                                                                                                                                                                                                  !',"OY-83 De.::-S3 14.12 14.23 l3.3S 13.52    Dcc-SS 10.35 10.*14 9.90 10.06

Schedule AHG-1 15-WSEE-115-RTS Moody's Public Utility Bend D~     Moody's Public Utility Bond Ir..t1  Moody's Public Utility Bond Da!3. M:oodys M!ic Utility Sood Dau     Moody's Public: Utility Bond D:.t:i  Mood)ls Pub!ic U':ility Bond Dat:l.
Ba:?.        A                    Bu            A                     Bu            A                   Bn            A                      BM            A                    Bu             A j:iziA!.9   JO.JS       JO.OS     Ja.'l-94     7.66          733       J:m.-99     7.30         6.97      fan.04    6.47          6.16     J:m-09        7.90          6.39    fan-14         5.09         4.63 Feb-89       IOJS        IO.Oi     F~b-94       7.76          7.47     Feb-99       7Al          7.09     Fcb-04     6.23          6.1$    Feb-09         7.74          6.30    Fcl>-14        5.01         4.53
  ).{u-S9       JO.SO       !0.23   '.\br-94       !Ul           7.SS    M.,,-99       7.55         7.26    Y..iT-04    6. ~3         5.97   Mar-09          S.00          6.42   M.u-14          ,.oo         4.51 Apr..S9      10.49       tO.IS     Apr-94       S.47          8.12     Apr-99       7.51         7.22     Apr-04     6.46          6.3S    Apr-09         8.03          6.4S    Apr-14         4.SS         4.41
  '.\fay-S9      10.29       9.99    May-94         8.61         S.33    Mav-99        7.74         7.47   M,y-04       6.75          6.62   :-.tay-09        7.76          6.49  M:1y*14         4.69         4.26 Jun-&9        9.80       9.64     Jun-94        8.64         8.31      J~-99       MJ           7.74      Ju.n-04   6.34          6.46     Jun-09         7.30         6.19    Jun-14         4.73         4.29 Jul*S9       9.64       9.50      Jul-94       8.80         S.47       Jul-99     7.97         7.71       fol.Q4   6.67          6.27      Jul-09        6.$7         5.97     Jul-14        4&#xa3;6          4.23 Aus;-S9         9.64       9.52    Au;;-94        S.74         S.41    Auz:-99       S.16         7.91    Aui;-04     GAS           6.14   Aug-09          6.35          S.7l   AUg*l4          4.6$         4.13 Sep-S9        9.70       9.SS     Stp-94       S.9S          S.64     Sep-99       8.19         7.93     Sep-04     6.27          5.98    Sep-09         6.12          5.53    Sep.14         4.79         4..24 9.SJ.                                                                  S.06 Oct-89
::-,'ov-S9 9.64 9.64       9.51 Oct-94
                                     ~ov-94 9.::4 9.3$
S.S6 S.9S Ck<*99 Nov-99 S.32 s.?2         7.94 Oa-04 Nov-04 6.:7 6.16 5.94 5.96 Oct-09 Nov-09 6.22 6.16          ,....
5.64    Oa-14
:-l'ov-t4 4.67 4.75 4.06 4.09 Oec-S9         9.60       9.44    Dec-94        9.16          S.76    De{:*99       S.2S         S.14     Dei.:-04   6.!0          5.92    D<c-09         6.27          5.8.3  0>!{:*14        4.70         3.95 J:m-90        9.74       9.56     Jan-95       9.15          S.73      Jm-00       S.40         S.35      Jan-OS    5.95          5.7&     J::n*lO       6.13          5:n     J:m-15         4.39         3.58 Feb-90         9.%        9.76     Feb-95       8.93          S.S2     Fcb-0-0      S.33         S..2S    Feb-05     5.76          5.61    Feb-IO         6.27          5.8S    Feb-IS         4.44         3.67 10.06                                                                               s..zs Mar-90 Apr-90       10.13 9.8S 9.92 M3r-95 Apr-95 S.7S S.67 S.37 8.27
                                                                         ~hr-00 Apr-00 S.40 8.40         S.29
                                                                                                            '.\far-05 Apr-05 6.00 5.95 5.33 5.64
:.\far*IO Apr-IO 6.24 6.06          '*"
5.66 M:ir-15 Apr*lS 4,51 4.51 3.74 3.75 M:.y-90        10.16       10.00   M,y-95         a.JO          7.91   M:iy-00        8.86         S.iO   !\hy-05      s.ss          5.53   ?,fay-IO        5.97          5.44   ~fay*U          4.91         4.17 Jun*90        9.96       9.SO     Jun-95       S.01          7.60     Jw,.00       8.47         3.36      Jun-05    5.70          s..:o   Jcn-10         6.18          5.46 Jul-90       9.92       9,75      Jul-95      S.l!          7.iO      Jul-00      S.33         8.25       Jul-OS   5.SO          5.51     Jul-10        5.98          5.:6 Au;;-90        10.12        9.92   Aui;-95        S.24          7.83   Aug:-0-0       S.25         S.13   Aug-05       5.80          5.50   Aug-JO          5.55          5.01 S,:p-90      !0.32       10.12    Sep-95        7.98          7.62     Sop-00       S.32         g_23     Sep-05     5.83          5.52    Sep-IO         5.53          5.01 Oct-90      I0..2S      10.05     Oc!-95       7.32          7.46     Oct.CO       S.29         S.14      Oa-05     6.08          5.79    O::t-10        5.62          5.10
  ~ov-90        10.12        9.90    Nov-95        7.81          7.-13   :Sov-00       8.25         S.11    Nov-05      6.19          5.SS   ~ov-.10         5.85          5.37 Dec-90         9.9S       9.73    De.:-95       7.63          7.23    Dec-00        S.01         7."4     Dee-05     6.14          5.i9    Dee-10         6.04          5.56 J:.n-91       9.96       9.71     Jan-96       7.64          7.21     fan-01       7.99         7.SO      Jan-06    6.06          5.74     Jtn*ll        6.06          5.57 Feb-91         9.6S       9.47    Feb-96        7.7S          7.37     Feb.(11      7.94         7.74     Fi:b-06    6.11          5.S2    Feb-II         6.10          5.68 Mar-91          9.74       9.55   !\tar-96       8.15          7.73    MM-01         7.SS         7.6S    '.\ur-06    6.26          S.98   Mar-II          S.91          5.56 Apr-91         9.64       9.46    Apt-96        S.32          7.S9     Apr-01       S.06         7.93     Apr-06     6.54          6.29    Apr*ll         5.9S          5.55
 '.\fay-91        9.64       9.44   ~:ty-96        S.45          7.98   May-OJ         S.11         7.99   Ma:y-06      6,59          6.4!   Mzy-ll          5.74          5.32 Jt:n-91       9.79       9.59     Juo-96       S.5I          S.06     Jtm-01       S.02         7.85      Jun.-06   6.61          6.40    Jun-11         5.67          S.26 Jul-91       9.69       9.55      Ju'.-96     S.44          3.02      Jul-DI      8.05         7.78       Jul-06   6.61          6.37     Jul-!!        5.70          5.27 Aug.-91          9.47       9.29   Aug-96         S.2S          7.84    Aug-01        7.95         7.59    Aui;-06     6.43          6.20   Aug-11          5.22          4.69 Sep-91         9.35       9.15    S,p-96        S.41          8.01     S,p-01       S.12.        7.75     S,p-06     6.26          6.00    Scp.ll         5.11          4.4&
Oct-91        9.32       9.12     Oct-96       S.15          7.77     Oct--01      3.02         7.63     Oa-06      6.24          5.98    Oct-11         S.14          4.52 Nov-91          9.2S       9.05   ~ov-96         7.87          7.49   Xov--01        7.96         7.57    Xov-C6      6.04          5.S.O  Xov-1!          4.93          4.25 Dec-91         9.07       8.SS    Dec-96        7.9S          7.59    Dec-01        8.27         7.S3    D<<-06       6.05          5.:U    Dcc*ll         5.Q7          4.33 J:n-9:!
Feb-92 S.9S 9.09       '*"
S.93 J:m-97 Feb-97 S.18 8.02 7.77 7.64 Jm-02 Fcl>-02 3.13 8.13 7.66 7.54 Jan-07 Feb-07 6.16 6.10 5.96 5.90 J:n-12 Feb-12 5.06 5.02 4.34 4.36 Mz-92           9.16       3.97    ).Uf-97       8.26          7.87    Mar-02        S.31         7.76    :-.ar--01   6.10          5.85   ?'-.br-12       5.13          4.4S Apr*92         9.l!       S.93    Apr-97        S.42          8.03     Apr-02       S..25        7.57     Apr--07    6.24          5.97    Apr-12         5.11          4.-10 May-92           9.0!       S.S7   M:t)*-97       S.2S          7.S9   M:i.y-0:!. 8.33         7,52   t'.by-07     6.23          5.99   }.U)'-12        4.97          4.20 Jun-92        S.99       S.7S     Jun-97       8.12          7.72     fon-02       S.25         7.41      Jun-07    6.54          6.30    Jun-12         4.91          4.0<
Jul-92       S.69       8.57      Ju!-97      7.S7          7.48      Jul-02      8.0S         7.31       Jul-07   6.49          6.25     Jul-12        .us           3.93 Aug-92          s.ss       S.4J. Aug-97         7.93          7.Sl   Aug-02         7.74         7.17    Aus-01      6.Sl          6.24   Aug-12          4.8S          4.00 Sep-92         S.54       S.40    S,p-97        7.S4          7.58     Scp-02       7.6.2        7.03     Sep-07     6.45          6.1S    Scp-12         4.Sl          4.02 Oa-9.2         S,76       S.54    Oct-97        7.67          i.35     Oct-02       7.99         7.23     Oct-07     6.36          6.11    Oct-12         4.54          3.91 Nov-92          8.86       3.63   :Sov-97        7.49          7.25    Nov-02        7.75         7.14   Xov-07       6.27          5.97   }.av-12         4.42          3.S4 Dee-92          S.69       8.43    Dee-97        7.41          7.16    Dcc-02        7.60         7.06    O!c-07      6.51          6.16   Dce-12          4.55          4.00 fan-93        '57        S.27     far.-9S      7.28          7.04     hn*03        7.47         7.06      Jan.CS    6J5           6.02    J:n-13         4.66          4.15 Feb-93         S.31       8.04    Feb-9S        7.36          7.12     Feb-03       7.17         6.93     Feb-CS     6.60          6.21    Feb-13         .!.74         4.lS Mar-93          S.10       7.99   Z..fur-9S      7.37          7.16    M:u-03        7.0S         6.79    l>far-OS    6.63          6.21   ),far*n         4.72          4.20 Apr-93         S.11       7.Sl    Apr-98        7.37          7.16     Apr-03       6.93         6.64     Apr-OS     6.Sl          6.29    Apr-13         4A9           4.00 M:ly-93          s.a        7.86   ~fay-9S        7.34          7.16   '.\b.y-03      6.47         6.36   :.fay-OS     6.79          6.23   ~1'.:t)... 13   4.6S          4.17 Jun-93        S.05       7.75     Jun-98       7.21          7.03     Jun-03       6.29         6.21      Jun-OS    6.93          6.3S    Jun-13         5.08          4.$3 Jul-93       7.93        7.54      Jul-98      7.24          7.03      Jul-03      6.65         6.56       Jul-OS   6.97          6.40     Jul-I3        5.21          4.6S Aus-93          7.59       7.25   Aug-9S         7.20          7.00    Aug-03        7.09         S.79    Aug-CS      6,98          6.37   Aur;-13         5.2S          .1.73 Sep-93         7.35       7.04    Sep-9S        7.13          6.93     Sep-03       6.S7         6.56     Sep-OS     7.15          6.49    Sep-13         5.31          4.SO Oct-93        7.27       7.03     Oct-98       7.13          6.96     Oct-03       6.7S         6.42      Oct-CS    8.58          7.56    Oct-13         5.17          4.70 Xov-93           7.69       7.30   Nov-98         7.31          7.03    No\*-03       6.69         6.37    Nov-CS      S.98          7.60   ~ov-13          5.24          4.77 Dec-93          7.7J       7.34    Dec-98        7.24          6.91    DC{:-03       6.61         6.27    Dec-CS      S.!!          6.52    Dec*l3         5,25          4.Sl

Schedule AHG-10 15-WSEE-115-RTS WOLF CREEK DECOMMISSIONING COSTS EXTERNAL TRUST FUND Review of2014 Cost Estimate
     "**ADJUSTED TO REFLECT KCC STAFF INPUTS***
in2014 S                              In 2045 $
TOTAL COST DECON method                          $765,060,000                       $1,939,869,279 KGE'S SHARE OF TOTAL COST                        $359,578,200                         $911,738,561 CURRENT VALUE OF TRUST (12/31/14)           s     [80,829,742  Adjusted to Reflect Taxes on Unrealiz EQUIVALENT BEFORE TAX RETURN:              THE EXPECTED INVESTMENT RETURNS ARE SHOWN ON PAGE 2 OF 2 PAYMENT GROWTH AlvlOUNT                                     $0 GROWTH RATE FOR COSTS (INFLATION)                       3.15%
     # OF PERJODS FOR ANALYSlS                                   30
     # OF PERJODS - l                                            29 PERIOD OF PAYMENTS                                 MIDYEAR DECOM!v!ISSIONING PERIOD IN YEARS                            9 FUND MANAGER FEES                                      0.576%
BEGIN YR.        DECOM              ANNUAL            EARNINGS            END YR.
LINE   YEAR      BALANCE         EXPENSE            CONTRIB.          AFTER FEES          BALANCE AND TAXES 2012 2013 2014 2015       $180,829,742                          $2,762,483        $9,161,452       $192,753,677 2    2016        192,753,677                           5,772,700          9,844,745      $208,371,122 3    2017        208,371,122                           5,772,700        10,629,297       $224,773,119 4    2018        224,773,l 19                          5,772,700        11,453,263       $241,999,082 5    2019        241,999,082                           5,772,700        12,318,620       $260,090,402 6    2020        260,090,402                           5,772,700        13,227,450       $279,090,552 7    2021        279,090,552                           5,772,700        14,181,935       $299,045,187 8    2022        299,045,187                           5,772,700        15,184,369       $320,002,257 9    2023        320,002,257                           5,772,700        16,237,162       $342,012,118 10    2024        342,012,118                           5,772,700        17,342,842       $365,127,660 11    2025        365,127,660                           5,772,700        18,504,066       $389,404,427 12    2026        389,404,427                           5,772,700        16,702,987       $411,880,114 13    2027        411,880,114                           5,772,700        17,659,005       $435,311,819 14    2028        435,311,819                           5,772,700        18,655,688       $459,740,207 15    2029        459,740,207                           5,772,700        19,694,766       $485,207,673 16     2030       485,207,673                           5,772,700        20,778,042       SSl l,758,415 17     2031       511,758,415                           5,772,700        21,907,395       $539,438,510 18    2032        539,438,510                           5,772,700        23,084,786       $568,295,997 19     2033       568,295,997                           5,772,700        24,312,259       $598,380,956 20     2034       598,380,956                           5,772,700        25,591,943       $629,745,598 21    2035        629,745,598                           5,772,700        26,926,059       $662,444,357 22    2036        662,444,357                           5,772,700        21,663,615       $689,880,672 23     2037       689,880,672                           5,772,700        22,556,274       $718,209,645 24    2038        718,209,645                           5,772,700        23,477,976       $747,460,321 25    2039        747,460,321                           5,772,700        24,429,666       $777,662,687 26    2040        777,662,687                           5,772,700        25,412,320       $808,847 ,7.07 27    2041        808,847,707                           5,772,700        26,426,945       $841,047,352 28     2042       841,047,352                           5,772,700        27,474,582       $874,294,634 29     2043       874,294,634                           5,772,700        28,556,305       $908,623,638 30     2044       908,623,638                           5,772,700        29,673,222       $944,069,560 31     2045       944,069,560       76,742,107          1,443,175         15,496,371      $884,266,999 32     2046       884,266,999      170,390,309                            13,361,348      $727,238,039 33     2047       727,238,039      209,293,207                            10,189,818      $528,134,650 34     2048       528,134,650      156,404,173                             7,349,097      $379,079,574 35     2049       379,079,574      127,253,390                             5,101,820      $256,928,004 36     2050       256,928,004      114,089,268                             3,136,287      $145,975,022 37     2051       145,975,022       58,558,037                             1,854,229       $89,271,213 38     2052        89,271,213       54,764,209                               915,049       $35,422,054 39     2053        35,422,054       35,623,101                               202,618             SI,571

Schedule AHG-10 15-WSEE-115-RTS KCC Adjustments to Exucctcd Returns FEDERAL TAX RATE   20.00%
FOR THE YEARS 2012 THROUGH 2025 EXPECTED           WEIGHTED    AFTER INVESTlllENT MIX      RETURNS RATIO      RETURN       TAX Large Cap                 7.60%       30%       2.28%      l.82%
Small Cap                 8.81%        8%       0.70%      0.56%
International Equities    8.14%       16%       1.30%      1.04%
Core Fixed Income         4.95%       21%       1.04%      0.83%
High Yield Bonds          6.40%       20%       1.28%      1.02%
Real Estate               8.17%        5%       0.41%      0.33%
Cash and equivalents      2.00%        0%       0.00%      0.00%
100%       7.01%      5.60%
FOR THE YEARS 2026 THROUGH 2035 EXPECTED           WEIGHTED    AFTER INVESTMENT MIX        RETURNS RATIO      RETURN       TAX Large Cap                 7.60%  20%        l.52%      1.22%
Small Cap                 8.81%    5%       0.44%      0.35%
International Equities    8.14%   12%       0.98%      0.78%
Core Fixed Income         4.95%  44%        2.18%      l.74%
High Yield Bonds          6.40%   8%        0.51%      0.41%
Real Estate               8.17%    3%       0.25%      0.20%
Cash and equivalents      2.00%   8%        0.16%      0.13%
JOO%       6.04%      4.83%
FOR THE YEARS 2036 THROUGH 2044 EXPECTED           WEIGHTED    AFTER INVESTl\IENT MIX       RETURNS RATIO      RETURN      TAX Large Cap                 7.60%   [0%       0.76%      0.61%
Small Cap                 8.81%    2%       0.18%      0.14%
International Equities    8.14%   3%        0.24%      0.19%
Core Fixed Income         4.95%  65%        3.22%      2.58%
High Yield Bonds          6.40%    0%       0.00%      0.00%
Real Estate               8.17%    0%       0.00%      0.00%
Cash and equivalents      2.00%  20%        0.39%      0.31%
100%       4.79%      3.83%
FOR THE YEARS 2045 THROUGH COMPLETION OF DECOllH'IIISSIONING EXPECTED           WEIGHTED    AFTER INVESTl\lENT MIX      RETURNS RATIO      RETURN       TAX Large Cap                 7.60%   0%        0.00%      0.00%
Small Cap                 8.81%    0%       0.00%      0.00%
International Equities    8.14%    0%       0.00%      0.00%
Core Fixed Income         4.95%  30%        1.49%      1.19%
High Yield Bonds          6.40%   0%        0.00%      0.00%
Real Estate               8.17%   0%        0.00%      0.00%
Cash and equivalents      2.00%  70%        1.40%      1.12%
100%       2.89%      2.31%

CERTIFICATE OF SERVICE 15-WSEE-115-RTS I, the undersigned, hereby certify that a true and correct copy of the above and foregoing Direct Testimony was served by electronic service on this 9th day of July, 2015, to the following parties who have waived receipt of follow-up hard copies.
JAMES G. FLAHERTY, ATTORNEY                                                    KURTJ.BOEHM,ATTORNEY ANDERSON & BYRD, L.L.P.                                                        BOEHM, KURTZ & LOWRY 216 S HICKORY                                                                  36 E SEVENTH ST STE 1510 PO BOX 17                                                                      CINCINNATI, OH 45202 OTTAWA, KS 66067                                                               Fax: 513-421-2764 Fax: 785-242-1279                                                              kboehm@bkllawfirm.com jflaherty@andersonbyrd.com JODY KYLER COHN, ATTORNEY                                                      ANDREW J ZELLERS, GEN COUNSELNP REGULATORY BOEHM, KURTZ & LOWRY                                                           AFFAIRS 36 E SEVENTH ST STE 1510                                                       BRIGHTERGY, LLC CINCINNATI, OH 45202                                                           1617 MAIN ST 3RD FLR Fax: 513-421-2764                                                              KANSAS CITY, MO 64108 jkylercohn@bkllawfirm.com                                                      Fax: 816-511-0822 andy.zellers@brightergy.com GLENDA CAFER, ATTORNEY                                                         TERRIPEMBERTON,ATTORNEY CAFER PEMBERTON LLC                                                            CAFER PEMBERTON LLC 3321 SW 6TH ST                                                                 3321 SW 6TH ST TOPEKA, KS 66606                                                               TOPEKA, KS 66606 Fax: 785-233-3040                                                              Fax: 785-233-3040 glenda@caferlaw.com                                                            terri@caferlaw.com NIKI CHRISTOPHER, ATTORNEY                                                     DELLA SMITH CITIZENS' UTILITY RATEPAYER BOARD                                              CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                           1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                               TOPEKA, KS 66604 Fax: 785-271-3116                                                              Fax: 785-271-3116 n.christopher@curb.kansas.gov                                                  d.smith@curb.kansas.gov SHONDA SMITH                                                                   DAVID SPRINGE, CONSUMER COUNSEL CITIZENS' UTILITY RATEPAYER BOARD                                              CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                           1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                               TOPEKA, KS 66604 Fax: 785-271-3116                                                              Fax: 785-271-3116 sd. sm ith@curb. kansas. gov                                                   d.springe@curb.kansas.gov

CERTIFICATE OF SERVICE 15-WSEE-115-RTS KEVIN HIGGINS                                          JULIE B. HUNT ENERGY STRATEGIES, LLC                                 HOLLYFRONTIER CORPORATION PARKSIDE TOWERS                                        2828 N HARWOOD STE 1300 215 S STATE ST STE 200                                 DALLAS, TX 75201 SALT LAKE CITY, UT 84111                               julie.hunt@hollyfrontier.com Fax: 801-521-9142 khiggins@energystrat.com JOHN R. WINE, JR.                                      MICHAEL NEELEY, LITIGATION COUNSEL 410 NE 43RD                                            KANSAS CORPORATION COMMISSION TOPEKA, KS 66617                                       1500 SW ARROWHEAD RD Fax: 785-246-0339                                      TOPEKA, KS 66604-4027 jwine2@cox.net                                         Fax: 785-271-3167 m.neeley@kcc.ks.gov AMBER SMITH, LITIGATION COUNSEL                        JAY VAN BLARICUM, ASSISTANT GENERAL COUNSEL KANSAS CORPORATION COMMISSION                          KANSAS CORPORATION COMMISSION 1500 SW ARROWHEAD RD                                    1500 SW ARROWHEAD RD TOPEKA, KS 66604-4027                                  TOPEKA, KS 66604-4027 Fax: 785-271-3167                                      Fax: 785-271-3314 a.smith@kcc.ks.gov                                     j.vanblaricum@kcc.ks.gov ROBERT V. EYE, ATTORNEY AT LAW                         JACOB J SCHLESINGER, ATTORNEY KAUFFMAN & EYE                                         KEYS FOX & WIEDMAN LLP 123 SE 6TH AVE STE 200                                  1400 16TH ST THE DIBBLE BUILDING                                     16 MARKET SQUARE, STE 400 TOPEKA, KS 66603                                       DENVER, CO 80202 Fax: 785-234-4260                                      jschlesinger@kfwlaw.com bob@kauffmaneye.com ANNE E. CALLENBACH, ATTORNEY                            FRANK A. CARO, JR., ATTORNEY POLSINELLI PC                                           POLSINELLI PC 900 W 48TH PLACE STE 900                               900 W 48TH PLACE STE 900 KANSAS CITY, MO 64112                                  KANSAS CITY, MO 64112 Fax: 913-451-6205                                      Fax: 816-753-1536 acallenbach@polsinelli.com                             fcaro@polsinelli.com LUKE A. HAGEDORN, ATTORNEY                             JAMES P. ZAKOURA, ATTORNEY POLSINELLI PC                                          SMITHYMAN & ZAKOURA, CHTD.
900 W 48TH PLACE STE 900                               7400 W 110TH ST STE 750 KANSAS CITY, MO 64112                                  OVERLAND PARK, KS 66210-2362 Fax: 913-451-6205                                       Fax: 913-661-9863 lhagedorn@polsinelli.com                               jim@smizak-law.com

CERTIFICATE OF SERVICE 15-WSEE-115-RTS MARTIN J. BREGMAN, ATTORNEY                              Stefan Evanoff, VICE-PRESIDENT, PIPELINE STINSON LEONARD STREET LLP                               MANAGEMENT 1201 WALNUT ST STE 2900                                  TALLGRASS PONY EXPRESS PIPELINE, LLC KANSAS CITY, MO 64106                                    370 Van Gordon Street Fax: 816-691-3495                                        Lakewood, CO 80228 marty.bregman@stinsonleonard.com                         stefan.evanoff@tallgrassenergylp.com ADAM SCHICHE, SENIOR ATTORNEY                            KATHERINE COLEMAN TALLGRASS PONY EXPRESS PIPELINE, LLC                     THOMPSON & KNIGHT LLP 370 Van Gordon Street                                    98 SAN JACINTO BLVD STE 1900 Lakewood, CO 80228                                       AUSTIN, TX 78701 adam.schiche@tallgrassenergylp.com                       Fax: 512-469-6180 katie.coleman@tklaw.com PHILLIP OLDHAM                                           TIMOTHY E. MCKEE, ATTORNEY THOMPSON & KNIGHT LLP                                    TRIPLETT, WOOLF & GARRETSON, LLC 98 SAN JACINTO BLVD STE 1900                             2959 N ROCK RD STE 300 AUSTIN, TX 78701                                         WICHITA, KS 67226 Fax: 512-469-6180                                        Fax: 316-630-8101 phillip.oldham@tklaw.com                                 temckee@twgfirm.com SAMUEL D. RITCHIE, ATTORNEY                              DAVID BANKS, ENERGY MANAGER TRIPLETT, WOOLF & GARRETSON, LLC                         UNIFIED SCHOOL DISTRICT 259 2959 N ROCK RD STE 300                                   201 N WATER WICHITA, KS 67226                                        WICHITA, KS 67202 Fax: 316-630-8101                                        Fax: 316-973-2150 sdritchie@twgfirm.com                                    dbanks@usd259.net THOMAS R. POWELL, GENERAL COUNSEL                        KEVIN K. LACHANCE, CONTRACT LAW ATTORNEY UNIFIED SCHOOL DISTRICT 259                              UNITED STATES DEPARTMENT OF DEFENSE 201 N WATER ST RM 405                                    ADMIN & CIVIL LAW DIVISION WICHITA, KS 67202-1292                                   OFFICE OF STAFF JUDGE ADVOCATE tpowell@usd259.net                                       FORT RILEY, KS 66442 Fax: 785-239-0577 kevin.k. lachance.civ@mail.mil MATTHEW DUNNE, GENERAL ATTORNEY                          CATHRYN J. DINGES, SENIOR CORPORATE COUNSEL US ARMY LEGAL SERVICES AGENCY                            WESTAR ENERGY, INC.
REGULATORY LAW OFFICE (JALS-RL/IP)                       818 S KANSAS AVE 9275 GUNSTON RD STE 1300                                 PO BOX 889 FORT BELVOIR, VA 22060-5546                              TOPEKA, KS 66601-0889 matthew.s.dunne.civ@mail.mil                             Fax: 785-575-8136 ca thy .dinges@westarenergy.com

CERTIFICATE OF SERVICE 15-WSEE-115-RTS JEFFREY L. MARTIN, VICE PRESIDENT, REGULATORY                      CINDY S. WILSON, DIRECTOR, RETAIL RATES AFFAIRS                                                            WESTAR ENERGY, INC.
WESTAR ENERGY, INC.                                                 818 S KANSAS AVE 818 S KANSAS AVE                                                    PO BOX 889 PO BOX 889                                                          TOPEKA, KS 66601-0889 TOPEKA, KS 66601-0889                                              cindy.s.wilson@westarenergy.com jeff. m arti n@westarenergy.com DAVID L. WOODSMALL WOODSMALL LAW OFFICE 308 E HIGH ST STE 204 JEFFERSON CITY, MO 65101 Fax: 573-635-7523 david.woodsmall@woodsmalllaw.com Pamela Griffeth Pamela Griffeth Administrative Specialist

Enclosure VII to WM 19-0008 Order Approving Stipulation and Agreement (Docket No. 15-WSEE-115-RTS)
                                     * (51 pages)

1 2015.09.24 10:47:44 K:m::--3=- CorPiJ r*a-tic,r, Commi:;sic,n THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS Before Commissioners:                  Shari Feist Albrecht, Chair Jay Scott Emler Pat Apple In the Matter of the Application of Westar                           )
Energy, In~. and Kansas Gas and Electric                             )
Docket No. 15-WSEE-115-RTS Company to Make Certain Changes in Their                             )
Charges for Electric Service                                         )
ORDER APPROVING STIPULATION AND AGREEMENT I. Introd1:1ction **************************************************************************************************~************************ 2 A. Procedural History and Entries of Appearance ..................................................................... 2 B. Jurisdiction, Authority and Legal Standards ........................................................................ 4 C. Prefiled Testimony and Other Documents ........................................................................... 5 D. Public Hearings and Comments .................................................................... '. ...................... 8 E. Evidentiary Hearings and Administrative Notice .... :......................... '. ............................... :\ 9 II. Stipulation_ and Agreement ................................................................................................. 12.
A. Agreement and Addendum ............................................ :................................................... 12 B. Provisions of the Stipulation and Agreement .................................................................... 13 C. Standard of Review ...... _...................................................................................................... 25
: 1. .Was there an opportunity for the opposing party to be heard on the reasons for*
opposition to the Stipulation and Agreement? ............................................... :............... 27
: 2. Is the Stipulation and Agreement supported by substantial competent evidence in the record as a whole? .......................................................................................................... 29
: 3. Does the Stipulation and Agreement conform with applicable law?.: ........................... 33
: 4. Does the Stipulation and Agreement result in just and reasonable rates? ...................... 36
: 5. Are the results of the Stipulation and Agreement in the public interest, including the interest of customers represented by any party not consenting to the agreement? ........ 40 III. Abbreviated Rate Case ................................................................................~....................... 43 I   IV. Generic Docket ..................................................................................................................... 44 V. Findings and Conclusions ..................................................................... ~ ............................. 45

This matter comes before the State Corporation Commission of the State of Kansas (Commission) for consideration and decision. Having reviewed the pleadings and record, the Commission makes the following findings and conclusions:
I.        Introduction A.       Procedural History and Entries of Appearance
: 1.       On July 21, 2014, in Docket No. 15:GIME-025-MIS (15-025 Docket), Westar Energy, Inc. and Kansas Gas and Electric Company Gointly referred to as "Westar") filed a Joint Application with Kansas City Power & Light Company to approve the timing and, accounting treatment for their respective rate cases regarding the inclusion 'of the La Cygne Environmental Project into rate base. The Joint Application also included proposed schedules for the pending Westar rate case.
: 2.        On September 9, 2014, in the 15-025 Docket, the Commission* issued an Order Approving Joint Application, establishing the accounting treatment and procedural schedule for
                                                               ...)
1 Westar' s general rate case.
: 3.
* On March 4, 2015, the Commission took administrative notice of the procedural schedule set forth in the 15-025 Docket and incorporated it into Westar's instant general rate case, Docket No. 15-WSEE-115-RTS.
: 4.        The Commission modified the procedural schedule on three separate occasions to conduct an additional public he~ring, amend settlement procedures, and divide the scheduled evidentiary hearing into two distinct phases. 2 1
A Petition Initiating Docket filed by Westar on September 15, 2014, gave rise to the present docket, Docket No.
15-WSEE-115-RTS.
2 See Order Modifying Procedural Schedule (Apr. 14, 2015); Order Modifying Procedural Schedule and Substituting Prehearing Officers (Jul. 14, 2015); Order On: Interventions, Petition For Leave To Issue Discovery, Motion To 2.

i*
I
;
: 5.       When the Commission modified the procedural schedule to bifurcate the evidentiary hearing into two distinct phases, the Commission separated out certain issues and limited the participation of certain intervenors to certain issues. The Commission placed issues related to Westar's proposed Residential Demand Plan and Residential Stability Plan, Community Solar proposal, and solar block subscription proposal _into "Phase II" of the evidentiary hearing.3 All other issues to be decided would be heard during "Phase I" of the evidentiary hearing. 4          The Commission granted The Alliance. for Solar Choice (TASC),
Cromwell Environmental Inc. (CEI), Brightergy, LLC (Brightergy), Climate and Energy Project (CEP) and the Environmental Defense Fund (EDF),5 collectively referred to as the "Solar Parties," limited intervention in this proceeding. 6
: 6.       On August 6, 2015, parties who had been granted full intervention status, and were thus able to participate in both Phase I and Phase II of the evidentiary hearing, submitted a Stipulation and Agree~ent (S&A) that resolved all outstanding issues in the matter. 7 Subsequent to the filing of the S&A, Westar engaged in additional settlement talks with the Solar Partie~. 8 Upon amending certain language in the S&A, the Solar Parties agreed to not oppose the S&A. 9 Westar -filed an Unopposed Motion for Leave to File Addendum to Stipulation and Agreement Accept Pre-Filed Direct Testimony Out Of Time And Modifying Procedural Schedule (Jul. 23, 2015) [hereinafter Final Procedural Order].
3 Final Procedural Order at 30.
4 ld.
5 The Commission prohibited CEP from participating in the evidentiary hearing. See Final Procedural Order at 25.
6 Final Procedural Order at 14, 18-19, 21-22, 25, 27. The Commission limited TASC, CE!, Brightergy and EDF to only the Phase II issues. See id The Commission excluded CEP from participation in the hearing but allowed CEP to brief on the fixed rate charge. See id at 25.
7 See Joint Motion To Approve Stipulation And Agreement at 2. (Aug. 6, 2014) [hereinafter S&A]. Note: The Joint Motion to Approve Stipulation and Agreement also contained the Stipulation and Agreement as a separate document with separate pagination. For purposes of this order, all references to S&A are to the Stipulation and Agreement attached to the Joint Motion unless otherwise noted.
8 Unopposed Motion For Leave To File Addendum To Stipulation And Agreement Out Of Time at 2 (Aug. 12, 2015) [hereinafter Unopposed Addendum].
9 Id at 3.
3

Out of Time (Unopposed Addendum) on -August 12, 2015. The disposition of the S&A is discussed in greater detail below.
B.        Jurisdiction, Authority and Legal Standards
: 7.        The Commission has full power, authority and jurisdiction to supervise and control electric public utilities, as defined in K.S.A. 66-10 la, doing business in Kansas, and is empowered to do all things necessary and convenient for the exercise of such power, authority and jurisdiction. 10 "Electric public utility;' means any public utility, as defined in K.S.A. 66-104, which generates or sells electricity. 11 K.S.A. 66-104 defines "public utility" in part *as "all companies for the production, transmission, d~livery or furnishing of heat, light, water, or power." 12
: 8.       Electric public utilities subject to the Commission's jurisdiction are "required to furnish reasonably efficient and sufficient service and facilities for the use of any and all products or services rendered, furnished, supplied or produced by such electric public utility, to establish just and reasonable rates, charges and exactions and to make just and reasonable rules,      ,,
classifications and. regulations." 13 The Commission thus' has the power to require utilities to establish just and reasonable rates and maintain reasonably sufficient and efficient service. 14
         -9.       The authority of the Commission is liberally construed, and in the exercise of the Comrilission's* power, authority, and juri~diction, all incidental powers necessary to carry into 10 K.S.A. 66-101; K.S.A. 66-lOla; K.S.A. 66-104.
11 K.S.A. 66-lOla.
12               .
K.S.A. 66-l04(a).
13 K.S.A. 66- l Olb.
14 K.S.A. 66-lOlb ..
4

;_
effect the provisions *Of the Electric Public Utilities Act, K.S.A. 66.:.101 et seq., are expressly granted to and conferred upon the Commission. 15
: 10. Pursuant to K.S.A. 66-117, a public utility over which the Commission has jurisdiction cannot make effective any changed rate, joint rate, toll, charge or classification or schedule of charges, or any rule or regulation *or practice pertaining to.t!ie service of a public utility except by filing with the Commission.
: 11. On March 2, 2015, Westar filed its Application to make changes to its charges for electric service pursuant to K.S.A. 66-117 and K.A.R. 82~ 1-231. 16 Accordingly, the Commission has jurisdiction to exercise control and jurisdiction over Westar for, among other things, this particular rate request.
C. Prefiled Testimony and O.ther Documents
: 12. Commission regulations address filing requirements for rate proceedings, and require utilities such as Westar to provide appropriate schedules and competent testimony when filing a rate change application. 17
: 13. Throughout the course of this proceeding, parties submitted direct testimony, rebuttal testimony, and cross-answering testimony, exhibits and evidence. With its Application of March 2, 2015, Westar filed direct testimony from twenty-two witnesses in addition to two volumes of data that numbered over 700 pages. On July 9, 2015, multiple parties to this docket submitted direct testimony in accordance with the procedural schedule. Shortly thereafter, on July 24, 2015, eight wit;nesses submitted cross-answering testimony. On July 29, 2015, Westar submitted rebuttal testimony from eighteen witnesses and the U.S. Department of Defense and 15 K.S.A. 66-IO!g.
16 Joint Application of Westar Energy, Inc. and Kansas Gas and Electric Company (Mar. 2, 2015) [hereinafter Application].
17 See K.A.R. 82-1-2.>.; I.
5

all Federal Executive Agencies submitted rebuttal testimony from one witness. The following table identifies and outlines these filings:
Direct Testimony       Cross-                     Rebuttal Witnesses              Answering                  Testimony Testimony                  Witnesses Witnesses
                                                                     ..,..,...,,,,=='"""""
                           ,cl:~)~~y;;.'2t-, ____ *. ~..
_ 1. Leo Haynos         1. Robert Glass
: 2. Adam Gatewood . 2. Justin Grady
: 3. William E. Baldry
: 4. Timothy Rehagen
: 5. Luis M. Solorio
: 6. Tyler J. Page
: 7. Dorothy J. Myrick
: 8. Katie L. Figgs
: 9. Kristina Luke-Fry
: 10. Andy Fry
: 11. Robert Glass
: 12. Justin Grady 6

Kanas Industrial        1.                          I. Brian C.
Consumers Group        2.                             Andrews
: 3.                         2. Michael P.
: 4.                             Gorman
: 1. Jeff Hoppe               1. Jeff Hoppe       1. JeffHoppe Federal Executive Agencies
: 1. Steve Chriss
: 14. In summation, by July 29, 2015, fifty-one witnesses from thirteen separafe parties had placed into the administrative record for this docket seventy-eight iterations of direct, cross-answering, or rebuttal testimony that established and defended the basis and rationale for their respective initial positions. Parties and witnesses further supplemented the testimony with additional schedules and exhibits.
7

D.       Public Hearings and Comments
: 15.      The Commission, though not required by statute, has established a history of directly reaching out to and receiving comments from individual -members of the public. Public hearings provide the citizens of Kansas an opportunity to address.the Commission directly.
: 16.      The procedural schedule set a public hearing for July 21~ 2015, at Farley Elementary School, Topeka, Kansas, with video conferencing available at satellite locations in Emporia, Kansas, and Salina, Kansas. The Commission scheduled a s*econd public hearing later in the proceeding for July 23, 2015, at Wichita State University, Wichita, Kansas, 18 with video conferencing available at satellite locations in Hutchinson, Kansas, and Pittsburg, Kansas.
: 17.      Westar customers and the general public received notification by way of multiple newspapers throughout the state, as well as maile!s included in every Westar customer's bill. 19
: 18.      The Commission took comments from the public regarding Westar's Application from the commencement of Westar's general rate case up through August 11, 2015, as directed by the procedural schedule. The Commission received comments via telephone~ traditional mail, and electronic mail. These comments were in addition to any comments received at the public hearings.
: 19.      On August 13, 2015; the Commission's Public Affairs and Consume~ Protection Division (PACP) caused to be filed in the record a report summarizing the public comments ,
received. 20 18 Order Modifying Procedural Schedule, 2 (Apr. 14, 2015).
* 19 See Affidavit of Publication (Jul. 8, 2015); See also Affidavit of Cindy Wilson Regarding Customer Notice, 1 (Jul. 8, 2015). *            .
20 Notice of Filing of Public Comment (Aug. 13, 2015).
8
: 20.        On August 14 and 25, 2015, PACP caused to be filed in the record an Addendum
     . and a subsequent Supplement, respectively, to its initial report. 21 Fifteen additional comments were received via regular mail that had been postmarked by the August 11, 2015, cutoff date, 22 and four comments were received via electronic mail after 5:00 p.m. on August 11, 2015, but.
before midnight. 2-3
                .21.       To summarize, the Commission received 1,458 comments from March 2, 2015, through August 11, 2015. Additionally, the Commission received thirty-two comments during I
I; . the July 21, 2015, Topeka public hearing, and forty-three comments during the July 23, 2015, j
Wichita public hearing. The overwhelming public response received in this docket indicated general opposition to Westar' s initial Application.
E.        Evidentiary Hearings and Administrative Notice
: 22.       On August 3, 2015, the Prehearing Officers filed and served notice of the prehearing conference upon counsel of record. 24 On August 12, 2015, the Prehearing Officers held a prehearing conference to discuss preliminary matters prior to the Commission convening the scheduled evidentiary hearing.
: 23.     . On August 17, 2015, in accordance with the procedural schedule set forth in this docket, the Commission convened an evidentiary hearing to receive testimony in support of the S&A.       In total, twenty-three parties participated in the evidentiary hearing.                Entries of appe~rance for counsel were as follows:
21 Notice ofFiling Addendum to Public Comment (Aug. 14, 2015); Notice of filing Supplement to Addendum to Public Comment, 2 (Aug. 25, 2015).
22 Notice of Filing Addendum to Public Comment at 2.
23 Notice of filing Supplement to Addendum to Public Comment at 2.
24 Notice of Prehearing Conference (Aug. 3, 2015).
9

Party                                                of  Appearance  at Evidcntiary
                                                     -~~~f~-~
Amber Smith Michael Neele
                                                        ~~*&sect;.'
The Alliance for Solar Choice                   1. Jacob Schlesinger
: 2. Anne Callenbach Kansas Industrial Consumer Group. and its       1. James P. Zakoura Member Companies: Occidental Chemical Corporation, CCPS Transportation, LLC, Spirt AeroSystems, Inc., Coffeyville Resources Refining & Marketing, LLC, The Goodyear Tire & Rubber Company
~~~ci~Jf'
{'''"~1'*1lhf<'!;
~t,7q~yi<>:.
Frontier El Dorado Refining, LLC                1. James Flaherty Wal-Mart Stores, Inc., Tyson Foods, Cargill,    1. David Woodsmall Inc.
Environmental Defense Fund                      1. Robert Eye Kroger Co.                                      1.
Brightergy, LLC                                 1. Andrew Zellers 10
: 24.      Counsel for all parties to this docket appeared at the evidentiary hearing. After inquiring with Commission Staff (Staff) Counsel and hearing no objections, the Commission found that notice of the evidentiary hearing was proper.25
: 25.      Upon the finding that notice was proper, the Commission took up certain preliminary matters. The Commission approved Mr. Jacob Schlesinger's Verified Application for admission pro hac vice on behalf of TASC.26 The .Kansas Industrial Consumers Group, Occidental Chemical Corporation, and the U.S. Department of Defense and all Federal Executive Agencies withdrew their motion to strike the testimony of the Citizen's Utility Ratepayer Board
                                                              \                                     .
(CURB) witness Brian Kalcic. 27          The Commission denied the International Brotherhood of Electric Workers, Local 304's (IBEW's) motion to file testimony out of time. 28            Due to the settlement of all issues, the Commission waived the previously ordered bifurcation of the evidentiary hearing. 29      *
: 26.      Following the preliminary matters and opening statements, Westar called Greg Greenwood to testify in support of the S&A30 and moved_ for admission into the record the prefiled testimony of Westar's remaining witnesses. 31 No party opposed the motion-.and the Commission admitted the testimony. 32 25 Transcript of Evid. Hearing at 9- I 0.
26 Id. at JO.
27 Id. at I 0- I I.
28 Id at I l-12.
29 Id at 12-13.
30 Transcript ofEvid. Hearing at 47-55.
31 Id at 55-56.
32 Id at 56.
II

27:     Staff called Justin T. Grady and Dr. Robert Glass to testify in support of the S&A33 and moved for admission into the record the prefiled testimony of Staffs remaining
* witnesses.34 . No party opposed the motion and the Commission admitted the testimony. 35
: 28. CURB called Andrea C. Crane to testify in support of the S&A36 and moved for admission_ into the record the prefiled testimony of CURB's remaining witnesses. 37 No party objected to this motion and the Commission admitted the testimqny. 38
: 29. All remaining parties who had previously filed direct, cross-answering, and rebuttal testimony in this proceeding, as described above, moved to have their respective witnesses' testimo~ies entered into the record. 39 No party objected to the admittance of the testimony into the record and the Commission admitted the same. 40 II.        Stipulation and Agreement A.      Agreement and Addendum
                                                                                       '\
: 30. On August 6, 2015, Staff, Westar, CURB, Kansas Industrial Consumers on its own behalf and behalf of its member companies, Unified School District No. 259, the Kansas Association of School Boards, Kroger Co., the U.S. Department of Defense and'all other Federal Executive Agencies, Frontier El Dorado Refining LLC, Occidental chemical Corporation, Wal-J Mart Stores, Inc., Tallgrass Pony Express Pipeline, LLC., Cargill, Inc., and Tyson Foods, 33 Id at 57-65.
34 Id at 65-66.
35 Id. at 66.
36 Transcript of Evid. Hearing at 66-68.
37 Id. at 68.
Js Id 39 Id. at 68-72.
40 Id.
12
* collectively referred to as the "Joint Movants" filed a Joint Motion to Approve Stipulation and Agreement. 41
: 31. Upon the filing of the S&A, Westar reached out to the Solar Parties. 42 The Solar Parties indicated that although they could file formal comments indicating their disagreement with certain provisions of the S&A, if certain changes were made to paragraph 39 of the S&A, the Solar Parties would agree not to oppose the S&A. 43 As a result of this, Westar proposed these changes in the Unopposed Addendum. 44 Westar received confirmation that no party to the docket objected to the filing of the Unopposed Addendum. 45 B.      Provisions of the Stipulation and Agreement
: 32. The S&A begins with a recitation of the Joint Movant's initial positions.46 As described above, the entirety of the terms c.ontained within the S&A, described below, have been unanimously subscribed to by the Joint Movants to the S&A. 47 Additionally, the terms of the S&A are not opposed by any of the Solar Parties. 48
: 33. Stipulated Re:venue Requirement: The Joint Movants propose that Westar's net overall annual revenue increase should be set at $78,000,000.49 This revenue requiremeJ?.t does not include costs recoverable through Commission-approved riders. 50
: 34. Rebasing: The Joint Movants propose that Westar roU into base rates the existing balance in the Environmental Cost Recovery Rider (ECRR), including the amount updated in 41 SeeS&A.
42 Unopposed Addendum at 2.
43 Id 44 See id. at 2-3.
45 See id. at 3.
46 S&A at 2-3.
47 See id.
48 Unopposed Addendum at 3.
49 S&A at ,r 12.
so Id.
13

                                                                 /
June, 2015, and the existing balance in the property tax surcharge and allocate the discount provided to Interruptible Service Rider (ISR) customers to the oth~r customer classes. 51 By including the roll-in of the ECRR, property tax surcharge, and allocation of the ISR discount, the total base revenue requirement increase is $185,100,000. 52 These rebasing amounts to be rolled into base rates are reflected in Appendix A to the S&A: 53
: 35. Rate case expense: The Joint_ Movants propose that rate case expense in excess *of the actual amount included in Staff's filed revenue requirement should be trued up at the end of the case to the actual amount of rate case expense incurred and be added to the agreed-upon revenue requirement. 54 Westar agreed to submit these expenses to Staff for review within 14 days of the close of the record in this case. 55 Staff reports that Westar's total rate case expense is
$1,536,649. Of that amount, Staff and CURB costs account for $493,631. This adjustment for rate case expense causes an increase in the revenue requirement of$225,264.
: 36. Bad debt expense: The Joint Movants propose that bad debt expense in excess of that included in Staff's filed revenue requirement recommendation be calculated as .43% of the net increase in revenue requirement and ,be added to the stated net increase in revenue requirement. 56 When the Joint Movants drafted the S&A using the agreed-upon revenue requirement increase described above, before accounting for the increase in rate case expenses the bad debt expense amounted to $86,700. 57 Using the revised rate case expense indicated by Staff, the bad debt expense now totals $87,658.
51 Id. at ,r 13.
52 Id. at,r 13.
53 Id. at ,r 13; S&A at Appendix A.
5
  ~ S&A at ,r 14.
55 Id.
56 Id. at ,r 15.
57 Id. at115.
14
: 37. Inclusion of Pension and Other Post Employment Benefit (OPEB) Expense: The Joint Movants propose that the $78,000,000 net increase in the annual revenue requirement include a $5;000,000 increase in Pension and OPEB expense from Stafrs filed position as stated in the Direct Testimony of Bill Baldry. 58
: 38. Nuclear Decommissioning Trust Fund: The Joint Movants propose that Westar utilize Staffs recommendation as stated in the Direct Testimony of Staff Witness Adam
* Gatewood regarding the appropriate funding level for Westar's nuclear decommissioning trust fund, e.g. $5,772,700. 59
: 39. Analog Meter Regulatory Asset: As Westar retires. analog meters between October 28, 2015, and the effective date of rate changes in Westar's next general rate case, the Joint Movants proposed that Westar place the unrecovered investment-in a retired analog meter regulatory asset. 60 The Joint Movants propose Westar be permitted to amortize the balance of the regulatory asset account over five years and recover that amortization amount in the base rates 61 established in Westar's next general rate case. No return on the regulatory asset will be
  .allowed.62 The Joint Mo vants* agree that this particular ratemak.ing treatment should have no precedential value. 63
: 40. Discontinuance of Environmental Cost Recovery* Rider: The Joint Movant's 64 propos~ that Westar's ECRR should be discontinued. The Joint Movants agr~e that Westar would do a final update of environmental costs for 2015 that would have been recovered through 58 Id. at,r 16.
59 Direct Testimony of Adam Gatewood Direct on Beha1fofCommission Staff at 70 (Jul. 9, 2015); *s&A at ,r 17 .
60
. S&A at,r 18.
61                     .
Id at ,r 18..
62 Id at,r 18.
63 Id. at ,r 18.
64 Id.atif19.
15

the ECRR previously noticed to the Commission, and roll them into base rates established in a proposed abbreviated rate case discussed below. 65
: 41. Grid Resiliency: The Joint Movants propose that Westar be permitted to recover up to $50,000,000 of capital investment in grid resiliency improvements completed between October 28, 2015, and March l, 2017, consistent with improvements proposed as part of the Electric Distribution Grid Resiliency (EDGR) program discussed in the Direct Testimony of
                                                                                   ,\
Westar witness Bruce Akin and the report sponsored in Westar witness Jeffrey Cummings' Direct Testimony. 66 Plant in-service, less the associated accumulated depreciation and deferred income taxes, would be reflected in rates as a result of the abbreviated rate cas!;! discussed below.
Westar will work with Staff to develop          aprocess for periodic reporting regarding the investments being made and periodic meetings to provide updates and discussion on such investments. 67
: 42. RENEW Tariff: The Joint Movants propose the Commission approve Westar's proposal as discussed in the Direct Testimony of Westar witness Chad Luce to change the pricing of the RENEW tariff to $0.25 per 100 KWh block, 68 a reduction to 1/4 of the current rate. 69
: 43. Wind Capacity Programs: The Joint Movants propose the Commission approve Westar's Wind Energy and Wind Capacity Programs discussed in the Direct Testimony of Westar Witness Chad Luce with the modification to the calculation of avoided cost agreed to in the Rebuttal Testimony of Westar Witness John Wolfram. 70 Specifically, the avoided cost for
* customers participating in these programs shall be Westar's Retail Energy Cost Adjustment 65
      !d at,r 19.
66 S&A at ,r 20; See Direct Testimony of Jeffrey W. Cummings on Behalf of Westar Energy, exhibit JC-!, as amended (Jun. IO, 2015).
67 S&A at ,r 20.
68 Id at ,r 21.
69 Direct Testimony of Chad Luce on Behalf of Westar Energy, 13 (Mar. 2, 2015).
70 S&A at ,r 22.
16

(RECA) rate increased by 5% of the [Medium General Service] base 'energy charge. The Joint Movants agree to add language to the RECA tariff !o allow the revenues* and costs from the program to be included in the RECA calculation. 71
: 44. Solar Energy & Capacity Tariff: The Joint Movants propose the Commission approve Westar's solar energy and solar capacity tariff as described in the Direct Testimo.ny of Chad Luce with the following conditions: (1) Westar will require the initial subscription of a solar project to equal 100% of the capacity of the project before beginning construction; {2) the
. minimum size for Westar's solar projects under this program shall be 1 MW; and, (3) th~. rates charged to initial participants will cover 100% of the direct costs of the project. 72
: 45.  . Residential Stability Plan and Residential Demand Plan: The Joint Movants agree that Westar will not implement these proposed tariffs at this time. 73
: 46. Community Solar: The Joint Movants agree that Westar will not implement the Community Solar program discussed in the Direct Testimony of Hal Jensen at this time. 74
: 47. Subdivision Policy: The Joint Movants propose that the Commission approve the subdivision policy changes in the Direct Testimony of Westar witness Mike Heim (increasing the allowance giyen to developers for residential subdivisions for the overhead distribution system from $30,000 to $40,000). 75
: 48. Street Lighting (SL). Private Area Lighting (PAL), Restricted Institution Time of Day.(RITODS): The Joint .Movants propose the Commission approve the changes in the Direct 71
     /d at 122.
72
     /d at,r23.
13 Id at 124.
74 Id. at ,I 25.
15 Direct Testimony of Mike Heim on Behalf of Westar Energy, 21 (Mar. 2, 2015) [hereinafter Heim Direct]; S&A at,r 26.
17

Testimony of Westar witness Mike Heim to the SL, PAL and RITODS tariffs as filed. 76 These changes will allow for the implementation of LED lighting options and expand the types of organizations that could take service under Westar's current RITODS tariff. 77
: 49. Economic Discount Sharing: The Joint Movants propose that customers and shareholders share the costs equally .(50-50) associated with any discount awarded in the future, as long as that discount affects future test year revenues in a rate case pursuant to Westar' s Economic Development Rider (EDR).78 The Joint Movants propose that the EDR tracker described in the Direct and Rebuttal Testimony of Westar witness Terrance D. Wilson not be adopted at this time. 79
: 50. Security Tracker: The Joint Movants propose that Westar be permitted to implement a Security Tracker as discussed in Staff witness Justin Grady's Direct_ Testimony, the Rebuttal Testimony of Westar Witness John Wolfram, and as specifically described in Appendix C to the S&A. 80
: 51. Return on Equity: There is no stated return on equity 1ncluded in the S&A. The*
Joint Movants propose that until Westar's next general rate proceeding, Westar be authorized to use 10.926% as its overall pretax rate of return for regulatory accounting purposes, including the calculation of the
* equity component of Allowance for Funds Used During Construction (AFUDC), and for the abbreviated rate case discussed below. 81 This pre-tax rate of return assumes Westar's filed .capital structure to be 46.3% Long-Term Debt, 53.1 % Common Equity, "
S&A at ,r 27.
76 77 Heim Direct at 19-21. Note: Under Westar's current RITODS tariff, the "R''. is.an abbreviation for "Religious."
Westar's proposed changes'also change this abbreviation to "Restricted" to make the tariff available to other customers with similar usage patterns of religious institutions. See Heim Direct at 20..
* 78 S&A at ,r 28.
79 Id at ,r 28.
80 Id. atif29.
81 Id. at ,rJO.
18

and .6% Post 1970 [Investment Tax Credit] as discussed in the Direct Testimony of Westar .
Witness Susan North. 82 The Joint Movants agreed to the use of the indicated overall pretax rate
    .of return for settlement purposes only, and do not view such return on equity as precedential. 83
: 52. *. Jurisdictional Non-Transmission Related Retail Property Tax Expense: The Joint Movants propose upon approval of the agreed-upon rate increase, that the Kansas jurisdictional, non-transmission related,' retail property tax expense in base rates be $106,671,011. This amount would be the basis for determining property tax balance used in future property tax surcharge filings for the time-period when the proposed new rates would be applicable. 84 In order to calculate future' property tax surcharges, the property tax surcharge expense assumed to be collected in base rates will begin with the effective date of the rate increase resulti11:g from this docket, until the amount is reset in a Commission order: 85    .
: 53. Cost-of-Service Deferred Income Tax Expense: The Joint Movants propose that Westar's cost-of-service deferred income tax expense and amortization of investment tax. credits comply with the tax normalization requirements 0f the Internal Revenue Code of. 1986 as amended. 86
: 54. Amortization Periods:* The Joint Movants propose the following amortization periods:
: a. Westar's actual rate case expense - three years;
: b. Regulatory asset associated with SmartStar Lawrence - three years; i
: c. Regulatory asset associated with SCR Catalyst - fifty-four months; 82 at Id ,r 30.
83 Id. at ,r 30.
8-1 S&A anJ 31.
85 Id at ,r 3 I.
86 Id at ,r 32.
19
: d. Regulatory asset associated with Baghouse - six years;
: e. Regulatory liability associated with Stateline purchased power - three years;
: f.
* Pe~sion tracker authorized by Docket No. 10-WSEE.:135-ACT in the -annual amount of $3,423,867- five years. 87
: 55. Going Forward Pension Tracking: The Joint Movants propose that base rates agreed to in the S&A include the following expenses associated with Westar' s pension plan:
: a. Westar Pension Expense - $33,403,818
: b. Westar EAS 106 Expense - $841,864
: c. Westar FAS 112 Expense - $431,737
: d. WCNOC Pension Expense - $9,934,193 88
: 56. Abbreviated Rate Proceeding: The Joint Movants propose that Westar be allowed to use the abbreviated rate setting process contained in K.A.R. 82-1-231 (b )(3) to update rates to include capital costs related to the environmental projects at LaCygne Energy Center that were preapproved by the Commission in Docket No. 11-KCPE-581-PRE, up to the amount of costs approved by the Commission in said docket, but not included in rates set as a result of this
_proceeding. 89 The Joint Mova~ts also propose that Westar use the abbreviated rate setting process to update rates _to include capital costs related to projects at the Wolf Creek Generating Station described in the Direct Testimony of Westar witness* John Bridson. 90 The Joint Movants
                                                     \
request the Commission expressly grant Westar prior approval to fil~ this abbreviated rate case*
87
 . Id atif33.
88 Id at ,r 34.
89 Id at ,r 35.
90 S&A at ,r 35.
20

pursuant to K.A.R. 82-1-23l(b)(3).        The cost of capital to be used for purposes of such proceeding is to be the overall rate of return stated in paragraph 30 of the S&A. 91
: 57. Inclusion of Grid Resiliency -Projects &- Final Roll-in of Environmental Cost Recovery Rider Costs: The Joint Movants propose that Westar use the abbreviated rate setting process contained in K.A.R. 82-1-231(b)(3) to include in Westar's rates the costs associated with 92 investments in grid resiliency projects discussed in paragraph 20 of the S&A,      and the final roll-in of ECRR costs discussed in paragraph 19 of the S&A. 93
: 58. Allocation Among Classes: The Joint Movants propose that the rate increase be allocated among the respective classes of customers according to the amounts indicated for each class as shown in Appendix A of the S&A, and that rates should be adjusted as shown in I
Appendix B of the S&A. 94     *
: 59. Creation of Standard Residential Distributed Generation Tariff: The Joint Movants propose that Westar be allowed to create a Standard Residential Distributed Generation Tariff.95 Residential customers who install distributed generation after October 28, 2015, would be required to take service pursuant to the terms of this new tariff. 96 The initial rates and rate structure for the Standard Residential Distributed    . Generation Tariff would be identical to Westar's Standard Residential Tariff, as determined in this rate case. 97 Residential customers who install distributed generation after October 28, 2015, and are placed on the Standard Residential Distributed Generation Tariff, will not be considered grandfathered or exempt from future changes in rates or rate* structures for distributed _generation customers approved by the 91 Id. at ,r 35.
92 Id at ,r 36.
93 Id at ,r 36.
94 Id at ,r 37.
95 Id at ,r 38.
96 S&A at ,r 38.
97 Id at ,r 38.
21

Commission in either a generic docket proposed in paragraph 39 of the S&A (as amended), or in*
any other Commission proceeding. 98 Westar would provide notice to         all customers applying for service under the Standard Residential Distributed Generation Tariff that the rates and rate structures contained therein are subject to change, and that any such future rate or rate structure 99 change could impact the economics of the customer's distributed generation.
: 60. Generic Docket Proposal as Amended by Addendum: The Joint Movants and Solar Parties agree that the issue of whether a separate Residential Standard Distributed
. Generation Tariff is necessary, and, if so, how to structure the Residential Standard Distributed Generation Tariff in order to properly 'recover just and reasonable costs from customers with 100 distributed generation should be deferred to a generic docket.           Westar and Staff .proposed working together to develop a procedural schedule for a generic docket in order to ensure timely 101 resolution of distributed generation issues to be addressed. The Joint Movants agree that they 102 will not oppose or seek to limit the participation of the Solar Parties in the generic proceeding. *
: 61. Residential Customer Charge: The Joint Movants propose that the monthly basic 103 service fee be $14.50 for all residential classes except for the Peak Management. The Joint 104 Movants proposed the monthly basic service fee for the Peak Management Rate be $16.50.
These basic service fees would not be adjusted in the abbreviated rate case discussed in paragraphs 35-36 of the S&A.
: 62. Elimination of High Load Factor (HLF) schedule and creation *of new schedules:
The Joint Movants propose that the HLF rate schedule be eliminated and two new rate classes be 98
      -Id. atif 38.
99 Id at ,r 38.
100 Unopposed Addendum, Addendum to Stipulation and Agreement.
IOI   Id wz Id.
103 S&A at ,r 40.
104 Id. at ,r 40.
22

created as proposed in the Direct Testimony of Westar witness John Wolfram. 105 Customers with billing demands greater than 1,000 kW and up to 25,000 kW would qualify for the L~rge General Service (LGS) class and customers with billing demands greater than 25,000 kW would qualify 106 for the Industrial & Large Power (ILP) class.         As proposed, customers moving to a new class as a result of.this change would be moved at the beginning of the first complete billing cycle following the issuance of the Commission's order in this docket. 107 This provision was further clarified at the evidentiary hearing to mean the first billing cycle occurring after the effective-date of the final order in this docket. 108 In order to minimize the impact on customers that are required to move to the LGS class as a result of the Joint Movant's S&A proposed changes, the Joint Movants proposed that.Westar's next Transmission Delivery Charge (TQC) filing use the recalculated 12 Coincidental Peak (CP) which takes into account CP data from these customers
* being .moved to the appropriate class. 109
: 63. Small General Service Basic Service Fee: The Joint Movants propose that the monthly basic service fee for the small general service customer class be set at $22.50. 110
: 64. Separation of Grid Resiliency Costs: The Joint Movants propose that no part of the increase in revenue requirement *in the abbreviated rate case associated with investments in grid resiliency be allocated to the LGS, ILP, large tire manufacture"r (LTM), interruptible service (IS) classes, or special contract customers. 111 Grid Resiliency Costs would be allocate~ to the remaining customer classes in the abbreviated rate case based on the same percentages reflected 105 Id. at ,r 41.
106 Id. at ,r 41.
107 Id. at ,r 41.
108 Transcript of Evid. Hearing at 50.
109 S&A at ,r 4 l(a).
110 Id. at ,r 42.
111 Id. at ,r 43.
23

in Appendix A of the S&A but adjusted proportionally to reflect the exclusion of the LGS, IL[>,
LTM, IS, and special contract customers from the allocation. 112
: 65.       Remainder of Revenue Increase: The Joint Movants propose that the remainder of the increase in revenue requirement in the abbreviated rate case will be allocated based on the same percentages reflected in Appendix A of the S~A. 113
: 66.       Continuing Discussions: The JointMovants propose that Westar agree to continue discussions regarding a potential multi-site rate for medium general service customers, and, if appropriate, propose such a rate structure in the abbreviated rate case. H 4
: 67.       Study Delivery Voltage Cost: The Joint Movants propose that Westar agree to study the potential of making further changes to the delivery voltage cost differences and, if appropriate, make any changes in the next general rate case. 115 If Westar determines no additional changes are appropriate, Westar will present evidence explaining the reason for that determination. 116
: 68.       Miscellaneous Provisions: The Joint Movants propose several miscellaneous provisions to the S&A that indicate nothing in the S&A is intended to impinge or restrict in any manner the exercise by the Commission of any statutory right, including the right of access to information, or any statutory obligation, including the obligation to ensure that Westar is provid(ng efficient and sufficient service at just and reasonable rates. The S&A also detailed a number of privileges regarding the filing of testimony to support positions, the cross-examination of witnesses, and standard language typically included in S&As. 117 112 Id.
113 Id. at ,I 44.
114 Id. at,I 45.
115 S&A at ,I 46.
116 Id.
117 Id. at ~,I 47-51.
24

C.        Standard of Review
: 69.       Rates, fares, tolls, and charges imposed by a public utility upon its customers are required to be just and reasonable, not unjustly or unreasonably discriminatory and not unduly preferential. 118
: 70.       The Commission, in setting rates for an electrical utility, must fix rates within a
'.'zone of reasonableness" after balancing interests of the utility's investors, ratepayers, and public.11 9
: 71.       The Kansas Supr~me Court ~andates the Com~ission consider and balance the interests of the utility's investors vs. the ratepayers, the present ratepayers* vs. the future ratepayers, and the public interest. 120 "[C]ases in this area clearly indicate that the goal should be a rate fixed within the zone of reasonableness after the application of a balancing test in which the inter~sts of all concerned* parties are considered." 121 "There is an elusive zone of reasonableness Kansas courts have recognized when reviewing utility rate decisions. [A] court can only concern itself with the question as to whether a rate is so unreasonably low or so unr~asonably high as to b.e unlawful. The in-between point, where the.rate is most fair to both the utility and its customers, is a matter for the Commission's determination." 122
: 72.      In addition to Kansas' own statutes and case law on.the subject, the U.S. Supreme Court has established certain principles for the Commission to follow when reviewing rate change applications. Bluefield Waterworks & Jmp.
* Co. v. Pub. Serv. Comm 'n of W Va., 262 U.S.
679 (1923), and Fed Power Comm 'n v. Hope Natural Gas Co., 320 U.S. 591 (1944), provide what 118 Grindsted Products, Inc. v. Kansas Corp. Com 'n, 262 Kan. 294,309 (1997); K.S.A. 66-lOld.
119 Kansas .Gas and &#xa3;lee. Co. v. State Corp. Com 'n, 239 Kan. 483,488 (1986).
120 Id at 488.
121 See id. (internal quotation omitted) 122 Aquila, Inc. v. State Corp. Comm 'n ofState, No. 94,326, 2005 WL 1719705 at *2 (Kan. App. Jul. 22, 2005).
                          .        .                       25

this Commission has referred to as the "capital attraction standard." 123                   "The return [on investment] should be reasonably sufficient to assure confidence in the financial soundness of the utility and should be adequate, under efficient and economical management, to maintain and support its credii and enable it to raise the money necessary for the proper discharge of its
. public duties." 124 "That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital." 125 The court has also stated however, "a rate of return may be reasonable at one time and become too high or too low by changes affecting opportuni!ies for investment, the money market and business conditions generally. 126           Also in Hope Natural Gas, the U.S. Supreme Court promulgated what this Commission refers to as the "comparable earnings standard." 127 "By that standard the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks" which would include not only service on a
* utility's debt but also .dividends on the stock. 128 This, as Westar noted in its Application, does not guarantee it will actually earn its authorized return. 129 "[R]egulation does not insure that the business shall produce net revenues, nor does the Constitution require that the losses of the business in one year shall be restored from future earnings by the device of capitalizing the losses and adding them to the rate base on which a fair return and depreciatiC?n allowance is to be earned." 130 These standards taken together stand for the general idea that the return provided to a 123 Order Approving Nonunanimous Stipulation and Agreement with Modification at 3, Joint Application of Westar Energy, Inc. and Kansas Gas and Electric Co.for Approval to Make Certain Changes in Their Charges for Electric Service, Docket No. 12-WSEE-112-RTS (Apr. I&, 2012) [hereinafter 12-112 Docket].
124 Bluefield Waterwprks & Imp. Co. v. Pub. Serv. Comm 'n ofW. Va., 262 U.S. 679,693 (1923) (emphasis added).
125 Fed Power Comm 'n v. Hope Natural Gas Co., 320 U.S. 591,603 (1944).
126 Bluefield Watenvorks, 262 U.S .. at 693.
127 12-112 Docket at 3.
128 Hope Natural Gas, 320 U.S. at 603.
129 Application at 10.
13
     &deg; Fed Power Comm 'n v. Natural Gas Pipeline Co. ofAm., 315 U.S. 575, 590 (1942).
26

utility's investors. should (1) be consistent with other businesses having similar risks and (2) the adequacy of the return for servicing debt and paying dividends be able to support a util_ity's credit quality, access to capital, and financial integrity. "The KCC is required to balance the public need for adequate, efficient, and reasonable service with the public utility's need for sufficient revenue to meet the cost of furnishing service and to earn a reasonable profit." 131
: 73.
* The Commission may accept a settlement agreement provided an independent finding is made, supported by substantial evidence in the record as a whole, that the settlement will establish just and reasonable rates. 132 The Commission may utilize a five-element test to* aid in the review of settlement agreements. 133
: 1.      Was there an opportunity for the opposing party to be heard on the reasons for opposition to the Stipulation and Agreement?
: 74.      For a variety of reasons discussed in previous Commission Orders in this docket, not every party to this proceeding was able to participate in initial settlement discussions. 134 Notwithstanding the fact that the S&A is unanimously supported by the Joint Movants, it would be premature for the Commission to conclude from this fact alone that there were no opposing parties. The Com.mission must also tum to the parties who were :not permitted to engage in settlement discussions to gauge their support or opposition to such agreement. Westar in the Unopposed Addendum established the first instance that all parties were either: (1) in support of the S&A or, 135 (2) unopposed to the S&A's approval. 136 131 Danisco Ingredients USA, Inc. v. Kansas City Power & light Co., 267 Kan. 760, 773 (1999).
132 Citizens' Viii. Ratepayer Bd. v. State Corp. Comm 'n ofState of Kansas, 28 Kan. App. 2d 313, 3 16 (2000).
133 Order Approving Contested Settlement Agreement at 5-6, Application of Atmos Energy for Adjustment of Its Natural Gas Rates in the State of Kansas, Docket No. 08-ATMG-280-RTS (May 12, 2008).
134 See e.g. Final Procedural Order.
135 See S&A at 14-19.
136 Unopposed Addendum at 3.
27
: 75. The majority of the parties who were unable to participate in the creation of the S&A were the Solar Parties. However, as noted in Westar's Unopposed Addendum, the Solar Parties agreed not to oppose the S&A, and not to cross-examine any witnesses who may have testified in* support of the S&A at the evidentiary hearing. 137
* These were rights that the Commission had expressly granted to TASC, CEI, Brightergy, and EDF. 138              CEP was not allowed to participate at the evidentiary hearing and was* thus not conferred these rights. 139 However, CEP also concurred with the* other Solar Parties that it did not oppose the S&A. 140 Westar's Unopposed Addendum makes it clear.to the Commission that the Solar Parties are not opposed to the S&A.
: 76. Settlement agreements revolve around compromise to reach reasonable outcomes.
The S&A presented by the Joint Movants is a global settlement. It resolves all outstanding issues between the Joint Movants. 141 A careful review of the S&A, and the detail to which it discusses dozens of separate items, makes it clear to the Commission that the Joint Movants to the S&Aintended to resolve all disputes between them, and had ample opportunity to advocate their respective interests. Every signatory to the S&A is in favor of the agreement. There are no parties opposed to the S&A who were allowed to participate in either its creation, or the subsequent filing of an adde~dum.as Westar noted in its Unopposed Addendum. 142 Additionally, no party to this proceeding has logged an objection to the S&A as required by K.A.R. 82-l-230a:
131 Id.
138 Final Procedural Order at 14, 18-19, 22, 27.
139 Id. at 25.
140 Unopposed Addendum at 3.
141 S&A at 12.
142 Unopposed Addendum at 3.
28
: 77.       The only remaining party who did not participate in settlement discussions is the IBEW. IBEW had previously indicated it had no po~ition regarding Westar's Application, 143 and when granted intervention, they were prohibited from participating at the evidentiary hearing. 144 IBEW did not petition the Commission for reconsideration of its intervenor status, and made no motion or argument despite being present at the evidentiary hearing through counsel that would otherwise indicate IBEW's opposition to the S&A.
: 78.      No party has offered any formal objection to any term contained within the S&A.
Pursuant to K.A.R. 82-1-230a(c), a party objecting to a settlement agreement must file a written objection within 10 days after the fili~g of the settlement agreement unless a shorter time-period is ordered by the Commission. Failure to do so constitutes a waiver of a party's right to object to a settlement agreement. 145
: 79.      Therefore, after examining all of the parties' respective roles and degrees of participation in this proceeding, the Commission finds that all parties had an opportunity to be heard on any opposition to the S&A, and that no parties are opposed to the adoption and approval of the S&A.
: 2.        Is the Stipulation and Agreement supported by substantial competent
                          - evidence in the record as a whole?*
I
: 80.      The-record to this proceeding is extensive and comprehensive. The Commission will not attempt to summarize the entire record as established in this proceeding. As discussed above, dozens of witnesses have filed testimony outlaying and defending positions while criticizing others.        The Commission has reviewed the direct, cross-answering and rebuttal testimony as supplied by the parties. Further, the Commission has taken into consideration over 143 Petition to Intervene at 3 (Jul. 16, 2015).
i.w Order Granting Limited Intervention at 2-3 (Aug. 11, 2015).
145 See K.A.R. 82- I -230a(c).
29

1,500 public comments submitted in this proceeding. Because all parties to this docket are either in support of or unopposed to the adoption and approval of the S&A as amended, the Commission will undertake a more comprehensive review of the four witnesses who testified in support of the S&A.
8-1. Mr. Greenwood testified that the S&A is. _supported by substantial competent evidence when viewing the record as a whole. 146 Mr." Greenwood detailed the initial position of Westar, and how accounting adjustments proposed by other parties later became reflected in Westar's rebuttal testimony. 147 Mr. Greenwood detailed how the S&A in terms of the net revenue requirement incorporates pieces from and is supported or agreed to by a number of parties. 148 Mr. Greenwood expanded upon individual terms contained within the S&A, and provided ample evidence indicating multiple witnesses from diverse parties supported the variety of positions. 149     c
: 82. Mr. Grady submitted testimony in support of the S&A. Mr. Grady noted the S&A "resolves all contested issues related to the revenue requirement [class cost of service] and rate design in this docket." 150        Specifically, Mr. Grady testified to: Westar's net overall annual revenue increase, the rebasing of rates, rate case expense true-up, bad debt expense, Pension and OPEB Expenses, the Nuclear Decommissioning Trust Fund, the analog retirement and regulatory asset, the discontinuance of the ECRR, grid resiliency projects and ratemaking treatment, the proposed security tracker, retun;i _on equity and capital structure, Kansas-jurisdictional non-transmission related retail property tax expense, deferred income tax expense and amortization of 146 Testimony of Greg A. Greenwood in Support of Stipulation and Agreement at 11-14 (Aug. 11, 2015) [hereinafter Greenwood S&A Testimony].
147 Id. at 11-12.
148 Id. at 12.
149 See id. at 12-14.                                                                         .
150 Testimony in Support of Stipulation and Agreement Prepared by Justin T. Grady at 3 (Aug. 11, 2015)
[hereinafter Grady S&A Testimony].
30

investment tax* credits, amortization periods, . pension trackers, and abbreviated rate case procedures and issues. 151
: 83. Mr. Grady detailed that Westar's initial Application, and the rigorous scrutiny that it was subject to from not only Staff, but also CURB and other intervenors created a body of evidence for the Commission to consider. 152 The Joint Movants accordingly relied on this body of evidence when they negotiated the terms of the. S&A. 153 Mr. Grady noted. that the terms
* contained in the S&A are comparable with an outcome that could be expected if the case were to be fully litigated. 154
                                                                                 ,/
: 84. Mr. Grady concluded that the ~&A represents a reasonable resolution of the
                                .    .                                 I issues and matters contained within this docket, is :in the public interest, is supported by substantial competent evidence in the record, and falls within the realm *Of reasonable debate and I
the zone of reasonableness. 155
: 85. Dr. Glass submitted testimony in support of the S&A. Spe~ifically, Dr. Glass testified to numerous rate design issues such as: class revenue allocation, rate consolidation for High Load Factor North & South customers, structural problems between Medium Gener~!
Service and High Load Factor classes, secondary primary and transmission service for High Load Factor Customers, renewable resource tariffs, customer charges, distributed generation issues, the Economic Development Rider, revenue requirement allocation in the proposed abbreviated rate case, and miscellaneous non-controversial issues.
151 Id. at 3-9.
152 Id. at 10-11.
153 Id. at 11.
154 Id.
155 Id. at 16.
31
: 86. Dr. Glass concluded in his testimony that the S&A represents a realistic resolution of rate design issues, and that the proposed rate design in the S&A will result in just and reasonable rates. 156     Ultimately, Di:. Glass states that the S&A is in the public interest, is supported by substantial competent evidence in the record, and should be approved by the Commission in total. 157
: 87. Ms. Crane, on beh~lf of CURB, testified that the S&A is supported by substantiai compe~ent evidence when viewed from the record as a whole. 158 Ms. Crane first testified to the parties' initial positions. 159 Ms. Crane explained that using the capital structure and cost *of debt as provided by Westar th~t was adopted by CURB, and utilizing a 9.35% cost of equity, would increase CURB's net revenue requirement from $50.80 niiHion to $72.31 million. 160 Ms. Crane expanded on this by saying it was difficult to provide an item-by-item settlement on issues contained within the S&A as some issues increased the net revenue requirement while some issues decreased tl;ie net revenue requirement. 161           Taking into account the pre-tax return of 10.926% as contained within the S&A, Ms. Crane stated the net revenue increase was close to CURB' s recommended increase,. and fell within the range provided by other parties to the proceeding. 162 Ms. Crane then undertook a review of how the net revenue increase would be allocated amongst the classes as well as the monthly service* char~es for residential and small commercial customers. 163 Ms. Crane indicated that the revenue allocations contained within the 156 Testimony in Support of Stipulation and Agreement Prepared by Robert H. Glass, PhD at 3 (Aug. 11, 2015)
[hereinafter Glass S&A Testimony].
157 Id. at 3.                                                                                    .
158 Testimony in Support of Stipulation and Agreement Andrea C. Crane on BehalfofCURB.at 9-11 (Aug. 11, 2015) [hereinafter Crane S&A Testimony].
* 159 Id. at 2-3.
160 Id. at 10 161 Id.
162 Id. at 10-11.
163 id. at I I.
32

S&A appear to be reasonable, and that the proposed customer charges fall within ranges provided by the parties. 164
: 88.       The Commission finds that the record established prior to settlement discussions, and supplemented with testimony and evidence in support of the S&A, establishes a thorough and complete record to fully and adequately prepare an S&A. Parties to this proceeding relied on data provided either by their individual institutions, or by others.                      As_ parties to this proceeding engaged in attentive settlement.discussions, they relied on the information contained within this docket to strike a realistic compromise that could be supported or defended with information contained in the record. To supplement the parties' respective positions in support of the terms of the S&A, the parties to this proceeding submitted additional testimony.
: 89. _. '-'The testimony and evidence submitted throughout the entirety of this proceeding provided a substantive body of evidence on which to base compromises struck within the S&A.
The witnesses who testified and submitted evidence are experts in their respective fields. As such, they provided competent information not only for parties to use when negotiating, but also for the Commission to review when determining the reasonableness of the S&A and its terms.
Therefore, the Commission concludes that substantial competent evidence supports the S&A as amended when viewed through the record as a whole.
: 3.       Does-the Stipulation and Agreement conform with applicable law? -
: 90.       At the outset; it is important to note that no party to this proceeding has raised the slightest concern that the proposed S&A may be unlawful.                      Regardless, the Commission is required to undertake its own independent review. 165 Determining whether an S&A conforms with applicable law requires the Commission to assume that the S&A would be approved and be 164 Crane S&A Testimony at 11.
165 See Citizens' Util. Ratepayer Bd v. State Corp. Comm 'n ofState* of Kansas, 28 Kan. App. 2d -313, 316 (2000).
33

subject to judicial scrutiny the same as any other order of the Commission.
* In other words, would the S&A conform to applicable law and survive judicial review if the Commission had established the terms of the S&A under its own judgment?                       Such an inquiry requires the Commission to examine the reasonableness and lawfulness of the order.
: 91. An otder of the Commission is lawful if it is within the statutory authority of the Commission, and if the prescribed statutory and procedural rules are followed in the making of the order. 166 The Commission has wide discretion from the legislature regarding rates for public
.uti*1*1t1es.
         . 167     Specifically, K.S.A. 66-117 requires public utilities, such as Westar, seek Commission approval prior to changing any rate for which it charges customers for the use of electricity. After reviewing the testimony, it is undeniable that parties to this proceeding had disputes among their respective initial positions.               However, "the law favors the amicable settlement of disputes." 168 It follows that if parties come to s~ch a resolution, their resolution could seek to adjust rates for a public utility. The adjustment of rates agreed to via compromise between parties is still subject to Commission approval. Therefore, it is well within the lawful authority and jurisdiction of the Commission to consider this S&A as amended as it adjusts rates for a public utility subject to the Commission's jurisdiction and oversight.
: 92. Rates established by the Commission must be just and reasonable. 169                  In developing five questions to review settlement agreements, the Commission dedicated one question to examine the ''just and reasonable" *standard alone. As such, the Commission defers discussion of that item to     aseparate part of this order.
166 Cent. Kansas Power Co. v. State Corp. Comm 'n, 221 Kan. 505, 511 ( 1977).
161 Id.
168 Int'/ Motor Rebuilding Co. v. United Motor Exch., Inc., 193 Kan. 497,499 (1964).
169 K.S.A. 66-10 I b.                                  .
34
: 93.      The Parties and the Commission complied with all procedural rules within this*
.I docket. The Parties and the Commission complied with the procedural schedules, the issuance of I
orders and the disposition of preliminary matters in accordance with the Kansas Administrative Procedure Act, K.S.A. 77-501 et seq., which K.S.A. 66-117 requires the Commission to follow when reviewing a public utility's application to change rates. The Commission may therefore find that the prescribed statutory and procedural rules for reviewing the* S&A and issuing this order have been followed.
: 94.      Orders issued by the Commission are considered reasonable if they are based upon substantial competent evidence. 170 Applying the same standard to the S&A that is applied to orders issued by the Commission, it is clear to see that the S&A is based upon substantial competent evidence. The Commission's standard has been to review settlement agreements in light, of the record as a whole.         This allows the Commission to determine where such an agreement and its terms lie in relation to the terms of thf previously articulated positions of the parties. Upon examining the record as a whole, it is clear that there is ample evidence used to support the parties' initial positions, and ample evidence to support how the parties were able to reach a negotiated settlement. The proceedings established the scope and breadth of the record in this case as discussed above. 171 The Commission finds that such a thorough record, and supplementary filings . used to support the S&A as amended, establishes that substantial competent evidence necessary to support such an S&A as amended.
: 95.      The Commission therefore finds that the S&A as amended c,omplies with applicable law.
po Cent. Kansas Power Co., 221 Kan. at S 11.
171 See supra Part LC.
35
: 4.      Does the Stipulation and Agreement result in just and reasonable rates?
: 96.      Electric Public Utilities, such as Westar, are required to provide reasonably efficient and sufficient. service at just and reasonable rates. 172 In determining what constitutes a just and reasonable rate, the Commission has broad discretion. 173 As promulgated by the U.S.
Supreme Court and adopted by the Kansas Court of Appeals, just and reasonable rates must fall within a "zone of reasonableness" 174 As Dr. Glass testified, the initial filed positions from all of the signatories to the ,S&A represents the "zone of reasonableness" for the Commission to cons1.d er. 11s .
: 97.      Westar Witness Mr. Greenwood testified in support of the S&A. 176 Ultimately, Mr. Greenwood testified that 'the rates proposed          in Appendix B to the S&A would either remain in-line or below 2014 national averages. 177           Mr. Greenwood testified that he expected national electric rates to rise in the future, which in tum would mean Westar's electric rates (as proposed by the Joint Movants) would be_ even lower than national averages. 178 Mr. Greenwood states he
* believed the rates proposed in Appendix B to the S&A were just and reasonable, and requested this Commission approved them. 179                 The Commission concurs with Mr. Greenwood's summation and rationale.
9~.      Dr. Glass testified on the "Balancing Test" that Kansas courts have developed when reviewing the zone of reasonableness standard. 180 _ Specifically, Dr. Glass conducted a 172 K.S.A. 66-IOlb.
173 Citizens' Util. Ratepayer Bd v. State Corp. Comm 'n ofState, 47 Kan. App. 2d 1112, 1131 (2012).
174 Kansas Gas and &#xa3;lee. Co., 239 Kan. at 488.
175 Glass S&ATestimony at 15.
176 Greenwood S&A Testimony at 2.
177 Id. at 16.
178 Jd.
119 Id.
180 Glass S&A Testimony at 14.
36

review of the interests of: investors vs. ratepayers, present ratepayers vs. future ratepayers, and the public interest. 181 Dr. Glass' testimony in support of the proposed S&A ~ompels a finding favorable on these specific items. 182
: 99. Ultimately, Dr. Glass concluded that the S&A was a realistic resolution of rate design issues outlined in this proceeding, that the proposed rate design is just and reasonable, that the agreement is supported by substantial competent evidence, and should be approved. 183 The Commission concurs with Dr. Glass' summation and rationale.
* 100. Mr. Grady testified that he believed the rates established in the S&A would result in rates that fall within the "zone of reasonableness." 184 Mr. Grady testified that the agreed-to revenue requirement increase struck the appropriate balance between Westar's desire to have
  - assurance that it could earn sufficient revenue and cash flow to meet its financial obligatfons, and the desire of the r~tepayer to keep rates low while maintaining reliable electric service. 185 Mr.
Grady further theorized that if any particular party to settlement negotiations took issue with an unfavorable term related to their respective interest, they would not have joined or conceded to the S&A. 186       Therefore, because multiple rate classes with widely different interests were represented and later joined together to become signatories to the S&A, Mr. Grady concluded that the proposed terms of the S&A, specifically the revenue increase, could be viewed as
, reasona bl_e ;rom c. the v1ewpomt
                             .                  .      . 187 As M
                                    . of the s1gnatones.           . r. Grady postu1ates, 1"f the terms were 181 Id. at 14-16.
182 Id.         ,'
183 Id. at 16.
184 Grady S&A Testimony at 13 .
185
.       Id. at 13-14.
186 Id. at 14.
181 Id.
37

not just or reasonable, then a unanimous S&A could not have been reached. 188 The Commission concurs with this summation.
IOI. Ms. Crane testified in support of the S&A on behalf of CURB.              Like Mr.
Greenwood, Dr. Glass, and Mr. Grady, Ms. Crane testified that approval of the S&A would result in just and reasonable rates. 189 Ms. Crane spoke specifically to the terms of the S&A, and how Westar's net revenue increase in the S&A was approximately 51% of what Westar had initially proposed in its Application, and only 8% above CURB's net revenue increase as adjusted. 190 102. Ms. Crane also testified positively in support of the elimination of the ECRR, redu.ced customer charges, grid resiliency, retired analog meters, and the* EDR. 191           Taken together, Ms. Crane testified as to how these terms as outlined in the S&A are beneficial to Kansas ratepayers, and ultimately concluded that the S&A would result in just and reasonable rates. 192 103. The requirement that just and reasonable rates fall within a zone ofreasonableness 1s used to determine whether a particular rate .is contained within an "elusive range of reasonableness in calculating a fair rate of retum." 193 The Commission acts within the discretion granted to it when it searches for and finds an in-between point "where the rate is most fair to the .
utility and the customers." 194 The Commission has reviewed 'the filed positions of the parties.
The Commission has also examined in detail the impact to individual customer classes as outlined to the various appendices to the S&A. The Joint Movants are unanimously in support.of 188 Id.
189 Crane S&A Testimony at 13.
190 Id.
191 ld. at 13-14.
192 Id. at 14.
193 Kansas Gas and Elec. Co., 239 Kan. at 490.
194 Id.
38

the S&A as amended and neither the Solar Parties. nor the IBEW are opposed to the amended S&A's approval. No evidence has been presented to the Commission suggesting that approval
             .                             I
* of the rates as described by the S&A would *in any way be unjust or unreasonable, or make service unaffordable to customers, Therefore, the terms of the S&A as amended wil.1 result in rates that are notunduly burdensome, unduly preferential, or unreasonably discriminatory.
104. The Commission has also reviewed the terms of the S&A and its impact on the relationship between the utility's investors, the present ratepayer's and future ratepayers, and the public interest. The Commission has set aside as a separate question whether the S&A is in the public interest and will defer discussion on that item until the next section of this order.
105. The Commission finds the terms contained within the S&A fall within a zone of reasonableness and appropriately balance the interests of the Westar'~ investors with ratepayers, and with present ratepayers vs. future ratepayers. The evidence submitted in this proceeding has compelled the Commission to find that the S&A as amended will allow the utility to continue to meet \its financial obligations while earning a return on investment that is commiserate with businesses of similar risks.* The Commission further finds that ratepayers will benefit from the S&A as amended as they will continue to have access to alfordable electricity at or below national average costs with the confidence that Westar will continue to be able to provide such service. Moreover, the Commission finds the S&A as amended protects and balances the interests. of current and future ratepayers,    Terms contained within the S&A as amended are designed to maintain or impr~ve service quality while maintaining low costs. Additionally, the S&A takes proactive steps to ensure cross-subsidization is mitigated (e.g. grid resiliency cost allocation and the deferment of unique distributed generation terms until the completion of a generic docket).
39   '

106. The Commission has taken into consideration the competing interests as described by the Court when the Commission exercises its power in the setting of rates. The Commission finds that the agreed-upon net revenue increase and terms of the S&A as amended fall within the zone of re~sonableness to which the Commission must adhere. The S&A as amended represents a series of compromises set and agreed to by the Joint Movants, and upon further concession,
* unopposed by the Solar Parties and IBEW. The rates established by the S&A will allow Westar to continue to meet its financial obligations, as well as its statutory obligation to provide efficient and sufficient service at just and reasonable rates. Therefore, the Commission finds the S&A, the rates and rate structures contained within, and specific terms of the S&A        will result in just and reasonable rates for Westar's customers.
: 5. Are the 'results of the . Stipulation and Agreement in the* public interest, including the interest of customers represented by any party not consenting to the agreement?
107. Mr. Greenwood testified that the rates Westar customers would pay if the S&A were to be approved included approximately 96% of the expected La Cygne investments. 195 Mr.
Gre_enwood also testified that th~ rate specific classes customers would pay, as proposed by the S&A is supported by the numerous c;:lass cost of service studies that had been provided in this docket, and that the increased customer charge helped better align customer rates with Westar's costs. 196 108. Mr. Greenwood testified that Westar's customers would see benefits from additional investments in grid resiliency programs, digital meters, approval of certain solar 195 Greenwood S&A Testimony at 17.
196 ld. at 17-18.
40

programs and reductions in prices* for renewable investment options. 197
* Regarding spec.ific tariffs, Mr. Greenwood testified in support of a generic docket to study distributed generation
, issues, and also explained how changes to industrial and commercial rate structures would better reflect the principles of cost causation in rate designs for larger customers. 198 Mr. Greenwood concluded that the approval of the S&A and the rates identified in Appendix A to the S&A would be in the public interest. 199 The Commission concurs with Mr. Greenwood's assessment.
109. Dr. Glass testified that the* public interest is served when the utility remains a "healthy, viable business able to provide. reliable service."200 Dr. Glass stated that under the proposed rate plan, ratepayers would be protected from -unrealistic price increases, .undue discrimination, and unreliable service while at the same time allowing Westar to recover the revenues necessary to comply with environmental mandates. 201                While the end result of distributed generation has not been settled within the S&A, Dr. Glass noted that the generic docket outlined in. the S&A provides a path forward to reach potentially better decisions. 202 Ultimately, Dr. Glass concluded that the S&A is in 'the public interest. 203 The Commission concurs with Dr. Glass' assessment.
110. Mr. Grady testified that the public interest is served "when ratepayers are protected from unnecessarily high prices, discriminatory prices and/or un~eliable service."204 According to Mr. Grady, because varied interests were able to collaborate and present a 191    Id.
198 Id. at 19.
199 Id.
200 Glass S&A Testimony at 16.
201 Id.
202 Id.
20; Id.
2
().1 Grady S&A Testimony at 15.
41

unanimous resolution of the issues in this case, the public interest standard has been met. 205 Mr.
Grady then detailed five examples on how the public interest would be satisfied. 206 For example, Westar' s requested revenue is reduced to a level that Westar still finds reasonable while at the same time decreasing the proposed cost customers would bear. The public will not have to potentially absorb the cost of a fully-litigated hearing, and the utility will continue to meet its 207 financial obligations while providing sufficient and efficient service.            The Commission concurs with Mr. Grady's assessment.
111. Ms. Crane also testified that approval of the S&A is in the public inte~e~t. 208 Ms.
Crane described how the S&A was a significant reduction from Westar's initial request, and how the customer charge would be set much lower than Westar's initial request and remain at that level until Westar's next general rate case. 209 Ms. Crane further expanded on the importance of rate stability, how the S&A withdraws certain proposals CURB took particular opposition to, how the S&A authorizes a return on investment that is significantly lower than Westar's present authorized return, the elimination of riders and how Westar's grid resiliency program costs would be recovered. 210 Ms. Cr~e co~cluded her remarks by stating "while the S&A represents a compromise of the positions put forth by the parties in this case, on balance I believe the S&A is in the public interest."211 The Commission concurs with Ms. Crane's assessment.
112. To support a finding that the S&A is in the public interest the Commission must examine the information as filed in this docket and conclude that the interests of the ratepayers and Kansans will continue to be promoted if the S&A were to be approved. Westar, Staff 20s Id.
206 Id.
207 Id. at 16.
208 Crane S&A Testimony at 14.
209 Id. at 14-15.
210 Id. at 14-16.
211 Id. at 16.
42

(submitting testimony for multiple signatories), and CURB have all testified regarding dozens of provisions contained within the S&A and detailed how those terms are in the public's interest.
The. Commission's focus for this inquiry turns on the result or total effect of the S&A as amended. The mariner in which the terms of the S&A were constructed evidences the* S&A is in the public interest. Multiple parties from a diverse set of interests encompassing large ranges of industrial, commercial, residential and specialty customers have all concluded that the terms of the S&A will allow them to continue to take service from Westar in a manner acceptable to them. The S&A as amended will allow multiple entities to undertake a review of distributed generation concerns before any changes in service are proposed: The S&A allows Westar to recover costs from P1;Udently incurred expenses and continue to make reliability enhancements to Kansas' electric grid. Based upon the wide ranging support and l~ck of opposition to the S&A, as well as how .the S&A will 'affect ratepayers if approved, the Commission is confiden.t in
* finding that approval of the S&A is in the public interest.
III. Abbreviated Rate Case 113. The Joint Movants request Westar be granted preapproval to file an abbreviated rate case. . Pursuant to K.A.R. 82-1-231 (b)(3 ), a utility proposing to change rates within 12 mqnths after   <J. Commission order is issued in *a general rate proceeding may do so without submitting duplicative information provided *certain conditions are met.
114. First, the utility must be willing to adopt all regulatory procedures, principles, and rate of return established by the Commission in the order setting rates from the general rate 43

case. 212 Second, the utility must receive prior approval from the Commission before filing such an abbreviated.rate case. 213 115.. Consistent with the terms contained within the S&A,
* the Commission grants Westar's request to file an abbreviated rate case no later than one year from the effective date of this order.
116. The Commission hereby limits matters to be addressed during Westar's abbreviated rate case to items specifically listed and identified in the S&A as being subject to the abbreviated rate proceeding.
IV.      Generic Docket 117. As contemplated by the S&A, the parties to this proceeding wish to conduct a general investigation to research and evaluate specific issues related to distributed generation (particularly solar distributed generation). The Commission concurs that a generic docket is the appropriate method of identifying and discussing issues related to distributed generation before a public utility implements distributed generation-specific rates in the public. utility's service territory. The Commission hereby directs Staff to file a Report and Recommendation outlining
* specific issues to discuss, research and evaluate in a manner consistent with the terms of the S&A as amended.            The Commission directs Staff to coordinate with the parties to this proceeding and other Kansas-jurisdictional public utilities on the initial outlaying of issues. The.
Commission understands that such an evaluation Will take considerable time, and therefore directs Staff begin such an undertaking with all due haste.
212 See K.A.R. 82-1-231 (b)(3)(A).
213 K.A.R. 82-l-231(b)(3)(B).
44

V.       Fi1_1dings and Conclusions 118.
* The Commission has examined the statutory and legal standards the Commission must consider when reviewing a request for rate changes, and has examined the voluminous record as a whole developed in this proceeding.
119. Upon reviewing the terms contained within the S&A, the Commission accepts the terms detailed within the S&A and as amended by the Unopposed Addendum.
120. The Commission finds that approval of the *s&A as amended by. Addendum would result in just _and reasonable rates that would enable Westar to continue to provide sufficient and efficient service. The Commission finds that the rates established by the S&A conform and fall within the zone of reasonableness that properly balances the interests of the parties to this proceeding, the ratepayers, and the public.
121. The Commission finds that there was ample opportunity for parties to this proceeding to voice opposition to such agreement, and that the end result of unanimous support,
* or agreement not to oppose, provides evidence for such a conclusion.             Therefore, the Commission concludes that all parties have had the opportunity to fully examine and critique the S&A as amended.
122. The Commission finds that the S&A is supported by_ substantial competent evidence from not only witnesses who testified in support of the S&A, but also how the terms .of the S&A were constructed as a compromise from each party's respective initial position.
Therefore, the Commission concludes that the S&A is supported by substantial competen~
evidence as filed in this proceeding.
123. The Commission finds that approval of the S&A as amended is in the public interest.
I*                                                     45

124. Upon reviewing the S&A, its terms individually, the parties' filed positions in this
* proceeding, testimony and evidence in support of the S&A, and amendments to the S&A as late filed by Westar, the Commission finds that the Joint Motion to Approve Stipulation and Agreement and amendments thereto should be granted .
           . 125.
* The procedural, schedule set October 28, 2015, as the effective date of the proposed rate change to take effect. 214            Pursuant to K.S.A. 66-117(b), the Commission may elect to hold a hearing on a public utility's proposed rate change. Pursuant to K.S.A. 66-117(c),
the Commission cannot delay the effective date of a proposed rate change beyond 240 days from the date of the filing unless certain exemptions exist.               The Commission finds that, having concluded approval of the S&A as amended is appropriate, the Commission must now set an effective date for such proposed changes. The Commission finds that given the date suggested in the notice of proposed rate changes that Westar sent to its customers, the effective date of any proposed rate change must remain October 28, 2015. This date complies with K.S.A. 66-1 l 7(c) in terms of suspension periods, is permitted by KS.A. 66-117(b) as Westar would have tc:i submit
* new rate schedules subject to a Commission-set effective date, and is consistent with the proposed effective date as detailed in the 15-025 Docket. Westar may file schedules necessary to implement the terms of the S&A as amended at any time.                       However, no schedule filed in accordance with the S&A as. amended will become effective until October 28, 2015.
214 Prehearing Officer Order Taking Administrative Notice of Procedural Schedule Adopted in Docket No. 15-GIME-025-MIS at 3 (Mar. 4, 2015).
46

IT IS, THEREFORE, BY THE COMMISSION ORDERED THAT:
I                              ,
A.       The Joint Motion to Approve Stipulation and Agreement as amended is hereby granted. The terms, conditions, rates and schedules contained within the Stipulation and Agreement as filed on August 6, 2015, and as amended by Westar's Unopposed Motion For Leave to File Addendum to Stipulation and Agreement Out of Time filed on August 12, 2015, is hereby approved. Accounting for revised final rate case expense and bad debt expense figures, Westar;s net overall annual revenue increase shall be set at $78,312,992.
B.        The effective date of this order shall be October 28, 2015.
C.       The parties have 15 days, plus three days if.service of this Order is by mail,.to petition the Commission for reconsideration of any issue or issues decided herein. 215 D.       The Commission retains jurisdictiQn ,over the subject matter and parties for the purpose of entering such further orders as it deems necessary.
BY THE COMMISSION IT IS SO ORDERED.
Albrecht, Chair; Emler, Commissioner; Apple, Commissioner Dated:        SEP 2 4 2115 REV/DLK                                                          Secretary to the Commission ElVIAILED
                                                                                                        /
SEP 2 4 2015 215 K.S.A. 66-l 18b; K.S.A. 77-529(a)(l).
47 I
I

CERTIFICATE         OF- SERVICE 15-WSEE-115-RTS I, the undersigned, certify that the true copy of the attached Order has been se~ed to the following parties by means of Electronic Service on __S_E_P_2_4_Z_0_15____
JAMES G. FLAHERTY, ATTORNEY                                            KURTJ.BOEHM,ATTORNEY ANDERSON & BYRD, L.L.P.                                                BOEHM, KURTZ & LOWRY 216 S HICKORY                                                          36 E SEVENTH ST STE 1510 PO BOX 17                                                              CINCINNATI, OH 45202 OTTAWA, KS 66067                                                       Fax: 513-421-2764 Fax: 785-242-1279                                                      kboehm@bkllawfirm.com jflaherty@andersonbyrd.com JODY KYLER COHN, ATTORNEY                                              ANDREW J ZELLERS, GEN COUNSEUVP REGULATORY .
BOEHM, KURTZ & LOWRY                                                   AFFAIRS 36 E SEVENTH ST STE 1510
* BRIGHTERGY, LLC CINCINNATI, OH 45202                                                   1617 MAIN ST 3RD FLR
.Fax: 513-421-2764                                                      KANSAS CITY, MO 64108 jkylercohn@bkllawfirni.com*                                            Fax: 816-511-0822 andy.zellers@brightergy.com GLENDA CAFER, ATTORNEY                                                 TERRIPEMBERTON,ATTORNEY CAFER PEMBERTON LLC                                                    CAFER PEMBERTON LLC 3321 SW6TH ST                                                          3321 SW6TH ST TOPEKA, KS 66606                                                       TOPEKA, KS 66606 Fax: 785-233-3040                                                      Fax: 785-233-3040 glenda@caferlaw.com                                                    terri@caferlaw.com NIKI CHRISTOPHER, ATTORNEY                                             DELLA SMITH CITIZENS' UTILITY RATEPAYER BOARD                                      CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                   1500 SW ARROWHEA6 RD TOPEKA, KS 66604                                                       TOPEKA, KS 66604 Fax: 785-271-3116                                                     Fax: 785-271-3116 n.christopher@curb.kansas.gov                                         d.smith@curb.kansas.gov SHONDA SMITH                                                          DAVID SPRINGE, CONSUMER COUNSEL CITIZENS' UTILITY RATEPAYER BOARD                                     CITIZENS' UTILITY RATEPAYER BOARD, 1500 SW ARROWHEAD RD                                                  1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                      TOPEKA, KS 66604 Fax: 785-271-3116                                                     Fax: 785-271-3116 sd.smith@curb.kansas.gov                                              d.springe@curb.kansas.gov EMAILED SEP 2 4 2015

CERTIFICATE OF SERVICE
* SEP 2 4 2015 15-WSEE-115-RTS ARON CROMWELL                                       KEVIN HIGGINS CROMWELL ENVIRONMENTAL, INC.                        ENERGY STRATEGIES, LLC 615 VERMONT ST                                      PARKSIDE TOWERS LAWRENCE, KS 66044                                  215 S STATE ST STE 200 acromwell@cromwellenv.com                           SALT LAKE CITY, UT 84111 Fax: 801-521-9142 khiggins@energystrat.com JOHN FINNIGAN, LEAD COUNSEL                         WILLIAM R. LAWRENCE ENVIRONMENTAL DEFENSE FUND                          FAGAN EMERT & DAVIS LLC 128 WINDING BROOK LANE                              730 NEW HAMPSHIRE SUITE 210 TERRACE PARK, OH 45174                              LAWRENCE, KS 66044 jfinnigan@edf.org                                   Fax: 785-331-0303 wlawrence@fed-firm.com C. EDWARD PETERSON, ATTORNEY                        JULIE B. HUNT FINNEGAN CONRAD & PETERSON LC                       HOLLYFRONTIER CORPORATION 1209 PENNTOWER OFFICE CENTER                        2828 N HARWOOD STE 1300 3100 BROADWAY                                       DALLAS, TX 75201 KANSAS CITY, MO 64111                               julie.hunt@hollyfrontier.com Fax: 816-756-0373 ed.peterso*n201 O@gmail.com JOHN GARRETSON, BUSINESS MANAGER                    JOHN R. WINE, JR.
IBEW LOCAL UNION NO. 304                           410NE43RD 3906 NW 16TH STREET                                 TOPEKA, KS 66617 TOPEKA, KS 66615                                    Fax: 785-246-0339
* johng@ibew304.org                                   jwine2@cox.net DUSTIN KIRK, ASSISTANT GENERAL COUNSEL             MI.CHAEL NEELEY, LITIGATION COUNSEL KANSAS CORPORATION COMMISSION                       KANSAS CORPORATION COMMISSION 1500 SW ARROWHEAD RD                                1500 SW ARROWHEAD RD TOPEKA, KS 66604-4027                               TOPEKA, KS 66604-4027 Fax: 785-271-3354                                   Fax: 785-271-3167 d.kirk@kcc.ks.gov                                   m.neeley@kcc.ks.gov AMBER SMITH, CHIEF LITIGATION COUNSEL               ROBERT VINCENT, ASSISTANT GENERAL COUNSEL .
KANSAS CORPORATION COMMISSION                       KANSAS CORPORATION COMMISSION 1500 SW ARROWHEAD RD                                1500 SW ARROWHEAD RD TOPEKA, KS 66604-4027                              TOPEKA, KS 66604-4027 Fax: 785-271-3167                                   Fax: 785-27.1-3354 a.smith@kcc.ks.gov                                  r. vincent@kcc.ks.gov
                                                                       .EMAILED SEP 2 4 2015

SEP 2 4 2015 CERTIFICATE OF SERVICE 15-WSEE-115-RTS ROBERT V. EYE, ATTORNEY AT LAW                           JACOB J SCHLESINGER, ATTORNEY KAUFFMAN & EYE                                           KEYS FOX & WIEDMAN LLP 123 SE 6TH AVE STE 200                                  .1400 16TH ST THE DIBBLE BUILDING .                                    16 MARKET'SQUARE, STE 400 TOPEKA, KS 66603                                         DENVER, CO 80202 Fax: 785-234-4260                                        jschlesinger@kfwlaw.com bob@kauffmaneye.com ANNE E. CALLENBACH, ATTORNEY                           . FRANK A. CARO, JR., ATTORNEY POLSINELLI PC                                            POLSINELLI PC 900 W 48TH PLACE STE 900                                 900 W 48TH PLACE STE 900 KANSAS CITY, MO 64112                                    KANSAS CITY, MO 64112 Fax: 913-451-6205                                        Fax: 816-753-1536 acallenbach@polsinelli.com                               fcaro@polsinelli.com LUKE A. HAGEDORN, ATTORNEY                               JAMES P. ZAKOURA, ATTORNEY POLSINELLI PC                                            SMITHYMAN & ZAKOURA, CHTD.
900 W 48TH PLACE STE 900                                 7400 W 110TH ST STE 750 KANSAS CITY, MO 64112                                    OVERLAND PARK, KS 66210-2362 Fax: 913-451-6205                                        Fax: 913-661-9863 lhagedorn@polsinelli.com                                 jim@smiz_ak-law.com MARTIN J. BREGMAN, ATTORNEY                             .DUSTIN BASHFORD, MANAGER - SYSTEM DESIGN STINSON LEONARD STREET LLP                               TALLGRASS PONY EXPRESS PIPELINE, LLC 1201 WALNUT ST STE 2900                                 370 Van Gordon Street KANSAS CITY, MO 64106                                     Lakewood, CO 80228 Fax: 816-691-3495                                        dustin.bashford@tallgrassenergylp.com marty.bregman@stinsonleonard.com Stefan Evanoff, VICE-PRESIDENT, PIPELINE                 ADAM SCHICHE, SENIOR ATTORNEY MANAGEMENT                                               TALLGRASS PONY EXPRESS PIPELINE, LLC TALLGRASS P.ONY EXPRESS PIPELINE, LLC                    370 Van Gordon Street 370 Van Gordon Street                                    Lakewood, CO 80228 Lakewood, CO 80228                                       adam.schiche@tallgrassenergylp.com stefan.evanoff@tallgrassenergylp.com KATHERINE COLEMAN                                        PHILLIP OLDHAM THQMPSON & KNIGHT LLP                                     THOMPSON & KNIGHT LLP 98 SAN JACINTO BLVD STE 1900                             98 SAN JACINTO BLVD STE 1900 AUSTIN, TX 78701                                         AUSTIN, TX 78701
* Fax: 512-469-6180                                        Fax: 512-469-6180 katie.coleman@tklaw.com                                  phillip.oldham@tklaw.com EMAILED SEP 2 4 2015

SEP 2. 4 2015
                            ' CERTIFICATE OF SERVICE 15-WSEE-115-RTS TIMOTHY E. MCKEE, ATTORNEY .                               SAMUEL D. RITCHIE, ATTORNEY TRIPLETT, WOOLF & GARRETSON, LLC                          TRIPLETT, WOOLF & GARRETSON, LLC 2959 N ROCK RD STE 300                                     2959 N ROCK RD STE 300 WICHITA, KS 67226                                          WICHITA; KS 67226 Fax: 316-630-8101 '                                        Fax: 316-630-8101 temckee@twgfirm.com                                        sdritchie@twgfirm.com DAVID BANKS, ENERGY MANAGER                                THOMAS R. POWELL, GENERAL COUNSEL UNIFIED SCHOOL DISTRICT 259                                UNIFIED SCHOOL DISTRICT 259 201N WATER                                                 201 N WATER ST RM 405 WICHITA, KS 67202                                          WICHITA, KS 67202-1292 Fax: 316-973-2150                                          tpowell@usd259.net dbanks@us_d259.net KEVIN K. LACHANCE, CONTRACT LAW ATTORNEY                   MATTHEW DUNNE, GENERAL ATTORNEY UNITED STATES DEPARTMENT OF DEFENSE                        US ARMY LEGAL SERVICES AGENCY ADMIN & CIVIL LAW DIVISION                                 REGULATORY LAW OFFICE (JALS-RUIP)
OFFICE OF STAFF JUDGE ADVOCATE                             9275 GUNSTON RD STE 1300 FORT RILEY, KS 66442                                       FORT BELVOIR, VA 22060-5546 Fax: 785-239-0577                                          matthew.s.dunne.civ@mail.mil kevin.k.lachance.civ@mail.mil CATHRYN J. DINGES, SENIOR CORPORATE COUNSEL                JEFFREY L. MARTIN, VICE PRESIDENT, REGULATORY WESTAR ENERGY, INC.                                        AFFAIRS 818 S KANSAS AVE                                           WESTAR ENERGY, INC.
PO BOX889                                                 818 S KANSAS AVE TOPEKA, KS 66601-0889                                      PO BOX889 Fax: 785-575-8136                                         TOPEKA, KS 66601-0889 cathy.dinges@westarenergy.com                              jeff.martin@westarenergy.com CINDY S. WILSON, DIRECTOR, RETAIL RATES                   DAVID L. WOODSMALL WESTAR ENERGY, INC.                                        WOODSMALL LAW OFFICE 818 S KANSAS AVE                                            308 E HIGH ST STE 204 PO BOX889                                                 JEFFERSON *c1TY, MO 65101 TOPEKA, KS 66601-0889                                      Fax:573-635-7523 cindy.s.wilson@westarenergy.com                            david.woodsmall@woodsmalllaw.com DeeAnn Shupe
                                                                                    .BMAILED SEP 2 4 2015

Enclosure VIII to WM 19-0008 I'
Order Approving Unopposed Stipulation and Agreement (15-WCNE-093-GIE)
(10 pages)

2015.03.24 14:03:41 Kans.35 CorFor.atiori Comri'!ission THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS Before Commissioners:                    Shari Feist Albrecht, Chair Jay Scott*Emler Pat Apple In the Matter of the 2014 Wolf Creek )
Decominissioning Cost Study as Provided by )
*Wolf Creek Nuclear Operating Corporation in )
Accordance with the Commission's Order in )                  Docket No. l 5-WCNE-093-GIE Docket Number 163,561-U on December 9, .)
1992, and the Commission's Order in Docket )
13-WCNE-204-GIE on June 13, 2013.                    )
ORDER APPROVING UNOPPOSED STIPULATION AND AGREEMENT
        ' The above-captioned matter comes before the State Corporation Commission-of the State.
of Kansas (Commission) for consideration and decision. Having reviewed the files and records, and being .duly advised in the premises, the Commission makes the following findings and conclusions:
: 1.       On August 29, 2014, Wolf Creek Nuclear Operating Corporation (Wolf Creek) filed its 2014 Decommission}ng Cost Analysis for the Wolf Creek Generating Station in accordance with the Commission's December 9, 1992 Order in Docket No. i63,561-U and the Commission's Order in Docket No. 13-WCNE-204-GIE.on June 13, 2013. The December 9, 1992 Order directed the filing of a decommissioning cost study every three years after September 1, 1993. The June 13, 2013 Order directed Wolf Creek and the owning utilities to update the estimates of the total capital costs of the Independent Spent Fuel Storage Installation (ISFSI) 1 project at Wolf Creek as part of the, triennial decommissioning cost study filings.
1 See Docket No. 13-WCNE-204-GIE, Order Closing Docket, Ordering 'I! A(June 13, 2013).
: 2.        Kansas Gas and Electric Company d/b/a Westar Energy (Westar), Kansas City Power & Light Company (KCP&L), Kansas Electric Power Cooperative, Inc. (KEPCo), and the Citizens' Utility Ratepayer Board (CURB) filed petitions to intervene, which the* Commission granted.*
I.       Proceedings in the Docket
: 3.        The .following witnesses submitted pre-filed testimony according to deadlines adopted in the procedural schedule. KCP&L, Westar, and KEPCo filed the direct testimony of Gregg N. Clizer on October 3, 2014. Staff witnesses pre-filed direct testimony on January 5, 2015, as follows: Adam H. Gatewood (Gatewood) and Leo M. Haynos (Haynos).
: 4.        The parties. met on February 9, 2015 to discuss settlement of this. docket.
*Following negotiations, all parties except CURB entered into a Stipulation and Agreement-(Stipulation)
* for the purpose of detennining a reasonable estimate of Wolf Creek decommissioning costs to be used in addressing accrual levels of the respective owner utilities' decommissioning trust accounts and the appropriate escalation factor (inflation rate). The parties also discussed a separate, future issue regarding the content of the 2017 triennial decommissioning cost study filing.
: 5.         On February 10, 201S, the parties filed a Joint Motion to Approve Stipulation and Agreement and to Convert the Evidentiary Hearing in this Docket to a Settlement Hearing or Cancel the Hearing (Joint Motion), advising the Commission that an unopposed settlement had been reached in this docket.2 Although CURB is not a signatory to the Stipulation, CURB has 3
advised the other parties that it does not oppose the. Stipulation. The Preheating Offiter 2
Joint Motion to Approve Stipulation and Agreement and to Convert the Evidentiary Hearing in this Docket to a Settlement Hearing or Cancel the Hearing (Feb. l 0, 2015) (Joint Motion).
* 3 Joint Motio.n, p.2.
2

approved the motion to .convert the evidentiary hearing to a settlement hearing on February l l, 2015. 4
: 6.       The following witnesses filed testimony in support of the Stipulation on February 12, 2015: Mary Britt Turner on behalf of the companies, and Haynos on behalf of Staff.
: 7.       The settlement hearing was held before the Commission on February 24, 2015.
: 8.       In deciding whether to grant the parties' Joint Motion, the Commission has reviewed and considered the entire record, including all pre-filed testimony of witnesses. The .
Commission's decision, as reflected in this Order, is based upon a review of all issues raised in this case, taking into acc01.~nt the issues upon which the parties have agreed.
II.      Provisions of the Stipulation
: 9.       The Stipulation resulted from discussions .among. the Joint Movants and CURB.
The terms of the Stip&#xb5;lation are briefly summarized as follows:
: a. The Stipulation is* entered into for the purpose of determining a reasonable      estimate    of the     Wolf Creek         Generating     Station decommissioning costs to be used in addressing accrual levels of the respective owner utilities' Decoinmissionirig Trust Accounts ..
* b. The cost for decommissioning funding is agreed to be $765,060,000 in 2014 dollars as set forth in the Decommissioning Cost Analysis for the Wolf Creek Generating Station filed in this docket on Aug*ust 29, 2014. This number will be used by Westar, KCP&L and KEPCo in their respective proposals for setting an accrual level for each, company's Decommissioning Trust Account.                This will be done in separate, individual company dockets.
4 Prehearing Officer Order Granting Joint Motion to Conven Evidentiary Hearing to Settlement Hearing (Feb. 11, 2015).
3
: c. Westar, KCP&L, and KEPCo agree to use an escalation rate of 3.15%
per year to escalate the 2014 decommissioning cost. estimate of
                     $765,060,000 from 2014 dollars to the appropriate dollar *amount in the year that the decommissioning costs will occur.
: d. The Parties agree that Wolf Creek, KCP&L, Westar, and KEPCo shall jointly file a new decommissioning financing plan that addresses each of the 11 requirements of K.S.A. 66-128m(b) by September 1, 2017.
The utilities may determine to file certain of the requirements separately at the time of the joint filing so long as all 11 requirements are covered.
: e. The Parties agree that further discussion is necessary regarding the other issues raised by Staff5 iin.d will continue to discuss those issues in this docket. The Parties believe that a resolution of these issues can be
_achieved and suggest the Commission adopt the following schedule:
: i. On or before February 15. 2016: The Parties will report to the Commission as to the status of discussions to resolve the separate issues under this docket.
: 11. On or before September 1, 2016: The Parties will file *a resolution with the Commission for approval; or, in the event the Parties reach* an impasse after good *faith efforts to reach consensus on. a resolution to the separate issues, the Parties shall file a report with the Commission within 30 days of determining such impasse but no later than October 31, 2016.
5 Direct Testimony of Leo M. Haynos, p. 12, lines 8-23 (Jan. 5, 2015).
4

III. Findings and Conclusions
: 10.       The Commission must separately state findings of fact, conclusions of law, and 6
policy reasons for its decision if it is an exercise of its discretion. Any findings of fact must be based exclusively upon the evidence of record in the adjudicative proceeding and on matters officially noticed irr the proceeding. 7 Agency action must be based upon evidence that is 8
substantial when viewed in light of the record as a whole.
A.         Standard of Review
: 11.       The Commissi.on evaluates the evidence in the record as a whole regarding the proposed Stipulation in light of the following standards of review. Generally, the law favors compromise and settlement of disputes when parties enter into agreement settling and adjusting a dispute. 9
: 12.       Pursuant to K.A.R. 82-1-230a(b), the Commission has authority to approve, reject
                               '1 or modify .a settlement agreement.              In approving, rejecting or modifying a settlement, the Commission must make an independent finding that its *decision regarding the settlement is supported by substantial competent evidence in the record as a whole and that the settlement will 10 establish just and reasoQ.able rates.
B.         Evafllation oftfte Stipulation
: 13.       The Commission will consider the Stipul!}tion by reviewing the criteria identified for evaluating whether a specific unanimous settlement reached by the parties should be
* approved. Each criterion will be considered separately.
6 K.S.A. 77-526(c).
7 K.S.A. 77-526(d).
8 K.S.A. 77-62l(c)(7), (d).
9 Krantzv. Univ. of Kan., 271 Kan. 234, 241-42 (2001).
1
  &deg;Citizens' Utility Ratepayer Board v. State Corp. Comm 'n, 28 Kan.App.2d 313, 316 (2000).
5

J. Is the Stipulation supported by substantial evidence in the record as a wlwle?
: 14.      This Order has listed names of witnesses submitting pre-filed direct testimony, as set forth above in paragraph 3, as well as two witnesses presenting pre-filed testimony to support approval of the Stipulation. After reviewing the record as a whole, the Commission finds the evidence supports approval of the Stipulation reached by tl.ie parties. The Commission will briefly* summarize evidence that supports finding substantial evidence exists to approve the Stipulation in its entirety.
: 15.      The Joint Movants have provided the decommissioning cost study as well as the testimony of four witnesses, all of which support the .Stipulation. The cost for decommissioning funding of $765,060,000 and the escalation rate of 3.15% agreed to in the Stipulation are supported by substantial competent evidence in the record.
: 16.      Having reviewed the evidence in the record, the Commission concludes that
* substantial evidence is present in the record        a$  a whole to support approval of the Stipulation.
The Commission finds evidence in the record as a whole establishes the Stipulation is reasonable and shpuld be approved-in its entirety.
: 2.      Will tl,e Stip11lation result in just and reasonable rates?
: 17.      Every electric public utility in Kansas is required to provide reasonably efficient 11 and sufficient service and establish just and reasonable rates.
: 18.      The 'Joint Movants state that Commission approval of the Stipulation will not have an immediate effect on rates charged to* Kansas customers. 12 Rather, rate impact will not occur until each owner company files its individual dockets wherein the new decommissioning accrual will be included in their revenue requirement. 13 Nonetheless, the Joint M~vants state 11 K.S.A. 66-lOlb.
12 Joint Motion, p. 4-5.
13 Id.
6

because the decommissioning cost elements being stipulated to in this docket are fair, reasonable, and fully supported by the evidence, inclusion of the same h1 rates later should not 14 cause such rates to become unjust or unreasonable.
: 19. The Commission agrees with the Joint Movants' statements that the Stipulation will not have an immediate impact on rates, and any effect they may have on rates in the future will
* be just and reasonable because they are based on a reasonable settlement of the decommissioning cost elements in this docket.
: 3.      Are tJ,e results of tJ,e Stipulation in tlzf! public interest, including tire interest oft/re customers represented by any party not consenting to tlze agreement?             *
: 20. The Joint Movants agree the terms of the Stipulation are in the public interest and 15 should be approved by the Commission.            Each party has a duty to protect its interests: the companies have a duty to both their customers and shareholders; CURB represents the interests of residential and small commercial customers; arid Staff has a duty to weigh and balance the interests of the public generally. The fact that these varied interests were able to collaborate and present art unopposed resolution of the .issues in this case is a strong indication that the public interest standard has been met.        The Joint Movants stated that the Stipulation reflects a reasonable compromise among the parties and eliminates the need for further costly and time-16 consuming proceedings.
: 21. In reviewing the Stipulation presented by the parties, the Commission has considered that the agreed-upon and stipulated decommis~ioning cost elements are fair, reasonable, and in the public interest. The Commission therefore finds that approval of the Stipulation is in the public interest.
14
(;}    Id.
15 /d., p. 5.
16 Id.
7

C.      Conclusion
: 22. The Commission approves of the Stipulation: in its *entirety, including the portions proposing a procedural schedule for the unresolved issues. The Commissi~:m finds that the Stipulation is supported by substantial, COII!petent evidence, is in the public interest, and will resuhinjust and reasonable rates.
IT IS, THEREFORE, BY THE COMMISSION ORDERED THAT:
A.      The Commission* grants the Joint Motion and approves the Stipulation in its entirety, for reasons discussed in this Order. By attaching the Stipulation to this Order, the terms are incorporated into this Order;
      *
* B.      This Order shall be electronically serve~ on all parties of record. Parties have 15 days from the date of electronic service of this Order in which to petition the Commission for reconsideration. 17 C.
* The Commission retains jurisdiction over the subject matter and par:ties for the purpose of entering such further order or orders as it may deem necessary.
BY THE COMMISSION IT IS ORDERED.
Albrecht, Chair; Emler, Commissioner; Apple, Commissioner Date: _ _MA_R_2_4_2D_15_*__
Ne~sa Thomas        EMAELED Actmg Secretary
* JV                                                                            MAR 2 4 2015 17 K.S.A. 66-l l&b; K.S.A. 2014 Supp. 77-529(a)(l).
8

MAR 2 4 *2015 CERTIFICATE OF SERVICE 15-WCNE-093-GIE I, the undersigned, hereby certify that a true and correct copy of the above and foregoing Order Approving Unopposed Stipulation .and Agreement was served by electronic mail this 24th day of March, 2015, to the following parties who have waived receipt of follow-up hard copies:
NIKI CHRISTOPHER, ATTORNEY                                              DELLA SMITH CITIZENS' UTILITY RATEPAYER BOARD                                       CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                    1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                        TOPEKA, KS 66604 Fax: 785-271-3116                                                       Fax: 785-271-3116 n.christopher@curb.kansas.gov                                           d.smith@curb.kansas.gov SHONDA SMITH                                                            DAVID SPRINGE, CONSUMER COUNSEL CITIZENS' UTILITY'RATEPAYER BOARD                                       CITIZENS' UTILITY RATEPAYER BOARD 1500 SW ARROWHEAD RD                                                    1500 SW ARROWHEAD RD TOPEKA, KS 66604                                                        TOPEKA, KS 66604 Fax: 785-271-3116                                                       Fax: 785-271-3116 sd.smith@curb.kansas.gov                                                d.springe@curb.kansas.gov ROBERT J. HACK, LEAD REGULATORY COUNSEL                                 ROGER W. STEINER, CORPORATE COUNSEL KANSAS CITY POWER & LIGHT COMPANY                                       KANSAS CITY POWER & LIGHT COMPANY ONE KANSAS CITY PL, 1200 MAIN ST (64105)                                ONE KANSAS CITY PL, 1200 MAIN ST (64105)
PO BOX 418679                                                           PO BOX 418679 KANSAS CITY, MO 64141-9679                                              KANSAS CITY, MO 64141-9679 Fax: 816-556-2787                                                       Fax: 816-556-2787 rob.hack@kcpl.com                                                       roger.steiner@kcpl.com MARY TURNER, DIRECTOR, REGULATORY AFFAI~                                NICOLE A. WEHRY, SENIOR PARALEGAL KANSAS CITY POWER & LIGHT COMPANY                                       KANSAS CITY POWER & LIGHT COMPANY ONE KANSAS CITY PL, 1200 MAIN ST (64105)                                ONE KANSAS CITY PL, 1200 MAIN ST (64105)
PO BOX 418679                                                           PO BOX 418679 KANSAS CITY, MO 64141-9679                                              KANSAS CITY, MO 64141-9679 Fax: 816-556-2110                                                       Fax: 816-556-2787 mary.turner@kcpl.com                                                    nicole.wehry@kcpl.com SAMUEL FEATHER, LITIGATION COUNSEL                                      JAY VAN BLARICUM, ASSISTANT GENERAL COUNSEL KANSAS CORPORATION COMMISSION                                           KANSAS CORPORATION COMMISSION 1500 SW ARROWHEAD RD                                                   1500 SW ARROWHEAD RD TOPEKA, KS 66604-4027                                                   TOPEKA, KS 66604-4027 Fax: 785-271-3167                                                       Fax: 785-271-3314 s.feather@kcc.ks.gov                                                    j.vanblaricum@kcc.ks.gov EMAILED MAR 2 4 20\5

MAR *2 4 2015 CERTIFICATE OF SERVICE 15-WCNE-093-GIE WILLIAM G. RIGGINS, SR VICE PRES AND GENERAL                CATHRYN J. DINGES, SENIOR CORPORATE COUNSEL COUNSEL                                                     WESTAR ENERGY, INC.
KANSAS ELECTRIC POWER CO-OP, INC.                           818 S KANSAS AVE 600 SW CORPORATE VIEW (66615)                               PO BOX889 PO BOX4877                                                  TOPEKA, KS 66601-0889 TOPEKA, KS 66604-0877                                       Fax: 785-575-8136 Fax: 785-271-4884                                           cathy.dinges@westarenergy.com briggins@kepco.org DEBBIE L HENDELL, GENERAL COUNSEL AND                       WARREN WOOD SECRETARY                                                   WOLF CREEK NUCLEAR OPERATING CORPORATION WOLF CREEK NUCLEAR OPERATING CORPORATION .                  1550 OXEN LANE NE 1550 OXEN LANE NE                                           PO BOX411 PO BOX411                                                   BURLINGTON, KS 66839 BURLINGTON, KS 66839                                        Fax: 620.364-4017 Fax: 620.364-4017                                           wawood@wcnoc.com dehende3@wcnoc.com Sheryl L. Sparks Administrative Specia 1st EMAILED MAR 2 4 2015

Enclosure IX to WM 19-0008
).I I',
Order Approving Stipulation and Agreement (File No. E0-2018-0062)
(4 pages)

(
STATE OF .MISSOURI PUBLIC SERVICE COMMISSION At a session of the Public Service Commission held at its office in Jefferson City on the 23rd day of January, 2018.
In the Matter of Application of Kansas City Power                  )
   & Light Compa.ny for Approval of the Accrual and'                 .)   File No. E0-2018-0062 Funding of Wolf Creek Generating Station                           )
Decommissioning Costs at Current Levels. *                         )
ORDER APPROVING STIPULATION AND AGREEMENT*
Issue Date: January 23, 2018                                         Effective Date: February 22, 2018 This order approves the stipulation and agreement between Kansas City Power &
Light Company (KCP&L) and the Staff of the Commission regarding KCP&L's funding for the decommissioning of its Wolf Creek Generating Station.
Commission rule 4 CSR 240-3.185 (3) states, in part:
On or before September 1, 1990, and every three years after that, utilities with decommissioning trust funds shall perform and file with the commission cost studies detailing the utilities' latest cost estimates for decommissioning their nuclear generating unit(s) along with the funding levels necessary to defray these decommissioning costs. These studies shall be filed along with appropriate tariff(s) effectuating the change in rates necessary to accomplish the funding required.
On Septembe.r 1, 2017, KCP&L filed an application pertaining to Wolf Creek asking the Commission to: (a) find that the 2017 cost study and 2017 funding analysis satisfies the requirements of 4 CSR 240-:3.185(3); and (b) approve the continuation of the annual 1
accrual at the current level of $1,281,264.
1 4
In filing its application, KCP&L did not comply with the 60-d~y notice provision of CSR 240-4.017(4), which requires advance notice of an intent to file a new case before the Commission. In the stipulation and

Staff and KCP&L filed a non-unanimous stipulation and agreement on January 5, 2018. Commission rule 4 CSR 240-2.115 provides that if no party objects to a non-*
unanimous stipulation and agreement within seven days of its filing, the Commission will treat the stipulation and agreement as unanimous. The Office. of the Public Counsel, the only other party, did not sign the stipulation. and agreement, but has not oppo~ed the agreement. Therefore, the Commission will treat the stipulation and agreement as unanimous.
The stipulation and agreement asks the Commission to:
* Approve the stipulation and agreement;
* Receive into evidence the stipulation and agreement, the 2017 Cost Study, and the Funding Analysis;
* Find that KCP&L's 2017 Cost Study and Funding Analysis satisfies the requirements of 4 CSR 240-3.185(3);
        *    *Find that KCP&L's Missouri retail jurisdiction annual decommissioning expense accruals* and trust fund payments shall continue at the current level of
             $1 ,281,264;
* Find, in order for the decommissioning fund to retain its qualifiedtax status, that
           , the annual decommissioning costs for Wolf Creek, inclusive of the Independent Spent Fuel Storage Installation (ISFSI), are included in KCP&L's current Missouri cost of service and are reflected in its current Missouri retail rates for ratemaking purposes; and                               *
* Authorize KCP<$L to continue to record and preserve Wolf Creek asset retirement obligation costs, as agreed to *by the Staff, Public Counsel, and KCP&L, and authorized by the Commission in Case No. EU-2004-0294.
agreement, KCP&L requests a waiver of that requirement, presenting a verified statement that it had no communication with the Office of the Commission within the 150 days before it filed the application, thus providing good cause for the requested waiver. The Commission will grant the requested waiver.
2

Having considered the 2017 decommissioning cost study for th~ Wolf Creek Generating Station and the stipulation and agreement, both of which will be received into evidence, the Commission determines that the stipulation and agreement should be approved. In doin.g so, the Commission finds that KCP&L's 2017 cost study satisfies the.
requirements of 4 CSR 240-3.185(3). In addition, the Commission finds that KCP&L's Missouri retail jurisdiction annual decommissioning expense accruals and trust fund payments shall continue afthe current level of $1,281,264. The Commission also finds that
    . the current decommissioning costs for Wolf Creek are included in KCP&L's current Missouri cost of service and are reflected in its current Missouri retail rates for ratemaking purposes.
THE COMMISSION ORDERS THAT:
: 1. The stipulation and agreement filed by the Kansas City Power & Light Company and the Staff of the Missouri Public Service Commission on January 5, 2018, is approved.
: 2. The signatories shall comply with the terms ofthe stipulation and agreement.
: 3.  . The stipulation and agreement and Kansas City Power & Light Company's 2017 Cost Study and Funding Analysis are admitted into evidence.
: 4. Kansas City     Power    &   Light  Company's       retail   jurisdiction annual decommissioning expense accruals and trust fund payments shall continue at the current level of $1,281,264.
I
: 5. Kansas City Power & Light Company is authorized to continue to record and preserve Wolf Creek .asset retirement obligation costs, as agreed by the Commission Staff, the Office of the Public Counsel, and KCP&L and authorized by the Commission in Case No. EU-2004-0294.
3
: 6.      Kansas City Power & Light Company's request for waiver of the 60-day notice requirement of 4 CSR 240-4.017(1) is granted.
7,     This order shall):>ecome effective on February 22, 2018.
                                **i
: 8.   , This file shall be closed on February 23, 2018.
BY THE COMMISSION Morris L Woodruff Secretary Hall, Chm., Kenney, Rupp, Coleman, and Silvey, CC., concur.
Woodruff, Chief Regulatory Law Judge 4

Enclosure X to WM 19-0008 Non-Unanimous Stipulation and Agreement (File No. E0-2018-0062)
(17 pages}

BEFORE THE PUBLIC SERVICE COMMISSION OF THE STATE OF MISSOURI In the Matter of the Application of Kansas City             )
Power & Light Company for Approval of the                   )      File No. E0-2018-0062 Accrual and Funding of Wolf Creek Generating                )
Station Decommissioning Costs at Current Levels             )
NON-UNANIMOUS STIPULATION AND AGREEMENT
* Kansas City Power & Light Company ("KCP&L") and the Staff of the Missouri Public Service Commission ("Staff') (collectively, the "Signatories," 'and individua*lly "Signatory")      hereby    submit *this     Non-Unanimous        Stipulation    and    Agreement
("Agreement") to the Missouri Public Service Commission ("Commission'}. The Office of the Public Counsel ("Public Counsel") has advised the Signatories that it will not oppose this Agreement.
INTRODUCTION The Legislature provided,- in Section 393.292 RSMo 2000, 1 that the Commission may authorize changes to the rates and charges of an electrical corporation as a result, of a change in the level or annual accrual of funding necessary for its nuclear power plant decommissioning trust fund. This statute creates a narrow exception to the general requirement that the Commission must consider "all relevant factors," prior to changing any rate charged by a utility under its jurisdiction. See State ex. rel. Utility Consumers Council of Missouri. Inc. v. Public Serv. Co,r;~'n., 585 S.W,.2d 41 (Mo. bane 1979). Under
. Section 393.292, the Commission may limit its review in nuclear decommissioning trust fund cases to only those factors relevant to the fun9ing level or accrual rate of the trust J
fund when deciding matters related to the rates and charges associated with that fund.
1 All statutory references are to Revised Statutes of Missouri 2016, unless otherwise noted. Section*
393.292 was enacted by the Missouri Legislature in Laws 1989 and has not been amended.
1

Further, Section 393.292 gives the Commission authority to adopt rules and regulations governing the procedures assodated with these tariff changes as well as to ensure that the amounts contained in the trust funds will .be neither "greater nor less~r than the amounts necessary to carry out the purposes of the trust." In Case No. EX-90-110, the Commission adopted the original decommissioning rule, 4 CSR 240-20.070.
Rule 4 CSR 240-3.185(3) states, in part: "On or before, September 1, 1990 and every three (3) years after that,. utilities with decommissioning trust funds shall perform and file with the C(?mmission co_st studies detailing the utilities' latest cost estimates for decommissioning their nuclear generating unit(s) along with the funding levels necessary to defray these decommissioning costs."
KCP&L established an external nuclear decommissioning trust fund 2 a~ a result of its ownership interest in the Wolf Creek Generating Station ("Wolf Creek") and the Commission's Report and Order in the rate case authorizing KCP&L to commence recovery of the costs of Wolf Creek. Kansas City Powe_r & Light Co., Case Nos. E0 185 and E0-85-224, 28 Mo.P.S.C. (N.S.) 228. (1986). KCP&L owns 47% of Wolf Creek and approximately 56% of KCP&L's 47% ownership share is currently allocated to KCP&L's Missouri retail operations.
On August 30, 2005, KCP&L filed an Application (Case No. E0-2006-0094) with the Commission for approval of its then-current decommissioning cost estimate and 2
If decommissioning financial assurance is provided by an external sinking fund, 10 CFR 50.75(e)(1)(ii) requires that "the total amount of funds would be sufficient to pay decommissioning costs at the time termination of operation is expected:" The operating license for Wolf Creek was initially for 40-years, but the Nuclear Regulatory Commission ("NRC") subsequently extended Wolf Creek's operating license 20-years. Because KCP&L does not contemplate shutting down Wolf Creek prior to the end of its operating license life, the shutdown date used in the 2011 and 2014 Studies is 2045, the year in which Wolf Creek's operating licen!?e now expires.
2

continuation of the then-current authorized funding level for its nuclear decommissioning trust fund for Wolf Creek. A Unanimous Stipulation and Agreement, settling all issues pertaining to Case No. E0-2006-0094 was filed on December 20, 2005. Among other things,    said  Unanimous. Stipulation    and    Agreement       maintained  the  annual decommissioning expense accrual and trust fund payment at $2,303,856 (Missouri jurisdictional amount). Th.e parties to that agreement further agreed that KCP&L's authorized annual funding level would be addressed in the Company's Rate Filing #1, as contemplated pursuant to the terms of the Stipulation and Agreement approved by the Commission in Case No. E0-2005-0329 ("Regulatory Plan Agreement"). In Rate Filing
#1 (Case No. ER-2006-0314), the Commission reduced KCP&L's authorized annual decommissioning expense accrual and trust fund payment to $1,281,264 (Missouri jurisdictional amount). That reduction was primarily caused by recognizing the 20-year life extension of Wolf Creek.
On August 29, '2008, KCP&L filed an Application (Case No. E0-2009-0072) with the Commission for approval of its then-current decommissioning cost estimate and continuation of the then-current authorized funding level for its nuclear decommissioning trust fund for Wolf Creek. A Unanimous Stipulation and Agreement, settling all issues pertaining to Case No. E0-2009-0072 was filed on April 7, 2009. Among other things, said Unanimous Stipulation and Agreement maintained the annual decommissioning expense accrual and trust fund payment at $1*,281,264 (Missouri jurisdictional amount),
with the understanding that any proposed change *in the annual Wolf Creek decommissioning cost accrual would be addressed in the context of the then upcoming rate case (now known as File No. ER-2010-0355).
3

KCP&L filed to generally increase its rates in File No. ER-2010-0355. As part of
                                                                            \
the overall rate increase request, KCP&L proposed to decrease the Missouri jurisdictional annual Wolf Creek decommissioning expense accrual and trust fund payment to
$1,158,417 from $1,281,264. In Staff's Cost of Service Report in File No. ER-2010-0355, Staff recommended no change in the decommissioning expense accrual and trust fund payment because Great Plains Energy, Inc. had recently reduced its return expectations for its pension plan assets. Ultimately the .annual contribution amount remained at
$1,281,264 (Missouri jurisdictional amount) at the conclusion of the rate case.      '
On August 31, 2011, KCP&L filed in File No. E0-2012-0068 an Application for Approval of the Accrual and Funding of Wolf Creek Decommissioning Costs at Current Levels. Attached to KCP&L's Application was the required cost study detailing the latest estimate for the cost to decommission Wolf Creek. For the purposes of the 2011 Study, the final shutdown date of Wolf Creek was projectt3d to occur in 2045. The *calculations set forth in the 2011 Study* were performed in a* manner consistent with previous filings.
KCP&L's 2011 analysis confirmed the adequacy of the annual funding level of $1,281,264 (Missouri jurisdictional amount), given the 2011 Study's then current prediction of decommissioning costs of $630.135 million for the DE CON decommissioning option under what KCP&L believed were a reasonable set of economic, .financial, and investment assumptions. Consequently, KCP&L did not seek any changes to its funding level.
KCP&L and the Staff entered into a Non-Unanimous Stipulation And Agreement, which
                                                               ,I Public Counsel did not oppose. As part of the Non-Unanimous Stipulation And Agreement in File No. E0-2012-0068, KCP&L and the Staff agreed as follows:
: 5. The Parties agree that it is reasonable to use capital market return-expectation information provided by Great Plains Energy's pension plan consultant for purposes of developing expected portfolio returns 4

for KCP&L's nuclear decommissioning trust fund, The Parties agree that any proposed changes to the annual contribution to KCP&L's nuclear decommissioning trust fund shall be based on capital market return expectation information provided by Great Plains Energy's pension plan consultant, unless the Parties agree to use a different source and/or methodology for capital market return expectations or the Commission finds in a contested case that different source and/or methodology for capital market return expectation are more appropriate:
The Commission on May 1, 2012 issued an Order Approving Stipulation And Agreement and directing that the signatories comply with the terms of the stipulation and agreement On August 29, 2014, K~P&L filed in File No, E0-2015-0056 an Application for Approval of the Accrual and Funding of Wolf Creek Gen~rating Station Decommissioning Costs at Current Levels, Attached to KCP&L's Application was the required cost study detailing the latest estimate for the cost to decommission Wolf Creek. For the purposes of the 2014 Study, the final shutdown date of Wolf Creek was projected to occur in 2045 .
 . The calculations set forth in the 2014 Study were performed in a manner consistent with previous filings. KCP&L's 2014 analysis confirmed the adequacy of the annual funding level of $1,281,264 (Missouri jurisdictional amount), given the 2014 Study's then current .
prediction of decommissioning costs of $765.060 million for the DEGON decommissioning option under what KCP&L believed were a reasonable set of economic, fin~ncial, and investment assumptions. Consequently, KCP&.L did not seek any changes to its funding level. KCP&L and the Staff entered into a Non-Unanimous Stipulation And Agreement,*
which Public Counsel did not oppose.
As part of the Non-Unanimous Stipulation And Agreement in File No. E0-2015-
, 0056, KCP&L and the Staff agreed as follows:
: 5. The Signatories agree that it is reasonable to use capital market return expectation information provided by Great Plains Energy's pension plan consultant for purposes of developing. expected 5
* portfolio returns for KCP&L's nuclear decommissioning trust fund.
The Signatories agree that any proposed changes to the annual contribution to KCP&L's nuclear decommissioning trust fund shall be based on capital market return expectation information provided by Great* Plains Energy's pension plan consultant, . unless the Signatories agree to use a different source .and/or methodology for capital market return* expectations or the Commission finds in a contested case that different source and/or methodology for capital market return expectation are *more appropriate.
THE 2017 STUDY Pursuant to 4 CSR 240-3.185(3), on September 1, 2017, KCP&L filed its Application for Approval of the Accrual and Funding of Wolf Creek Generating Station Decommissioning Costs at Current Levels ("Application"). KCP&L filed as Schedule A the Wolf Creek Generating Station Decommissioning Cost Estimate Update for September 1, 2017 ("2017 Study"). The 2017 Study, with the date August 2017 on its cover, was prepared for the Wolf Creek Nuclear Operating Corporation ("WCNQC") by TLG Services, Inc. (''TLG"), a consulting engineering firm based in Bridgewater, Connecticut. 3 The TLG an.alysis relies upon site-specific, technical information from a TLG evaluation prepared in 2014, updated to reflect current assumptions pertaining to the disposition of the nuclear station and relevant industry experience iri undertaking such projects. Costs are represented in 2017 Dollars.
For the purposes of the 2017 Study, the final shutdown date of Wolf Creek is projected to occur in 2.045. The 2017 Study shows the decommissioning cost estimate to be $813,733,000 million in 2017 Dollars for the DEGON decommissioning option. TLG 3
Since 1982, TLG has provided engineering and field services for contaminated facilities including .
estimates of decommissioning costs for nuclear generating units. TLG also prepared the decommissioning cost estimate for Wolf Creek that was filed with and approved by the Commission irJ previous KCP&L and Union Electric Company decommissioning cost studies.
6

examined two decommissioning options: (a) DECON, 4 and (b) SAFSTOR. 5                                Both.
alternatives are acceptable to the NRG. KCP&L's Schedule B ("2017 Funding Analysis")
to the Application indicates that under current assumptions the present annual trust fund contribution of $1,281,264 is suffident to meet thE3 estimated DEGON decommissioning option within $263,000 which is less than 0.40% of the Missouri jurisdictional share of future estimated total decommissioning costs. Based* on its analysis KCP&L has concluded that its funding level should result in a final decommissioning trust amount which is sufficient to cover the costs estimated in the 2017 Study under what KCP&L.
believes are a reasonable set of economic, financial, and investment assumptions.
KCP&L *believes it is reasonable and prudent to continue the annual accruals at the current level of $1,281,264.
The 2017 Study by TLG includes KCP&L's share of thE3 cost for decommissioning*
the Independent Spent Fuel Storage Installation ("ISFSI") at Wolf Creek .. KCP&L's 47%
share of the $6.69 million is $3.14 million (MO and KS) identified in the current decommissioning cost analysis [Document Wll-1741-001, Rev. 0, Table C, cost element 2d.2.4] prepared by TLG Services, Inc., elated August 20*17. 6                     The ISFSI will be constructed on the Wolf Creek site to hold the spent nuclear fuel assemblies (high-level 4
DEGON assumes decontaminating and decommissioning immediately foHowing conclusion of power operations in 2045. Work is anticipated to be completed by ~053. DEGON consists of removal of fuel assemblies, source material, radioactive fission and corrosion products, and other radioactive materials immediately after cessation of power operations. Total estimated cost to decommission* in 2017 Dollars is
$813,733,000.                                                                                        .
5 SAFSTOR places the facility in protective storage for deferred decontamination to levels that permit release for unrestricted use. Delayed decontamination and dismantling activities are initiated once spent fuel and source material are removed, such that license termination is accomplished within the 60-year time period set by the NRG. This process is anticipated to be completed by 2106. Total estimated cost to decommission in 2017 Dollars is $1,093,117,000.
6 Since the design for decommissioning has not been selected, the $6:69 million amou*nt should be considered a representative decommissioning cost included within the DEGON and SAFSTOR estimates.
(See page 50 of 139 of TLG Services 2017 Study.)
7

radioactive waste). The Department of Energy ("DOE") has partially breached a contract with KCP&L, under which KCP&L customers had, until recently,* been paying fees in rates, to remove, transport, and dispose of at the Nevada - Yucca Mountain repository site.
Until the DOE performs under that contract, the spent n_uclear fuel assemblies will need to be stored onsite in the ISFSI with a portion stored in the spent fuel pool until decommissioning.
Among other things, the 2017 Funding Analysis is based on capital market assumptions dated July* 1, 2017 from KCP&L's pension consultants, Willis Towers .
Watson as agreed in the Non-Unanimous Stipulation And Agreement approved in File No. E0-2012-0068, and a decommissioning cost escalation rate based on inflation assumptions also from Willis Towers Watson dated July 1, 2017 in order to provide consistency with the capital market assumptions .
       . In its Application, KCP&L requests the Commission: (i) find that the 2017 Study and Funding Analysis satisfy the requirements of 4 CSR 240-3.185(3); and (ii) approve*
the continuation of the annual decommissioning expense accrual and trust fund contribution amount at the current funding* 1evel of $1,281,264 (Missouri .jurisdictional-*
amount). Because KCP&L is not proposing a change in the funding level, KCP&L has not filed new tariff sheets regarding its funding of decommissioning, is not requesting a hearing, and does not believe that a hearing is required respecting its decommissioning cost study fili~g, 8

STIPULATIONS AND AGREEMENTS The Signatories to this case have reached certain understandings so that the Staff and KCP&L stipulate and agree as follows:
: 1.       KCP&L's Missouri retail j,urisdictional operations annual decommissioning expense accrual and trust fund payment was initially set by the Commission at
$2,303,856, first in Case No. E0-91-84, Kansas City Power & Light Co., 1 Mo.P.S.C.3d 353 (1992), again in Case No. E0-94-80, Kansas City Power & Light Co., 3 Mo.P,.S.C.3d 60 (1994), again in Case No. E0-97-84, Kansas City Power & Light Co., 7 Mo.P.S.C.3d 124 (1998), again in Case No. E0-2000-210, Kansas City Power & Light Co., 8 Mo.P.S.C.3d 516 (2000), again in Case No. E0-2003-0081, and again in Case No. E0-2006-0094. As part of Rate Filing #1 of the KCPL Experimental Regulatory Plan, the Commission approved in Case No. E0-2005-0329 (Case No. ER-2006-0314) KCP&L's Missouri retail jurisdictional authorized annual decolllmissioning expense accrual and trust fund payment was reduced to $1,281,264.                The authorized Missouri retail jurisdictional annual decommissioning expense accrual and trust fund payment has remained the same in each subsequent triennial decommissioning filing and rate case filed subsequent to Rate Filing # 1. 7
: 2.       On SeptembE:ff 1, 2017, KCP&L filed its Application along with the 2017 Study. The Signatories request that the Commission recognize in its Report and Order for this case that KCP&L's Application and the 2017 Study meet the requirements of 4 CSR 240-3.185(3).
7 Case/File Nos. ER-2007-0291, ER-2009-0089, E0-2009-0072, ER-2010-0355, ER-2012-0174, and ER-2016-0285.
* 9
: 3. The 2017 Study estimates the decommissioning cost for the DEGON alternative to be $813,733,000 in 2017 Dollars, which is 6.36% higher than the 2014 estimate of $765,060,000 which represents approximately a 2.08% annualized escalation
* rate over the 3-year period. The 2017 Study inclupes KCP&L's share of the estimated cost for decommissioning the ISFS! under the specific assumptions in the TLG Services 2017 Study.                                               ,,
        , 4.      ISFSI funds recovered from the DOE in connection with decommissioning of the ISFSI will be used to offset the costs of decommissioning the ISFSI.
: 5. Pursuant to 4 CSR 240-20.070(12), excess trust funds from the costs of decommissioning the*Wolf Creek Generating Station and the ISFSl.are to be reimbursed to the ratepayers through the ratemaking process.
* 6. The current annual contribution of $1,281,264 (Missouri jurisdictional amount) to KCP&L's nuclear decommissioning trust fund is reasonable given the uncertainties in the numerous forecasted assumptions used to determine the contribution level. The forecasted assumptions include, but are not limited to, capital market expectations, projected decommissioning inflation rates and the costs to decommission Wolf Creek and the ISFSI.
: 7. The Signatories agree that it is reasonable to use capital market return expectation information provided by Great Plains Energy's pension p*lan consultant for' purposes of developing expected portfolio returns for KCP&L's nuclear decommissioning trust fund. The Signatories agree that any proposed changes to the annual contribution to KCP&L's nuclear decommissioning trust fund shall be based on capital market return expectation information provided by Great Plains Energy's pension plan consultant, unless the Signatories agree to use a different source and/or methodology for capital 10

   . market return expectations or the Gommission finds in a contested case that different
  * ;s'ource and/or meth9dology for capital market return expectation are more appropriate.
: 8.      KCP&L shall continue its Missouri retail jurisdiction expense accruals and trust fund payments at current levels without any change in its Missouri retail jurisdictional rates, unless and until the Commission subsequently approves such a change.
: 9.      Annual Missouri retail jurisdictional decommissioning costs, inclusive of the .
ISFSI, in the amount of $1,281,264 are, and should continue to be, included in KCP&L's
    .cost of service and reflected in its current rates for ratemaking purposes. The Signatories request .that this finding be specifically recognized in the Commission's Re.port and Order and note that this finding is required in order for the decommissioning fund to retain its qualified tax status.
: 10.   . The Signatories agree and acknowledge that this Agreement does not prevent any Signatory. from proposing* changes to the annual contribution amount to the nuclear.decommissioning trust fund in      asubsequent rate proceeding.
: 11. The Signatories agree that KCP&L shall continue to record and preserve Wolf yreek asset retirement obligation costs, as agreed to by the Staff., Public Counsel, and KCP&L, and authorized by the Commission, in Case No. EU-2004-0294.
* 12. To the extent the Commission belieyes that 4 CSR 240-4.017 applies, KCP&L requests a waiver for good cause of this rule. KCP&L attaches as Exhibit A, a verified statement that it had no communication with the Office of the Commission within the prior 150 days to the filing of the Application in File No. E0-2018-0062 regarding-any
                                                                                            \.J substantive issue likely to be in this case.
* 11
: 13. Except as explicitly agreed otherwise herein, none 0f the Signatories to          .
this* Agreement shall be deemed to have approved or acquiesced in any question of             ,:'.f.-:.
Commission authority, decommissioning methodology, ratemaking principle, valuation methodology, cost of service methodology or det~rmination, depreciation principle or method, rate design methodology, cost allocation, cost recovery, or prudence that may underlie this Agreement or for which pro_vision is made ir'.1 this Agreement.
: 14. If the Commission does not unconditionally approve this Agreement without modification, and notwithstanding its provision that it shall become void thereon, neither this Agreement . nor any matters .associated with its consideration by the Commission shall be considered or argued to be a*waiver of the rights that any Signatory has to a hearing on the issues presented by the Agreement, regarding cross-examination or a decision in accordancewith Sectio!l 536.080.1 RSMo or Art. V, Section 18 Mo. Const.
The Signatories shall retain all procedural and due process rights as fully_ as though this Agreement had not been presented for approval, and any suggestions or memoranda, testimony or exhibits that may have been offered or received in.support of or in opposition to this Agr~ement shall thereupon b_ecome privileged as reflecting the substantive content
* of. settlement discussions, and shall be stricken from and. not be considered as part of the administrative. or evidentiary record before the Commission for any further purpose whatsoever .
         . .15.   ~o assist the Commission in its review of this Agreement, the Signatories also request that the Commission advise them of any additional information that the Commission may desire from the Signatories related to the- matters addressed in this Agreement, including any procedures for furnishing such information to the Commission.
12

       . 16. If requested by the Commission, the Staff shall submit to the Commission a memorandum responsive to the Commission's request. Each party of record shall be served with a copy of any memorandum and shall be entitled to submit to the Commission within five (5) days of receipt of the Staffs memorandum, a responsive memorandum which shall also be served on all parties. The contents of any memorandum provided by any party are its own and are not acquiesced in or otherwise adopted by the other Signatories to this Agreement, whether or not the Commission approves and adopts this Agreement.
: 17. The Staff also shall provide, at any agenda meeting at which this Agreement is noticed to be considered by the Commission, whatever oral explanation the Commission requests. The Staff shall, to the extent reasonably practicable, provide the other parties with advance notice of when the Staff shall respond to the Commission's request for such explanation once such explanation is requested from the Staff. The Staffs oral explanation shall be subject to public disclosures, except to the extent it refers to matters that are privileged or protected from disclosure pursuant to any Protective Order issued in this case.
: 18. Because this is an Agreement with the sole purpose of addressing the authority requested by the Application of KCP&L, except as specified herein, the Signatories to the Agreement shall not be prejudiced, bound by, or in any way affected by the terms of this Agreement: (i) in any future proceeding; (ii) in any proceeding currently pending under a separate docket; and/or (iii) in this proceeding, should the Commission decide not to approve the Agreement or in any way condition its approval of the same, except as stated herein. Because this is an Agreement for the purpose of settling matters in this case, it shall not be cited as precedent or referred to in testimony as an assertion 13

of the particular position of any Signatory in any subsequent or pending judicial or administrative proceeding, except that this shall not be construed to prohibit reference to its existence in future proceedings, including proceedings to enforce compliance with its terms.
: 19. The 2017 Study shall be received into evidence.
: 20. Pursuant to Section 393.290 RSMo, the Signatories agree that the Commission may review and authorize changes to KCP&L's Missouri retail jurisdictional rates and charges as a result in a change in the annual accrual of funding for the Missouri jurisdictional sub-account of the Wolf Creek decommissioning trust after a full hearing, including but not limited to any general rate. increase case or excess. earnings complaint case, and after considering all facts relevant to such accrual rate.
21;     The provisi(?nS of this Agreement have resulted from numerous discussions/negotiations among the Signatories and are interdependent. In the event that the Commission* does not approve and adopt the terms of this Agreement in total, it shall be void and no Signatory hereto shall be bound by, prejudiced, or in any way affected by any of the agreements or provisions hereof unless otherwise provided herein.
* 22. In the event the Commission accepts the specific terms of this Agreement, the Signatories waive their respective rights: (i) to cross-examine witnesses pursuant to Section 536.070(2) RSMo; (ii) to present oral argument and written briefs pursuant to Section 536.080.1 RSMo; (iii) to the reading of the transcript by the Commission pursuant to Section 536.080.2 RSMo; and (iv) to judicial review. pursuant to Section 386.510 RSMo. This waiver applies only to a
* Commission Report and Order respecting this Agreement issued in this proceeding, and does not apply to any matters raised in any 14

subsequent Commission proceeding, or any matters not explicitly addressed by this Agreement.
WHEREFORE, the Signatories hereto request that the Commission issue an order:
: 1. Approving this Non~Unanimous Stipulation and Agreement;
: 2. Receiving into evidence this Non-Unanimous Stipulation and Agreement, the 2017 Study (Schedule A to the Application), and the Funding Analysis (Schedule B to the Application);                        *
: 3. . Finding that KCP&L's 2017 Study and Funding Analysis satisfy the requirements of 4 CSR 240-3.185(3);
: 4. Finding, pursuant to this Non-Unanimous Stipulation and Agreement, that KCP&L's Missouri retail jurisdiction annual decommissioning expense accruals and trust fund payments shall continue at the current level of
              $1,281,264;
: 5. Finding, in order for the decommissioning fund to retain its qualified tax status, that the current. decommissioning costs for Wolf Creek, inclusive of the ISFSI, are included in KCP&L's current Missouri cost of service and are reflected in its current Missouri retail rates for ratemaking purposes; and
: 6.   . Authorizing KCP&L to continue to record and preserve Wolf Creek asset retirement obligation costs, as agreed to by the Staff, Pubic Counsel and KCP&L, and authorized by the Commission, in Case No. EU-2004-0294.
15

Respectfully submitted, 14' SfeQe# "O~        .
RogerW. Steiner                                  Steven Dottheim Corporate Counsel                                Chief Deputy Staff Counsel Missouri Bar No. 39586                           Missouri Bar No. 29149 Kansas City Power & Light Company                Attorney for the Staff of the 1200 Main Street, 16th Floor
* Missouri Public Service Commission Kansas City, MO 64105                            200 Madison St., Ste. 800 (816) 556-2314 (Telephone)                        P. 0. Box 360 (816) 556-2787 (Fax)                             Jefferson City, MO 65102 roger.steiner@kcpl.com (e-mail)                 . (573) 751:-8702 (Telephone)
(573) 751-9285 (Fax).
steve.dottheim@psc.mo.gov (e-mail)
CERTIFICATE OF SERVICE I hereby certify that copies of the foregoing have been mailed, hand-delivered, transmitted by facsimile or electronically mailed to all counsel of record this 5th day of January, 2018.
* Counsel for Kansas City Power & Light Company 16

BEFORE THE PUBLIC SERVICE COMMISSION OF THE STATE OF MISSOURI In the Matter of the Application of Kansas City           )
Power & Light Company for Approval of the                 )   File No. E0-2018-~062 Accrual and FundingofWolfCreek.Generating                 )
Station Decommissioning Costs at Current Levels          )
VERIFIED DECLARATION OF LOIS J, LIEtHTI Lois J. Liechti, being first duly sworn on his oath, states:
: 1. My name is Lois J. Liechti. I work in Kansas City, Missouri, and I am employed by Kansas City Power & Light Company ("KCP&L") as Director - Regulatory Affairs.
: 2.      Pursuant to the requirements of 4 CSR 240-4.01 ?(D), I hereby certify, to the best of my knowledge, information, and belief, that KCP&L personnel have had no communications*
with the office of the Missouri Public Service Commission within the prior one hundred fifty (150) days of the filing of the Application in File No. E0-2018"'0062 regarding any substantive issues likely to be in this case.
                                                    ~,~
01s . 1e~ rrector - egu atory Kansas City Power & Light Company arrs Subscribed and sworn before me this s.ftA... day of January, 2018.
My commission expires:         . tfj 2-CJ/ ,u:, 1-/                  ANTHONY R WESTENKIRCHNER Notary Public. Notary Seal State of Missouri Platte County Commission# 17279952 My Commission Expires April 26. 2021 1
Exhibit A Paae 1 of 1

Enclosure XI to WM 19-0008
)
Direct Testimony of Adam H. Gatewood (June 11, 2018)
(104 pages)

20180611150514 Filed Date: 06/11/2018 State Corporation Commission
* of Kansas BEFORE THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS In the Matter of the Application of the    )
Joint Application of Westar Energy,        )
Inc. and Kansas Gas & Electric             )  Docket No.
Company for Approval to Make               )  18-WSEE-328-RTS
. Certain Changes in Their Charges for       )
Electric Service                           )
                          . DIRECT TESTIMONY PREPARED BY Adam H. Gatewood UTILITIES DIVISION KANSAS CORPORATION COMMISSION .
June 11, 2018

Direct Testimony of Adam H. Gatewood                                                              DocketNo. 18-WSEE-328-RTS .
I Table of Contents Executive Summary .......................................................................................................,................... 2 Decommissioning Trust Annual Accrual. ................... ,................................ :.................................. .3 Rate of Return Analysis ................................................................................................................... .8 Capital Structure ................................... ,.............. ,....... , ................................................................. 10 Cost ofDebt .............................................. :.................... ,............................................................... 11 Cost of Equity Analy.sis ......................................_. ... :.....................................*................................. 12 Standards for a Just & Reasonable Rate of Return ................. :....................................................... 26 KCC Proxy Group ............................................................................................................ :............... 29 Return on Equity Analysis .................................................................. ..'......................................... 34
                                  '     I
* Discounted Cash Flow Model. ..... ,............................................................................... ;................. 37 Forecasted Growth Rates for the DCF Model.. ............................................................. 39 DCF Results ..................... .- ..- ..............*............................................ ,..................... ,.......... 46 Internal Rate of Return (IRR) Analysis ....................................................... :................. 49 Capital Asset Pricing Model (CAPM) Analysis .. ,......................................................................... 51
: 1. Q,        Would you please state your' name and business address?
2    A.        My name is Adam H. Gatewood. My business address is 1500 Southwest Arrowhead 3              Road, Topeka, Kansas, 66604.
4    Q.        Who is your employer and what is your title?
.5    A.        I am employed in the Utilities Division of the Kansas .Corporation Commission as a .
6              Managing Financial Analyst.
7    Q.        What is your educational and.professional background?
8    A.
* I graduated from Washburn University with a B.A. in Economics and a Masters of Business 9              Administration. I have filed testimony on cost of capital and related financial issues before 1

Direct Testimony of Adam H. Gatewood                             DocketNo. 18-WSEE-328-RTS 1         the Commission in more than 120 proceedings. I have also filed testimony on cost of 2          capital issues before the Federal Energy Regulatory Commission in natural gas pipeline 3          and electric transmission dockets.
4 Executive Summary 5 Q.       What issues are you testifying to in this Docket?
6 A.       My testimony addresses the annual accrual for Westar's nuclear decommissioning trust 7          (NDT) and the rate of return used to calculate Westar' s revenue requirement.
8          With respect to annual accrual for the NDT, I recommend that an annual accrual of 9          $7,793,500 based on the decommissioning methodology advocated by Staff witness Leo 10          Haynos. I also recommend that the Commission create a faGtor in Westar's (WR's) Retail 11          Energy Cost Adjustment (RECA) to recognize changes to the annual 'accrual that occur 12          outside of general rate cas.es.
13          With respect to the rate of return, I recommend that the Commission adopt a rate of return 14          of 7.06% that incorporates the 9.30% return on equity set out in the Non-Unanimous 15          Settlement approved in l 8-KCPE-095-MEE- (18-095). My analysis in this Docket provides 16          substantial evidence that 9.30% is a fair and reasonable .return for both shareholders and 17          ratepayers and, therefore, it should be adopted by the Commission to set Westar's revenue 18          requirement.
19 Q.       What documents* did you review to prepare your analysis?
20 A.       In preparing my rate of return analysis and recommendation, I reviewed the following 2

Direct Testimony of Adam H. Gatewood                             Docket No.18-WSEE-328-RTS 1         documents directly connected to this Docket: 18-WSEE-328-RTS (18-328) Testimony&
2         Application; 18-095 Non-Unanimous S&A; responses to data requests issued by KCC 3          Staff and other parties; cost of capital work-papers provideq in response to KCC data 4         request 85; and updates to Section 7 (cost of capital) provided in response to KCC data 5         request 159. In preparing my recommendations for Westar's annual accrual, I reviewed 6         the 18-107 Testimony and Application; the testimony of Leo Haynos filed in 18-WCNE-7          107-GIE (18-107); responses to KCC data requests 126, 156, 157, and 158 in Docket 18-8         328.
9 Decommissioning Trust Annual Accrual 10 Q.      Please summar~e your recommendation for Westar's annual ~ccrual.
11 A.      With respect to Westar's NOT, I recommend an annual accrual of $8,694,000 if the 12         Commission adopts the SAFESTOR methodology, or $7,793,500 if the Commission 13         adopts the DECON Alternative with Long-Term Spent Fuel Management methodology.
14         In addition, I recommend that the Commission include a variable in Westar' s RECA to 15         account for any difference between the NDT annual accrual in base rates and the amount 16         set by any subsequent decommissioning cost review.
17         Staffs recommendation to ,recognize the increased costs associated with spent fuel 18         management results in an increase in the annual accrual.         Staff witness Leo Haynos 19         explained in his 18-107 Direct Testimony that the U.S. Department of Energy's inability 20         to accept spent fuel for final disposal brings on the necessity for managing the spent fuel 3

Direct Testimony of Adam H. Gatewood                                     DocketNo. 18-WSEE-328-RTS 1          at the reactor site for an indefinite period of time. 1 His recommendation recognizes those J
2          additional costs. Wolf Creek owners are not paying a fuel disposal surcharge 2 to DOE at 3          this time. 3 That surcharge was more than the increase in the annual accrual that Staff 4          recommends. 4 At this time, with the suspension of that surcharge, recognizing the costs of 5          managing the spent fuel is not an increase to consumers. It is an issue that is in flux, and a 6          solution could be many years in.the future, but regardless of the solution, there will be costs 7          incurred to manage and dispose of spent fuel. It is Staff's view that it is in all parties' 8          interest to accrue funds for those costs over the life of the plant.
9 Q.       Describe the triennial review process of the decommissioning cost estimates.
* 10 A.       The triennial review is .done in two phases. In phase one, the Commission reviews the 11          decommissioning cost study, selects the decommissioning methodology, and decides on 12          the inflation rate to apply the decommission cost estimate. By selecting the methodology, 13          the Commission is selecting a cost estimate that is in current-year dollars. The inflation 14          rate is necessary to escalate those costs to the year they will occur. The .sum of those 15          inflated costs is the amount that the owners must accumulate in their respective NDTs.
16          Phase two determines the annual accrual necessary to fully fund the owner's NDT.
17 Q~       What was decided in phase one?
18 A.       At the time I flied testimony in this Docket on June 11, 2018, there is no decision by the 19          Commission m. phase one.              My recommendation m phase two is based on the 1
18-WCNE-107-GIE; Direct Testimony of Leo M. Haynos; May 15, 2018; p. 15.
2 DOE surcharge of 1 mil/kWhr to fund the final disposal of spent fuel..
3 18-WCNE-107-GIE; Response to Staff Data Request 21.
4 18-WCNE-107-GIE; Response to Staff Data Request.21. (Estimated DOE 2017 surcharge for Westar is $4.7m).
4

Direct.Testimony of Adam H. Gatewood                              Docket No. 18-WSEE-328-RTS 1             recommendations by Staff witness Leo Haynos in phase one. Staff witness Leo Haynos
          \
2             recommends the DECON Alternative with Long-Term Spent Fuel Management1 3             (DECON-LTSFM). As an alternative, he recommends the SAFESTOR method as it also 4             provides a cost estimate that recognizes the spent fuel storage issues. If the Commission 5             adopts a different methodology in the 18-107 Docket, I will file additional testimony to 6             reflect the Commission's decision.
7   Q.        Please explain Staff's rationale for introducing* the NDT variable to the RECA.
8   A.        Adding an NDT variable to the RECA will ensure that Westar collects through rates the 9             amount that it deposits in its NDT account. Staff witness Justin Grady will explain the 10             mechanics of the adjustment factor in the RECA formula. Commission Orders in 1984.
11             established a three-year cycle for Wolf Creek's decommissioning cost studies. In reality, 12             this three-year review cycle may not sync up with each owners' rate cases, thus the annual 13             accrual collected in base rates may not match up with the Commission's latest adopted cost 14           . NDT funding level. The five-year moratorium in the 18-095 Agreement highlights the 15
* timing miss-match that we want to avoid.
16
* Q.        What amount did WR propose for its NDT annual accrual?
17   A.        Westar prQposes to keep its NDT annual accrual unchanged at $5,772,700.               This 18             calculation encompasses forecasted asset returns published by J.P. Morgan Asset 19             Management (2017); the current NDT balance of $222,277,308 (net of tax liabi~ities) at 20             September 30, 2017, using the DECON decommissioning methodology; and an inflation 21             rate of 2.91 % to escalate costs to future years.
5

Direct Testimony of Adam H. Gatewood                                                              Docket No. l 8-WSEE-328-RTS 1            Staffs recommendation is higher than Westar's proposal due to:. 1) lower forecasted 2            returns; and 2) a change to the decommissioning methodology from DECON to DECON-3            LTSFM which is a longer and costlier decommissioning process. The decommissioning 4            methodology and the inflation rate are subject to Commission determination in the 18-107 5            Docket.
6   Q.       Why are you using a lower return in your calculation than the return used by Westar 7            witness McGrath?
8   A.       We are using the same source for the forecasted return data, but Westar relied on the data 9            published for 201 7 and my calculations use the 2018 edition, which reports lower expected 10            returns than the 2017 forecasts.                            We are both using Long-Term Capital Market 11            Assumptions (LTCMA) published by J.P. Morgan Asset Management (JPMAM) as our 12            source for expected returns over the long-run (more than ten years) for various asset 13            classes. The following table shows the 2017 and 2018 forecasts for the asset classes used 14            in the NDT and highlights the lowered forecasts.
J.P. Morgfill Asset_ Managflllent ___ _
__  Long~Term_Capital Market_Assump)ions ___ _
2017                 2018
_ Equities-Large Cap_                                     7.63%                6.41%      - -/...-
                               !Equities-Small Cap                                    8.67%                7.35%
                            - )iq~iti;;~futer~ati~~al (EAFE)-                                              7.61%
_:c::~_r~ B_9nds__       _ __          ___ _ _ _ :_     3.44%      _ -~ __ 3.&sect;7%
High Yield Bonds            .                   ,    6.13%          1     5.59%
                               *Real Es~t~            ---                   I    :    7.32%          r     7.42%         1
                             ---i~----------===--_-_--_*
lfash & Equivalents -_-_--_-_-_-_-_-;___*        I -----'-,_____
2.00%          I ____2.00%        -i--
:                                                                                         I
                               !--- -----~-------- --------                                  ___    1 ___  ---  --- ---  ~
ihttps://am.jpmorgan.com/us/institutionaV2018-long-term-capital-market-assumptions 15 *                                                                             '
16   Q.       Is ~MAM's publication a reasonable source for these types of forecasts?
6

Direct Testimony of Adam H. Gatewood                             DocketNo. 18-WSEE-328-RTS 1   A.       Yes, J.P. Morgan's forecasts in this publication are consistent with forecasted returns by 2            other money management firms and reflect the expected returns of institutional portfolio 3\            managers.
4    Q.      Did you quantify the impact of the lower forecasted returns?
5
* A.       Substituting the lower 2018 forecasts for the 2017 forecasts in Westar's work-papers 6            *increases the annual accrual from $5,772,700 to $6,441,000; a $668,300 increase using the 7            DECON methodology. Thus, a majority of the increase is associated with the added costs 8             of the DECON- LTSFM or SAFESTOR methodologies.
9    Q.      Historically, what has Westar's NDT earned?
10    A.      I performed an internal rate of return analysis on Westar's deposits to its NDT from 1986 11            through the present. Over that time period, Westar's NDT experienced an annual return of 12             5.68%.
13    Q.      How does the NDT's historic return compare to the forecasted return?
14    A.      The 2018 forecasted returns, using Westar's proposed portfolio structure and the DECON 15            methodology's projected cash-flows, indicates a return of 3.18% for the time period of 16            2017 through 2053. The difference reflects changes in lower expected returns in the future 17            as compared to the past occurring across all asset dasses, as well as a progressively more .
18            conservative portfolio as we near the decommissioning date. Virtually all of the economic 19            and financial literature point to this same scenario playing out in the capital markets.
20            Investors can expect lower returns in the future relative to the past due to lower inflation 7

Direct Testimony of Adam H. Gatewood                             Docket No. 18-WSEE-328-RTS 1          and slow real economic growth; each of these variables put downward pressure on expected 2          returns.
3 Q.       How did you calculate the annual accrual amount?
4 A.       My calculation appears in Schedule AHG-1, which assumes the DECON-LTSFM 5          methodology, an NDT balance (net of incom:e taxes) as of March 31, 2018, and forecasted 6          returns from the 2018 edition of the JPMAM-LTCMA. The blended returns of the portfolio 7          across time appear in Schedule AHG-2. The annual accrual is the amount that equates the 8          cash in-flows (annual accrual plus returns on the portfolio) to the cash out-flows (the 9          decommissioning expenses). The combination of variables that I discussed result in an 10          annual accrual of $7,793,500 for Westar's NDT to meet its future obligations.
11 Rate of Return Analysis 12 Q.       Please discuss the framework of Staff's rate of return (ROR) analysis in this Docket.
13 A.       Staffs ROR analysis in this Docket is, in part, a continuation of the analysis that Staff 14          performed in the 18-095 Merger Docket. These two Dockets are made interdependent by 15          the 18-095 S&A, 5 where signing parties committed to supporting an allowed return on 16          equity CR.OE) of 9.30% 6 in this Docket for Westar, as well as the 18-KCPE-480-RTS 17          Docket for Kansas City Power & Light. On May 24, 2018, the Commission approved the 7
18          Non-Unanimous Stipulation and Agreement filed in the Docket 18-095 S&A.
5 Non-Unanimous Settlement Agreement; 18-KCPE-095-MER; filed March 17, 2018.
6 Non-Unanimous Settlement Agreement; 18-KCPE-095-MER; filed March 17, 2018; at paragraph 32, iv, l; p. 15.
7 Order Approving Merger; 18-KCPE-095-MER; Issued May 24, 2018.
8

Direct Testimony of Adam H. Gatewood                                                                Docket No. 18-WSEE-328-RTS 1 Q.        With regard to Westar's ROR, what are your findings and recommendations?
2 A.        The following table summarizes my recommended ROR and the components of the 3           calculation.
J_                                    I                 _J_                        I _________ -~-
1                          Staff Recommended Rate of Return                                       _____ ',_
_!!_pclated Capital Stru-cture via KCC DR#1_59 & 1-8-095 S&A                                    +-
                      *F March 31, 2018                                                  ,
                                        -----------r:--- ---------- -: ------ '---r 1
                                                            ~
:     Weight l
* l I
                                                                                             --- - - - - - - - -- - - - - - - --r----
Cost
                                                                                               .         J Weighted-i
* Cost
                                                                                                                              -T-I I
jLong-termDebt ------~
* 48.33~-- -~-           4.68%1          _____ 2.26% ,__
lfo=mmonEquity ___i____ __Jl.24%1 ______ :___9__                          l~L ______ 4.77%
                           ,Post.1970 ITC                   I             0.43%i               7.06%1                  0.03%
                      -l
                      ,~-------~-------------;-
I                       1 1
                                                                                                              --- __ ! ~
O(;Ofn 1 4-    Source: KCC DR#l59 I ______ __ ___ + __________ J__                                       ______ _: __ _
4                          1                                                        1-                    f                      I 5           As a point of comparison, Westar's Application is based on the following ROR.
I                       !
* 1 - - - - - - - - - - - - - ~ - - - - ~ - - - ~ ~ - - - - ---- ---- - ~-
I
                                       - -- ------ Westar Energy           -- Rate
                                                                                 - ----of Return
                           ;         Proposed Rate of Return in Section 7 of Application
__ : Test Year_Ended_Ju~ 30, 2017 Updated to September 30, 2017
                           '                                (
I                          - - ----i------    -                         _ - -, --weighted             *
                      ---,--- --                        - :- -Weight- ' Cost - ,- - Co~t --- :-
                      - ILong~term Debt __: ___ _L ___ __i~2~L- _____ 4.65% :__________ 2.24% i
__ jCommonE_guitx_____ ;_                 ----------~l.36r~---       _9.8~ __              _    ~-Q~ro: __
iPost 1970 ITC                   i             0.44%, -            .7.33%,                - 0.03%!
                      --- -: - ~ - -     -------
l _-                    : -
                                                                        -----------~-----  --- -
7.33%1
______ '.J -
__    Source: 18-WSEE-328-RTS; Section 7 _ --------~---- ___________                                      !_
I                       ,                    .
* I 6                          1 7           Setting the rate of return requires decisions on the cost of debt, the cost of equity, and the 8           weight of each in the utility's capital structure. Staff is preparing its revenue requirement 9         - incorporating an update to March 31, 2018, account balances from the September 31, 2017, 9

Direct Testimony of Adam H. Gatewood                               DocketNo. 18-WSEE~328-RTS 1          balances used in the Application. The ROR that I recommend is based on the updated 2          account balances and costs for the capital items. I agree with the capital structure and cost 3          of debt contained in WR's March 31, 2018, update. I do not agree with the 9.85% cost of 4          equity.
5 Capital Structure 6 Q.       Do you have any adjustments to WR's capital structure?
7 A.       Only that I recommend updating the cost and account balances from September 31, 2017, 8          to March 31, 2018. Westar provided this updated information in response to KCC DR 9          # 159. As displayed in the previous two tables, there is a minor change in the capital ratios 10          from the September 31, 2017, balances to the March 31, 2018. It is reasonable to use the
* 11          March 31, 2018, capital structure because the update better reflects the capital costs and 12          ratios that is financing WR's rate base. The rate of return calculation in Staffs ROR will 13          reflect along-term debt ratio of about48.33% and an equity ratio of51.24% (these numbers 14          include some rounding; Staffs Schedule C contains the non-truncated calculations).
15 Q.       Is WR's updated capitalization within the range seen in the electric utility industry?
16 A.       Yes, financially sound electric utilities have traditionally employed capitalization policies 17          of about 50% debt and 50% equity. The group of electric utilities selected ~s the proxy-18          group for my cost of capital analysis follows this same pattern as seen in the following 19          table.
10

Direct Testimony of Adam H. Gatewood                                                  DocketNo. 18-WSEE-328-RTS
              +--                                             Staff ProJ~ Grou()
1==-~g-TennDebt Ratios Reported by Value-Line Investment Survey                                        ___ _L
                                                                                                                            --I 18-WSEE-328-RTS I
Allete Inc f   ALE I             ,
              , - + - - - - - - - - - - - + - - - - ! - - !_2_0_1_5-+1- 2016 46.3%1 42.0%
2011 41.0%
i Value-Line Forecasts 201a 40.5%
2019 38.5%
                                                                                                                    *21- *23 38.0%
Alliant Energy Corp                LNT          48.6%1 52.8%     49.0%      50.0%       50.0%       50.0%
                 ,Ameren Corp                        AEE          49.3%i 47.7%     49.5%1     49.5%       49.0%       49.5%
iAmericanElectric Power Co. - AEP                49.8%, 50.0%     51.5%!     52.5%       54.5%       50.5%
Consolidated Edison Inc Drure E=gy Coq, New
__ ED
                                                 ~]DUK l_
: t. 47.9% 50.8%
1 48.6%j ji.6i<]
50.0%!
54.0%1 50.5%
54.5%
49.5%
55.5%
48.0%
57.0'&#xa3; ~
Edisonlnternational El Paso Electric Co ------ ---
1IDACORP Inc EIX
                                                   !IDA 45.0% 41.8%
IEE-+__-52.7%1___
45.6%, 44.8%
5~ -
45.6%
51.2% -
43.7%
48.0%
53.0~
44.0%:
48.0% I 52.0%  r- s.LJ%1-47.5%
42.0% I 44.0% I
                                                           -f----                            -49.5%! 48.5% ! _- 46.0% I 1
                 ,NorthWestern Corporation --_~NWE                53.1%- 52.0% _   50.2%,
_)OGE Energy Corp__ __ _             QG_E
* j_    14.3~;_ 1!:!_~   41.7~1 __  4J!!'i__ __ 44.0~_/ _45.Sl!_J 1Pinnacle West Capital Corp        JNW ____ 43.0%'. __ 45.6o/{_   48.9~1     48.0%       48.5%      _45.5% .'1
               -!Portland General Electric_Co. POR /              47.8%: 48.4o/<<ij 50.1%1     47.0%       50.5%       48.5%
Xcel Energy Inc                    XEL    r-    54.1%! 56.3%1    55.<Jo//   58.0% I 57.0%- 58.0%1
               .!                          -       A,ven1gej      48.3~: 1~.5_o/~\ 18_.Z~i -~9.1~~1_       ~-:!_%j     4_~.8%1
               ~t ~ ---~-: ~- --=-~-=-~-~-~-= -~-
Median!       48.3% 49.2%j 49.8%! 49.5%!               49.3%<      48.3%   1 Minj - - 4io%f 41.1%L 41.0%[-- 40.5%                38.5%1    _ 38.0%
               -i- _________________ _Max!                     ---~-~6.3iy~_55.9%1 __ .58.0%~__Jl0%!-                 _58.0%_
               -i---                              _1        !             ;___   .      *I            ,           i     ___ ---+-
:source: Value-Line Investment Survey (February 16, 2018; March 16, 2018; & April 27, 2018)
                 ; ---       - - -* -.-   ----      r       ;     - . . --      .r - -   1- - -[ . -              L            r 1
2 Q.      Is WR's updated capitalization consistent with the capital structure. limitations 3          discussed in the 18-095 S&A?
4 A.       Yes, WR's capitalization complies with the provisions of Attachment 1 of the 18-095 S&A.
5 Cost of Debt 6 Q. _Do you propose any adjustments to WR's cost of debt?
7 A.      As with the capital structure, I recommend an update from September 31, 2017, to March 8         31, 2018. There are very minor cost differences between these two periods. The updated 9         cost of debt is 4.68%. This current cost of debt compares to a 5.687% cost of debt in WR's 10         last rate case (15-WSEE-115-RTS). The reduction reflects WR's refunding or refinancing 11

Direct Testimony of Adam H. Gatewood                               DocketNo. 18-WSEE-328-RTS 1           of debt that has occurred since the test year of December 31, 2014, that was used in that 2           rate case.
J 3  Cost of Equity Analysis 4 .Q.       Please summarize Staff's position on Westar's cost of equity?
5  A.       Staff recommends that the Commission authorize a 9.30% return on Westar's equity capital 6           (ROE), the same ROE applied for purposes of the Earnings Review & Sharing Plan (ERSP) 7           that was accepted by the Commission in the J 8-095 Docket. My analysis of the current 8           capital markets finds that, inclusive of the benefits from the ERSP and other terms of the 9           18-095 S&A, an ROE of 9.30% is reasonable for Westar and consumers. The benefits that 10           acerue to consumers through the 18-095 S&A are made available with some additional 8
11           risks to the shareholders of Westar. My testimony in the 18-095 Docket discussed the 12           benefits and risks related to 18-095 S&A and I will repeat that discussion because they are 13           equally important to adjudicating the cost ofcapital issues in this Docket.
14  Q.       Is Staff recommending an ROE range for the Commission?
15  A.       No, at least not in the sense that would be done in a traditional rate case. I recommend the 16           Commission adopt a 9.30% ROE, the same that is used in the ERSP. If for some reason 17           the Commission finds a need to deviate from the 9.30% ROE, then I recommend that a 9
18           range of 9.10% to 9.50%, which is consistent with the terms of the 18-095 S&A. This 19           range is fully supported by my analysis.
8 Testimony of Adam H. Gatewood, 18-KCPE-095-MER filed January 29, 2018; p. 11-15.
9 Non-Unanimous Settlement Agreement; l 8-KCPE-095-MER filed March 17, 2018; at paragraph 32, iv, 1; p. 15.
12

Direct Testimony of Adam H. Gatewood                              DocketNo. 18-WSEE-328-RTS.
1 Q.      Do you believe the Commission can deviate from the 9.30% ROE even though it 2          adopted the 18-095 S&A?
3 A.       Yes, the Commission can deviate from the 9.30% ROE in setting the revenue requirement 4          in.this Docket. If the Commission adopts an ROE lower than 9.30%, Westar has the option 5          of shortening the rate moratorium from five *years to three years. Staff believes there are 6         benefits for consumers to the full five-year rate moratorium that may not be present in a 7          three-year moratmium, such as an incentive to capture merger related synergies and a 8         period of relative rate stability. Those are two examples that are not easily quantified.
9 Q.      How broad is th~ support for the 9.30% ROE for Westar?
10 A.       The 9.30% ROE set in the 18-095 S&A is supported by Staff (representing the public 11          generally), CURB (representing residential and small business *consumers), Westar (on 12          behalf of shareholders), Sunflower Electric Cooperative, Mid-Kansas Electric Company, 13         The Kansas Power Pool, Midwest Energy, Inc., and Bright Energy, LLC. The signatories 14         to the 18-095 S&A represent diver~e and often opposing interests, especially on ~he issue 15          of an allowed return; seldom do they agree on this issue. In fact, there have been rate cases 16         where practically all issues could be settled among parties except the ROE, thus requiring 17         a hearing and Commission determination just for the allowed return.
18 Q.      How does a 9.30% ROE compare to recent decisions from around the country?
19 A.      A 9.30% return on equity is at the low-end of recent observations for electric utility r*ate 20         cases. For the first quarter of 2018; the average ROE granted was 9.75% with thirteen 13

Direct Testimony of Adam H. Gatewood                                   DocketNo; 18-WSEE-328-RTS 1            observations. 10 Separating out only those decisions associated with vertically integrated 2            electric utilities and not tied to a limited-issue rider brings the number of observations down 3            to five with an average of 9.78%. 11 Over the past decade, allowed returns have declined 4            nationally, although the rate at which those declines have occurred vary from jurisdiction 5            to jurisdiction. That decline has happened at a more rapid pace in Kansas than in most 6            otherjurisdictions. Over the past several quarters, there appears to *be a plateau in allowed 7            returns; that is the rate of decline has fallen off as shown in the graphs that follow.
8   Q:       Please provide sonie background on how Staff arrived at the 9.30% ROE for the 9            ERSP.
10   A.       Staff was searching for a productive and fair settlement position for the 18-095 Merger, 11            which led Staff to consider a rate moratorium and.a sharing mechanism of earnings above 12            an allowed return. Thus, it was necessary for Staff to perform a fresh and thorough analysis 13            of capital costs to determine the appropriate threshold for measuring earnings. At that time, 14            we were also aware that both Westar and KCP&L would be filing rate cases in 2018 and 15
* the two utilities expressed a need to have some level of certainty regarding the cost of 16            equity recommendations in their upcoming rate cases, especially if they were going to 17            commit to an extended rate moratorium or an earnings sharing plan. For that reason, parties 18            agreed that the negotiated ROE applied in the ERSP would also become their 10 RRA Regulatory Focus Major Rate Case Decisions: January- March 2018; S&P Global Market Intelligence; April 17, 2018; p. 10.
11 Kentucky Power Co., 9.70% (Kentucky); Public Service Company of Oklahoma, 9.30% (Oklahoma); Interstate Power and Light, Co, 9.98% (Iowa); Duke Energy Progress, LLC, 9.90% (North Carolina); and Consumers Energy Co, 10.00% (Michigan).                                                                          '
14 r

Direct Testimony of Adam H. Gatewood                               Docket No. 18-WSEE-328-RTS 1           recommendation to use in setting the revenue requirements in the 2018 rate cases.
2           As I discussed in my 18-095 testimony, 12 my cost of capital analysis was developed in a 3           manner and using conventions identicalto those applied in rate cases. The results of my 4           analysis indicated that 9.30% was within a reasonable range for the ERSP. I also found 5           that capital costs were similar to those observed during Westar's and KCPL's last rate cases 6           which occurred in 2015. The Commission set KCPL's ROE at 9.30% and adopted a
: 7.          .settlement in which Westar's ROE was about 9.35%. Thus, the cost of capital. analysis 8           provided Staff with the position that KCPL's and Westar's ROE could remain in place 9           from their last rate cases to be used for the ERSP and setting rates in their 2018 rate cases.
10  Q.       If the parties to the 18-095 S&A agreed to support a 9.30% ROE in this Docket, why 11           did you perform a new cost of capital study?
12  A.       I did this to provide the Commission with. a comparative record on wh~ch to base its 13           decision and to establish facts that demonstrate an ROE of 9.30% is a just and reasonable 14           return in determining Westar's revenue requirement. The signatories to the 18-095 S&A
                                   .                                                                  \
15           are very much aware that we cannot make a decision for the.Commission. Ultimately, it 16           is the Commission that has to r.eview the evidence and decide if 9.30% is a just and 17           reasonable return for setting Westar's revenue requirement.. The legal standards that I 18           discuss later s~ill apply to the Commission's decision, regardless of the fact that several 19           parties have re;iched an agreement on the issue.
20  Q.       How much time has elapsed since the analysis you prepared for the 18-095 docket?
12 Testimony of Adam H. Gatewood, 18-KCPE-095-MER filed January 29, 2018; p. 33.
15

Direct Testimony of Adam H. Gatewood                                   Docket No. i&-WSEE-328-RTS 1 A.       The time period of the capital market data I used in the 18-095 analysis was January 1, 2          2017, through December 31, 2017, and Staff filed its testimony on January 29, 2018. The 3          Application in this Docket was filed just days later on February 1, 2018. In this analysis, 4          I relied on financial data gathered from the one year time span of May 201 7 through May 5          2018. Thus, there is a considerable overlap in the time periods when data was gathered.
6          In developing our position in the 18-095 Docket, Staff was cognizant of the timing of the 7          rate filings. Since the timing of these interrelated events were relatively close together, 8          Staff was comfortable with connecting the two while recognizing our responsibility to 9          prove the 9.3% ROE included in the 18-095 Docket is reasonable for both the ERSP and 10          the following rate cases. Had we been looking at a wider time-gap between the 18-095 11          Docket and the rate cases, it likely would have been much more difficult or not possible to 12          have connected the recommendations.
13 Q.       What has occurred in the capital markets since the 18-095 analysis?
* 14 A.       There are some observable increases in capital costs in the time since the 18-095 analysis.
15          These changes are not dramatic increases to the capital costs observed since Westar's last 16          rate case in 2015 nor outside of the capital costs observed during 2017. In the past six 17          months, the Federal Open Markets Committee (FOMC) of the U.S.1Federal Reserve Board 13 18          has authorized open market operations transactions to increase the Federal Funds Rate in 19          December of2017 and March of 2018. In both cases, the FOMC authorized open market 13 The Federal Funds Rate is the rate at which funds are loaned between Federal Reserve depository institutions on an overnight basis. The Fed Funds Rate is a tool the FOMC uses to carry out its statutory objectives maximum employment, stable prices, and moderating long-term interest rates (12 U.S.C. &sect; 225a). The first _
two statutory objectives are known as the "dual mandate" because of the inherent difficulty in balancing these two objectives.
16

Direct Testimony of Adam H. Gatewood                                                                    DocketNo. 18-WSEE-328-RTS 1          operations to increase the effective Federal Funds Rate by 25 basis points to target a Federal 2          Funds Rate of 1.50% to 1.75%. This is an exercise of policy that does not directly change 3          long-term capital costs of public utilities; rather, it is an indication that the policy makers 4          of the FOMC believe that both the U.S. and global economies are sound and growing, thus 5          capable of withstanding minor increases in short-term interest rates.                                              Statements and
                                                                                                           \
6         projection material fi:om the March 2018 FOMC meeting indicate continued real GDP 7          growth in the range of 2.0% annually and a desired or targeted inflation rate of 2.0%. A 8          2.0% rate of inflation has been the Fed's target since the Great Recession, although the 9          actual rate of inflation has rarely been as high as this target.
FRED c4 -             Effective Feder.,I Fundo Rnlo 3.0 2.5 Iw 1.5 1.0 0.5 2009            2010        2011         2012         2013         2014        2015    2016 2017        2018 10                Shaded nrens indic:1/e U.S. ri,cess/ons  SOurco: Boord ol Governors !)flho Fode!al Rosorvo Sys1em (US)         myl.rod/g/jRllw
               .)
11         Longer-term interest rates that are set in the capital markets are also higher than the 12         observations at the end of 2017 when I prepared my 18-095 analysis, though well within 13         the ranges seen since the Great Recession and during early 2017.
17 ,

Direct Testimony of Adam H. Gatewood                                                             DocketNo. 18-WSEE-328-RTS
          , FRED~ -                l.loody"* Seosoned Boo Corpor:,lo Bond Yield 10 9
8 6
5 4
Jan2008        Jan:2009      Jan2010    Jan2011     Jan2012      Jan2013 Jan2014 Jan2015 Jan2016 Jan2017   Jan2018 Shaded areas indfr:'118 U.S. recessions                        Source: Moody's                            myf.red/g/JRQp 1
2          A view of corporate interest rates for the time period associated with Staffs 18-095 3          investigation through the investigative period for this Docket indicates a dis!inct trough in 4          corporate bond yields. Clearly, current bond yields have increased from those lows and 5          they are well within the range experienced last year and experienced since the Great 6          Recession. The observations of corporate bond yields are consistent with my cost of capital 7          analyses which show that the cost of equity for electric utilities have not changed since my 8          analysis for the 18-095 investigation.
9          Staff frequently cautions the Commission against relying on cost of capital witness' 10          economic forecasts because the capital markets are widely viewed as efficient, that is, 11          participants factor all available information (including forecasts) into their pricing of 12          securities. Thus, the market prices embody the forecasts and expectations of investors. For 13          that reason, adding a regulatory body's "forecast" is not necessary and could be 18

Direct Testimony of Adam H. Gatewood                                                        DocketNo. 18-WSEE-328-RTS 1          counterproductive (it ~ould be wrong or contrary to investors' expectations). That being 2           said, from Staffs perspective in negotiating the 18-095 S&A, we were aware that allowed 3           returns set by commission and interest rates exhibited a plateau from a multi-year decline.
4           And, given the length of the economic expansion, we were likely at a juncture where there 5           is more upside potential with capital costs than a continuation of.the decline that we have 6           witnessed over the past ten years.
: FRED ,,d -          Moody"* Seasoned Baa Corpor:ilo Bond Vlold 4.9 4.8 4.7 4.6 4.5 4A 4.3 4.2 \
4.1 2017-01        2017-03      2017-05        2017-07        2017-09 2017-11    2018-01  2018-03      2018-05 7            Shaded mew in<i~cars U.S. recessions                     *Source: Moody's                            mylred/g/jSPV 8  Q.       Please discuss the additional risks posed by the 18-095 S&A that was approved by the 9           Commission on May 24, 2018.
10  A.       The added. risks to shareholders include: 1) a five year rate moratorium during which 11           Wesfar cannot file a rate case in Kansas; 2) the minimum annual credits to consumers; 3) 12           $225 million of merger savings built into the revenue requirement in this rate case; and 4) 13          the presence of a sharing mechanism for excess earnings above the 9.30% allowed return.
19

Direct Testimony of Adam H. Gatewood                              Docket No. 18-WSEE-328-RTS 1          Staff believes the 18-095 S&A presents additional risks to shareholders because it: 1) 2          demands annual credits to consumers that has the effect of lowering Westar' s earned return; 3          2) reduces the value of earnings if Westar earns above its allowed return; 3) sets a period 4          of five years during which Westar cannot file a rate case if its earnings are less than its 5          allowed return; and 4) sets a period of five years during which Westar cannot file a rate 6          case if its capital costs increase. With the 18-095 S&A in place that sets a period of five 7          years during which Westar cannot file a rate case, Westar must find cost savings equal to 8          the guaranteed fixed annual credits in order to achieve its authorized return. Consumers 9          could also see additional annual credits if the Applicants profits exceed the 9.30%
10          threshold. Westar' s shareholders will only benefit by retaining a portion of any earnings 11          above the allowed return over the rate moratorium.
12 Q.       Without the 18-095 S&A, would Staff be inclined to recommend a 9.30% ROE for 13          Westar?
14 A.       Without the 18-095 S&A, Staff would likely be recommending a lower allowed return for 15          Westar given the current financial markets. As I discussed earlier, and in my 18-095 16          testimony, there are risks and benefits to the 18-095 S&A, primarily the ERSP. Five year 17          rate moratorium and bill credits to consumers cause me to distinguish this Docket from a 18          traditional rate case. Without those risks and benefits, Staffs recommendation - based 19
* purely on the results of my financial analysis - would likely be closer to 9 .00%. However, 20          Staffs recommendation would also have to consider the fact that a 9.00% recommendation 21          is a full 30 basis points below the lowest authorized ROE observation in the current national 22          average and would, thus, be a highly contentious recommendation, which would most 20

Direct Testimony of Adam H. Gatewood                                 DocketNo. 18-WSEE-328-RTS 1          likely result in litigation. I would also note that I have been applying a gradual approach 2          to my ROE recommendations over the last several years.                    So,. it is likely my 3          recommendation would be between 9.10% and 9.20% given the plateau of allowed returns 4          over the last several quarters and the fact that a 9.00% return is 30 basis points below the 5          lowest observation in the recent national average. 14
/
6 Q.       Please summarize the results of your cost of equity analysis.
7 A.       The following table summarizes the cost of equity estimates from my study in this Docket; 8          the details of each financial model appears later in my testimony. I relied on a discounted 9          cash flow (DCF) model,* a variation of the DCF model known as an internal rate of return*
10          (IRR) analysis, and the capital asset pricing model (CAPM). These are the models I 11          typically use to estimate a utility's required return on equity. The results in this table are 12          based on the capital markets using data from May of 2017 through April of 2018.
                                                   **1 .,
14 RRA Regulatory Focus Major Rate Case Decisions: January - March 2018; S&P Global Market Intelligence; April 17, 2018; p. 10.
21

Direct Testimony of Adam H. Gatewood                                                                  Docket No. 18-WSEE-328-RTS t---s~;.--;;ry of Starrs Cost of Equi~ Est~ates ___ L -----r-
                ' l-- ~ -- - ~ -__18-WSEE-328-RTS I ::::r=~~
Discounted Cash Flow Analyses
                                                                                                                          -~-t     I
                                                                                                        ---r----          --- -                    - .-------------------------~rrl-                                                            Low-rHighi.
I1wO:S1age G.-owth DCF Model:- - -----                            --.        ~     8.22% I 7.19o/a-8.64J            .
                                                                                                         ---r-*---    ~           l
                                                                                                                     +- .__ +
Based on the Average of Short-Term Growth                              ____ __[__
_forecasts & Long:'ferm nGDP Forecasts__ ____ _ -~ _____                                 r------
                      --------                 -------                                         --,----~--            _,     ---- }-
: 8.02%: 7.20%! 9.08%!
                    ,Internal Rate ofReturn-Multi-Stage DCF Analysis:
                   }Using Short-Term Grow~EPS _q_~owth & ----
JLong-Term nGDP Forecast
                                                                                       ~=---r------+ --~:--r -~-~- j I        ,         i            i-1------ -- -- --- --- -- .----- --------------- _L_ _______l_____ _                                L ________ j__
                   -;- _____________ ~apital Asset Pricing M~de,Is - ~ - ____                                                     --t I
                   -i---
i        I
                                                                                                    .---~----r         :
                                                                                                                          -----zr-I
_11Based on Historical Return DataLgathered from ___ _! _9.00%l __ 7.83%~_10.93~j-
_1926 - 2017; Reported  -.---
by SBBI; Duff & Phelps                        !        I         i
                                                                               --------r----------+------ , - - ------;--
1
                    !                                                                               ;        !          i           I I~;s-;;d~!1 F~~~~~rn Data Publi-shedby- -~: -- _I__ 6.09%r_i~~r~L-I:!                                      i~[
:1.~._
I Morgan Asset Management (2018 edition)                                   '
* i 1
2 Q.       For a point of comparison, please summarize return on equity decisions by this 3          Commission and Commissions across the country?
4 A.       The first table contains allowed return on equity decisions made by this Commission in 5          litigated rate cases. As a point of reference to the prevailing capital markets at that time, I 6          included the yield on the Baa rated corporate bonds as of the month of the Commission's 7          decision.
22

Direct Testimony of Adam H. Gatewood                                                                          Docket No. l 8-WSEE-328-RTS I
           -,-----------------------'---------~----~-   I                           I                 I ---~--            I ______ l ______ !
I
           ~--*---- __________ Commission Detennined Allowed RO Es -- Kansas Utilities I
I                            I
           -               -                            !       --*           -*    ,_____           -~-R~~~ted:            -Orde;~d           B~aB~nd
           +-                      ,-- ----. --i*---*--*                            -----,--                                            ---,---~-
               '              Company                   ,          Docket            '1 Order Date I         ROE              ROE           :   Yield. I
           -~Kans}lsgty)'ower&Light_                    !!5-KCPE-116-RTS _j 9/10/~ _ _!Q.30%l_                                     9.301'.'~---    4.8W11_L
              ,AtmosEnergyCorp.                           14-ATMG-320-RTS 1                  9/4/20141         10.53%              9.10%1          4.89%1 1Kansas CityPower&Light                   [12-KCPE-764-RTS              ' 12/13/2012!            10.40%i             9.50%i          4.80%!
__ :Kansas City Power & Ligh!               :; ! O-KCPE-415-RTS _              !!~2!2010   L        10.75% I          10.00% i          ~,~&sect;1"11_[
           - Wesrar&sect;nergy~---*---'05-WSEE-981-RTS                                         12/28/20051          ll.50%i           10:0o~            6.10%1
:efestarEnergylnc. _______ 101-WSRE-436-RTS _, 7/25/20011                                        12.75%1 *-*** 11.02%1 ___ 7.97%1
:Kansas Gas Service Co.                   . 193,305-U                        4/15/1996:          12.00%1           10.50%;           7.77%1 _
              '.sourc~s~ SNIJRRA; Federal Reserve B~ ofSt. Loui-s, FRED                       *-
1 2          The following chart is broader in both the time period and reporting scope. It indicates the 3         median return on equity granted in fully litigated rate cases across the nation from 1980 4         through March of 2018. As a point of reference to the prevailing capital markets, I included 5         the average yield to maturity of Baa corporate bonds.
Long-Term View of Electric Utility ROE and Baa Corporate Bond Yields 17.00%
16.50%
16.00%
15.50%
15.00%
14.501%
___:!ii~-- -.
                           *--- *- . -A"A-*** -- .
14.00%             --*- &-----
13.50%                      - - --*
13.00%
12.50%
12.00%
11.50%
11.00%
10.50%                         0 0
                                                          ~-~"1.r;_*~..~~~"~***!~""!T1.ii.~
                                                                             *-*-*- ... ~. ...
10.00%            *.*.*** .*..
9.50%,
9.00%
8.50%
8.00%,
7.50% -- -** - ---
7.00%
6 ..50~~
                                                                          -          --- --       ---~--;._-_-_              --- --------------
                                                                                                                              ----**~.-..
6.00% -*- -- -- -             *- ----* ----- ---- -----*-------------
5.50% ----------- --- -- ------- -*-------- ---------*------------- --
5.00%
4.50% -- - - -- -- -- ---------         ------------*.-      . --------- - - - - - - - - - - - - - -
* 4.00%
3.50% * - - - - - - - - - - - - - - - - - - - - - - - - - -
A Median ROE      eBaa Coiporate Yield 6
7         The next chart highlights a shorter time peri.od, the last four years from early 2014 through 23

Direct Testimony of A.dam H. Gatewood                                                              Docket No. 18-WSEE-328-RTS 1          March of 2018. Compared to the decline seen in the chart of the long-term changes, the 2          past four years show a plateau in the median allowed return granted.
Electric Utility ROE and Baa Corporate Bond Yields 11.00%" ---     --  - ----------------- - -------------------------                    -------       -----     ----------    --
10.50%      - - -- - ----------- ----- - ---- --- -       --.&--                    - - - - - ------ - ---- --- ---
10.00%
9.50% Ji.--*-- ~-----~- ~--"' ---...----*--                                  ...- -- ..._____ ... __ ---.&- ... ____ ... __
9.00%
8.50%
8.00%
7.50%
i.00%
6.50%
6.00%                                                                                                       - __ . - --- -- - :.
5.50%                 --
                                   *****~*~ *-*-* *-~-
5.00%
4.50%
4.00%
eBaa Corporate Yield   .A.Median ROE 3
4 Q.       How does Staff's recommendation compare to the returns available on other 5          investments?
6 A.       The following table shows that Staffs recommendation of a 9.30% return on equity allows 7          investors a risk premium over less risky debt investments.                                                      These types of income -
8          producing securities are viewed as alternatives to investments in utility stocks because, like 9          utility stocks, bonds offer stable valuations and higher current income, relative to the equity 10          market. Risk premiums vary over time and across market conditions; thus, there is not a 11          benchmark risk premium or formula that sets a reasonable return on equity at a given 12          interest rate. The Commission has not set a definitive spread over bond yields, but the 13          Commission's Order in 15-KCPE-115-RTS {15-116) noted that its decision allowed 24

Direct Testimony of Adam H. Gatewood                                Docket No. l 8-WSEE-'328-RTS 1          KCP&L a risk premium of 525 basis points .over the yield on its long-term debt. 15 At that 2          time,just as now, KCP&L and Westar have almost identical bond ratings, thus, they should 3          be viewed as comparable in risk. In that Docket, Staff argued that a 525 basis point risk 4          premium over the bond yield was reasonable as it offered stockholders a higher return than
.. 5          available on the lower risk debt securities. The Commission agreed and applied Staffs 6          risk premium to arrive at an allowed return for KCP&L. I believe the 9.30% ROE is 7          consistent with the Commission's rationale in the 15-116 Order because it allows for a risk 8          premium in excess of 540 basis p'oints over the yields on Westar's long-term bonds.
                                                . )
15 Order issued on KCP&L's Application on Rate Change; 15-KCPE-116-RTS; September 10, 2015; para. 34.
25

Direct Testimony of Adam H. Gatewood                                                                         DocketNo. 18-WSEE-328-RTS
_L____ :_________J________ :                                                              I      - - - - - - L __________ J_
               '                         KCC Staffs Risk Premium Over Fixed Income Yields
_____ __ __ _____ ____                     Based on a 9.30% Return on Eguit~                                               _______ _
            --1--- __ _____ _ Fixed Income Yield Observations May 2017 throug~ApJ:il 2018 ________ .-
               !                                                  18-WSEE-328-RTS                                                                --+
:::_ _ _ _ _ _ _]_                   ---,-     --------- ~            ------------~-----                           I                 __ I _
_:_____                  30 Year (1)                   Utility Bonds (2)                          Moody's (3)      :     Westar (4)
Treasury Bond-;- -          A/A              Baa/BBB                     Corporate Baa--:- Bonds YTM
_Ap_r-:_U!                   3.Q8%j               4.17%;               4.50%:                        ~?1%~                '!,Q6_~J_
Mar r                _3_,Q9~l              4.12%-,              4.4~%J                        4:6~%:               4.03%'
Feb-18                     3.13%                4.14%                4.42%                         4.47%                3.94%i -
Jan-18                     2.88%                3.8Jo/o.             4.14%                         4.25%,               3.71%*
Dec-17                     2.77%                3.80%              __'+/-*~--                        4.22%;               3.70%.
: ___ Nov-17 __ *_              _2.81%! _________ 3.84%                    _4.1_!%*_                   -_-4.06~*-~---- -=l,72%~
             -* __ Oct-I] __ ,..               ~ - _______ l,92%,_                        4.21,Y<>_._ _ _             _ 4.32%;__        _ __ 3.79%
_" Sep::17 _ ___                  1,J8%,                3.89%                +/-19% _ _                      4.30%       ---------~.76%,
____ Aug-17 --                     ~:80~_              _l~?~                 4.20%        0
_'!}~o/o: ________ }.79%:.
             -- --- Jul::.!7 __ .         __ _b~_.             _____ 3.99%,.              4.31%             ---         '!_.40~t-             3.82%*
Jun-17                     2.80%,               3.94%
4.28%                         4.38%,
                                                                                                                         -----+-
3.85%'
May-17 '                   2.96%                4.12%                4.48%                         4.56%*                4.04%
___*Average                         2_2Q~~-              3.97%,               +/-_28_o/o__ _ __               4.39%                 3.85%'
Risk Premiums Over Fixed Income Securities KCC Staff's        Recommended ROE 9.30%
Average Yield on 30 Year Treasury_!3o_nd,_*_ _2_.9_0_o/c_o_ ___,
Equity Risk Premium Ove_r the 30-Year T!."asury Bond Yield                           6.40%
KCC Staff's Recommended ROE 9.30%
                                                             ------ __ Average Yield on "A" Rated Utility)3_on__d_s_____3_._97_o/c_*_----,
Equity Risk Premium_Over "A" Utility~nd Yield.                            5.33%
KCC Staff's Recommended ROE                         9.30%
A\'erage Yield ~n "BBB/B_!l~' _Rated Utility Bonds ___4_.2_8_o/c_o- ~
Equity Risk Premium Over "Baa/BBB". Utility Bond Yield_                           5.02%
KCC Staff's Recommended ROE                         9.30%
Average Yield on "BBB/Baa" Rated Utility Bonds                         4.39%
Equity Risk r.;;mium bve-rMoody's ''Baa/BBB'' Corporate Bond Yiei"it---4-.9-t-o/c-.--
KCC
                                                                                   -            - , __Recommended Staff's       - - -- -- *-
ROE 9.30%
Average Yield on Westar Bonds ___3_.8_5_o/c_o_ _
Premium over Yield on Westar Bonds                         5.45%
___ I) Board of Governors of the Federal Reserve System(US), 30-Year Treasury Constant Maturity (Federal Reserve Bank of St. Louis;Release H:15) _
_ 2) Yield on A and BBB/Baa Rated Public Utilty Bon~ 25 to 30 Maturity
             --+- Rep~rted weekly in Value-Line Investment Survey2 Selection & Opjnion Section ___                                  _ ______ _
:3) Yi~ld on M~ody's Baa Corpora~e_ Bonds re!l_ort~d at FRED _(Federal Reserv~ Ban~ of St. Lcmjs Electronic Data)
_ 4)     ~age    yre~to maturrtyrepooetLbyJ'INRAon WR4.10%, 2043; WR4.625%, 2043;and WR4.125%,_2042, _____ ---~
1 2 Standards for a Just & Reasonable Rate of Return 3 Q.       What is the role of rate of return in setting a revenue requirement for public utilities?
26

Direct Testimony of Adam H. Gatewood                                     Docket No. 18-WSEE-328-RTS 1 A.       The standards for setting a just and reasonable rate of return require that, to be reasonable, 2          the allowed return must reflect the risks associated with an equity investment in the utility.
3          For the allowed return to be in that reasonable range, it must compensate for those added 4          risks while capturing a fair proportion of benefits for consumers. The terms of the 18-095 5          S&A, although beneficial to all stake-holders, possess several risks to shareholders not seen 6          in a traditional rate case and the Commission must consider these risks.
7          The allowed ROE is best described as the forward-looking discount rate that is necessary 8          to induce equity investors to commit their capital to the enterprise. Standards used to gauge 9          the fairness and reasonableness of an allowed ROE have been stated by courts, as the result 10          of appeals of decisions issued by regulatory agencies. Financial analysts and policy-11          makers rely on the courts' decisions as a guide in estimating the appropriate cost of capital.
12          The opinions do not articulate precisely how to estimate or model a reasonable cost of
. 13          capital. Instead, the decisions provide critical questions for policy makers and analysts to 14          consider in determining a reasonable return for a regulated utility.
15          In general, United States Supreme Court decisions state that returns granted to regulated 16          public utilities should: 1) be commensurate with returns on investments of similar. risk; 2) 17          be sufficient to assure the financial integrity of the utility under efficient economic 18          management; and 3) change over time with changes in the money market and business 19          conditions. 16 An important take-away from these decisions is that the Supreme Court of 20          the United States has* afforded regulatory agencies a significant amount of latitude in 16 Smyth v. Ames, 169 U.S. 466 (1898); Wilcox v. Consolidated Gas Co., 212 U.S. 19, 48-49 (1909); Bluefield Water Works & Improvement Company v. Public Service Commission of West Virginia, 262 U.S. 679, 692-3 (1923);
Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591,603 (1944).
27

Direct Testimony of Adam H. Gatewood                                     Docket No. l 8-WSEE-328-RTS 1           establishing an appropriate ROR and ROE for a utility. The Kansas Supreme Court has 2           recognized and follows this body oflaw. 17 This Commission has noted this fact in Orders 3           issued in previous dockets. 18 4  Q.        Discuss how financial analysts apply the standards established by the Court.
5  A.        For an allowed ROE to meet the legal standards, the return should be as specific as possible 6           to the utility in question. There are several court cases that, as a group, are viewed as the 7            keystone to measuring the adequacy of a utility's allowed return. The earliest of these 8*           decisions go back to an era when it was not only the "rate of return" at issue but also the 9            fundamental measurement of the investment in the utility enterprise, commonly referred to 10            as rate base. This is less of an issue today as regulators, utility management, and investors 11            readily accept actual historic-depreciated value as the measure of investment to estimate 12            the value of a utility's rate.base (as opposed to reproduction cost or market value). The 13            Court's decision in Bluefield addressed both rate base and ROR. 19 Treatises on rate of 14            return for public utilities, such as The Cost of Capital - A Practitioner's Guide, agree that 15            Bluefield lays out the four standards for a fair return.
16            1) Comparable Earnings - a utility is entitled to a return similar to that being earned by 17                other enterprises with similar risks, but not as high as those earned by highly profitable 18                or speculative ventures; 19            2) Financial Integrity- a utility is entitled to a return level reasonably sufficient to assure 20                financial soundness; 21            3) Capital Attraction - a utility is entitled to a return sufficient to support its credit and 22                raise capital; and 17 Kansas Gas & Elec. Co. v. State Corp. Comm'n, 239 Kan. 483,491, 720 P. 2d 1063, 1072 (1986).
18 Order: I) Addressing Prudence; 2) Approving Application, in Part; & 3) Ruling on Pending Requests, Docket No.
10-KCPE-415-RTS; November 22, 2010; 37-38.
19 Bluefield Water Works & Improvement Co. v. Pub. Svc. Comm 'n of West Virginia, 262 U.S. 679, 692-3 (1923).
28

Direct Testimony of Adam H. Gatewood                                           DocketNo. 18-WSEE-328-RTS
                                                                                                  \_
1           4) Changing Level of Returns - a fair return can change along with economic conditions 2                 and capital markets. 20 3           As a financial analyst formulating rate of return analyses for our state commission, I take 4           from Bluefield that the Court requires a rate order that allows a utility an opportunity to 5           earn a return consistent with the utility's risk profile and consistent with observations in 6           the capital markets. The Court's decision in Hope, 21 like that in Bluefield, dealt with both 7           valuation of rate base, as well as rate of return on that rate base. With respect to the rate of
                                \*
8           return, the Court in Hope affirmed the four standards set out in Bluefield.
9 KCC Proxy Group 10 Q.        How did you select a proxy group for your cost of equity analysis?
11 A.        Using the following parameters, identical to those that I used in the 18-095 Docket, I was 12            able to select a group of fourteen electric utilities that are comparable to Westar. To narrow 13           the universe of potential proxy companies, I used the following selection criteria:
14
* Has publicly traded common stock 15
* Is an electric utility followed by Value-Line Investment Survey 16
* No recent spin-offs, mergers or distressed assets 20 The Cost of Capital -A Practitioner's Guide by David C. Parcell; Prepared for the Society of Utility and Regulatory Financial Analysts; 1997; pp. 3-13 to 3-14.               .
21 Federal Power Comm 'n v. Hope Natural Gas Co., 320 U.S. 591,603 (1944). "The rate-making process under the Act, i.e., the fixing of 'just and reasonable' rates, involves a balancing of the investor and the consumer interests.
Thus, we stated in the Natural Gas Pipeline Co. case that 'regulation does not insure that the business shall produce net revenues.' But such .considerations aside, the investor interest has a legitimate concern with the financial integrity of the company whose rates are being regulated. From the investor or company point of view, it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business. These include service on the debt and dividends on the stock. By that standard, the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital. The conditions under which more or less might be allowed are not important here. Nor is it important to this case to determine the various permissible ways in which any rate base on which the return is computed might be arrived at. For we are of the view that the end result in this case cannot be condemned under the Act as unjust and unreasonable from the investor or company viewpoint."
29

Direct Testimony ofAdam H. Gatewood                                DocketNo. 18-WSEE-328-RTS 1
* Exhibits stable dividends-No recent dividend cuts 2
* Possesses an investment grade bond rating between A3/A- and Baa2/BBB 3
* Earns at' least 70% of its annual revenues by providing regulated electric utility
*4                   services 5          Stock-price data is critical to a cost of equity analysis as.that price data encapsulates the 6          market participants' valuation of the company.        Selecting companies that investment 7          research companies like Value-Line categorize as electric utilities focuses the analysis on 8          companies facing similar types of business" risks and opportunities and insures that 9          publically available financial data is available. As a starting point, this parameter is 10           important as it assures us the companies generally derive their earnings in electric utility 11           industry. The following table contains all of the electric utilities followed by Value-Line.
12          The bold and .boxed cells indicate the primary reason for rejection from the proxy group.
30

Direct Testimony of Adam H. Gatewood                                                                                             DocketNo. 18-WSEE-328-RTS
                                                                                       . l -*- -- .1 -- _J                                                     I Proxy Company Selection 08-WSEE-328-RTS)_.
2           3      I       _4_  !    5 '                6                        7     .1       8                   9    *:i_   10 0  *FERCSelectionCriteria*** _____________ _                            111 KCC Staff Screens 111
                                                                                    . : -------- 1.                          No                 ,         Dividends                            2017 Value-Line: Electric Utiliti~s                        *uBond Ratingu*                       Ann~u~~~-             -l~o-fiiio;tfl - ~o17             1
                                                                                                                                                                                  -    Electric-(?~r;~i.;~s-- ;
Company Name                        1 Mo~dy*.-1
* S&P           *r                     Merger                Reductions      History      1        %R~; - ] o/~;e-~-;.,   I j
__ Allete Inc;_ . _
J.._Alliant Energy Corl} --- -- - -
              ,Ameren Corp
                                                   ---+-~_-_E_ -
                                                                '.ALE IA3
:oo :a~ -
4~
                                                                                         .BBB+
i A- - -
1 BBB+ Yes Yes y;;
X x
_ _ _x______-+_ _
Jx     t-                          74.9%1
_:x_ . ___ ], ____ 85.6%
s2~o/~~
86.0% __ . 85.0%1 _
              'American Electric Power Company Inc ~EP                    ,B&#xa5;1_          I~- .         Yes                    x                         x      I      "-         :        86,7%        9_+/-.)~i
           .~,;;;,~IGR-mln;:*_* - - - * *                      .A_G_!l_. jB~I_           ~!3B+ _       Yes                    x                         x             "                   ~LO%j        85._7o/o'
              -~-                                                 AVA                                          _    *Hydro-One~rger*                           I                                  '
lllaehHillsCaFf!_______ _                        BKH    i',                                     1  *Sellingoil&gasassets*       ,          __  j ___  x     --~!_____             !____
Cem:erPeiRtERergylne                         _ CNP _+!3aal _ _ A-                      Yes    1.__________ x     ____ _                 x_   ___ __                   31.7%        45.4%
              ,O!S lleergi Carp                                   CMS    ~ - _,BBB+                  ~-*-*             -----"--------* _                x      L      x                   67.5%        60.3%
             ,<;o~o!ida~~-!;4iso!JlnC                        - ~~D -      1 A3             A-         !Yes      ,             x                         x             x                   76.6%]       73.3%:
Elemieiaelleergi                                 D        I **           , *          !              *A~<1uiring!>CAN~*                                                           I        ---r
              -~-lleergi        c~"'I'~                          DTE      IBaal          'BBB+        Ive~                    x                         x             x                   40.5%!       62.7%!
1
           -'~* E!','rgy Co!p _l'le~                             DUK     !~aa_l          'A-          IY~i                    x                         x             J_<                 9.Q2'!1~     86.6%
Edisonlnternational                              EIX      iA3            iaa+         rYes      1             ~                 ,       x              ~                  99.0%1       89.9%
_-EI-Pas~El~~tricCo__                              - ~ - IBaal            -   *eeB*        !Ye;*                   ;                 '       X             X               -  IOCJ.0%i -* *--*.
             ~Hlef!ll C~rp_                                     *ETR      IBaa2 - -- ~BBB+-- Yes -iClo~i~g 4 non-reg nuclear plants:                                                              \
_ ~-"**~ee ~He_fgj                                   ES      ,B.;,.l        !A+          !SPLT -            - - !' . - -           '       x             x                   71.5%        53.0%
_Ene~aft Carp                                        EXC [13,;;,i           'BBB         iYe; -                  x                         X             X                   44.4%
1
                ~i!sllle~rgi_Ce~p                              0 FE         Baa3         'BBB-         ~O. _; Sub. B~nk_!111>tcy/elim. !!*~*reg                        X                  69.4%        64.2%
Fer!i5;-IH&                                        FTS.TO(B_"!'_3         'A-                                                            X             X                   54.0%
0Great P}ei~_ lleef!ll lee                          G?(P    ,Baa2.         .BBB+         Yes                  Westar                                                                 I Ila eiian llleei.ie lfld"5tfies lne IDACORP Inc HE IDA J
:Baal
                                                                                         !BBB-
:BBB 1~0                     X                         X              X                  88~0%]       47.0%
IYes                                              X              X                  99.0%1*      99.0%
MGE llee~ lee                                     MGEE !Al               'AA-         !NO                     X                         X              X                  73.5%        56.2%;
V"-~
1
           - }!e,illlra lleergi lee                               NEE     \B"!'~         'A-                                  X                         X              X                  69.0%!       51.4%!
NorthWestern Cmporation                           NWE iBaal              ~i!_~        ,Yes                    X                         X              X                  79.3%:       80.1%
OGE Energy Corp                                ;Q.GE ~ ;AJ                 A-         Iv~***                  X                         X              X                 100.0%1 QMer       '.J:;;;;-c;;;;-.                         19_TTR [e.;i -           1!!1_!1!_    jf.,_~- '               X                         X              X                  51.0%!       84.3%:
           -~~~-                                                  PCG     la.;;!       _BBB+_         :Yes                    X                                                           __j__
Pinnacle West Capital Corp                        PNW ~ -                ,A*          [Tos--                                                                                           98.0%
P}lH ~esaHFees IHe                      * *-      PNM !Baa3              !BBB+        lSPLIT-                 X                         X
           -Portland General Electric Company                    J'()_R   \A3            ,BBB r*-*--
                                                                                                      .Yes                    X                         X              X              - IQ0.0%J P!'bCerper_a!i~H                                  PPL     jB~            'A-          :ves                Forex risk                    X              X                  71.9%:        59.2%
Pttelie Ser i_ee llH!erpriae C~etljl lfle         PEG     :Baal            BBB+       :Yes                    X                         X              X                               66.9%
           . SC ~l' _CeFf!eratieH                                 SCG    !               !                         Construction issues/AC 1
Se"1jlrelleergi                                   SRE     iBaal          ,BBB+          Yes           Onocor ac uisition                X              X                               35.7%
              *sa...~.. c~e                                       so      :Baa:i           A-         'Yes            Construction issues               X              X                                65.8%
He_etren Cef13                                    VVC                      A-         iYes                    X                         X              X                               29.1%
WEC Energy Group                                  WEC       A3             A-           Yes                   X                         X              X n_:estar eH0Iffi IRe                              WR      '.Baal         ,BBB+        'Yes               Great Plains                                                    l~0.0%;
Xcel Energy Inc                                   XEL     ,A3              A-           Yes                   X                         X              X                  84.9%,
           . } ) ~utilities followed by Value-Line Investment Survey(U.S. ccmipanies)                                                                      Credit ~ating Range
: 2) Ticker symbol                                          '                                                                         Moody's ' - S&P
: 3) Moc,_dy~~!*Eit rati~g_(L]Jl) d_ata from ~&P Global_ Mar_ket Intelligence                                                            A3            A-
: 4) _S&P credit rating (LTR) data from S&P Global Market Intelligence                                                                 Baal          BBB+            \Y~tar.
0
: 5) Within credit rating range of both rating agencies                                                                                Baa2          BBB
* 6) No*;,;.~ge~~ ;cq~~ti~I\ o~-s~I;;-.;r;;scts (Value-Li~e & S&P Global Market Jntellig~nce)
: 7) _No fon:casted _div\~e_nd !e_ductio~ (Va_iue-Line)           _        '         _          *
* x = no reduction
: 8) No dividend reduction in 2017 (Value-line & S&P Global Market Intelligence)                                                   .x= no forecasted reduction
: 9) R~venues from;egclated electrjcope;ations--% of total revenues(S&P Global Market JntelligenceL                  _              70% of Revenues from electric utiJity ~ndustry 10)_ A~_se_ts efreguLated eleEtric opera!io";' (li&P G/obal Mar_~*\ Intelligence),
1 2          Credit ratings shown in columns three and four are the first screen applied to the population.
3         The current ratings for Westar is Baal by Moody's and BBB+ by S&P; these ratings are 4          firmly in the mid-ran$e of the investment-grade ratings. The selection criteria uses a range 31

Direct Testimony of Adam H. Gatewood                                        DocketNo. 18-WSEE-328-RTS 22 1            that is one notch either side ofWestar's ratings which is a range of A3/A- to .Baa2/BBB.
2            In column six, I listed any merger or acquisitions in process or any significant financial 3            issues that make it difficult to assess the utility's long-term earnings prospects. In this 4            criteria, I found there are several utilities involved in acquisitions. SCANA and Southern 5            Co. are excluded due to their construction problems with nuclear power plants; SCANA 6            has also ~igned in acquisition plan with Dominion.                I excluded utilities involved in 7            acquisitions and those with significant construction issues because both types of events 8            cause uncertainty around future earnings. I also excluded PPL Corp. due to its investments 9            overseas. PPL reports that 30% of its revenues are subject to foreign exchange risk. This 10            is an atypical situation in the U.S. electric utility industry and a risk that is distinct from 11            Westar.                The filter in column six focuses the study on electric utilities with known 12            prospective earnings power.
13             Columns seven and eight are similar to column five in that these criteria would eliminate 14             firms that have or are forecasted to reduce annual dividends. In the public utility sectors 15             where management and boards strive for a record of stable dividend growth, a dividend Credit Rating Table
          ~i~Y~_:       ~~
Aaa .      AM
             ~_!__-.-   AAT Aa2. I      M Aa3         M-AI         A+
A2    : _A_
__ A3 ___ ' __ A-        -
Baal_   , BIIB+
Baa2    ; BBB Baa3 I BBB-
             !!*I   I BB+
_ Ba2 __  (    BB__
_ Ba3     ,    BB- __
Bl    '    B+
B2    :      ~
BJ          B-Caal        CCC+
c_~         CCC Caa3       _C::_g:.::_
Ca         cc c+
C 22         C            D 32

Direct Testimony of Adam H. Gatewood                                                                                                      DocketNo. 18-WSEE-328-RTS 1            reduction signals maJor change in ongoing operations and is probably a sign that 2             managements cannot expect stable eammgs growth in the foreseeable years.                                                                                                           Such 3             candidates should not be in the proxy group for W_estar because that situation 1s not 4             consistent with Westar's prospects. Pacific Gas & Electric is the only utility eliminated 5             with this criteria; it suspended its dividend payments in December of 201 7.
6             The criteria in columns mne and ten attempt to ascertain whether providing regulated 7             electric utilities services is the primary business of the company. I set the threshold for 8            revenl!es from electric utility service at 70% of total revenues. This is a subjective cutoff, 9             but it works for this analysis because meeting that threshold means that the company is 10             largely focused on, and earnings are ~erived from, providing regulated electric utility 11             services. The following table contains Staffs proxy group of 14 electric utilities for the 12             cost of equity and capital structure analyses.
2               j                  4          __?-_ J        6               7             8           9            10
                                                                                                              *uFERC Selection Criteria*.. . __ _ _ ___ * *Kee Staff Screens*
No        '          Dividends                  2017 Value-Line: Electric Utilities _                             _ ... Bond Rating*~*                    _. Anno~!;d !"IE Planned . ..1!!!.? __      Electric o.,.rations Company Name                                :_ Moody's               S&P ;                      Merger       Reductions History        -~/,,R~v I %~sets*
Allele Inc .                                        ALE         'A3                'BBB+              Yes            x      .. __ . l':            x           74.9%1 Alliant Energy Corp                                 LNT         'Baal               A-           .. ,Ye;             x                x            x        . -85.6%[.       82.6%
AmerenCorp                                          AEE        ,Baal                BBB+              Yes            x                x            x           86.0%;        85.0%
              ~ricanElectricPowerComp,;,,ylnc AEP                            ,Baal                A-                Yes            x                x            x_          86.7%/        94.1%
Consolidated Edison Inc                            .ED        ;A3                   A-                Yes            x                x            x           76.6%         73.3%
__ DukeEnergyj%~w                                        DUK       :Baal                 A-                Yes            "-               x            x           90.5%!        86.6%
Edison International                                 EIX       :A:i- -**             BBB+              Yes            x                x            x           99.0%*--      89.9%
         ~ _El Paso.Electri~ Co_
* ________ EE               -#al _                   BBB         ' , Yes              x               x             x    ,     100:oo/t,I
* IDACORP Inc                                        ,g:i~       j~a~l
* BBB *            *To-~ * *           ~  - - . ** ~--:-~ _ T * -                29~ - 92:Q~--
         -' N~rthWe~te.:;;*c~rporntion -
OGEEnergyCorp NWE IBaal OGE ,A3
                                                                                              -   BBB -
A-
                                                                                                                - ~Y~s
                                                                                                                  'Yes !
_I       X x
                                                                                                                                        - - '   -- X - - - - - - X x            x
                                                                                                                                                                    --+-- ~'-~
:     100.0%
_ Pi~.;-le West Capjta)Corp __ ___ PNW _~A3
* _A- __-__ *y~s __           J ___    x ____ , __ ;, __ ~ - - - ~ - - - - ~ _                 98.0%
          , ,~o~'!Ild General Electric Company                   'POR 1A3                         BBB              Yes     :       x                x            x    1     100.0%
            ,Xcel Energy Inc                                     'XEL 1A3                         A~--            ;Yes i           x
* x * '         x*   i      84.9%      -
* I 1                                                                                                       1
         -- -l)E:le~trt-.c-utiliiks .fullow~d *i;;,*Val_ue__-L-ine_In_v-es-tm,~-n-t -Surv--ey- *c-u-.s-.c-o*mp
                                                                                                            --am-, es-)-    -----                   Credit Rating R~nge
: 2) Ticke~-symb;,j*           * * ** - ' **
* 1 * * ' * --
* 1        i                  __
M;,ody's     l   S&P
: 3) Moody's credii rating (LTR) d~ta fto11!_S&J' Q!o_bal Market brtel)ig~~-ce * :
* A3            A-
: 4) S&P credit rating (LTR) data fromS&P Global Market Intelligence                                                                  Baal          BB~+   !Westar
            *s) Within-~e~t;~tingr~e ofbofu;~ti~pg_enci;;*- --                                  - ---                                            Baa2 - -BBB 1
: 6) No merger, acquistion, or sale of assets (Value-Line & S&P Global Market Intelligence)
: 7) No forE~asi~_d dividend reducpon (V;lu1o-Llne) j                                _ -_ -            i        :                _                                        II
             !!) No divi_dend red,u:tion in 20 lI_(Yalue-Line & S&P Global _Market Jntellig~~~) _i_ ________ ~:_ ___ _
: 9) Revenues from regulated electric operations 70% of total revenues (S&P Global Market Intelligence)                                                    I            _i 13
: 10) Ass~~ ;,fregufated. ~le~tric o p ~ ~ b a l Markei*hrt~ilig~~ __ l_ __ - .. - .. :. ------~----
1          I                   .                 ,       1                 .                        +----- **+-* --- -
33

Direct Testimony of Adam H. Gatewood                                       Docket No. 18-WSEE-328-RTS 1  Return on Equity Analysis 2  Q.       How did you perform the cost of equity analysis?
3  A.       I am using discounted cash flow models and capital asset pricing models; essentially the 4           same form of analysis used in all recent rate cases and the 18-095 Docket to establish the 5           9.3 0% threshold for the ERSP.
6  Q.       Does the DCF model meet the legal standards discussed earlier in your testimony?
7  A.       Yes, a cost of equity estimate derived from the DCF model meets the legal standards 8           discussed above if the model incorporates current information from the capital markets via 9           current stock prices and accurate .data that investors use to establish their discount rate.
10           This market-based information ensures the cost of equity estimates evaluate investors' 11           required rate of return or discount rate that reflects the current economic environment.
12           The DCF model is a valuation model used by investors to value different types of 13           investments such as real estate, bonds, and equity securities. The DCF model is a useful 14           tool to value any investment that involves regular, periodic cash flows. The notion of 15           discounting a future .
receipt of cash back
                                                       . /
to the present so as to place a price or value on an 16           investment goes back centuries. 23 The premise of the DCF model in the valuation of 17           common stock is that investors determine the value of a company's common stock by 18'          discounting its future dividend payments back to the present. The cornerstone of the DCF 19           model is the process of discounting those future cash flows back to the present at the 23 The formal presentation of the DCF model as we use it today dates back to the 1930's in Irving Fisher's book: The Theory of Interest and John Burr Williams' 1938 text: The Theory of Investment Value. These two authors expressed the DCF model in modem economic terms.
34

Direct Testimony of Adam H. Gatewood                                       DocketNo. 18-WSEE-328-RTS 1          investors' required return.        An investor's. required rate of return is risk-sensitive and 2           sensitive to the returns available on investments of comparable risk throughout the global 3           capital markets.      In other words, as the risk of the investment increases, so will the 4           investors' required return. A higher required rate of return decreases the present value of 5          the stream of dividends that equates to the price of the stock. So, all other variables being 6          equal, investors price the riskier of two common stocks lower because the cash flows or 7           dividends are discounted back to the present at a higher rate.
8          The form of the DCF model that regulatory agencies are accustomed to seeing is often 9          referred to as the Gordon Growth Model, which is a model that values the security at the 10          present value of a stream of cash flows (dividends) growing at a constant rate into 11          perpetuity. The basic form of this DCF equation is:
D0 (1 + g) 12                                                        Po= -(-Ke---g-)
13                   where:
14                   Po= the value of the common stock or asset 15                   Do= the current dividend of the stock or annual cash flow from the asset 16                   g = the annual growth rate of the dividend or cash flow forever 17                   Ke = cost of equity or required rate ofretum for the stockholders 18                                                           Or 19                        Stock Price= Annual Dividend/ (Req'd Rate of Return-Dividend Growth Rate) 20          This is the form of the equation commonly found in texts regarding finance, investments, 21          and asset valuation. Such texts are inclusive of both theory and practical application.
35

Direct Testimony of Adam H. Gatewood                                  Docket No. 18-WSEE-328-RTS 1          Regulatory agencies responsible for setting rates and revenue requirements want to know 2          the investors' required rate ofretum or Ke in the equation. So, we solve the equation for 3          that variable. The equation below shows the algebraic isolation of the investors' required 4          rate of return. By isolating investors' required rate of return .in the equation, we can 5          estimate it by knowing the stock's dividend yield and the annual dividend growth rate 6          expected by investors. That form of the equation is:
D0 (1  + g) 7                                               Ke=         Po      +g This equation is frequently written out as:
9                  Req'd Rate.of Return= (Dividend/Current Stock Price)+ Dividend Growth Rate 10                                                      or 11                         Req'd Rate of Return= Dividend Yield+ Dividend Growth Rate 12 13          Or as commonly abbreviated by regulatory agencies 14                                                 Ke=y+ g 15          Where: y = Dividend Yield 16                  g = Expected Dividend Growth 17          Through a handful of inputs, the DCF model distills down to an equation, a complex 18          cognitive process performed by investors to arrive at a discount rate and valuation of the 19          security. As ~ith any equation that attempts to model behavior, there. are a host of 20          assumptions that come along with it. Those assumptions are:
36

Direct Testimony of Adam H. Gatewood                                            DocketNo. 18-WSEE-328-RTS 1
* Ke corresponds only to the specific stream of future dividends, _rather than earnings, 2                      and that constitutes the source of value.
3                *
* The discount rate (Ke) must exceed the growth rate (g).
4
* The constant growth rate will continue for an indefinite future.
5
* Investors require the same discount rate (Ke) each year.
6
* There is no external financing.
7 Q.         Why is it reasonable to accept these assumptions?.
8 A.         The DCF model is attempting to emulate investors' behavior; distilling human _behavior 9            into a handful of inputs demands simplifying assumptions. The question becomes whether 10            the assumptions are so contrary to investors' behavior in the real-world that the model 11            output becomes meaningless or illogical. I do not believe the assumptions of the DCF 12            model are contrary to investor behavior. Moreover, there are methods I use to evaluate 13            whether an output falls outside of the realm of reality. For example; the output can be 14            compared with the returns available on other investments such as long-term corporate 15            bonds. There were no observations eliminated using thi~ screen. 24 J
16 Discounted Cash Flow Model 17 Q.        How did you_calculate the dividend yield (y) component of the DCF model?
18 A.        The dividend yield (y) is the easier of the two components to measure as it is easily 19           observable in 'daily stock price reports. It is calculated by dividing the stock's annual 20           dividend payment per share by its market price per share.
24 Staff appiies this screen using the interest rates of Baa Utility Bonds and the yields on utility specific debt shown in the Risk Premium Table. Staff adds l 00 basis points to these yields as a minimum risk premium test. Cost of equity observations below this level are eliminated from the average. FERC proceedings apply a similar test for outliers.
37

Direct Testimony of Adam H. Gatewood                              Docket No. 18-WSEE-328-RTS 1 Q.       What is the source of the dividend information?
2 A.       Historic and current dividend information is easily obtained from public sources 3          subscription services such as Value-Line. The DCF model requires a forward-looking 4          dividend payment which is often the current year's dividend payment increased by the 5          forecasted growth rate for next year. In lieu of forecasting, I obtained the 2019 forecasted 6          dividend per share information from Value-Line Investment S&#xb5;rvey.           The Value-Line 7          reports for each of the proxy companies are attached as Schedule AHG-3. I obtained the 8          stock prices for the dividend yields from YahooFinance. For this analysis, I used weekly 9          stock prfoe observations taken from May 8, 2017, through May 7, 2018. The stock prices 10          for each of the proxy companies appears on Schedule AHG-4.                My DCF analysis 11          incorporates a dividend yield based on expected 2019 dividend payments.
38

Direct Testimony of Adam H. Gatewood                                                                     DocketNo. 18-WSEE-328-RTS
            ~
            +-_____ ___ _____
            *j
___ _____L___
____L                        I Di\'.!dendY~tJr'lfii!Jftl!Y7,~_!~
J__
Staff Proxy Grou!l_______ _                      _____L=f t~ - - -_-- =r:=ki~ ~:--~,~,J ~ -~~4~t
_jAIIete Inc _____ .. _                 ALE         I  $ _23!_ $ 66.64 ! $ 81.24 $ 73.94 _!_74.2! I
            -1AlliantEnergyCorp           _
1
                                                   *LNT          * $ 1.42 $ 36.84 I$ 45.55 $ 41.19 $41.581 2.8~~ ___ '.!:_5_1~
3.12%           3.85%
IArnerenCorp_ _ _ _ _ _ _ ~AEE                 _i    $ 1.93 $ 51.89' I $ .&sect;_4.89 $ 58.39 $57.85                 2.97%           3.72% -
_1~i:i~nE~~_i_cPower<:;o,_ .J~P                    l    ~ ~.63 !      &sect;lRJ.~      Z~-Q7_. ~_ _?0.70 E0.81 __ 1 3)1~ __ ~.15~--
_ConsolidatedEdisonlnc ___ '.ED__, ___ ~_2.96 i $ 73.73 L!_89.70 I$ 81.72 $81.80 I__ _D~---~
1
_Jl?~e !='.~gy<;:o_rp_l'-l~w           1J?l)I(_      J $ ~-&sect;_Q_J t_7.2.93 [ ~ ~1.8_!) I~ }Dl I H~.l~_j             4.14_o/o~       1-~~-
JEdison International                                          I
_ _ _ IEIX __ ~ $ 2.57 $ 57.63 I $ !:u! I $ 70.50 ) $ 72.46 I _                       3.08%_l 4.46%
jEI Paso Electric Co                 ~                                                              t
: $ 1.52 1 $ 48.05 i $ 6lfil! 54.60 $ 53.72 !
* 2.49%/ _ ~~ _
_ l!?A(2(?RP_ I!]~_ _ _                  I_QA_       '. $ ~,~&sect;-iTJ_ 79.~9 \ $ 100.0~ \ ~ ~_9_&! $ &sect;_8.59_ I        2.?6_'Yo1       3.22%
iNorthWesternCorporation ___ _:__~-~~-2.30 $ 50.01 [J_ &sect;4.47 [ $ 57.24 $57.97 ! __ 3.5~%1 ___!~>-
1
:OGEEnergyCorp                      :ooE - - ~ - ~ $ 29.59 I$ 37.32 I$ 33.46 $34.18                             4.13~--~ _
1
_ Pinnacle West C::~pital C::~!ll_     !'.._'N_~   _:J,   _3.Q? ~ $_ 7-~~-i   ~- ~~~8_1     $ 8_3.!i   -~-84.62 : 3,2Z'Yo!     _ 4.09% _
                                                                                                    *'1                        ~~9~__
1 JPortland General Electric Co. _RQ_g__             J    ~-_U_(J_-1-~--39._02 J !_?0.11 ! _ ~ $44.71 I___                          __3_,~4%>-
lxcel Energy Inc                   *:XEL          ! $ 1.60 $ 41.511 $ 52.22 [ $ 46.86 1 $47.16 I 3.oWoJ                         3.85%
1
* _ _
* j          __:           ;             I          j ~~!!g~J 2.49o/o[ 5.2_!'.Yo~
            ------------                        ______ l _____ __;_ _____ l_ ________                         ---1--------1*            : ----~
                                                                                                                                              ------I-
_L
:1) Dividends per Share for 2019 Forecasted by Value-Line Investment Survey                    ____; ___ .              _ !---
            -~)_ Minimum 12 month price observed from May 8, 2017, through May 7,_2018                            !                     ,              ,
: 3) Maximuml2monthpriceobservedfromMay8,2017,throughMay7,2018                                      ;        _ :       __ ,.... ____ J __
             -~i   Mid-point is the av~rage of minimum price and maximump!ice-- ---,- - -~-~                      l- -       :          '              l.
            ~ Mean price for the time period of May 8, 2017, through M~y 7, 2018 (weekly observationsl __ _                                __     ___ _
_;&) Minimumdividendyieldavailableft~time!leriod __ _ _                                        _ ---;--- __                         _ _____:_
:,7) Maximum
                     ------*dividend
                                 *---** yield
                                           --- available
                                                -,*- --- from *-r time- period 1
2 Forecasted Growth Rates for the DCF Model 3 Q.      Please discuss the importance of the second component, the growth rate (g), in the 4         DCF equation.
5 A.      The "g" represents the anticipated annual growth rate in cash-flows that investors expect 6         to receive througl). dividends from the stock. This is a challenging and contentious issue in 7         a DCF analysis for two reasons. First, it is a key element in the DCF model or any form 8         of a discounted cash flow arialysis because the growth rate has a one-for-one effect on the 9         required return produced by the model. All other factors being equal, a higher growth rate 10         results in an equally higher return on equity for the utility. Second, there is an element of 39

Direct Testimony of Adam H. Gatewood                               Docket No. 18-WSEE-328-RTS l          subjectivity to the growth rate, due to the uncertainty about future earnings and dividends.
2 Q.       How did you estimate the growth rate in the DCF model?
3 A.       The appropriate growth estimate is that which is expected by the market and factored into 4          investors' analyses to estimate stock prices. That is, it is the growth estimate investors 5          used to determine the stock price. Earnings per share growth forecasts are commonly 6          incorporated into the DCF model. Investment firms that publish growth forecasts typically 7          publish three to five-year annual growth estimates for earnings. Value-Line Investment 8          Survey also provides dividend growth rate forecasts; it is the only firm that I am aware of 9          that does so. Three to five years is as far into the future as analysts forecast for a specific 10          company.
11 Q.       How do investors estimate the dividend growth rate beyond the three to five-year 12          horizon of the short-term growth forecasts?
13 A.       For a long-term perspective of potential growth, investors rely on forecasts of the broad 14      --, economy as measured by annual ch_anges forecasted for the nation's gross domestic product_
15          (GDP). There are sources for long-term growt;h estimates of this country's GDP that extend 16          out more than 20 years. Academic texts and investment professionals use these forecasts 17          in DCF models as a forecast of potential long-term growth of corporate dividend payments.
18          GDP refers to the market value of all final goods and services produced within a country 19          in a given period. Nominal GDP (nGDP) is that measure of goods and services which 20          includes effects of price changes - better known as inflation. Inflation must be included 21          for our forecast because the DCF analysis is interested in the nominal required return. That 40
* Direct Testimony of Adam H. Gatewood                                   Docket No. 18-WSEE-328-RTS 1            is to say, investors' expectations of inflation are contained in their required return. Keep 2            in mind that the "headline" GDP reported in the media is real GDP, which is GDP less the 3            inflation experienced over the measurement period.
4   Q.       Is it accepted practice in securities valuation to use nGDP growth estimates in the 5             DCFmodel?
6   A.        Yes, in the federal regulatory arena, similar to the responsibilities of the KCC, the Federal 7             Energy Regulatory Commission (FERC) uses nGDP to estimate the cost of equity. FERC 8             has reviewed the issue of long.,.term growth estimates used in DCF models. It took 9             comments from stakeholders that included state commissions, customers, investment 10             bankers, and interstate pipeline companies. 25 Testimony from these parties made it clear 11             that long-term estimates of nGDP are a common component of valuation analyses 12             conducted by investment professionals. From that proceeding, FERC concluded that long-
\
13             term growth estimates of nGDP should be the estimate of long-term growth in the DCF 14             models used to estimate required returns for interstate pipeline companies because that is 15             consistent with investor behavior. 26 In June of 2014, FERC concluded that the same 16             methodology should be used in setting the required returns for electric transmission 17             companies. 27    Although the Commission has never explicitly endorsed long-run GDP 18             growth as an input, it is clear that the growth estimate used by Staff in the 15-116 Docket 19             were considered credible by the Commission. 28 In that analysis; I relied on the same 25 Transcript from Technical Conference held on January 23, 2008: FERC Docket PL07-2-000.
26 Policy Statement, FERC Docket PL07-2-000 (April i7, 2008); FERC Opinion No. 486, FERC Docket RP04-274 (Oct. 19, 2006).                      .
27 Opinion No. 531; June 19, 2014; 147 FERC 61,234; para 36.
28 Order issued September 10, 2015; Docket 15-KCPE-116-RTS; para. 34; p. 15-16.
41

Direct Testimony of Adam H. Gatewood                                   DocketNo. 18-WSEE-328-RTS 1          sources for long-term nGDP growth as I am using in this analysis.
2 Q.       Is there academic support for this issue?
3 A.       Yes, academic research has shown that nGDP growth :forecasts are an important input to 4          valuation studies because the analyst has to consider whether a company's annual earnings 5          can grow as fast as,   o! even faster than, the broad economy.       In two of his books devoted 6          to the subject of asset valuation, Dr. Aswath Damodaran discusses the nature of a stable 7          growth rate for DCF models. 29 He argues for viewing nominal economic growth as the 8          absolute maximum when using a stable-growth model, such as the DCF model we are 9          usmg.
10               "The stable growth rate *cannot exceed the growth rate of the economy in 11              which a firm operates, but it can be lower: There is nothing that prevents 12              us from assuming that mature firms will become a smaller part of the 13              .economy and it may, in fact, be the JrJOre reasonable assumption to make.
14              Note that the growth rate of an economy reflects the contributions of both 15              young, higher growth firms and mature, stable growth firms. If the former 16              grow at a rate much higher than the growth rate of the economy, the latter 17              have to grow at a rate that is lower. " (Damodaran on Valuation: Security 18              Analysis for Investment and Corporate Finance, 2nd edition; Aswath 19              Damodaran; p. 148) 20               "The growth rate of a company cannot be greater than that of the economy 21              but it can be less. Firms can become smaller over time relative to the 22              economy. Thus, even though the cap on the growth rate may be the nominal 23              growth rate ofthe economy, analysts may use growth rates much lower than 24              this value for individual companies. " (Damodaran on Valuation: Security 25              Analysis for Investment and Corporate Finance, 2nd edition; Aswath 26              Damodaran; p.159) 29 Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, 2nd Edition and Damodaran on Valuation: Security Analysis for Investment and Corporate Finance, 2nd Edition.
42

Direct Testimony of Adam H. Gatewood                              Docket No. 18-WSEE-328-RTS 1            It is worth noting that Professor Damodaran cites the nGDP growth p~ojection as a ceiling 2            for long-term growth in most valuation studies. Certainly, there are industries that will 3            exceed the average for a period of time, but even for those industries, rapid growth cannot 4            continue forever.
5   Q.       Does the view that nGDP growth is a ceiling on long-term earnings growth exist 6            outside of academia?
7   A.       Yes, valuation analysts carefully consider the long-run growth rates used to value assets 8
* very carefully because using an incorrect growth estimate will lead to incorrectly valuing 9            an asset. The authors of the previous discussion, Peter L. Bernstein and Robert D. Amott, 10            have both published in peer-reviewed academic journals and books on investment strategy, 11            as well as building careers in the field of asset management and investment strategy.
12            Furthermore, institutions directly involved in asset valuation and asset management that 13            apply valuation models to analyze potential acquisition and merger transactions recognize 14
* that estimates of firm-specific growth are a driver to the value of an asset; overstating 15            growth would cause a model to overestimate the value of the asset which would result in 16            an economic loss to the investor. These experts also warn of a ceiling to earnings growth 17            rates as being no more than that of broad economic growth.
18                     "Growth rate;* Few companies can be expected to grow faster than the 19                    economy for long periods. The best estimate is probably the expected long-20
* term rate of consumption growth for the industry's products, plus inflation. " .
21                    (Valuation: Measuring and Managing the Value of Companies; Tim Koller, 22                    Mark Goedhart, and David Wessels; McKinsey & Co; 4th ed; p. 275.)
43

Direct Testimony of Adam H. Gatewood                                     Docket No. 18-WSEE-328-RTS .
1          The following quote from J.P. Morgan Asset Management (JPMAM) addresses the macro 2          or economy-wide measures of profits, and it is consistent with the firm-specific view 3          expressed by asset valuation experts in that analysts must be aware of the fore casted growth 4          rates applied in valuation models and how those growth forecasts comport with broad 5          measures of forecasted economic growth.
6                   "One common mistake is to assume that earnings and dividends received 7                  by investors can grow in line with-or even in excess of-overall economic 8                  growth (GDP) in perpetuity. Granted, it is almost a truism that aggregate 9                  earnings must grow at the same pace as the overaU economy in the very 10                  long run; otherwise, profits would eventually outstrip the size of the entire I
11                  economy or dwindle to an insignificant share of it. But not all of this 12                  earnings growth accrues to existing shareholders. On the contrary, a large 13                  portion of economic growth comes from the birth of new enterprises. Some 14                  commentators suggest (for example, Bernstein and Arnott, 2003; Cornell, 15                  2010) that new enterprises account for more than half of GDP growth in 16                  the US., while in some rapidly developing economies new enterprises may 17                  account for the lion's share of overall economic growth. " 30 18          Goldman Sachs Asset Management explains 'to its clients, "Our *analysis reveals that the 19          link between GDP growth and equity returns is, in fact, very strong." 31 The asset pricing 20          formula of a dividend discount model shows how GDP growth influences the return they 21          earn on equity assets: " ... the dividend growth rate will equate to the growth rate in 22          earnings. Assuming that earnings gro~h is equal to, or jus.t associated with GDP growth, 23          a direct link with equity returns is established." 32 Goldman Sachs also states that research 24          has demonstrated that GDP growth is a proxy for earnings growth.
30 Long-term Capital Market Return Assumptions: 2015 Estimates and Thinking Behind the Numbers; J.P. Morgan Asset Management; p. 25; https://am.jpmorgan.com/us/institutional/ltcmra 31 "Linking GDP Growth and Equity Returns"; Monthly Insights: From the Office of the Chairman; Goldman Sachs Asset Management; May 2011; p. 1.
32 "Linking GDP Growth and Equity Returns"; Monthly Insights: From the Office of the Chairman; Goldman Sachs Asset Management; May 2011; p. 2.
44
/

Direct Testimony of Adam H. Gatewood                              DocketNo. 18-WSEE-328-RTS 1 Q.       Do you believe this evidence justifies incorporating long-run nGDP growth forecasts 2          into cost of equity analyses of utility companies?
 ~ A.       Yes, because we have to ascertain the discount rate investors apply to the future cash flows 4          from an investment in these utilities. Therefore, the Commission should emulate investors' 5          analytical practices as closely as possible to determine investors' discount rate. As noted 6          above, investment professionals include a long-run growth forecast for the general 7          economy (in addition to company-specific short-run growth estimc1:tes) when applying the 8          DCF and capital asset pricing model, and that measure of macro-economic growth serves 9          as the :upper bounds of a firm-specific analysis.      Therefore, the Commission should 10          consider the same information when estimating a utility's required return.
11 Q.       How did you estimate long-ru~ nominal GDP growth?
12 A.      .I averaged the long-run nGDP forecasts of the Energy Information Agency (EIA) and the 13          Social Security Administration (SSA). The average of these two forecasts composes the 14          long-run growth estimate in the DCF analysis. The nGDP growth forecasts published by 15          EIA and SSA-OADSI are the same sources that I relied on over the past decade.
45

Direct Testimony of Adam H. Gatewood                                                Docket No. I 8-WSEE-328-RTS
__ (_ ---------- -                       . ------------- _l _____ J_
                             -I             _         No~a!_ (;!)! E!ti_!ll_at~s             ,          I_
I
__ jEnex:gy Information ~gency (EIA) 2015 _-_ 2-~~--~       ~L~   !          I
                           -fj    Social Security Administration (SSA)
OADSI Trustees Re~rt 2017 : 2095 t'
L 4.41 % I J ~~ ===~ ...                        -~~~=~. Av, .~I Additional GDP Estimates
                           -~;;;M~2017_ Outlook for Energy 2015 - 2040---r _-- --- - -r I
                               !2.2% Real GDP+ 2.2 GDP Deflator from SSA                     :   4.40%1
                           -; -- -~ --__--- - _-_ ------ -- -~ -- - __-- -- - - ) - ---___ J_
                               '. Congresssional Budget Office Nominal GDP Forecast !                   :
                           -?0_!2: 2020 ---- ___ --           _ __ ---- _        -- -- _ _ :- _3.50~_
_ *J021_-2027           -- --- -- -------- --- ------ - - ' 3.90%,
[ ____________ ------ ---- --------- ------- - --- - - i_~       -;J---*--
                           -- !Federal
                                 --       Reserve Open Market Committee Long-run Forecast
                                                                                   ------r----
                              ~ 2.2% Real GDP + 2.0 PCE Inflation ____ ___               __ ___ _4.20o/~_
1 2 Q.       Are these two the only two sources for long-run GDP forecasts?
3 A.       There are other source shown in the table and they are wholly consistent with the EIA and 4          SSA forecasts.
5 DCF Results 6 A.       Please discuss the results of your DCF analysis.
7 Q.       The results of my DCF analysis appear in the following table. The results seen in this DCF 8          analysis are very much the same as the DCF results in my 18-095 analysis. As I have set 9          out the foundations for the DCF analysis in the previous pages, in this section, I will discuss 10          the specific information that I relied oh for the DCF model and interpret the results.
46

Direct Testimony of Adam H. Gatewood                                                                  Docket No. 18-WSEE-328-RTS t                                          I ____ _J                                       _J _____ l _________ j__ ___ ~
             +------ -----~-~J).;;~~.t~t~~~~~                                                       An,I~             . c~.         **~ . ~ * * * * -   f i=-_-_____-1-:-={                                                 1                   2       --~3            --T_-4*+--5=f 1- --- - -- --- - f                                   -j----   -JtJE~T~- - -                         G~--                ~~!~~~~ l Alletelnc AlliantEnergy&sect;p _________ ,LNT
_ AmerenCorp
                                                        !ALE r-_i
____ _iAEE ___ ~ __ -1:._97%__
2.88%
3.12%
3.51%
3.85%
3.72%
4.89%          7.77%1 5.18% :*: 8.30%[
5.22%           8.20%1 8.40%
9.03%
8.94%
American Electric Power Co. --- \AEP __ _I ____ 3.37%                             4.15%               4.73%i          8.10%1     8.89%
Consolidated Edison Inc          _ _ ED _____ [ _ ___ 3.30%                   _ 4:01 %           ___ }.8lo/_!l_] _-- 7.}~-- -7.83%-
J?llke _E_nergy_ Corp New             !DlJ!<       ,          4.~4o/o_             5.21%              4:~1_%1         8.45%1     9.5]%
1 1Edisonlnternational                     IEIX                    3.08o/~f             4.46%              4.60%           7.68%1     9.06%
T,:;"jEl Paso Electric Co -- : _- - -~-: -~ _-_- - - - ~                               3.16%1_--           4.88% :_T36%L __ 8.04~ _
_ IDACORP Inc                 __             IDA        L. _ _ - ~ - _3~ _                             __4.30% _____6.86%; __ 7.52%
             -!NorthWestern Corp_._______ _ _ ,NWE 1
                                                                 --t* _         3.57%1               4.60%              3.92%\ __ _2_49%1 __ 8.52o/~
oGEEnergyCorp____________ joog_                      ________ ~l3%_                5.20% __ 4.71% 1 _ -~~~..'!.J-----~
4
             ~ Pinnacle W~JtalCorp __ _ (TI'!W _ ~ _ ___ ~ ___ 4.09% __ _ __ 4.48% I _ 7. 75% \ _ J~.llil
               ,PoJ"tlans!G~ner~lElectricCo.            :poR                    ~.99o/o_,            3.~'!%1!           '!-_11%         7.10%l     7.~5%j 1Xcel Energy Inc                         IXEL         i          3.06%!               3.85%              4.98%           8.04%1     8.83%1
             ~- _________ ________ _______ j_ _____ :_ ---------~ __ faerageofeachcoltnnnl _7.79%! __ 8.64o/~
_Jr _ _ ___ __ _ __         ___ __ _       I            L _ ______ 1_ Average ofall observations I_ _-~--------f 1 __                  __     ________ 1 _ _ _ I________ j___Rangeofallobservatio;;i ~:~&sect;.o/~ 1- _?:?lCYo_l 1      _________________________ .                  _; _ _ _ _ _ _ _ _ _   j _______          I______                            ________ 1
_ ! 1) 2018 annual dividend divided by maximum price observed (5/8/2017 through 5/7/2017) _
             '    2) 2018 annual dividend divided by minimum price observed (5/8/2017 through 5/7/2018) 43)ForecastedEPSgro~h _______
1
                                                                                      -~       _______
:4) Low-end estimate = col 1 + col 3            _ _ _ ._                   ,                  ,
               , - - - - - - - - - - - - - - - * --                                      *1  -  - - ,.   - - l--    - -- -- -
             -~1_Hi~:!)_destimate=__c:__ol_]:::_~~~~- _1   _                     ___    +----- _ -t-              _____ -                                l.
1               '                                        !           I                     I                 I 2          Pricing data was gathered from YahooFinance for each of the proxy companies fro~ the
                                   \
3          time period of May 8, 2017, through May 7, 2018, on a weekly basis. The low dividend 4          yield is computed using the projected 2019 dividend divided by the average of the weekly 5          high prices while the high dividend yield is computed using the average weekly low prices.
6 Q.        How did you arrive at a growth rate for each proxy company?
47

Direct Testimony of Adam H. Gatewood                                           Docket No. 18-WSEE-328-RTS 1 A.        The growth rate is the average of the short-term growth rates 33 and the long-run forecast 2           of nGDP of 4.30%. The following table summarizes all of the observed growth forecasts, 3           both historical and forecasted.
4 Q.        How is the long-run nGDP forecast applied in your DCF analysis?
5 A.        The long-run nGDP growth forecast of 4.30% is averaged with the short-run growth 6           forecasts. In my DCF analysis, I give equal weight to short-run and long-run growth 7           forecasts. The weighting is certainly debatable because we cannot know precisely how 8           investors weight the two forecast horizons: At FERC, in both natural gas pipeline and 9           electric transmission rate cases, the short-run growth is afforded a two-thirds weighting 10           and the nGDP forecast a one-third weighting. Whatever the weighting an analyst applies 11           between the short-term and long-term .growth forecasts, the analysis needs to be 12           constructed in a manner that distinguishes between the growth potential of each time 13           horizon.
33 For each proxy company, I gathered three short-run, three to five-year growth forecasts for earnings and dividend from Value-Line Investment Survey; as well as analysts' earnings growth projections by Thomson Financial Network (1/B/E/S) reported by YahooFinance .. I/B/E/S aggregates analysts' earnings forecasts and reports the mean of those estimates. FactSet is a service similar to I/B/E/S in that it aggregates analysts' forecasts and publishes the mean and median of estimates. FactSet data was obtained through S&P Global Market Intelligence.
48.

Direct Testimony of Adam H. Gatewood                                                                                          Docket No. 18-WSEE-328-RTS
                                                               - _L_ - J                _'._ ___ __l__ -- -  l --      _;_ . _ -* L         ___ L_ _____ L __ _
     +- ---- ----- ------- - -- .
t-                                                                                      Staff Proxy Group~- ______ . __                                                   _ _________ _
Growth Rate Summai-),              ___ _______                      _________________               +
18-WSEE-328-RTS 1
i        '                                              I
                                                                    *j
     -,~- -
I
             ----- ------------ -- -i-- I t-2    ,    3       ,    4 Value-Line_~_!<!_ri1:_Data ___ ____
10 Year      1       5 Year 1_ _ 5_~* 6 Value Line
                                                                                                                        ,    7    j 8           1      9 Forec~~dG_!'!_Wf_t~~t~~-r=-- _________
                                                                                                                                                             ,_ _1_0 __
                                                                                                                        ;Thomson FactSet I Short-run Long-term t'J_- ______ ji_
11 DCF
                                            ,              EPS '!DPS         I  EPS I DPS               EPS : DPS I EPS                EPS      I Avera e       nGDP          Growth Rate
:;\Ile~ Jnc.        __              ~AJ-1:= \ l.5_Q_'1'ol _3.50~J ~2Q'Yi_ LO.OJ~ 4_.5_0_'l:~ 4:50% ~0%1 6.~o/oj_ 5.48%                                     4.30%                          -
      '.~!ian1En1orgy_~rp"                 _QI_T _( 5._Q!J% __?_.59_~ &sect;2Q~ _ 6.50% __ 6.50'lij_ -~OQ_~ 2,_8_Q_~                         ~-~3%         6.06%       4.30%
[Ameren Corp. _ _ _ _ _ _ AEE ~_:-~-4.00%                                 0.50%, 2.00% - 7.50%! 4.50%' _ 6.30%                 _&sect;.28%          6.15%       4.30%
       ;Ameri~:"&deg;E~ctri_<cP_o_werCo.. ~P : 3"QO% _4.00~t 5.50%' 4.50% 4.50%* 5.00%!                                         5.79%1      1.3.?_% __ 5.17%          4.30%
1
     ~Cons~d.ated Ed!s~'!..!nc:              go_ :_ 1,50% U!!'lh 2:so%T 2.00% 3_-QQ.~'4- 3.50%1 3.40~ 3_.38~"-l - . _}.32~ - ... 4.30')'.
       *DukeEnergy~rp~ _____ ,DUK _1 _ 3.50% _ 0.00%1 0.50% _ 2.50% ___ 4.50%' __ 4.50%,_ 4.25%
* _4.06%,                                             4.33% __ 4.30%            ______ _
:Edison Jnternatioml                  EIX I 2.50% 6.00%' 2.50% 9.00% 4.50% 8.00%1 2.62%                                          4.47%\        4.90%       4.30%.             ..+/-:&sect;_~_
       ,E_!_!:'~so El~ctric Co,
:IDACORP Jnc.
                                         -* i_;:_g _~f     ~~0% _ o"o~ _ o:~Oo/.'!. !!.Q.!l.1(, -- .1,?_0'y.,
IDA 1 7.50%_ 5.50%J_ 4.~0_%: 10.50% 3.50~1 6.50Jo\ 3.10%
7,0o%j_ ~,~OJ,,       _5)_0~ 5.45~ ~ 4.3_0o/o[ -- 4_-~~
4.12%1        4_,1~       4.30~~;             4.30%:
       'NortbWestemCo!P.:___ __ - - - ~ L _                _8_._Q_Q% -~__50%: _7.00%          7.00% ___3.50%. __4.50%1 _ 3.16% _ 3.01%!               3.54%       _4_.30%! __       _ 3.92%1
      ,OGEEnergyCorp~----                     QQF: I 4.5Q~l 1-~0_o/~: l_._Q~ 8.50% ~-?Q.'Y~ ! ~ ~~_Q_~l 4_~~~- -~!!.r- _ 4,:J_Q~j                                                     4.71Jo~
_Pil111ll_cl1o West Capital Corp. PNW 1 4.00% 2.50%, 5.00%                             2.50%     5.00%, 5.50% 1 3.63%1           4.54~;        4.67%       4.30%1              4.48%1 1
6.00%, 2.65%: _ 3.02%: 3.92% _4.30%1----. 4.11%1 0
PortlandGenera!ElectricCo.JOR __ _!00%1 _')_.~_:J_.50% _3.50% _ 4.00%
     ~ . ; ; - ~ - - - - ,XEL ! . 5.50%! 4.50%: 5.00%                                         5.50% 5.50%         5.50%:    5.89%,      5.73%:        5.66%       4.30%               4.98%T l                                            Mi!'J. -!.00% -4.0QJf Q,~--- 2~QQ~ _ ~_()_~:. -~50o/"t- ~.&sect;.2~                       3.0!~         3.:J_~ _                         30-8.!'Yo~
____ _ __ _ __          __ __ Maxi 8.00% _ 9.00%1 7.00%' _18.00% 7.50%:_ 8.00%* ___ 6.30%                             6.90%[ _      6.15% ________     -+ _     __  1,22% _
1 Mean: 4.14% 3.64% 3.54% 6.07% 4.54% 1 5.64%: 4.54%,                                     4.72%j        4.86%                 i         4.58%*
                                              -~- . t         * - .. _- -- '. -        . -- -        l . . . . - ... : . .. :r
_.!)
* Historic I 0-ywearnLngp~e annuaLgi-~wth rate repyrted by Value-Line ,                                                         I
                                                                                                                                                                --- -- ---+- -
: 2) Historic I0-year d1vdend per share annual gi-owth rate reported by Value-Line :
: 3) Historic 5-y~;;;. e~ng.s J>er sha~e ~ gro~furat~ report~d by V;hie-Line- :                                     ..;
_ __ _ _ __   . _ 4rHistoric 5-year dividend per share annual growth rate !!>J>Orted by Value-Line [              _ _ ________ _ ,______ _
                                        -~ 3 to 5-year forecasted annual earnin~J>er share growth rate by Value-Line              ~ __ _ ---,-----* ______ _
6)'3 to 5-year forecasted annual dividends_J>er share gi-5>wth rate by Value-Line I                ' _.1_ __ _ _  _. __
: 7) 5-year forecasted annual earnings per share growth rate. Consensus forecasts gatherd by Thomson-Reuters
                                            *and rejlorted-~t Yah~oFimnce on May 3, 201_s__j_ _____ ~ __ *::__~-~-~~ ___ I_              ~ ___ -;- ~~ __'..::_ __ _
: 8) Long-term forecasted annual earnings J>er share gi-owth rate. Consensus forecasts gathered by FactSet and reported j
_at S&P Glo~al ~~et ~lligence_ (fka: _SNL Financial) O!) May 3, 2_018
_ _2)_~~~ of3 to 5-year forecasted annnal growth rates ______ -*-- _
I 0) Long-te~ fo.r~casted n~mi_nal 9DP growth_rate            i
: 11) Average of short-term and long-term growth rates l      - -* 1 -       - - - .-              -I 1
2 Q.               What are your *observations of the short-run growth forecasts?
3 A.               The average of the short-run growth forecasts for the proxy group is 4.86% with a range of 4                  3.32% to 6.15%.
5 Internal Rate of Return (IRR) Analysis 6 Q.               Please discuss the internal rate of return (IRR) analysis that you performed.
7 A.               An IRR analysis of an investment is a form of a discounted cash flow analysis, only with 8                  a more complex equation than the Gordon Growth Model that we applied in the previous 49

Direct Testimony of Adam H. Gatewood                               Docket No. 18-WSEE-328-RTS 1           section. In the IRR analysis, we are able to apply the five-year growth forecasts to only 2           the intended next five years of dividends, with the remaining years growing at the long-run
)
3           nGDP forecasted growth rate. In the age of spreadsheets, the IRR equation is not that much 4           harder to manage than the basic dividend yield plus growth DCF model (a.k.a. Gordon 5           Growth Model) and, as the IRR model allows us to apply the growth forecasts to their 6           respective forecast periods, the IM model provides important information to policy 7           makers because it recognizes the respective time spans of both the short~run (three to five-8           year earnings growth) and long-run (nGDP growth rate) forecasts.~ The full output of the 9           IRR calculations appears in Schedule AHG-5; the following table summarizes the results.
10           In the IRR model, short-term growth forecasts are given much less weight than in the two-11           stage DCF analysis; five years of a several hundred year time horizon or five percent as 12           opposed to a weighting of 50 percent that I applied in the two-stage DCF model. As a 13           result of the greater weighting of the long-term growth estimate, the average for the proxy 14         . group in the IRR analysis is 16 basis points lower than the two-stage DCF results.
50

Direct Testimony of Adam H. Gatewood                                                           Docket No. 18-WSEE-328-RTS
                                ~
                                -t--- _
Sta~Proxy Group--: *.
Internal Rate of Return (IRR) Results _
18-WSEE-328-RTS
                                                                                                     -1    __
IAiletelnc                                    ~                7.68%1 IAlliant EnergySo/p               ___ --- __ ___             - J.()Oo/~ _
1Ameren Corp                                               I 7.98%
                                ~American Electric Power Company                      m~[         8.25% 1. ___
ConsolidatedEdisonlnc Duke Energy Corp New
_    +     7.94%1
                                                                              - - -- -- ---- i --9.08% I -
                                -f-                 ---------------
Edison International ---*- -- - - ------ --,------      I 8.03% ---
El Paso -Electric Co                                    I 7.25%
IDACORP Inc                                           I
                                                                         --- ----- -------1-- 7.20% I 1
NorthWestern Coryoration _ _ _ ___ j___ 8.30%1--
1 0GE Energy Corp                           _______ ----~--8.89%1--
1 IPinnacle West Capital Corp Portland General Electric Co~an:t__ __
__ \Xcel Energy Inc l--
: 8.00~~
7 .67% _
7.95% 1_
I                                                              8.02% -
I - - - - - - - - - - - - - - - - - - - - - ____Meanl _
I                                                   Min        7.20%
I,- --- ---- - ------* -~-- - --
Ii      '
                                                            --                     _ Ma1-- _9.08%r _
1                                   I                                                        i            I 2          In this instance, as is usually the cas~ with public utilities, there is not a wide difference 3          between the short-term growth rates and long-term nGDP growth, therefore the difference 4          in weighting of the two growth rates between the DCF and IRR analyses do not cause a 5          large difference in results.
6 Capital Asset Pricing Model (CAPM) Analysis 7 Q.       Please describe the capital asset pricing,model (CAPM).
8 A.       The CAPM offers an explanation of the positive relationship between risk and ROR 9          required by investors. 34 It is appealing to regulators because it meets the legal standards I 34 The theoretical support for the CAPM is the work done by Harry Markowitz ("Portfolio Selection," Journal of
    .Finance, March, J 952). W.F. Sharpe added the concept of a risk-free rate of return to the Markowitz model ("A Simplified Model of Portfolio Analysis," Management Science, Janua~, 1963).
51

Direct Testimony of Adam H. Gatewood                                  Docket No. 18-WSEE-328-RTS
           /
1          discussed above, as it can be .structured to incorporate current data from the financial 2          markets and the unique risks of the utility in question.
3                    Ke = Rf+ Beta (Rm - Rf)        or 4                    Ke= Rf+ Beta (Rp) 5                           Where:
6                 Ke =      required return on equity 7                 Rf=      .return on a risk-free security 8                 Rm =      an expected return from the market as a whole 9                 Rp =      risk premium available to investors through purchasing common stocks 10                           instead of risk-free securities often calculated as Rm - Rf 11                 Beta=     volatility of the security's or portfolio's return relative to the volatility of 12                           the market's return with the market beta equal to 1. 0 13          Rf 14          The Rf estimate is the interest rate investors believe represents a riskless return. Although 15          it is a simple concept, the answer is not universally agreed upon. It is widely accepted that 16          a debt instrument issued by the U.S. Government is a risk-free instrument. An investment 17          in U.S. Treasury Bonds is a risk-free investment if the investor plans to hold it until 18          maturity. The risk-free instrument chosen will have an effect on the results of the CAPM 19          analysis. Whichever instrument is selected,.it should be used consistently in the equation.
20          Beta 21          The beta coefficient measures the volatility of the return earned by the utility's stock 22          relative to the volatility of the returns earned by the broader equity market. The broad 52

Direct Testimony of Adam H. Gatewood                                 DocketNo. 18-WSEE-328-RTS 1          equity market is frequently measured using the S&P 500 Index. This measure provides a 2          look at the risk and volatility of a stock relative to other investments. A stock with a beta 3          of 1 is equally as volatile as the market as a whole. A stock .
with a beta of 0.5 is half as 4          volatile as the market. Value-Line reports that Westar has a beta coefficient of0.70. These 5         are similar to the average for the proxy group of 0.67.
6         Rm 7         Rm is the expected return on the stock market as measured by a broad market index such 8         as the S&P 500~ This represents the total return consisting of the price change of the index 9         plus dividends earned for the year.
10         Rp 11         The risk premium is the difference between investors' expected return from the stock 12         market and their expected return from the risk-free investment over the same time period.
13         The risk premium is written as Rm-Rf. The market *return and the risk-free return should 14         be taken from the same time period so as to accurately measure the additional return a
15         required by investors to take on the risk of common stocks over the risk-free investment.
16 Q.      Please discuss your CAPM analysis.
17 A.      I took two distinct* approaches to the CAPM analysis. I performed one analysis using 18         purely historic measures ofreturns from the stock and bond markets and a second analysis 19         using forecasted returns. The results using historic returns are drastically higher, 9.38%,
20         when compared to results using forecasted returns of 6.93%.
53

Direct Testimony of Adam H. Gatewood                                                              DocketNo. 18-WSEE-328-RTS 1          Both forms ofmy CAPM analysis incorporate the high and low beta coefficients observed 2          in the proxy group. This beta indicates that the volatility of the proxy group is about 65%
3          of that exhibited by the broad market and, accordingly, investors would expect a relatively 4          lower return from stocks of public utilities than the broad market. This is a clear indication 5          that public utility companies like Applicants and the proxy group are less volatile (and less 6          risky) than the broad stock market, and investors expect a return lower than that expected 7          of the market. Reviewing the high and low beta.coefficients observed in the proxy group 8          provides a picture of the range that the new company could exhibit in the future.
                             ,                          Beta Coefficients, Starrs Proxy Group                                ,
Updated on May 10, 2018 i
18-WSEE-328-RTS                                    I
_ :Allete me ____ _                                            )_!.LE __                  0.75/--
_ _.~l}i!lf!t EnergyS<?_l))_                                   :LNT                       0.701
                             ;i\tner~n_g~gJ__                           _   _              AEE                      0.65' American              Electric Power    Co me          AEP                      Q.65: _
                             . Consolidated               Edison       me             __ ,ED     __               -0.50!
__ :'._J_ __
                          -- :~uke E}!e.r_g_y C~~_!-J~w
                             *Edison mternational ----           -- -
                                                                                          ,DUK
                                                                                          'iix-                     Q:m-*
0.60, El Paso -Electric  --- --
Co                         EE                       0.75 IDACORP me                                                 IDA                      0:7Q:_
NorthWe~~ern_ Corp                                         NWE                      0.6?;
                           - _C?Q~~~~r_g_y_g~p*_ -                             -           OGE                      0.95:
_Pinnacle West Capital_ Cofl} __                               PNW                      0.65:
                              ,l:'_ortland General ~lectric Co                             POR                      0.65:
Xcel Energy me                                            ,XEL                      0.60:
                                                                                          ,Min                      0.50:
                                                                                                                     - ----l
                                                                                          ,Max                      0.95:
                                                                                                                      ----+-
                                                                                          ,Mean                     0.671 0.65!
                          -1    we~~~- ----------- ----                                  1- ---- ---
                          --IS-o~c~-: Valu;-ii~e-Investm~nt Survey -- --- -
9                           I' 10 Q.       Please describe the forecasted CAPM analysis.
54

Direct Testimony of Adam H. Gatewood                               DocketNo. 18-WSEE-328-RTS 1 A.       For the forecasted CAPM, I relied on the expected returns published by JPMAM in its 2          annual publication, Long-Term Capital Market Assumptions for 2018, to establish the 3          expected return for the market. JPMAM publishes 10 to 15-year forecasts of expe"cted 4          returns on dozens of investment asset classes in its annual publication, the Long Term 5          Capital Market Return Assumptions (LTCMRA). JPMAM forecasts an animal return on 6          common stocks of 6.93%.        The JPMAM's forecasted returns on common stocks has 7          declined over the past two years; generally a product of the increase in stock prices over 8          the past two years.
9          Following the calculations arid inputs through the CAPM equation in line 2 of the following 10          table, the forecasted return on a risk-free investment, 10-Year U.S. Treasury Bonds, is 11          subtracted from the- expected return on common stocks resulting in a risk premium of 12          3.86%. This risk premium is the additional return necessary to induce investors to take on 13          the added risk associat~d with common stocks over the risk-free investment. The beta 14          coefficient is applied to the risk premium to ascertain how much of a risk premium is 15          necessary for investors to take on risks of investing in utility stocks as opposed to the risk-16          free U.S. Treasury Bond.
55

Direct Testimony of Adam H. Gatewood                                                                                   DocketNo. 18-WSEE-328-RTS
               +J---- -- - - _J___ ------ --__ __;_ _-- -                                        _J___ --- -----           l _____ ----- - l_ --       - _ _J_
i
* u~:t:!1sfs::::~:. !~t::::c;::~:!::~i::~
:f --j-~~~-=--~-- __ __ _ -=- -~=---=-~:----
0 18-"'.SEE-32~}!TS _ ---:-                     -~---=~ ~-   ~1~__________ :j l
_                         -----~------------~-----J-!
: 1) Forecasted Returns on Common Stocks L o w ~ - HighBeta 6.93%1              6.93%j 1-   AvgBe-;f 6.93%1
               - 2) Forecasted Total Return on 10-Year T-Bonds ,--- .                             -! ---- -3.07%f . 3.07%\                             3.07%1 3);ResultingRiskPremillll:'-- _______________________ !                                      _3.86%1
* _ _ 3.86%1 ____ 3.86%~
               ~'!l!Beta Coefficient ____ *__ _____ ___ __ _                                      x1                 0.50                0.95 I         0.67 I ill_RiskPremium ___ .. _! ____ . ___ ___                                                          . 1.93%1-          __ 3.67o/4_ _ _ ~.59%1 __
i6)iForecasted Yield on lO~Year T-Bonds ____
* __ +1                                              3.50% 1            3.50%:          350%\
1)1_1'~ ~~~_!]?_g_ujt_y               ,      .. _ __          _ _ ___                   ... ~43%1___            7.17'Yo~_      _6.02~
1I I
1 :
* 6.30%
                                                                                                                        . r -
_I I    !                                                                            I                       I I
_j l)!Forecasted 10 to 15-year annual arithmetic return on stocks                            _ --"*-**- i
             . _'.. _, for mid-sized col11J}aniesby J.P. MJrrgan Asset Management, 2018 E ~
                                                                                                                                                                *t-
_J_
l j_2) Forecasted_ 10 to 15-year annual arithmetic return on intermediate term 1
_(__iU.S. Government bonds by J.P. MorganAssetManageiyent, 2018 Edition ,                                                                         i l3)JResultingriskpremium(l-2)                                                     1
                                                                                                                                                            ***+
I 0
                 '4)     B;~-co-;ffi~ient range olpro;.y group              reported by Value-Line                          :
               ---c----------------- ---------------- ...
:5): Row 3 x Row 4 = asset specific risk premium                                  '
_jj:yorec~sted_yield on IO-Year U.S. Treasury bonds foreca~d by _____ '                                                                   - - -- _l_
                .:.JrJ.P. Morg11Il Asset Management, 2018 Edition (page                          ?5J           _ _ __~--                                   .. *I*
               . ,7). Forecasted cost of equity capital row 5 + row 6                                ,                   * :                                       I
                                                          .                                          I                       I I                       I
                  -~':!_llfces:__    _                           _              _                .. _ _ _                   _
_ J.P. Morgan Asset Management, Long-term Capjtal Market Return Assumptions,
_ 2018 Edition; J.P. Morgan Asset Management (published October of2017) ..
:www.jprr.io~%&deg;:n~~::tit_'-!ti_~~al.~o~(P_~./5es1jpmorg~n/a'!1/ia/r=;~_arch and 8.u_bl_ication~{l~mg-t~rm ~~Rital market
: !                                                                                I                        1 1
2          The expected risk-free yield of 3.50% forecasted by JPMAM is added to the beta specific 3          risk premium to arrive at the cost of equity for the given beta coefficient of 0. 70 - about 60 4          basis points less than the returns JPMAM is forecasting for the broad stock market indexes.
5          These results appear low by historic measures of the past 40 years. The results are in line 6          with the returns offered on other investments in the current capital markets. For instance, 7          investors in Applicants' long-term bonds are purchasing bonds with the expectation for.
8          returns of less than 4.00%.
9 Q.       Please discuss the historical CAPM analysis.
10 A.       I performed a CAPM analysis incorporating historic data of returns earned from 1926 56

Direct Testimony of Adam H. Gatewood                                                              Docket No. 18-WSEE-328-RTS 1          through 2014. The process is the same as that applied in the Forecasted CAPM.
                +-_J_ ___ _L____ I                                       I                  I      I         I    ____ __J_                     I
                                             *+~~--* l~WSE"328.lS~~~~~~1;~~-
                  !------- _______Capital Asset Pricing Model -- Historic Risk Premium                                                          fl J__                             Based on Historic Risk Premiums from 1926 to 2015
                +=t=-~i==
                +-
                **1       1    . -         .      . - . -*** - - --    *   --                                                                   .
                 +     l)!Total Returns on Common Stocks
                      ~/Total ReturnonGovernmentBonds __ .--- ________ I
:         _------+--~_}2.10%1 _____ _12.10%1
                                                                                                 -1    5.20%1          5.20%1
_ 12.10%1 5.20%1_
t-=~::~~!re7tun _______ ---~--                                -----------1----J--- 6:.~~I        ~~-~------~o~
_I_   5)/RiskPremitun ___ ; ___________ *________                        J _____ : _3.45%!    _ __6.56%'.              4.6~__
                   !   6),Historic Yield on Government Bonds *                              !   +!     4.38%1          4.38%1           4.38%1
                 ~;~-- ?)_lfore&#xa3;_a~~~d. Costof~quityBased onHi~toricReturns                -I ----i--- _
7.83~ _______ !.Q.93%f       __ .2.:_Q_0%r 9.38%              '
                   \                 I          ,
                   '-----~-- __ 1__- _ *t__*_---_____ :*-_____ i ..
                                                                                                *r _ _ r--_---____ :__ _
                                                                                                             ~ .. - - - --. .. ,.'
I
                **-:   I) !Historic I         returns
                                       . on common stocks 1926-2017- (SBBI; Exhibit 2-3) .. -----
                  ! 2) IHistoric returns on intermediate-term government bonds 1926-2017 :
L-~~ultiE_g risk premitun (1-2)                   _ *~                 l--~~~-~:~ _:_:_:-_ ... -.... :~:-~:- _               _r.
                .l. _4) JBeta coefficient of the proxy group (Reported by Value-Line)_ _ _ _; .. _ _ _ _ __ ___ _                       __     _,__
: _2)fRow 3~ xRow ~ =~set Specific RiskPremitun ~ - - - - 1 _____ _1._ _ _____.__
                -~ __&~ Hist~ic year-end yiel~ on int_ermediate-term governm~~ds ! 926:~! ?__ _ , ____ _
                -~:- -~~~recast~~ co.st      ~T~=~-~~~~~:~ _5:_ro~ 6_                  .   *L*--r_ _ __:'.: _..
                   ,Sources:        ~----:______ . _________                                .______________________ _
                   ,Ibbotson SBBI: 2018 Classic Yearbook(Duff& Phelps) & Value-Line Investment Survey
                   '      '        .-         - i-                  --_                     ;                   . .          -,
2                 j      I          I          I                                            I     :         .                 I 3          In relying on purely historic data, we are assuming that certain trends observed in the past 4           80 years will continue in the future. Most notably, we would be assuming that the returns.
5           observed on common stocks from decades past will continue in the* future, which of course 6           assumes this historical data accurately measures the past returns. There is strong evidence 7          that these frequently-quoted returns do not present a complete picture of historic* returns. 35 8          .The simple step of beginning measurement period in 1926 brings questions as to whether 9          the time period represents all of the modern-era securities trading. The historic returns are 10          reported and might influence expectations despite warnings that surround historic 35 McQ~arrie, Edward F; "The Myth of 1926: How Much Do We Know Long-Term Returns on U.S. Stocks?"; The Journal oflnvesting; Winter 2009; p. 96.
57

Direct Testimony of Adam H. Gatewood                                 DocketNo. 18-WSEE-328-RTS 1          economic growth rates. There are well regarded financial publications that focus solely on 2          this type of historic data and how to apply it in cost of capital studies. Thus, I have to argue 3          that the historic data is. part of the cost of capital universe, although given only light 4          consideration in the final decision.
5 Q.       Does that conclude your testimony?
6 A.       Yes, thank you.
58

Schedule AHG - 1 18-WSEE-328-RTS DECON--With Long-Term Spent Fuel Management Costs KCC Staffs Primary Recommendation in 18-WCNE-107-GIE
            * $  7,793,513 Annual Payment Annual           Annual              Annual                           Annual Time  Year      Inflow          Outflow              Earnings           Balance       Return 1  2018   $  7,793,513 $               -                      $       237,154,291   4.20%
2  2019   $  7,793,513 $               -    $     10,114,502  $       255,062,306   4.20%
3  2020   $  7,793,513 $               -    $     10,865,922  $       273,721,741   4.20%
4  2021   $  7,793,513 $               -    $     11,648,872  $       293,164,126   4.20%
5  2022   $  7,793,513 $               -    $     12,464,675  $       313,422,313   4.20%
6  2023   $  7,793,513 $               -    $     13,314,708  $       334,530,534   4.20%
7  2024   $  7,793,513 $               -    $     14,200,409  $       356,524,456   4.20%
8  2025   $  7,793,513 $               -    $     15,123,274  $       379,441,243   4.20%
9  2026   $  7,793,513 $               -    $     16,084,862  $       403,319,618   4.20%
10  2027   $  7,793,513 $               -    $     17,086,799  $       428,199,930   4.20%
11  2028   $  7,793,513 $               -    $     18,130,777  $       454,124,220   4.20%
12  2029   $  7,793,513 $               -    $     19,218,560  $       481,136,293   4.20%
13  2030   $  7,793,513 $               -    $     20,351,987  $       509,281,792   4.20%
14  2031   $  7,793,513 $               -    $     21,532,972  $       538,608,277   4.20%
15   2032   $  7,793,513 $               -    $     22,763,511  $       569,165,301   4.20%
16  2033   $  7,793,513 $               -    $     24,045,684  $       601,004,497  *4.20%
17  2034   $  7,793,513 $               -    $     25,381,657  $       634,179,667   4.20%
18   2035   $  7,793,513 $               -    $     26,773,687  $       668,746,866   4.20%
19   2036   $  7,793,513 $               -    $     28,224,126  $       704,764,505   4.20%
20   2037   $  7,793,513 $               -    $     29,735,427  $       742,293,444   4.20%
21   2038   $  7,793,513 $               -    $     31,310,141  $       781,397,098   4.20%
22   2039   $  7,793,513 $               -    $     32,950,930  $       822,141,541   4.20%
23   2040   $  7,793,513 $               -    $     34,660,567  $       864,595,621   4.20%
24  r2041   $  7,793,513 - $             -    $
* 36,441,940    $       908,831,074   4.20%
25   2042   $  7,793,513 $               -    $     38,298,060  $       954,922,646   4.20%
26   2043   $  7,793,513 $               -    $     40,232,062  $ ' . 1,002,948,221   4.20%
27 28 29 2044 2045 2046 7,793,513 $
(78,411,865)
(169,068,348) 42,247,215 44,183,416 42,747,191 1,052,988,949 1,018,760,500 892,439,343 4.20%
4.20%
4.20'l;o 30   2047   $         -    $  (183,090,767)   $     37,446,755  $       746,795,331   4.20%
31   2048   $        -     $  (156,256,606)   $     26,455,673  $       616,994,398   3.54%
32   2049   $        -     $  (127,910,434)   $     21,857,397  $       510,941,361   3.54%
33   2050   $        -     $  (117,066,127)   $     18,100,404  $       411,975,638   3.54%
34   2051   $        -     $    (71,555,507)  $  I  14,594,484  $       355,014,615   3.54%
35   2052   $        -     $    (54,464,502)  $     12,576,606  $       313,126,718   3.54%
36   2053   $        -     $    (38,482,991)  $     11,092,702  $       285,736,429   3.54%
37   2054   $        -     $    (12,722,791)  $     10,122,384  $       283,136,022   3.54%
38   2055   $        -     $    (13,093,025)  $     10,030,263  $       280,073,261   3.54%
39   2056   $        -     $    (13,511,435)  $       9,921,763 $       276,483,589   3.54%
40   2057   $        -     $    (13,866,126)  $       9,794,597 $       272,412,060   3.54%
41   2058   $        -     $    (14,269,630)  $       9,650,361 $       267,792,790   3,54%
42   2059   $        -     $    (14,684,876)  $       8,165,752 $       261,273,666   3.05%
43   2060   $        -     $    (15,154,158)  $     . 7,966,966 $       254,086,474   3.05%
44   2061   $        -     $    (15,551,972)  $       7,747,808 $       246,282,310   3.05%
45   2062   $        -     $    (16,004,534)  $       7,509,837 $       237,787,613   3.05%
46   2063   $        -     $    (16,470,266)  $       7,250,810 $       228,568,158   3.05%
47   2064   $        -     $    (16,996,602)  $       6,969,683 $       218,541,238   3.05%
48   2065   $        -    .$    (17,442,782)  $       6,663,934 $       207,762,390   3.05%
49   2066   $        -     $    (17,950,367)  $       6,335,257 $       196,147,280   3.05%
50   2067   $        -     $    (18,472,723)  $       5,981,080 $       183,655,636   3.05%
51   206~  $         -     $    (19,063,052)  $       5,600,175 $       170,192,759   3.05%
52   2069  $         -     $    (19,563,479)  $       5,189,654 $       155,818,934   3.05%
53   2070  $         -     $    (20,132,776)  $       2,676,969 $       138,363,128   1.72%
54   2071  $         -     $    (20,718,640). $       2,377,079 $       120,021,567   1.72%
55   2072   $        -     $    (21,380,741)  $       2,061,971 $       100,702,797   1.72%
56   2073   $        -     $    (21,942,009)  $       1,730,074 $        80,490,862   1.72%
57   2074   $        -     $    (58,404,136)  $       1,382,833 $        23,469,559   1.72%
58   2075   $        -     $    (23,872,766)  $         403,207 $                 0   1.72%

Schedule AHG - 1 18-WSEE-328-RTS SAFESTOR KCC Staffs Alternative Recommendation in 18-WCNE-107-GIE
             $   8,693,911 Annual Payment Annual              Annual              Annual                          Annual Time Year      Inflow.             Outflow             Earnings        Balance         Return 1   2018  $    8,693,911   $                                    $     237,154,291    4.20%
2   2019  $    8,693,911   $                      $  10,133,392 $     255,981,594    4.20%
3   2020  $    8,693,911   $                      $  10,923,386 $     275,598,891    4.20%
4   2021  $    8,693,911   $                      $  11,746,528 $      296,039,329   4.20%
5   2022  $    8,693,911   $                      $  12,604,208 $      317,337,448   4.20%
6   2023  $    8,693,911   $                      $  13,497,878 $      339,529,236   4.20%
7   2024  $    8,693,911   $                      $  14,429,045 $      362,652,192   4.20%
8   2025  $    8,693,911   $                      $  15,399,284 $      386,745,387   4.20%
9   2026  $    8,693,911 , $                      $  16,410,235 $      411,849,532   4.20%
10   2027  $    8,693,911   $                      $  17,463,605 $      438,007,047   4.20%
11   2028  $    8,693,911   $                      $  18,561,174 $      465,262,131    4.20%
12   2029  $    8,693,911   $                      $  19,704,797 $      493,660,839   4.20%
13   2030  $    8,693,911   $                      $  20,896,407 $      523,251,157   4.20%
14   2031  $    8,693,911   $                      $  22,138,017 $      554;083,084   4.20%
15   2032, $    8,693,911   $                      $  23,431,724 $      586,208,719    4.20%
16 . 2033  $    8,693,911 * $                      $  24,779,716 $      619,682,346    4.20%
17   2034  $    8,693,911   $                      $  26,184,269 $      654,560,526    4.20%
18   2035  $    8,693,911   $                      $  27,647,758 $     ,690,902, 195   4.20%
19   2036  $    8,693,911   $                      $  29,172,654 $      728;768,759    4.20%
20   2037  $    8,693,911   $                      $  30,761,535 $      768,224,205    4.20%
21   2038  $  . 8,693,911   $                      $  32,417,086 $      809,335,202    4.20%
22   2039  $    8,693,911   $                      $  34,142,103 $      852,171,216    4.20%
23   2040  $    8,693,911   $                      $  35,939,502 $      896,804;629    4.20%
24   2041  $    8,693,911   $                      $  37,812,320 $      943,310,860    4.20%
25   2042  $    8,693,911   $'                     $  39,763,722 $      991,76,8,492   4.20%
26   2043  $    8,693,911   $                      $  41,797,004 $    1,042,259,407    4.20%
27 28 2044 2045 8,693,911   $
                              $        (63,088,403) 43,915,603 45,940,700 $
1,094,868,92 I 1,077,721,218 4.20%
4.20%
29   2046  $                $        (90,464,645)  $  45,221,182 $    1,032,477,755    4.20%
30   2047  $                $        (41,393,404)  $  43,322,767 $    1,034,407,117    4.20%
31   2048  $                $        (42,593,23J)  $  43,403,723 $    1,035,217,603    4.20%
32   2049  $                $        (43,584,004)  $  43,437,731 $    1,035,071,330    4.20%
33   2050  $                $        (32,822,082)  $  43,431,593 $    1,045,680,841    4.20%
34   2051  $                $          (6,098,522) $  43,876,768 $    1,083,459,087    4.20%
35   2052  $                $          (6,275,776) $  45,461,943 $    1,122,645,254    4.20%
36   2053  $                $          (6,425,023) $  47,106,195 $    1,163,326,426    4.20%
37   2054  $                $          (6,594,873) $  48,813,177 $    1,205,544,730    4.20%
38   2055  $                $          (6,769,285) $  50,584,657 $    1,249,360,102    4.20%
39   2056  $                $          (6,966,308) $  52,423,150 $    1,294,816,944    4.20%
40   2057  $                $          (7,132,295) $  54,330,519 $    1,342,015,168    4.20%
41   2058  $                $          (7,321,154) $  56,310,956 $    1,391,004,971    4.20%
42   2059  $                $          (7,515,094) $  58,366,569 $    1,441,856,445    4.20%
43   2060  $                $          (7,734,135) $  60,500,296 $    1,494,622,606    4.20%
44   2061  $                $          (7,918,782) $  62,714,365 $    1,549,418,188    4.20%
45   2062  $                $          (8,128,821) $  65,013,587 $    1,606,302,954    4.20%
46   2063  $                $          (8,344,524) $  67,400,472 $    1,665,358,902    4.20%

Schedule AHG - 1 18-WSEE-328-RTS.
SAFESTOR KCC Staffs Alternative Recommendation in 18-WCNE-107-GIE
                $     8,693,911 Annual Payment Annual              Annual                 Annual                         Annual Time Year           Inflow              Outflow               Earnings . Balance          Return 47     2064  $               . $           (8,588,097) $     69,878,460 $  1,726,649,265     4.20%
48     2065  $                  $          (8,793,550) $    72,450,203 $   1,790,305,918     4.20%
49     2066  $                  $          (9,027,198) $    75,121,236 $   1,856,399,956
* 4.20%
50     2067  $                  $          (9,267,161) $     77,894,542 $  1,925,027,337   . 4.20%
51     2068  $                  $          (9,538,074) $     80,774,147 $  1,996,263,410     4.20%
52     2069  $                  $          (9,766,735) $     83,763,213 $  2,070,259,888     4.20%
53     2070  $                  $         (10,026,710) $     86,868,105 $  2,147,101,282     4.20%
54     2071  $                  $         (10,293,728) $     90,092,370 $  2,226,899,924     4.20%
55     2072  $ .                $         (10,595,124). $    93,440,721 $  2,309,745,521     4.20%
56     2073  $                  $         (10,849,682) $     96,916,922 $  2,395,812,761     4.20%
57     2074  $                  $         (11,139,026) $   I 00,528,303 $  2,485,202,038     4.20%
58     2075  $                .$          (11,436,229) $   104,279,078 $   2,578,044,887     4.20%
59     2076  $                  $         (11,771,622) $   108,174,763 $   2,674,448,029 . 4.20%
60 . 2077    $                  $         (12,055,094) $   112,219,839 $   2,774,612,775     4.20%
61     2078  $                  $         (12,377,214) $,  116,422,752 $   2,878,658,313     4.20%
62     2079  $                  $         (12,708,107) $   120,788,503 $   2,986,738,709     4.20%
63     2080  $            -  "$           (13,081,436) * $ 125,323,556 $   3,098,980,829     4.20%
64     2081  $                  $         (13,397,204) $   130,033,236 $   3,215,616,861     4.20%
65     2082  $                  $         (13,755,921) $   134,927,283 $   3,336,788,223     4.20%
66     2083  $                  $         (14,124,437) $   140,011,634 $   3,462,675,421     4.20%
67     2084  $ .               *$         (14,540,115) $   145,293,861 $   3,593,429,166     4.20%
68     2085  $                  $         (14,891,978) $   127,299,384 $   3, 705;836,572    3.54%
69     2086  $                  $       . (15,291,579) $   131,281,484 $   3,821,826,478     3.54%
  *70     2087  $                  $         (15,702,131) $   135,390,496 $   3,941,514,843     3.54%
71     2088  $                  $         (16,165,110) $   139,630,528 $   4,064,980,262     3.54%
72     2089  $                  $         (16,557,336) $   144,004,365 $   4,192,427,290     3.54%
73     2090  $                  $         (17,002,637) $
* 148,519,252 $   4,323,943,905     3.54%
74     2091  $                  $         (17,460,184) $   153,178,307 $   4,459,662,029     3.54%
75     2092  $                  $         (17,976,023) $   135,987,582 $   4,577,673,588     3.05%
76     2093  $                  $         (18,413,418) $   139,586,085 $   4,698,846,255     3.05%
77     2094  $                  $         (18,909,833) $   143,280,979 $   4,823,217,401     3.05%
78     2095  $                  $         (19,419,952) $   147,073,404 $   4,950,870,853     3.05%
* 79     2096  $                  $         (19,994,901) $
* 150,965,915 $   5,081,841,867     3.05%
80 *
* 2097  $                  $         (20,482,876) $   154,959,588 $   5,216,318,578     3.05%
81     2098  $                  $         (42,997,311) $     89,616,353 $  5,262,937,620     1.72%
82     2099  $                  $        (202,494,640) $     90,417,268 $  5,150,860,248     1.72%
83     2100  $                  $     (1,251,269,068) $      88,491,779 $  3,988,082,959     1.72%
84     2101  $                  $     (1,843,454,798). $     68,515,265 $  2,213,143,426     1.72%
85     2102  $                  $        (781,487,440) $     38,021,804 $  1,469,677,790     1.72%
86     2103  $                  $        (818,350,434) $     25,249,064 $     676,576,420    1.72%
87     2104  $                  $        (459,929,593) $     11,623,583 $     228,270,410    1.72%
88     2105. $                  $        (141,421,602) $      3,921,686 $      90,770,493    1.72%
89     2106  $                  $         (92,329,930) $      1,559,437 $              (0)   1.72%

Schedule AHG - 2 18-WSEE-328-RTS Estimates of Returns on Nuclear Decommissioning Trusts Across Investment Periods JPMAM Long-Term Capital Market Assumptions                                                                       Pre-Tax 2017                       2018                                        Asset     Proj. Weighted     After Arithmatic    Geometric   Arithmatic     Geometric           Time Period 1       Weight   Return     Return      Tax Equities-Large Cap                   7.63%         6.25%        6.41%        5.50%    Equities-Large Cap             27.00%     6.41%      1.73%       1.38%
Equities-Small Cap                   8.67%         7.00%        7.35%        5.75%    Equities-Small Cap               6.00%    7.35%      0.44%       0.35%
Equities-International (EAFE)        7.95%         6.75%        7.61%        6.25%    Equities-International (EAFE)  20.00%     7.61%      1.52%       1.22%
Core Bonds                           3.44%         3.25%        3.67%        3.50%    Core Bonds                     25.00%     3.67%      0.92%      0.73%
High Yield Bonds                     6.13%         5.75%         5.59%       5.25%    High Yield Bonds                17.00%    5.59%      0.95%       0.76%
Real Estate                          7.32%         6.00%         7.42%       6.25%    Real Estate                      5.00%    7.42%      0.37%       0.30%
Cash & Equivalents                   2.00%         2.00%        2.00%        2.00%    Cash & Equivalents               0.00%    2.00%      0.00%       0.00%
Management Fees          0.55%                                                  Time Period 2 Tax Rate       20.00%                                        Equities-Large Cap             20.00%     6.41%      1.28%       1.03%
Equities-Small Cap               5.00%    7.35%      0.37%       0.29%
DECON Methodology 2018-2053                                   Equities-International (EAFE)   12.00%    7.61%      0.91%       0.73%
Pre-Tax      Post-Tax               Core Bonds                     44.00%     3.67%      1.61%       1.29%
Time Period I           2017-2025        5.93%         4.20%                High Yield Bonds                 8.00%    5.59%      0.45%       0.36%
Time Period 2           2026-2035        5.12%         3.54%                Real Estate                      5.00%    7.42%      0.37%       0.30%
Time Period 3           2036-2044        4.50%         3.05%                Cash & Equivalents               6.00%    2.00%      0.12%       0.10%
Time Period 4           2045-2053        2.84%         1.72%
Time Period 3
* DECON-Alt (Appendix E) Methodology 2018-2075                            Equities-Large Cap              10.00%    6.41%      0.64%       0.51%
Pre-Tax      Post-Tax               Equities-Small Cap               5.00%    7.35%      0.37%       0.29%
Time Period 1           2017-2047        5.93%         4.20%                Equities-International (E~E)     5.00%    7.61%      0.38%       0.30%
Time Period 2           2048-2058        5.12%         3.54%                Core Bonds                     57.00%     3.67%      2.09%       1.67%
Time Period 3           2059-2069        4.50%         3.05%                High Yield Bonds                 8.00%    5.59%      0.45%       0.36%
Time Period 4           2070-2075        2.84%         1.72%                Real Estate                      5.00%    7.42%      0.37%       0.30%
Cash & Equivalents              10.00%    2.00%      0.20%-      0.16%
SAFESTOR Methodology 2018-_2106 Pre-Tax      Post-Tax                         Time Period 4 Time Period 1           2017-2075        5.93%         4.20%                Equities-Large Cap               0.00%    6.41%      0.00%       0.00%
Time Period 2           2076-2086        5.12%         3.54%                Equities-Small Cap               0.00%     7.35%     0.00%       0.00%
Time Period 3           2087-2097        4.50%         3.05%                Equities-International (EAFE)    0.00%     7.61%     0.00%       0.00%
Time Period 4           2098-2106        2.84%         1.72%                Core Bonds                      50.00%     3.67%      1.84%      1.47%
High Yield Bonds                 0.00%    5.59%      0.00%       0.00%
Sources: J.P.Morgan Asset Management 2018 & 2017 Long-term Asset Returns              Real Estate                      0.00%     7.42%     0.00%       0.00%
Management fees estimated by Applicant; Susan M. McGrath Direct Testimony             Cash & Equivalents              50.00%    2.00%       1.00%      0.80%
18-WSEE-328-RTS; Filed February I, 2018.

18-WSEE-328-RTS AMEREN NYSE-AEE .                                                                           RECENT PRICE        53 ,94 IP/ERATIO             171erailing:19.4)
                                                                                                                                                , Median: 15.0 RELATIVE PIE RATIO O93 DIV'D I          YLD 3.5%-
TIMELINESS            2 Raised 3/2/18               High:         55.0       54.3      35.3      29.9          34.1      35.3            37.3       48.1         46.8          54.1     64.9          59.0                         Target Price Range Low:          47.1       25.5       19.5      23.1         25.5      28.4            30.6       35.2         37.3          41.5     51.4          51.9                         2021 2022 2023 SAFETY                2 Raised 6/20/14              LEGENDS TECHNICAL             3 Lowered 2/23/18          -         ~::d~vi1;t~1:sf ~~te
                                                    , . , . Relative ~rice Strength 80 BETA .65 (1.00 = Market)                                                                                              .,,.._
                                                                                                                                                                            *--... *-- .         '   ,.                                                     60 1,111 O~~~~!/i,~a indicates recession                                                  ,...__                                                                                                                  50 2021-23 PROJECTIONS Ann'I Total   ....:_.:: ~..*}..... n "- I                          -   J__./ 11
                                                                                                                     /
11111* 1 .. 1*'!11111'*
                                                                                                                                                          ,. f'T';.
                                                                                                                                                                    .  *-111 1
40 Price        Gain         Return                             I        I                   11* 1 1,**111*1                                                                                                                                      30
* I      I High         60 (+10%l                  6%                                                                                                                                                                                                                25 Low          45        (-15%            Nil                             I           'Ith,
                                                                                             ...... ..**** .... .........                                                                     ...                                                           20 Insider Decisions                                                       I               l                  ....                                                                                                                                           15 MJJASO N D J to Buy 000000 o o o Options 010000 0 021 I               l                                                                    ******                                                                                       10 tos,u        0 1 0 0 0 0 1 0 0                                          I               I                                                                                                                                                              1-7.5
                                                                                                                                                                                                                             % TOT. RETURN 2/18 I                                                                                                                                                                              ..
Institutional Decisions                                                                                                                                                                                                           THIS I      11       I 11,                                                       ..                                                                            VLARITH.'
                                                                          *m*m I~
2Q2017       3Q2017      4Q2017 Percent                                                                                                                                                                           STOCK       INDEX 15                                                                                                                                                    1 yr. 2.4        10.1 I-to Buy                                   212 shares
                                                                                                                                                                                       ~~r 247          229                                 10 tos,u            209          215        192 traded                5                                                                                                                     Ill"'                          3yr. 42.4        24.2     ~
Hld's!OOO 185587 186752 171005                                                                                                                                                           11111111,I                     5yr. 94.9        76.2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019                                                                                                                                 &#xa9; VALUE LINE PUB. LLC 1-23 24.93       28.20        26.43       33.12 33.30 36.23 36.92 29.87 31.77 31.04 28.14 24.06 24.95 25.13                                                                     25.04 25.46 25.20 25.85                   Revenues per sh                  28.00 5.28        6.29         5.51        6.10        6.02         6.76      6.44       6.06      6.33          5.87      5.87           5.25        5.77         6.08          6.59      6.80         7.35       7.85  "Cash Flow" per sh                 9.25 2.66        3.14         2.82        3.13        2.66         2.98      2.88       2.78      2.77          2.47      2.41           2.10        2.40         2.38          2.68      2.77         3.05       3.25  Earnings per sh A                  3.75 2.54        2.54         2.54        2.54        2.54         2.54      2.54       1.54      1.54          1.56      1.60            1.60       1.61         1.66          1.72      1.78         1.85        1.93 Div' d Deel' d per sh a
* 2.25 5.11        4.19         4.13        4.63        4.99         6.96      9.75       7.51      4.66          4.50      5.49            5.87       7.66         8.12          8.78      9.05         9.80 10.45       Cap'I Spending per sh              8.50 24.93       26.73        29.71 31.09 31.86 32.41 32.80 33.08 32.15 32.64 27.27 26.97 27.67 28.63                                                                            29.27 29.61 31.00 32.45                  Book Value per sh c              37.25 154.10       162.90       195.20 204.70 206.60 208.30 212.30 237.40 240.40 242.60 242.63 242.63 242.63 242.63                                                               242.63 242.63 244.00 245.50                Common Shs Outst'g o 250.00 15.8         13.5         16.3       16.7         19.4        17.4      14.2         9.3       9.7         11.9      13.4            16.5       16.7         17.5          18.3      20.6 Bold fig res are         Avg Ann'I P/E Ratio                14.5
         .86         .77          .86        .89         1.05         .92       .85         .62       .62          .75       .85             .93         .88          .88          .96      1.02         Value Line       Relative P/E Ratio                   .80 6.1%         6.0%                     4.9%        4.9%        4.9%                                                                                                                                   estln ates 5.5%                                           6.2%       6.0%      5.8%         5.3%      5.0%            4.6%       4.0%         4.0%           3.5%      3.1%                           Avg Ann'I Div'd Yield            4.2%
CAPITAL STRUCTURE as of 12/31/17                                          7839.0 7090.0 7638.0 7531.0 6828.0 5838.0 6053.0 6098.0                                           6076.0 6177.0             6150 6350 Revenues ($mill)                          7000 Total Debt $8419 mill. Due in 5 Yrs $2862 mill.                             615.0 624.0 669.0 602.0 589.0 518.0 593.0 585.0                                                   659.0 683.0               755        805 Net Profit ($mill)                   950 LT Debt $7094 mill.                 LT Interest $348 mill.
(LT interest earned: 4.2x) 33.7% 34.7% 36.8% 37.3% 36.9% 37.5% 38.9% 38.3%                                                   36.7% .38.2%            22.0% 22.0% Income Tax Rate                        22.0%
Leases, Uncapitalized Annual rentals $1 Omill.                              4.6%       5.8%      7.8%         5.6%      6.1%            7.1%        5.7%        5.1%           4.1%     3.5%          4.0% 4.0% AFUDC %to Net Profit                      3.0%
Pension Assets-12/17 $4293 mill.                                           47.8% 49.7% 48.2% 45.3% 49.5% 45.2% 47.2% 49.3%                                                   47.7% 49.2%             49.5% 49.0% Long-Term Debt Ratio                   49.5%
Obllg $4827 mill. 50.8% 49.1% 50.9% 53.7% 49.4% 53.7% 51.7% 49.7%                                                             51.3% 49.8%             49.5% 50.0% Common Equity Ratio                    50.0%
Pfd Stock $142 mill.                Pfd Div'd $6 mill.                     13712 15991 15185 14738 13384 12190 12975 13968                                                    13840 14420            15225 15925 Total Capital ($mill)                  18600 807,595 sh. $3.50 to $5.50 cum. (no par), $100 16567 17610 17853 18127 16096 16205 17424 18799                                                    20113 21466            22800 24225 Net Plant ($mill)                       27100 stated val., redeem. $102.176-$110/sh.; 616,323 sh. 4.00% to 6.625%, $100 par, redeem. $100-                                5.7%       5.3%      6.0%          5.6%     6.0%            5.6%        5.8%        5.3%           6.0%      5.9%         6.0% 6.0% Return on Total Cap'I                     6.5%
  $104/sh.                                                                    8.6%       7.8%      8.5%         7.5%      8.7%            7.7%        8.7%        8.3%           9.1%      9.3%        10.0% 10.0% Return on Shr. Equity                  10.0%
Common Stock 242,634,798 shs. as of 1/31/18                                 8.7%       7.8%      8.6%         7.5%      8.8%            7.8%        8.7%        8.3%           9.2%      9.4%        10.0% 10.0% Return on Com Equitv              E    10.0%
MARKET CAP: $13 billion (Large Cap)                                         1.0%       3.5%      3.8%         2.8%      3.0%            1.9%        2.9%        2.5%           3.3%      3.4%         4.0% 4.0% Retained to Com Eq                        4.0%
ELECTRIC OPERATING STATISTICS                                                88%        56%       56%          63%       66%             76%         67%          70%           64%       64%          61%        60% All Div'ds to Net Prof               60%
2015 2016 2017 BUSINESS: Ameren
  %Cha~e Retail Sa~s (Kl'ili)             -1.1        -4.2         -3.4                                  Corporation     is   a    holding      company      formed           dustrial, ~%; other, 11%. Generating sources: coal, 71%; nuclear, Avg. In ust Use (M,'IHJv.m                NA          NA          NA through the merger of Union Electric and CIPSCO. Acq'd CILCORP                                         19%; hydro & other, 4%; purchased, 6%. Fuel costs: 27% of revs.
Avg. lndust Revsi          (&#xa2;)            NA          NA          NA 1/03; Illinois Power 10/04. Has 1.2 mill. electric and 127,000 gas                                    '17 reported deprec. rates: 3%-4%. Has 8,600 employees. Chair-Capati1y at Peak ~                        NA          NA           NA customers in Missouri; 1.2 mill. electric and 813,000 gas customers                                  man, President & CEO: Warner L Baxter. Inc.: MO. Address: One Peak Load, Summer~ )                      NA          NA           NA Annual load Factor(,~                     NA          NA          NA in Illinois. Discontinued nonregulated power-generation operation in                                  Ameren Plaza, 1901 Chouteau Ave., P.O. Box 66149, St Louis,
  %Change Cu~omers r-end)                   NA          NA          NA '13. Electric rev. breakdown: residential, 46%; commercial, 35%; in-                                  MO 63166-6149. Tel.: 314-621-3222. Internet: www.ameren.com.
F~ed Charge Cov. (%)                     343         351         362       We think Ameren's earnings will ex-                                                              cates profit growth of 7%, which is within ANNUAL RATES Past                           Past Est'd '15-'17 ceed the $3.00-a-share level in 2018.                                                            management's annual goal of 5%~7%.
of change (per sh)          10Yrs.          5Yrs.         to '21-'23       The company will benefit from a full year's                                                     Will 2018 be the year in which a regu-Revenues                       -3.0% -3.5%                   2.0%          effect of the rate increase that took effect                                                    lato:ry law is passed in Missouri? Utili-
  "Cash Flow"                       .5%        1.5%            6.5%          in Missouri at the start of April of 2017. A                                                    ties in the state have been hurt by regu-Earnings                       -1.0%           .5%           7.5%
Dividends                      -4.0%         2.0%            4.5%          return to normal weather patterns would                                                          latory lag because Missouri uses a histori-Book Value                     -1.0% -1.0%                   4.0%          help after unfavorable weather was a drag                                                        cal test year and doesn't use a lot of me-Cal-          QUARTERLY REVENUES !$ mill.)                               on profits last year. The Callaway nuclear                                                       chanisms that allow for concurrent re-Full endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                     facility will not have a refueling outage                                                        covery of certain kinds of capital spending 2015 1556 1401                        1833        1308 6098.0 this year. The refinancing of debt will                                                          or expenses. The state senate has passed a 2016         1434         1427        1859 1356 6076.0                    boost earnings. Our earnings estimate is                                                         bill that would be beneficial for utilities in 2017 1514 1538 1723 1402 6177.0                                           at the midpoint of Ameren's targeted                                                             this regard. If the bill is enacted into law, 2018         1500 1500 1750 1400 6150                                     range of $2.95-$3.15 a share. Note that the                                                     Ameren will boost its capital spending in 2019         1550 1550 1800 1450 6350                                     201 7 tally was depressed by the revalua-                                                       the state, with an estimated $1 billion for Cal-               EARNINGS PER SHARE A                        Full tion of deferred taxes, which stemmed                                                           grid modernization through 2023.
endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                     from the new federal tax law. This forced                                                       Ameren filed a gas rate application in 2015           .45          .40        1.41          .12         2.38 Ameren to take a nonrecurring charge of                                                          Illinois. The utility requested a $49 mil-2016           .43          .61        1.52          .13         2.68     $0.63 a share in the fourth fi.uarter.                                                           lion increase, based on a 10.3% return on a 2017           .42          .79        1.18          .39         2.77     We forecast further pro t growth in                                                              50% common-equity ratio. A ruling is ex-2018            .55          .70       1.40          .40         3.05     2019. One factor that boosts Ameren's                                                            pected in late 2018, with new tariffs tak-2019            .60          .70       1.50          .45         3.25     earning power annually is the utility's in~                                                      ing effect in January of 2019 .
Cal,         QUARTERLY DIVIDENDS PAID a*                       Full vestment in electric transmission. There is                                                      This timely sto~k has a dividend yield endar Mar.31 Jun.30 Seo.30 Dec.31 Year                                     still uncertainty about what the allowed                                                         that is about average, by utility stan-2014         .40          .40         .40         .41            1.61 return on equity will be-the Federal En-                                                         dards. Like many utility equities, the 2015         .41          .41         .41         .425           1.66     ergy Regulatory Commission must still is-                                                        recent quotation is within our 3- to 5-year 2016         .425         .425        .425        .44            1.72     sue a ruling on this-but this will still ex-                                                    Target Price Range. Accordingly, total re-2017         .44          .44         .44         .4575          1.78     ceed the allowed ROEs in Missouri and 11-                                                       turn potential over that time frame is low.
2018         .4575                                                        linois. Our 2019 earnings estimate indi-                                                         Paul E. Debbas, CFA                                   March 16, 2018 (A) Dil. EPS. Exel. nonrec. gain (losses): '05, ing. Next egs. report due early May. (B) Div'ds depr. Rate all'd on com. eq. in MO in '17: elec., Company's Financial Strength                                                                                A (11&#xa2;); '10, ($2.19); '11, (32&#xa2;): '12, ($6.42); '17, histor. paid in late Mar., June, Sept., & Dec.* none spec.; in '11: gas, none spec.; in IL in '14: Stock's Price Stability                                                                               95 (63&#xa2;); gain (loss) from disc. ops.: '13, (92&#xa2;);                       Div'd reinv. plan avail. (C) Incl. intang. In '17:            elec., 8.7%, in '16: gas, 9.6%; earned on avg.                         Price Grow1h Persistence                          40
'15, 21 &#xa2;. '16-'17 EPS don't sum due to round- $6.76/sh. (Dr In mill. (E) Rate base: Orig. cost com. eq., '17: 7.3%. Reg. Climate: Below Avg. Earnings Predic1ability                                                                                        80
&#xa9; 2018 Value Line, Inc. All rights reseived. Factual material is obtained from sources believed to be reliable and is provided wnhout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part To subscribe call 1-800-VALUELINE of nmay be reproduced, resold, stored or t1ansmnted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, seivice or product

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3    Lowered                       High:         51.2           49.1    36.5      37.9        41.7       45.4      51.6      63.2 1                  1
:~t_m-+)~_TJARA_r16_0_.8-r-6'--~t~--,-D_3.~9&deg;_Yo 65.4 71.3 78.1                   73.4 iii1~**-----i Target Price Range TIMELINESS                             1119118             Low:          41.7           25.5 24.0 28.2 33.1                      37.0 41.8 45.8 52.3 56.8 61.8 63.3                                                             2021 2022 2023 SAFETY                  1 Raised 3/17117                   LEGENDS TECHNICAL 3 Lowered 312118                               -        ~i~:d~vi1;t~~!sr ~~te 1 - - - + - - - - + - - - + - - - - + - - + - - - - + - - + - - - - + - - + - - - - + - - + - - - - + - - - + - - - - - + -128
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2Q2017        3Q2017         4Q2017 Percent                15                  1 1 1 1 1I I" ,.,                             I I toBuy to Soll          376 369           388 351 Hld'slOOO 384520 382879 352776 ra e 342 tshares 371            d d           5 **
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                                                                                                                                                                                                                                                         ~
t-:2=oc:o-=-2'r-2=0=0=3..,.--:,20=0:-::4..,.--:,2=00=s=-+-=2=0=0s::-r::2:-:::0=01='""""200a 2009 2010 2011 2012 2013 2014 201s 201s 2011 2=0'"'1=a-+=20~1=9-+-@=,v=A'"'Lu=E'""uN=E=pu=e,.....L.,--:Lc,..,,,::r.1...,-2=3-1 42.96 36.82 35.51 30.76 31.82 33.41 35.56 28.22 30.01 31.27 30.77 31.48 34.78 33.51 33.31 31.35 30.60 31.30 Revenues per sh                                                                                                                          33.00 6.99         5.76         5.89           5.96           6.67        6.80           6.84    6.32      6.29        6.83       6.92      7.02      7.57        7.98       8.47        7.95      8.30        8.60 "Cash Flow" per sh                    9.50 2.86         2.53         2.61           2.64           2.86        2.86           2.99    2.97      2.60        3.13       2.98      3.18      3.34        3.59       4.23        3.62      3.90        4.10 Earnings per sh A                      5.00 2.40         1.65         1.40           1.42           1.50        1.58           1.64    1.64      1.71        1.85       1.88      1.95      2.03        2.15       2.27        2.39      2.51        2.63 Div'dDecl'dpersh 8
* 105 5.08         3.44         4.28           6.11           8.89        8.88           9.83    6.19      5.07        5.74 .6.45           7.75      8.68        9.37       9.98 11.79 12.50 12.95 Cap'I Spending per sh                                11.25 20.85 19.93 21.32 23.08 23.73 25.17 26.33 27.49 28.33 30.33 31.37 32.98 34.37 36.44 35.38 37.17 38.70 40.25 Book Value per sh c                                                                                                                      46.75 338.84 395.02 395.86 393.72 396.67 400.43 406.07 478.05 480.81 483.42 485.67 487.78 489.40 491.05 491.71 492.01 493.50 495.00 Common Shs Outst'g 0 516.00 12.7         10.7          12.4          13.7           12.9        16.3           13.1    10.0      13.4        11.9       13.8      14.5      15.9        15.8       15.2        19.3 Botdfig res are AvgAnn'I PIE Ratio                           14.5
           .69         .61           .66            .73           .70         .87           .79      .67       .85        .75         .88       .81       .84         .80       .80         .96       Vatue Une       Relative P/E Ratio                      .80 6.6% 6.1 % 4.3%                          3.9% 4.1 % 3.4% 4.2% 5.5% 4.9% 5.0% 4.6% 4.2% 3.8% 3.8%                                                                       3.5% 3.4%                estin ates     Avg Ann'I Div'd Yield                4.2%
CAPITAL STRUCTURE as of 12/31/17                                                      14440 13489 14427 15116 14945 15357 17020 16453 16380 15425 15100 15500 Revenues ($mill)                                                                         17000 Total Debt $22812 mill. Due in 5 Yrs $9694 mill.                                     1208.0 1365.0 1248.0 1513.0 1443.0 1549.0 1634.0 1763.4 2073.6 1783.2                                        1870 1960 Net Profit ($mill)                           2490 LT Debt $19420 mill. LT Interest $874 mill.                                          31.3% 29.7% 34.8% 31.7% 33.9% 36.2% 37.8% 35.1% 26.8% 33.7% 23.0% 23.0% Income Tax Rate                                                                           23.0%
Incl. $1410.5 mill. securitized bonds. Incl. $294                                                                                                                          8.0% 8.0% 11.0% 10.0% AFUDC %to Net Profit . 6.0%
mill. capitalized leases.                                                              9.9% 10.9% 10.4% 10.6% 11.2% 7.3% 9.0% 11.0%
(LT interest earned: 3.8x)                                                           59.1% 54.4% 53.1% 50.7% 50.6% 51.1% 49.0% 49.8% 50.0% 51.5% 52.5% 54.5% Long-Term Debt Ratio                                                                      50.5%
Leases, Uncapitalized Annual rentals $245.9 mill.                                    40.7% 45.4% 46.7% 49.3% 49.4% 48.9% 51.0% 50.2% 50.0% 48.5% 47.5% 45.5% Common Equity Ratio                                                                       49.5%
Pension Assets-12/17 $5174.1 mill.                                                    26290 28958 29184 29747 30823 32913 33001 35633 34775 37707 40325 43775 Total Capital ($mill)                                                                    48800 Oblig $5215.8 mill.                32987 34344 35674 36971 38763 40997 44117 46133 45639 50262 54250 58450 Net Plant ($mill)                                                                         68700 Pfd Stock None                                                                                                                                                                                                                                           6.5%
6.2% 6.2% 5.7% 6.6% 6.1% 6.0% 6.3% 6.1%                                             7.2% 5.9% 6.0% 6.0% Return on Total Cap'I Common Stock 492,005,598 shs.                                                         11.2% 10.3% 9.1% 10.3% 9.5% 9.6% 9.7%                                     9.9% 11.9% 9.8% 10.0% 10.0% Return on Shr. Equity                                      10.5%
11.3% 10.4% 9.1% 10.3% 9.5% 9.6% 9.7% 9.9% 11.9% 9.8% 10.0% 10.0% Return on Com Equity E 10.5%
MARKET CAP: $32 billion (Large Cap)                                                    5.1% 4.6% 3.1% 4.2% 3.5% 3.7% 3.8% 3.9%                                             5.5% 3.2% 3.5% 3.5% Retained to Com Eq                                        4.0%
ELECTRIC OPERATING STATISTICS                                                           55%     56%       66%         60%        63%       62%       61%         60%        54%         67%        66%        66% All Div'ds to Net Prof                  63%
            .                                 2015 2016                  2~1~        r---B-U-SI-N~ES_S_:-Am~e-r-ica-n~E-le-ci-ric~P-o-w-er~C-om_p_a-ny~,-l-n-c.~(A_E_P-),~P-ip_e_lin-e~'0-5;-co~m-m-e-rc-ia~l-b-a-rg-e~op-e-ra-tio-n-in-'1-5-.-G-e~n-er-at-in-g-r
   %Change Retail Sales (K'Ml)                  -1.2            +.3 Avg. Indus!. Use (MWH)                        NA             NA          NA        . through 10 operating utilities, serves 5.4 mill. customers in Arkan- sources not available. Fuel costs: 34% of revenues. '17 reported Avg. Indus!. Revs._P.er i(WH (&#xa2;)               NA            NA          NA          sas, Kentucky, Indiana, Louisiana, Michigan, Ohio, Oklahoma, Ten- depreciation rates (utility): 1.6%-9.2%. Has 17,700 employees.
Capacity at Peak (MW)                          NA            NA          ~~          nessee, Texas, Virginia, & West Virginia. Electric revenue break- Chairman, President & CEO: Nicholas K. Akins. Incorporated: New Peakload(MII)                                 NA            NA          NA          down: residential, 40%; commercial, 23%; industrial, 19%; whole- York. Address: 1 Riverside Plaza, Columbus, Ohio 4321.5-2373.
Annual load Factor(%)                          NA            NA
   %Change Cuslomers (yr-end)                    +.3            NA          NA          sale, 15%; other, 3%. Sold SEEBOARD (British utility) '02; Houston Telephone: 614-716-1000. Internet: www.aep.com.
r-------------------------------------------1 F~edChargeCov.(%)                            356           374         354          Am.erican Electric Power's earnings                                                 billion and would be corppleted by the will likely advance solidly in 2018 and                                            fourth quarter of 2020. This needs the ap-ANNUAL RATES Past                                 Past Est'd '15-'17                                                                                                     proval of the state commissions in Oklaho-of change (per sh) 10 Yrs.                       5 Yrs.         to '21-'23           2019. The company's utilities are bene-Revenues                                           1.5%               Nil           fiting from rate relief. Public Service of                                          ma, Arkansas, ,Texas, and Louisiana. (Op-
    "Cash Flow''                     2.5%              4.0%            2.5%              Oklahoma received an $84 million rate in-                                          position to the project has emerged in Ok-Earnings                          3.0%             5.5%            4.5%
crease (before passing through to custom-                                          lahoma.) Rulings on the proposals are ex-Dividends                         4.0%             4.5%            5.0%
Book Value                        4.0%             4.0%            4.5%              ers the reduction in federal taxes), based                                         pected by the end of April.
Cal-          QUARTERLYREVENUES1$mill.)                               Full         on a 9.3% return on equity. Also this quar-                                       AEP no longer has exposure to the endar Mar.31 Jun.30. Sep.30 Dec.31 Year                                              ter, SWEPCo was granted a hike of $50                                             vagaries of the power markets. The 2015                                                                                million, based on a 9.6% ROE. Indiana &                                            company has sold or written off its non-4580 3827 4431 3615 16453                                                                                                                                                                                                             (This 2016         4045 3893 4652 3790 16380                                              Michigan has rate cases pending in each                                            regulated generating facilities.
2017         3933 3577 4105 3810 15425                                             state. In Indiana, the utility reached a                                            caused a large nonrecurring charge in 2018         3850 3450 4100 3700 15100                                              settlement (subject to approval by the                                             2016.) It is still seeking a buyer for its 2019         4000 3650 4200 3650 15500                                              state commission) for an increase of $97                                           remaining generating assets.
Cal-               EARNINGSPERSHAREA                                  Full         million, based on a 9.95% ROE. New tar-                                            Finances are solid. The fixed-charge cov, endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                              iffs would take effect in mid-2018. In                                              erage, common-equity ratio, and earned
                      =
r-2=-=o,.,.15=-+-1~_27-----=.8-=-    8-~       1_0-=-4--.4-,-     1 -+---=3 5-:--t
                                                                             --=.
9      Mh.1k*chigban, dl&M re q u ~~teRdOEa $A52 mdillio?                                 RhOEt a(re heatlthyt. dA)EP's exith from merd-2016          1.02          1.03           1.43            .76         4.23           1 e, ase on a 10 .6 ,o                              . n or er 1s                 c an uncon rac e                            power as 1owere 2017            .94           .76          1.11            .81         3.62         expected in April. Heavy investment in                                             its business risk, too. The company's Fi-2018          1.10             .80         1.25            .75         3.90         electric transmission (some $3 billion an-                                         nancial Strength rating is A+.
2019          1.15             .85         1.30            .80         4.10         nually) is also expanding the company's                                            The stock has a dividend yield that is r--C-al---r--Q-UA-R-TE-R-LY_D_IV_ID-EN_D_S_PA-ID-B-.--11--F-ul-l                        earning power. Our 2018 and 2019 share-                                            somewhat above the utility average.
endar Mar.31 Jun.30 Seo.30 Dec.31 Year                                               earnings estimates are within AEP's tar-                                           This might well appeal to conservative in-t--20-1-4-+"="-'--==-==-=-..c=='- 1--~                                                 geted ranges of $3.75-$3.95 and $4.00-                                              vestors, given the stock's Safety rank of 1 2*03
                  .5o           .5o .5o *53
     ~m 2017
:~~
                  .59
:~~
                                .59
:~i
                                               .59
:~~
                                                              .62
                                                                            ~:i~
2.39
                                                                                         $4.20, respectively.
The company wants to build a large wind project to serve four states. The (Highest). Total return potential to 2021-2023 does not stand out among electric companies, however.
2018         .62                                                                    2,000-megawatt facility would cost $4.5                                            Paul E. Debbas, CFA                                   March 16, 2018 (A) Dil. EPS. Exel. nonrec. gains (losses): '03, (32&#xa2;); '04, 15&#xa2;; '05, 7&#xa2;; '06, 2&#xa2;; '08, 3&#xa2;; '15,
* Div'd reinv. plan avail. (C) Incl. intang. In '17:                                                 Company's Financial Strength                         A+
($1.92); '04, 24&#xa2;; '05, (62&#xa2;); '06, (20&#xa2;); '07, 58&#xa2;; '16, (1&#xa2;). '15-'16 EPS don't sum due to $12.59/sh. (D) In mill. (E) Rate base: various.                                                           Stock's Price Stability                              95 (20&#xa2;); '08, 40&#xa2;; '10, (7&#xa2;); '11, 89&#xa2;; '12, (38&#xa2;); rounding. Next egs. report due late April. Rates all'd on com. eq.: 9.65%-10.9%; earn. on                                                            Price Growth Persistence                             50
 '13, (14&#xa2;); '16, ($2.99); '17, 26&#xa2;; disc. ops.: '03, (B) Div'ds paid early Mar., June, Sept., & Dec. avg. com. eq., '17: 10.0%. Regul. Climate: Avg.                                                   Earnings Predictability                              85
 &#xa9; 2018 Value Line. Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wtthout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part                                        *11-.,111*~*"1 '       , ll*l!tHl!ll'lll!Hl!al ol rr may be reproduced, resold, stored or transmitted in any printed, electronic or olher form, or used for generaling or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS t--AJl~T--=E---.----.-----,--~J-,-REC-ENT_!7_1JlP/E__,J!!(_Tra~ilin-g:21_.s)+-
TIMELINESS              3 NYSE-ALE Lowered 1126118               High:              51.3           49.0            35.3 PRICE 37.9            42.5
                                                                                                                                                     ,               RATIO , RE_LAT~IVE_1_1!_D1V' 42.7        54.1 Median:
58.0 16.0 59.7 P/E RATIO ,
66.9      81.2 YLD 74.4
_D1~4~010-..mll~_,  /(--
Target Price Range i--=L=o.:.:.w,_:"--"'38"".2,,_,._.....:::28"".3:..J..._.;23.3          30.0           35.1              37.7         41.4        44.2             45.3         48.3      61.6          66.6                                  2021 2022 2023 SAFETY                  2 New 10/1/04                     _L_EG~-~f:rnvidends Psh                              l - - + - - - - l - - - + - - - - l - - - + - - - - l f - - - - - - - - l - - - - f - - - l - - - f - 120 TECHNICAL 2 Raised 312/18                   . . . . ~~i~~eb~r/g!e~~!n~~e I-B_E_TA2iil.7R"S-=n(1P.ooR=riMJ1a:/ike:'it),rn~-J_o.2~~~~'!1!~;~/':!i,"!'~al_!in'!!!d~ica~tes~re~ce~ss{&#xa3;ion~
                                                                                                                   ~=~====~====~~~~=~====~====~~===jt:::j==~:~====j====jt====t::::t:::~t
                                                                                                                                                          .,. /"'--..                                             -         .._ ~ ,,,,,.,_ , _
                                                                                                                                                                                                                                                                                       - - - * - - - * - * . 64
                                                                                                                                                                                                                                                                                                                   ~~O I         2021-23 PROJECTIONS                             l,TITn+r;;,,1-+1'!,J...,'l-a-t+-+'-f---l::;;;,'/"---t---t,-..W."1,Uop.!!J''"LU,,l                                                 ""fl!'lf-l'.!,1,.'ltH!
                                                                                                                                                                                                              *IU.,1f!''.....1,il_"_"+--1-*--_--::..:-:..:i=-=--+--+---+-- 48 Ann'I Total ,, .... "'                    *1p1,; 111, 111.                l                 - -            , 1 .. 1" "
Price        Gain            Return r,,,..    ...:_*.:.*....\,,...--:!1&#xa3;,.1;..,,,;:-:;i,~*'---hll!J*Whi!.!IIJJ.,l::..'' ~**1-*'_' _'...:"I...:'1-''_- " t - - + - - + - - l - - + - - l - - + - - + - - - + - - - I - 32 High           75 (+10%) _6 :%%,,                                           "'**--<*    ., ..  *,       ''-,"".i,',
Low            55 Insider Decisions
(-20%)              1
                                                                                                                   ]
                                                                                                                                                     .........                                                         0 24 20 M J J A S O N D J 1----t---;t---+-+-t---+--t---+--''....:''F"'-''':....,,'"-'P'._,,-.,.-"'"'"!--*'_"'-"1-"-'_'_F---+--t---l---+---+- 16                                            0             0 to Buy         000000000                                                              I Options o 8 0 0 1 O O O 8 l---+---1,lt---+-+j-t---+--+---+--l----1---l----1---1----1---1-- --l---+---+- 12 I
toSell          1 OOOO OO O O
                                                                                                                                                                                                                                                                            % TOT. RETURN 2/18 ~B Institutional Decisions 2Q2017       3Q2017        4Q2017 Percent I
15 ,
I~                        1
                                                                                                                  ,\
THIS STOCK VLARJTH."
INDEX I-to Buy             140          118            117 shares                      10                        -,,-1r     ,.,i....-,-_,--1-,-1:ltttlhmt.
1111
                                                                                                                                                                              '" ,, 111111 ~                                                                              1 yr.         4.5         10.1 m:.::\001       43j~~.      44J&#xa5;1 387~~ traded 5
lllllll111111lllllil 1111i11IIIIl111Il11i1111111111IIIII 111IIIIIllIIIIIIilllIIIIIIIII II                                                                 ~~::         ~~:~         ~g f-'2=',02'0'='2',--2~0""0'=3-r-=-20,;::;o;..;4~2:;:.oo,;:;5;+,,2..,,.00""'6,...,...,,2"'"0=07~200a 2009                      2010 2011 2012                                2013 2014 2015 2016 2~01\!!:7~2c:'07:18=+::2=0..,..19=+-.....,;&#xa9;'""V""'~L"'"'UE:-,L-:,:IN=Ep=u=-s.""'LL"'"c,-,/-,-1.=23=-'
            ..            .. 25.30               24.50 25.23 27.33 24.57 21.57                                                  25.34 24.75 24.40                             24.60 24.77 30.27 27.01 27.78 28.45 28.85 Revenues per sh                                                                           30.75
            ..            ..        2.97           3.85            4.14            4.42            4.23            3.57           4.35            4.91              5.01        5.35        5.68              6.79         7.08      6.59          7.00        7.35 "Cash Flow" per sh                             8.50
            ..            .. 1.35 2.48 2.77 3.08 2.82 1.89                                                                        2.19            2.65              2.58        2.63        2.90              3.38         3.14      3.13          3.40
* 3.60 Earnings per sh A                                    4.25
            ..            ..          .30           1.25           1.45            1.64            1.72            1.76           1.76            1.78              1.84        1.90        1.96              2.02         2.08      2.14          2.24         2.34 Div'd Decl'd per sh 9
* t                      2.70
            ..            ..         2.12           1.95           3.37            6.82            9.24            9.05           6.95            6.38 10.30                    7.93 12.48                    5.84         5.35      4.08          6.25         6.80 Cap'I Spending per sh                          6.25
            ..            .. 21.23               20.03 21.90 24.11 25.37 26.41                                                  27.26 28.78 30.48                             32.44 35.06 37.07 38.17 40.47 42.10 43.80 Book Value per sh c                                                                       49.25
            ..            .. 29.70               30.10 .. 30.40 30.80 32.60 35.20                                               35.80 37.50 39.40                             41.40 45.90 49.10 49.60 51.10 52.00 53.00 Common Shs Outst'g o                                                                      56.00
            ..            ..         25.2           17.9           16.5            14.8            13.9            16.1           16.0            14.7              15.9         18.6       17.2              15.1         18.6      23.0 Bold figl*res are Avg Ann'I P/E Ratio                                     15.0
            --            ..         1.33            .95             .89             .79             .84           1.07           1.02              .92             1.01        1.05           .91               .76         .98     1.14          Value Line            Relative PIE Ratio                           .85
            **            *-         .9% 2.8% 3.2% 3.6% 4.4% 5.8%                                                                5.0% 4.6% 4.5%                                3.9% 3.9% 4.0%                             3.6% 3.0%                 estln ates          Avg Ann'I Div'd Yield                     4.2%
CAPITAL SlRUCTURE as of 12/31/17                                                            801.0 759.1                     907.0 928.2 961.2                            1018.4 1136.8 1486.4 1339.7 1419.3 1480 1530 Revenues ($mill)                                                                         1725 Total Debt $1503.3 mill. Due in 5 Yrs $450.5 mill.                                             82.5            61.0           75.3            93.8              97.1       104.7 124.8 163.4 155.3 159.2                                        175          190 Net Profit ($mill)                              235 LT Debt $1439.2 mill. LTlnterest $61.9 mill.
(LT interest earned: 3.Bx) 34.3% 33.7%                      37.2% 27.6% 28.1%                             21.5% 22.6% 19.4% 11.3% 14.8%                                        NMF            Nil Income Tax Rate                                  Nil 5.8% 12.8%                      8.9% 2.7% 5.3%                                4.4% 6.3% 2.0%                             1.4%        .8% 2.0% 2.0% AFUDC %to Net Profit                                          1.0%
Leases, Uncapitalized Annual rentals $14.2 mill.                                           41.6% 42.8%                      44.2% 44.3% 43.7%                             44.6% 44.2% 46.3% 42.0% 41.0% 40.5% 38.5% Long-Tenn Debt Ratio                                                                      38.0%
58.4% 57.2%                      55.8% 55.7% 56.3%                             55.4% 55.8% 53.7% 58.0% 59.0% 59.5% 61.5% Common Equitv Ratio                                                                       62.0%
Pension Assets-12/17 $628.2 mill.                                                         1415.4 1625.3                     1747.6 1937.2 2134.6                         2425.9 2882.2 3388.9 3263.4 3507.4 3685 3785 Total Capital ($mill)                                                                    4450 Oblig $793.2 mill. 1387.3 1622.7                                       1805.6 1982.7 2347.6 Pfd Stock None                                                                                                                                                           2576.5 3286.4 3669.1 3741.2 3822.4 3960 4120 Net Plant ($mill)                                                                        4275 6.7% 4.8%                       5.4% 6.0% 5.6%                                5.3% 5.2% 5.8%                             5.8% 5.5% 5.5% 6. 0% Return on Total Cap'I                                              6.0%
Common Stock 51,143,656 shs.                                                              10.0% 6.6%                         7.7% 8.7% 8.1%                                7.8% 7.8% 9.0%                             8.2% 7.7% 8.0% 8.0% Return on Shr. Equity                                               8.5%
as of 2/1/18                                                                              10.0% 6.6%                         7.7% 8.7% 8.1%                                7.8% 7.8% 9.0%                             8.2% 7.7% 8.0% 8.0% Return on Com Equity E                                               8.5%
MARKET CAP: $3.4 billion (Mid Cap)                                                           3.9%               .5%          1.5% 2.9% 2.3%                                2.2% 2.5% 3.6%                             2.8% 2.4% 3.0% 3.0% Retained to Com Eq                                                   3.0%
ELECTRIC OPERATING STATISTICS                                                                 61%              93%            81%             66%              71%          72%         67%              60%           66%       68%           66%         65% All Div'ds to Net Prof                          64%
   %Change Relail Sales (KWH)                   2~s~~ 2~21            g fa      2 1.~ f--8-:-:U-SI_N.,_ES_S_:_A_L.,_LE_T_E_,-ln....       c.-is-t-he-'-pa-re-n..,.t-of.1.M-in-n-es_o.1.ta_P_o_w-er.1.,-w-hi-ch-'-p-r-oj-ec-ts.1..-Ac-q-'d_U.1..s___W_a_te.1.r_S-erv_i_ce.,_s_2_/1-5-.H-a-s-re_a_l-es-ta-te-o-'-p-e-ra-tio-n-l Avg.lndu&.Use(MWH)                              NA             NA               NA supplies electricity to 146,000 customers in northeastern MN, & Su- in FL. Generating sources: coal & lignite, 41%; wind, 12%; other, Avg.lndu&.Revs.:l(\Ml(j)                      6.40             NA               NA perior Water, Light & Power in northwestern WI. Electric rev. break- 6%; purchased, 41%. Fuel costs: 28% of revs. '17 deprec. rate:
   ~:ff1~a~'.~;M~l                              1942              NA               NA down: !aconite mining/processing, 26%; paper/wood products, 9%; 3.2%. Has 2,000 employees. Chairman, President & CEO:.Alan R.
Annual load Factor(%
16 Jl_ JR      15               15 Jl         other industrial, 8%; residential, 12%; commercial, 13%; wholesale, Hodnik. Inc.: MN. Address: 30 West Superior St., Duluth, MN
   %ChangeCustomera
_     ____                  _ _ _ _NA avg.)                    ___          NA_ _NA            _ f-_    16%    _other,
_ _16%.        __     ALLETE
_ _Clean     _ _Energy       _..;;.:__owns _ renewable
____                energy
                                                                                                                                                                                                            ....::.;_ 55802-2093.
_ _ _ _Tel.:       __     218-279-5000.
____              Internet:
_ _www.allete.com.
_ _ _ _ _ _ _-l F~ed Charge Cov. (%)                           381            318              339         ALLETE 1s main utility subsidiary re-                                                                                   is within ALLETE's targeted range of ANNUAL RATES Past                                  Past Est'd '15-'17 ceived a disappointing rate decision.                                                                                   $3.20-$3.50. Note that the company's prof-of change (per sh)             10 Yrs.            5Yrs.             to '21-'23            Minnesota Power had sought a rate in-                                                                                   its in the fourth quarter of 2017 benefited Revenues                            1.0%            2.5%                 1.5%              crease of $55 million (8.6%), based on a                                                                                from the revaluation of deferred taxes due "Cash Flow"                        5.0%             7.5%                 3.5%               10.25% return on a 53.8% common-equity                                                                                 to the new federal tax law. This added Earnings                            1.5%            5.5%                 4.5%
Dividends                           3.5%            3.0%                 4.5%              ratio. The state commission (through a                                                                                  $0.25 a share to the bottom line, which we Book Value                          6.0%            6.0%                 4.0%              verbal order) granted a hike of $13 million                                                                             excluded as a nonrecurring item.
Cal-             QUARTERLY REVENUES ($ mill.)                               Full (2.0%), based on a 9.25% return on the                                                                                  We forecast solid profit growth next endar            Mar.31 Jun. 30 Sep. 30 Dec. 31 Year                                       same common-equity ratio. Minnesota                                                                                     year. The factors that are likely *to help 2015           320.0 323.3 462.5 380.6 1486.4                                            Power expected to r:eceive a written order                                                                              earnings in 2018 should
* be present in 2016           333.8 314.8 349.6 341.5 1339.7                                            shortly after our report went to press, and                                                                             2019, as well. We look for a 6% increase in 2017           365.6 353.3 362.5 337.9 1419.3                                            plans to decide what steps it will take once                                                                            share net, which is within ALLETE's an-2018           370         360            390            360             1480            management reviews the order.                                                                                           nual growth goal of 5%-7%.
2019           380         375            400            375             1530            We think earnings will advance solid-                                                                                   The board of directors raised the divi-Cal-                EARNINGS PER SHARE A                                    Full        ly in 2018. Minnesota Power should                                                                                      dend in the first quarter. The annual endar            Mar.31 Jun. 30 Sep. 30 Dec. 31                               Year         benefit from healthy industrial demand for                                                                              increase was $0.10 a share (4.7%), a 2015              .85          .46          1.23             .83            *3.38        power. The utility is also earning a return                                                                             greater hike than in recent years. The ae-2016              .93          .50            .81            .89             3.14        on the construction work in progress for a                                                                              celerated growth rate is in line with the 2017              .97          .72            .88            .56             3.13        transmission line that is scheduled for                                                                                 company's expectation of faster profit 2018             1.00          .60            .95            .85             3.40        completion in 2020. ALLETE's wind-                                                                                      growth. ALLETE is targeting a payout 2019             1.05          .65          1.00             .90             3.60        energy subsidiary should benefit from in-                                                                               ratio of 60%-65%.
Cal-           QUARTERLY DIVIDENDS PAID 9
* t                               Full        creased production and the construction                                                                                 This stock's dividend yield is close to endar           Mar.31 Jun.30 Seo.30 Dec.31                                   Year         and sale of a SO-megawatt project to a util-                                                                            the average for electric utility equi-2014            .49          .49           .49            .49                1.96        ity in North Dakota. U.S. Water Services                                                                                ties. With the recent quotation above the 2015            .505         .505          .505           .505               2.02        is seeing rising demand for its water-                                                                                  midpoint of our 3- to 5-year Target Price 2016            .52          .52           .52            .52                2.08        treatment services and a full year of reve-                                                                             Range, total return potential is unappeal-2017            .535         .535          .535           .535               2.14        nues from an acquisition it made last Sep-                                                                              ing.
2018            .56                                                                      tember. Our 2018 share-earnings estimate                                                                                Paul E. Debbas, CFA                                              March 16, 2018 (A) Diluted EPS. Exel. nonrec. gain (losses):                                       to rounding. Next earnings report due early                                           deferred charges. In '17: $11.95/sh. (D) In mill.                          Company's Financial Strength                                    A
'04, (25&#xa2;); '05, ($1.84); '15, (46&#xa2;); '17, 25&#xa2;;                                     May. (B) Div'ds historically paid in early Mar., (E) Rate base: Orig. cost depr. Rate allowed in                                                                 Stock's Price Stability                                       95 gain (losses) on disc. ops.: '04, $2.57, '05,                                       June, Sept. and Dec.
* Div'd reinvest. plan                                           MN on com. eq. in '1 B: 9.25%; earned on avg.                              Price Growth Persistence                                      40 (16&#xa2;); '06, (2&#xa2;). '15 & '16 EPS don't sum due avail. t Shareholder invest. plan avail. (C) Incl. com. eq., '17: 8.6%. Regulatory Climate: Avg.                                                                                                       Earnings Predictability                                        85
&#xa9; 2018 Value Line, Inc. All rights reseived. Factual material is obtained Jrom sources believed to be reliable and is provided wnhout warranties of any kind.
TH_E PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRO_RS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal. use. No part                                                                                   To subscribe call 1-800-VALUELINE of It may be reproduced, resold, stored or transmitted 1n any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, seiv1ce or product.

18-WSEE-328-RTS I--DJJ_Kf_e~~R_G_y                                NYSE-DUK
                                                ~--,-------,---,-----Jl.__,_REC_ENT_l                  PRICE           4_4j--'--P/E_J!!(_Tra-iling_:
                                                                                                                            ,               RATIO                      , Median: 17.0              P/E RATIO !!~D-IV'D-~~90_11 19_.1)-1---RE-LATIV-E           ,       YLD              /(0 lf,w*1_----.
TIMELINESS            4   LoweredG/23117             High:           63.9          61.81 53.8               55.8 46.4 66.4 50.6 71.1 59.6 75.5 64.2 87.3 67.1 90.0 65.5 87.8 70.2 91.8 76.1 84.4 72.9 Target Price Range 2021 2022 2023
                                                   >---"'L=ow~:~_5_0~.7~~40~.5~_,35.2 SAFETY               2   New 6/1/07                 LEGENDS TECHNICAL            1    Raised 12/22/17         -       ~~:d~vi1~t~~:sf ~~te
                                                    . . . . Relative ~rice Strength 11 l - - + - - - - f - - - + - - '-"'"n..,..,"l'---+--+---+--+---+
Reve se
                                                                                                                                                    ..                                                                         --+---+--+---+--+ 160 120 BETA .60 (1.00=Market)                            1-for-3 Revspltt 7/12                                                                   ~                                                                                                               ----- ****** 100 1--~20=2=1.~2=3=p=Ro=J~E=c=n=o=N=s---1 o~i~~!~~r~a indicates recession                                                                 .,,..:;...                                                 - ~ ... *"' *                                             - - - * * - * * - *
* 80 Price      Gain Ann'I Total Return P~T~~r~~~-,-,--::: ;::
                                                                     .. 111 1
                                                                                                                              --r~i:ii<i;;~t;:ii11i;:;:;.l~?'Tjj' 111                                           .. 1f;;,,~11F=,Ti,~~-:,,;.c:f:i.._;:-_~_:-:_j-----j1-f~=-=-=1=.;160 High 110 (+50%) 14%                                                      " 1 1
1,,,, ,, * "     1               ... ~ - 'I'                                                                                                                                                               50 Low          85 {+15%)                   8%                                                     '                                                                                                                                                                                        40 1"i"*--** * .****              *.......******                                                    *.
Insider Decisions                                              * "*.:>; .....
* 30 to Buy ~ ~ ~ ~ ~ ~ ~ ~ ~                                                    I                  i                    ******                                   ....... .......:** *.................... **********                                                                         20 Options060000000                                                            I                  I to Sell o 2 o o 1 o o 1 o 1---+----;t----+-i--t----+- ---1---1----1---1----1 ---1----1-----1 % TOT. RETURN 1118 >- 15 I
Institutional Decisions
                                                                                                                                                                                                                                                                         ~?t :"_
THIS       VLARITH."
M                                                                                                                  '
                                                                                             ~ 1 1Q2D17 2Q2D17 3Q2017 Percent 15                                                 I          *'                  ii+,j+i+,o-,+--+----.---+----.---+----.-----.                                                                    1 yr. srg_~K to Buy          552          528           531 shares                 10J' loSell          500          509           494 traded                  5                                                     fltttttttt:::ttttt,,lttlt,,::,fll;:,,tt::11+* * * +lrrt.,1t1,.11tt,,ttt-,---t---13yr.                                         2.4        38.0 -
Hld'slDODI 437355 435858 442941                                                                                                           111 1111111111                                                   fil1111111                        5 yr.      41.5         85.6 1-:2=0:=0='2.-2=0=0=3-r-:-20=0,...,4....-:'20'="0"=s--2-=-oo=s,..,-,,2=0=01 200a 2009 2010 2011 2012 2013 2014 201s 201s 2"!0'!-'11='""-2:-:0~1a.,..+2=0,...,1-=-9+-,@"""v=AL=u=EL=1N=E=Pu=e.~LL:-:C.,.,,1-,-1-~23-=--'
31.15 29.18 32.22 32.63 27.88 34.84 33.84 34.10                                                                    32.49 33.50 33.85 34.80                   Revenues per sh                            37.75 7.34        7.58         8.49       8.68             6.80                 8.56           9.11      9.40           9.20 10.15 10.95 11.40                  "Cash Flow" per sh                        13.00 3.03        3.39         4.02       4.14             3.71                 3.98           4.13      4.10           3.71         4.30      4.80       5.00  Earnings per sh A                            5.50 2.70        2.82         2.91       2.97             3.03                3.09            3.15      3.24          3.36          3.49      3.64       3.80  Div'd Decl'd per sh 8
* 4.40 10.35         9.85 10.84              9.80             7.81                 7.83           7.62      9.83         11.29 13.45 15.35 15.25                   Cap'l Spending per sh                      12.75 49.51        49.85 50.84 51.14 58.04 58.54 57.81                                                    57.74          58.62 59.35 60.45 61.60                   Book Value per sh c                        65.00
                                                                           - - 423.96 436.29 442.96 445.29 704.00 706.00 707.00 688.00                                                               700.00 701.00 702.00 703.00                Common Shs Outst'g 0                     706.00 17.3        13.3         12.7        13.8             17.5                17.4           17.9      18.2           21.3          19.6 Bold fig res are     Avg Ann'I P/E Ratio                         18.0 1.04          .89          .81        .87             1.11                   .98          .94         .92         1.12           .95      Vatue Une       Relative PIE Ratio                           1.00 estinates 5.2%       6.2%         5.7%        5.2%            4.7%                 4.4%            4.3%     4.3%            4.3%         4.2%                        Avg Ann'I Div'd Yield                      4.5%
CAPITAL STRUCTURE as of 9/30/17                                                 13207 12731 14272 14529 19624 24598 23925 23459 22743 23500 23750 24450 Revenues ($mill)                                                                                                               26650 Total Debt $53313 mill. Due in 5 Yrs $18876 mill.                              1279.0 1461.0 1765.0 1839.0 2136.0 2813.0 2934.0 2854.0 2560.0                                                                     3005 3385 3515 Net Profit ($mill)                                      3970 LT Debt $48929 mill. LT Interest $1795 mill.                                   32.5% 34.4% 32.6% 31.3% 30.2% 32.6% 30.6% 32.2% 31.0% 31.5% 20.0% 20.0% Income Tax Rate                                                                                                                 20.0%
Incl. $1100 mill. capitalized leases.                                                                                                                                                                                                                                                  11.0%
(LT interest earned: 2.9x)                                                     16.0% 17.5% 22.7% 23.2% 22.3%                                               8.8%            7.2%      9.2% 11.7% 13.0% 12.0% 12.0% AFUDC %to Net Profit 38.7% 42.6% 44.3% 45.1% 47.0% 48.0% 47.7% 48.6% 52.6% 54.0% 54.5% 55.5% Long-Tenn Debt Ratio                                                                                                            57.0%
Leases, Uncapitalized Annual rentals $218 mill.                                61.3% 57.4% 55.7% 54.9% 52.9% 52.0% 52.3% 51.4% 47.4% 46.0% 45.5% 44.5% Common Equity Ratio                                                                                                             43.0%
Pension Assets-12/16 $8531 mill.                                                34238 37863 40457 41451 77307 79482 78088 77222 86609 90200 93525 96900 Total Capital ($mill)                                                                                                        107000 Oblig $8006 mill.               34036 37950 40344 42661 68558 69490 *70046 75709 82520 87850 94325 100525 Net Plant ($mill)                                                                                                           112900 Pfd Stock None                                                                                                                                                                                                   4.5% 4.5% 4.5% Return on Total Cap'I                                   5.0%
4.8%        4.9%         5.5%        5.6%             3.6%                4.6%            4.8%      4.8%           4.0%
Common Stock 699,975,614 shs.                                                    6.1%        6.7%         7.8%        8.1%             5.2%                6.8%            7.2%      7.2%           6.2%          7.0% 8.0% 8.0% Return on Shr. Equity                                   8.5%
6.1%        6.7%         7.8%        8.1%             5.2%                6.8%            7.2%      7.2%           6.2%          7.0% 8.0% 8.0% Return on Com Equity E                                  8.5%
MARKET CAP: $52 billion (Large Cap)                                                 .6%       1.1%        2.1%        2.2%                .9%              1.5%            1.7%      1.5%             .6%         1.5% 2.0% 2.0% Retained to Com Eq                                      2.0%
ELECTRIC OPERATING STATISTICS                                                      89%         84%          73%        72%              82%                 78%             76%       79%            91%           81%      75%        76% All Div'ds to Net Prof                         78%
2014       2015          20~~       1--B-U-SI-N~E-SS_:_D_u~ke_E_n_e_rg~y-C-or-po-ra~ti-on-1-*s_a.._h_ol-di-ng_c.._o_m_pa_n_y.._fo_r_ut-il---'-r-es-id-e-nt~ia-l,-4-3_%.._;-co_m_m_e...rc-ia-1,-2-9.._%_;-in-du-s-tr-ia-1,-1-4%-,;-o-t-he...r,-1-4_%__-1
   %ChangeRetai1Sales(Kl'Af)               +2.2          +.6 Avg. lndu~. Use (MWH)                    2876       2883          3486          ities with 7.4 mill. elec. customers in NC, FL, IN, SC, Oh, & KY, and Generating sources: coal, 27%; nuclear, 27%; gas, 23%; other, 1%;
Avg. lndu~. Revs1.er KV.1i (&#xa2;)            6.15         NA             NA        1.5 mill. gas customers in OH, KY, NC, SC, and TN. Owns inde- purchased, 22%. Fuel costs: 30% of revs. '16 reported deprec. rate:
Caparitya!Peak(MW)                         NA         NA             NA        pendent power plants & has 25% stake in National Methanol in 2.8%. Has 28,800 employees. Chainnan, President & CEO: Lynn J.
Peak load, Summer IMw)
Annual load Factor(%)
NA NA NA NA             ~         Saudi Arabia. Acq'd Progress Energy 7/12; Piedmont Natural Gas Good. Inc.: DE. Address: 550 South Tryon St., Charlotte, NC
   %ChangeCustomers(avg.)                   +1.0       +1.2          +1.4         10/16; discontinued most int'I ops. in '16. Elec. rev. breakdown: 28202-1803. Tel.: 704-382-3853. Internet: www.duke-energy.com.
1-------------------------------------------1 f~edChargeCov.(%)                         315        317           264          One of Duke Energy's utilities has                                                                                third-period tally was weakened by unfa-f-A-N_N_U-'A'-L-RA-'-T'-ES--P-as-t--P-as_t_E-st-,d-,-14-_,-16-i                   reached a partial settlement of its                                                                                vorable weather conditions, an $0.08-a-ofchange(persh)            10Yrs.            svrs.       to'21-'23             rate case. Duke Energy Progress filed for                                                                          share write-off of a nonregulated wind-Revenues                       3.0%           1.5%          1.5%               an increase of $477 million (14.9%), based                                                                         farm, and a $0.12-a-share charge for the "Cash Flow"                    1.5%           2.5%          5.0%               on a 10.75% return on a 53% common-                                                                                cancelation of a nuclear project that was 35 5f.Ji~i~RJs                     * .::         2:~~          :j~                 equity ratio. The settlement with the staff                                                                       under consideration in Florida. Rate relief Book Value                     -.5%           3.0%           1.5%               of the North Carolina Utilities Commis-                                                                           should be a positive factor for the bottom 1--C-al--~-Q-UA_R_TE_R-LY_R_EV_E-NU-E-S(-$m_i_ll.)~~F-ul~I                        sion (NCUC) would provide for a hike (be-                                                                          line each year. All told, we estimate share endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                         fore the pass-through of reduced federal                                                                           earnings of $4.80 this year and $5.00 in 2015 6065 5599 6483 5322 23459                                                income taxes) of $127 million (4.0%). based                                                                        2019.
2016 5377 5213 6576 5577 22743                                                on a return of 9.9% on a common-equity                                                                             Some significant capital projects are 2017 5729 5555 6482 5734 23500                                                 ratio of 52%. The treatment of deferred                                                                           under way. Duke is building gas-fired 2018         5750        5600          6600       5800 23750                   costs associated with storms and coal ash                                                                         plants in South Carolina and Florida and 2019         5900        5700           6950      5900 24450                  basin remediation has not been resolved,                                                                           modernizing the electric system in Indiana Cal-             EARNINGS PER SHARE A                             Full       so far.                                                                                                            and the western Carolinas. This will ex-endar Mar.31 Jun.30 Sep.30 Dec.31                                  Year        Other rate cases are pending. Duke                                                                                 pand the company's rate base, and thus,
_87         1.44         _70           4_10       Energy Carolinas asked the NCUC for an                                                                             its earning power. Duke also intends to ex-2o1 5         1_09 2016           .83          .90         1.44         .53           3.71       inc.rease of $647 million (13.6%), based on                                                                        pand its gas pipeline infrastructure. The 2017          1.02          .98         1.36         .94           4.30       a 10.75% return on a 53% common-equity                                                                             company's goal for average annual profit 2018          1.05        1.05          1.65       1.05            4.80        ratio. New tariffs should take effect in the                                                                      growth is 4%-6%.
2019          1.10        1.10          1.70       1.10            5.00       second quarter. Duke asked the Kentucky                                                                            This stock is ranked unfavorably for Cal-         QUARTERLY DIVIDENDS PAID e.                          Full        commission for a boost of $48. 6 million                                                                          Timeliness, but offers a dividend yield endar Mar.31 Jun.30 Sec.30 Dec.31                                  Year         (15%), based on a 10.3% return on a 49%                                                                           that is well above the utility average.
2014                                                                 _        common-equity ratio. New rates are likely                                                                          The yield is about a percentage point 78           78            795        795          3 15 20 15          :795 :795 :825 :825                                 3_24       two take te.ffecttin Aprilh.                                                              .          .             above the norm for thhis industry. Total red-2016           .825         .825          .855       .855          3.36              e es rma e a s arp earm.ngs 1n-                                                                             turn potentia1 over t e 3 - to 5 -year perio 2017           .855         .855          .89        .89           3.49       crease in 2018, followed by a more                                                                                 is attractive.
2018                                                                          moderate rise in 2019. Last year, the                                                                              Paul E. Debbas, CFA                               February 16, 2018
{A) Dil. EPS. Exel. nonrec. losses: '12, 70&#xa2;; report due early May. (B) Div'ds paid mid-Mar., Rates all'd on com. eq. in '13 in NC: 10.2%; in Company's Financial Strength                                                                                                                    A
'13, 24&#xa2;; '14, 67&#xa2;; gains (losses) on disc. ops.: June, Sept., & Dec.* Div'd reinv. plan avail. '17 in SC: 10.1%; in '09 in OH: 10.63%; in '04 Stock's Price Stability                                                                                                                     100
'12, 6&#xa2;; '13,      2&#xa2;;  '14,   (80&#xa2;);     '15,  5&#xa2;; '16,   (60&#xa2;).        (C)  Incl. intang. In   '16: $46.17/sh.      (D)   In     mill.,         in    IN:     10.3%;     earn. on   avg. com. eq.,   '16:  6.3%. Price  Growth    Persistence                                40
'16 EPS don't sum due to rounding. Next egs. adj. for rev. split. (E) Rate base: Net orig. cost. Reg. Clim.: NC Avg.; SC, OH, IN Above Avg.                                                                                      Earnings Predictability                                     85
&#xa9; 2018 Value Line, Inc. All rights reseived. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part                                                                   To   subscribe        call    1-800-VALUELINE of tt may be reproduced, resold, stored or t1ansmttted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS CON. EDISON NYSE-ED                                                                       IRECENT PRICE        75 ,88 IP/ERATIO 17,                acrailing:19.2)
Median: 15.0 RElATIVE PIE RATIO O93 DIV'YLDD 3.8%
I
                                                                                                                                                                                                                                *fl!1*11 TIMELINESS            4 Lowered 8/18117             High:        52.9        49.3      46.3         51.0     62.7          66.0        64.0        68.9        72.3          81.9       89.7            84.9                         Target Price Range Low:          43.1        34.1      32.6         41.5     48.6          53,6        54.2        52.2        56.9          63.5       72.1            74.6                         2021 2022 2023 SAFETY                1 New 7/27/90                LEGENDS 120 2                         -         ~:~ ~vi1i1~~!sf ~~le                                                                                                                                                                                   100 TECHNICAL                  Lowered 2/9/18        . , . , Relative ~rice Strength                                     ,,.   -                                               -               , ** 11                                             ...... -    ., 80 BETA .50 (1 .00 = Market)
                                                                                                                                                                 .,      illl     11111                                                   .....
                                                                                                                                                                                        - - .... 1..*
O~~~~!/ir~a indicates recession                                                                                     ~
                                                                                                                                                                                                                                                 . . . . . . 111 64 "b   11"1111.11, 1111111'1 2021-23 PROJECTIONS                                                                                -4''                                                                                                                                                  48 Ann'I Total     1,1***                               '
                                                                     ***~1 M* 11*1~1 *1* * ***11 High Price Gain 85 (+10%l Return 7%       . ******          -:**1 .......        1*..,* *....*****.  ....
                                                                                                                    ... ... -- ...                                                                                                                                 32 Low          70 Insider Decisions
(-10%          2%
I              I 24 20 AMJJASOND I              I                                                                                                                                                                          16 toBuy 11 9 811 8 811 8 8                                                I              l                                                                                                                                                                         12 Options 392000220 to Soll 0 0 0 0 1 0 ~ 0 0 Institutional Decisions I              I                                                                                                                                   %TOT. RETURN 1/18 t-8 I              I                         I THIS       VLARITH.'
1Q2017       2Q2017     3Q2017     Percent         21                                                                                                                                                              STOCK         INDEX
                                                                                  ,I to Buy           322          330        335                                                                    II.                                       .,   I.                                                        1 yr. 11.8          17.3 I-tMil shares                                                                                                                                                                  3yr. 29.7          38.0 t-to Soll          336          323        322     traded          1 7       4-                  " ,1 ~
Hld'slOOOI 197947 196270 197384                                                          1111 ;111111111 fu111iiii 1111111111                                        filtl,11111111111111111                             Syr. 72.1          85.6 2002 2003 2004 2005 2006 2007 2008 2009                                                         2010 2011 2012 2013 2014 2015 2016 2017 2018 2019                                                                         &#xa9; VALUE LINE PUB. LLC 1, 1-23 39.65 43.51 40.24 47.66 47.14 48.23 49.62 46.36                                                 45.69 44.17 41.62 42.27 44.11 42.85                                      39.59 37.60 38.80 39.80                      Revenues per sh                        43.00 5.44         5.12        4.54       5.27        5.28         5.77       5.99      5.86         6.24      6.61          7.15        7.45        7.30        7.93          7.89        8.40           8.80       9.15 "Cash Flow" per sh                     10.50 3.13         2.83        2.32       2.99        2.95         3.48       3.36      3.14         3.47      3.57          3.86        3.93        3.62        4.05          3.94       4.05            4.20       4.30 Earnings per sh A                        4.75 2.22         2.24        2.26       2.28         2.30        2.32       2.34      2.36         2.38      2.40          2.42        2.46        2.52        2.60          2.68        2.76           2.86       2.96 Div'd Decl'd per sh e
* 3.30 5.68         5.72        5.60       6.59         7.17        7.09       8.50      7.80         6.96      6.72          7.06        8.67        8.26 10.42               12.07 11.90 12.45 11.40                     Cap'I Spending per sh                   11.50 27.68 28.44 29.09 29.80 31.09 32.58 35.43 36.46                                                 37.93 39.05 40.53 41.81 42.94 44.55                                      46.88 48.65 50.15 51.65                      Book Value per sh c                    56.50 213.93 225.84 242.51 245.29 257.46 272.02 273.72 281.12                                         291.62 292.89 292.87 292.87 292.88 293.00 305.00 311.00 312.00 313.00                                                   Common Shs Outst'g o 316.00 13.3         14.3         18.2       15.1        15.5        13.8       12.3      12.5         13.3      15.1          15.4        14.7        15.9        15.6          18.B        20.0 Bold fig res are          Avg Ann'I P/E Ratio                      16.5
         .73         .82          .96        .BO         .84          .73       .74        .83          .85       .95          .98          .83         .84         .79          .99        1.00           Value Une       Relative P/E Ratio                        .90 estln ates 5.3%        5.5%         5.3%       5.0%        5.0%        4.8%        5.7%      6.0%         5.2%      4.5%         4.1%         4.3%       4.4%        4.1%           3.6%       3.4%                             Avg Ann'I Div'd Yield                  4.2%
CAPITAL STRUCTURE as of 9/30/17                                            13583     13032        13325     12938 12188 12381 12919                           12554         12075      11700 12100 12450 Revenues ($mill)                                       13600 Total Debt $15694 mill. .Due In 5 Yrs $3585 mill.                           933.0     868.0        992.0   1062.0 1141.0 1157.0 1066.0                      1193.0        1189.0         1265 1320 1320 Net Profit ($mill)                                       1550 LTDebt$14651 mill. LT Interest $667 mill.
(LT interest earned: 3.5x) 36.0%     34.2%        36.0%      36.1% 34.5% 31.8% 34.0%                         33.6%          35.3%       36.0% 23.0% 23.0% Income Tax Rate                                       23.0%
1.7%      2.6%         2.4%      1.6%           .5%         .5%          .3%         .7%         1.3%        1.0% 1.0% 1.0% AFUDC %to Net Profit                                     1.0%
Leases, Uncapitalized Annual rentals $61 mill.                            48.3%     48.5%        48.6%      46.5% 45.9% 46.1% 48.0%                         47.9%          50.8%       50.0% 50.5% 49.5% Long-Tenn Debt Ratio                                  48.0%
50.6%     50.4%        50.4%      52.5% 54.1% 53.9% 52.0%                         52.1%          49.2%       50.0% 49.5% 50.5% Common Equity Ratio                                   52.0%
Pension Assets-12/16 $12472 mill.                                          19160     20330        21952     21794 21933 22735 24207                          25058         29033       30175 31600 31950 Total Capital ($mill)                                 34400 Oblig $14095 mill.                                   23863 Pfd Stock None                                                             20874     22464                  25093 26939 28436 29827                           32209         35216      37550 40025 42075 Net Plant ($mill)                                     47900 6.2%      5.7%         5.9%      6.2%         6.5%         6.4%        5.6%        6.0%          5.3%       5.5% 5.5% 5.5% Return on Total Cap'I                                     5.5%
Common Stock 310,068,797 shs.                                               9.4%      8.3%         8.8%      9.1%         9.6%         9.4%        8.5%        9.1%          8.3%        8.5% 8.5% 8.5% Return on Shr. Equity                                    8.5%
as of 10/31/17                                                              9.5%      8.4%         8.9%      9.2%         9.6%         9.4%        8.5%        9.1%          8.3%        8.5% 8.5% 8.5% Return on Com Equity E 8.5%
MARKET CAP: $24 billion (Large Cap)                                         3.1%      2.5%         3.2%      3.1%         3.6%         3.6%        2.6%        3.5%          3.0%       2.5% 3.0% 3.0% Retained to Com Eq                                        3.0%
ELECTRIC OPERATING STATISTICS                                                67%       71%          65%       66%          62%          62%         69%         61%           64%         67%            67%        67% All Div'ds to Net Prof                    67%
2014 2015                2016       BUSINESS: Consolidated Edison, Inc. is a holding company for
  %Cha~e Relail Sales (KWH)              -1.1        +1.9           . .4                                                                                                   opportunities through three wholly owned subsidiaries. Entered into Avg. In ust. Use (MWH~                   NA          NA          NA       Consolidated Edison Company of New York, Inc. (CECONY), which                                  midstream gas joint venture 6/16. Purchases most of its power.
Avg. lndusl. Revsi         (&#xa2;)           NA          NA          NA       sells electricity, gas, and steam in most of New York City and                                 Fuel costs: 26% of revenues. '16 reported depreciation rates: 2.9%-
Capacity al Peak ~                    NMF NMF                    NA       Westchester County. Also owns Orange and Rockland Utilities                                    3.1 %. Has 15,000 employees. Chairman, President & CEO: John Peak load, Summer )                 13568 13721                  NA Annual load Factor ( 'I
  %Change Customers yr-en~
NMF NMF NA          NA NMF NA (O&R), which operates in New York and New Jersey. Has 3.6 mil-lion electric, 1.2 million gas customers. Pursues competitive energy McAvoy. Inc.: New York. Address: 4 Irving Place, New York, New York 10003. Tel.: 2124604600. Internet: www.conedison.com.
F~ed Charge Gov.(%)                     366         370         352       We           estimate                   that               Consolidated                       growth in recent years. ConEd's goal is a ANNUAL RATES Past                           Past Est'd '14-'16 Edison's earnings will advance mod-                                                            payout ratio in a range of 60%-70%.
of change (per sh)          10Yrs.          5Yrs.        to '20-'22       estly in 2018 and 2019. The company's                                                         Finances are strong. The fixed-charge Revenues                         -.5% -1.5%                   .5%         primary utility subsidiary, Consolidated                                                       coverage and common-equity ratios are "Cash Flow"                     4.5%         4.5%          4.5%           Edison Company of New York, will benefit                                                       solid. The latter figure was augmented by Earnings                        3.5%         2.5%           3.0%
Dividends                        1.5%        2.0%           3.5%          from rate increases each year. Electric and                                                    the sale of 4.1 million common shares last Book Value                      4.0%         3.5%           3.5%          rs hikes of $155.3 million (2.0%) and                                                         August. Earned returns on equity are not QUARTERLY REVENUES ($ mill.)                                 92.3 million (5.6%), respectively, took ef-                                                 exceptionally high, but have been relative-Cal-                                                           Full endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                    feet at the start of 2018. Electric and gas                                                    ly consistent in recent years as the utili-2015 3616 2788 3443 2707 12554 increases of $155.2 million (1.9%) and                                                         ties have earned (or have come close to 2016 3157 2794 3417 2707 12075                                           $89.4 million (5.1 %) will go into effect at                                                   earning) their allowed. returns on equity.
2017 3228 2633 3211                              2628 11700              the start of 2019. In addition, the compa-                                                     The company merits a Financial Strength 2018 3300 2750 3300 2750 12100                                           ny's utilities continue to see customer con-                                                   ratio~ of A+, our second highest.
2019 3400 2825 3400 2825 12450                                           versions from oil heat to gas heat. And                                                       The mstallation of smart meters is un-Cal-               EARNINGS PER SHARE A                       Full ConEd's clean energy (solar and wind)                                                         der way. The $1.4 billion investment is endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                    businesses are boosting their income by                                                        scheduled for completion by 2022, with the 2015          1.26          .74       1.45          .60         4.05 adding projects. Finally, ConEd has a                                                          peak spending set to occur two years from 2016          1.05          .77       1.47          .64         3.94      12.5% stake* in a gas pipeline that is                                                        now. All told, 5.4 million smart meters will 2017          1.27          .57       1.48          .73         4.05     scheduled for an in-service date in late                                                       be installed in New York City and West-2018          1.30          .63       1.60          .67         4.20     2018. This represents a $400 million in-                                                       chester.
2019          1.30          .65       1.65          .70         4.30     vestment for the company.                                                                      This top-quality stock is ranked unfa-Cat-*         QUARTERLY DIVIDENDS PAID e
* Full The board of directors raised the divi-                                                        vorably for Timeliness. The dividend endar Mar.31 Jun.30 Sen.30 Dec.31 Year                                    dend in the first quarter of 2018. This                                                        yield is about average for a utility. Like 2014            .63          .63        .63         .63         2.52 is the usual timing of the annual increase.                                                    most utility equities, the recent quotation 2015            .65          .65        .65         .65         2.60     The board boosted the yearly disburse-                                                         is within our 2021-2023 Target Price 2016            .67          .67        .67         .67         2.68     ment by $0.10 a share (3.6%). This was the                                                     Range. Accordingly, total return potential 2017            .69          .69        .69         .69         2.76     largest increase in a long time and contin-                                                    is unspectacular.
2018            .715                                                     ued a pattern of accelerating dividend                                                         Paul E. Debbas, CFA                                    February 16, 2018 (A) Diluted EPS. Exel. nonrec. gains (losses): N_ext earnings_ report ~ue early May. (BJ Div'ds base: net orig. cost. Rate allowed on com. eq ..                                                             Company's Financial Strength                          A+
'02, (11&#xa2;); '03, (45&#xa2;); '13, (32&#xa2;); '14, 9&#xa2;; '16, historically paid 1n mid-Mar., June, Sept., and for CECONY in '17: 9.0%; O&R in '15: 9.0%;                                                                 Stock's Price Stability                                95 15&#xa2;; gain on discontinued operations: '08, Dec.
* Div'd reinvestment plan avail. (C) Incl. earned on avg. com. eq., '16: 8.6%. Regulatory                                                                    Price Growth Persistence                               40
$1.01. '16 EPS don't sum due to rounding. intang. In '16: $25.29/sh. (D) In mill. (E) Rate Climate: Below Average.                                                                                           Earnings Predictability                                95
&#xa9; 2018 Value Lme, Inc. All rights reserved. Factual matenal is obtained from sources believed to be reliable and is provided wnhout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own non-commercial, internal use. No part                                                To subscribe call 1-800-VALUELINE of nmay be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS i--E_L_PA_S-=--O_E_L_EC_T.--R_IC--,--N_YS-.E-E_E---,--~1~--~rJE_NT--,--5_0.-.25~1~----,/ETI0_2_0*.--4(_i~~--,--l/~~;_m_H_rELARA----,Tr1t_1_.0-r--'9-~-r-D                                                                                                                              _2__,..9&deg;_Yoliitl_-----i TIMELINESS 3 Loweredl/26118                                                     High:                28.2          25.5            21.1              28.7            35.7             35.3                   39.1     42.2         41.3           48.8         61.2        55.8                         Target Price Range Aaised5/11/07                     i-=~'-=~-'-'~'-~N....D~S=-20"-'.=-8.L---"15=-'.2=--.,_-i11.6                 18.7           26.7              29.2                   31.8     33.4         33.8           37.2        44.7         48.1                          2021 2022 2023 SAFETY                         2 TECHNICAL 3 Lowered 4/6/18                                                 -             ~ii~:d ~vi1~t~1:sr ~~te
                                                                              , , , , Relative ~rice Strength BO 60 75                                                          0 BETA
* 2021*23 (l.OO = Market)
PROJECTIONS j~~~~/i;,a indicates recession t--+----+---+--=--+--+----+-=-'1'                                     /--..                                  ~---
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                                                                                                                                                                                                                                                                                                          -*-** -----* 40 Ann'I Total                                                 I                       t                                   1111 1.1 11 _,****,, .. 1 ,1J 1111 1111 1 1 11   1     1 1 111111*1 Price           Gain                  Return 1---+----'l----+~-1---~,h,          11                                1
                                                                                                                                                                    ,..&#xb5;l.4<-,f-'"'L-J.J1-----1--+-- ---+--+-----+--+-----1--+-----1 ---+-30 High              60 (+20%l                               8%                                                                                                              /                                                                                                                                                     25 Low               45            (*10%                      1%                      1111 '            ''1'**111 11 "                I              '* 11              /.....                                                                                                                                                    20 1-,l,..n-si""'d,..e-r=D-ec~i..;si,..o_n_s.,__ _--1                              ''" **********                .: **      *11l 1i* l ,1**              ...                ,,          *.,:*****                                                                                                                                     15 J J A S O N O J F                                           **                            I                'l'I!...*** *........ '                                                   . ... *... " * ......**                      ..... ,*"
* toBuy O O O O O O O O O 1---+---+l----+~I-l----+----11----+-----l-- +----4--+----4--+-----l-- +-----l---+-10 Options340040047                                                                                             I                       I to Sell           1 a o o o o o o o ,----~,+----+---.-1-+----+- -----,+----+----1---+----+-- -+----+---+----1 % TOT. RETURN 3/18 - 7.5 Institutional Decisions                                                                                                                                                                                                                                                                                THIS      VLARITH.'
                                                                                                                                                                                                                                                                                                                     . 1N9o_EX7 -
to Buy tos,11 117 3Q2D17 2Q2017 78 96 4Q2017 83 86 Percent 67 fraded hares                 14 "",i-1,1-,1-111"'11-4111""*111"',,----+.
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                                                                                                                                                                                                                                                                                    ,,--+----,   1 yr.
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ST3o_c5K 43.5 75.1 24.3 68.B
                                                                                                                                                                                                                                                                                                                                =
l-='Hld:,.::'s,c.;IIOO;,:.<D,....,;c45:,.::0,;:..99:....,..4-"5="1,;:..23:....,...;;39:,.::6...:.40:c+~~~~-,1,11,J.u 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 &#xa9;VALUELINEPUB.LLC 1.23 13.91             13.97 14.95 16.70 17.75 19.43 23.15 18.85 20.61 22.97 21.26 22.11 22.74 21.01                                                                                                                                               21.89 22.59 22.80 23.35 Revenues per sh                                       25.00 2.99               3.00              3.27               3.05                 3.44               3.86          4.16             4.07             5.15             6.05            5.66                   5.65     5.87         5.75            5.98        6.17         6.35        6.60 "Cash Flow" per sh                 7.50
           .57              .64                 .69               .76                1.27               1.63          1.73              1.50            2.07             2.48             2.26                  2.20     2.27         2.03            2.39        2.42         2.45       2.60 Earnings per sh A                    3.00
             --               -*                  ..                *-                   --                 --          ..                 --              --               .66            .97                  1.05     1.11         1.17            1.23        1.32         1.42        1.52 Div'd Decl'd per sh B               1.85 1.75               2.03              1.94               2.28                 2.73               4.63          5.36             5.95             5.27             5.90            6.70                   7.18     8.50         8.55            7.03        5.91         6.80        6.85 Cap'I Spending per sh               7.25 9.20 10.51 11.23 11.56 12.60 14.76 15.47 16.45 19.04 19.03 20.57 23.44 24.39 25.13 26.52 28.14 29.20 30.25 Book Value per sh c                                                                                                                                                                                            33.50 49.61 47.56 47.40 48.14 46.00 45.15 44.88 43.92 42.57 39.96 40.11 40.27 40.36 40.44 40.52 40.58 40.60 40.70 Common Shs Outst'g o                                                                                                                                                                                            41.00 23.0               18.3              22.0               26.7                 16.9               15.3          11.9              10.8            10.7             12.6             14.5                  15.9     16.4         18.3            18.7        21.8 Bold fig res are Avg Ann'l P/E Ratio                         17.0
                                                                                                           .81                            .72                               .79            .92                    .89       .86         .92            .98         1.10        Value Line       Relative P/E Ratio                   .95 1.26               1.04               1.16               1.42                  .91                             .72                                .68 estin ates
              --              --                  ..                 *-                   --                --          ..                 *-              -- 2.1% 3.0% 3.0% 3.0% 3.1% 2.7% 2.5%                                                                                                Avg Ann'I Div'd Yield             3.5%
CAPITAL STRUCTIJRE as of 12/31/17                                                                               1038.9 828.0 877.3 918.0 852.9 890.4 917.5 849.9 886.9 916.8                                                                                                 925         950 Revenues ($mill)                   1025 Total Debt $1369.5 mill. Due in 5 Yrs $218.5 mill.                                                                77.6              66.9            90.3 103.5                        90.8                  88.6     91.4         81.9            96.8         98.3         100         105 Net Profit ($mill)                   125 LT Debt $1196.0 mill. LT Interest $72.3 mill.                                                                   32.8% 33.1% 36.1% 34.2% 34.1% 33.0% 31.0% 29.9% 35.8% 34.2% 24.5% 24.5% Income Tax Rate                                                                                                                       24.5%
(LT interest earned: 2.9x)                                                                                                                                                                                                                                                                                                   14.0%
20.4% 24.3% 22.1% 17.6% 22.4% 24.1% 30.8% 27.5% 17.6% 11.2% 13.0% 12.0% AFUDC %to Net Profit 53.8% 52.7% 51.2% 51.8% 54.8% 51.4% 53.5% 52.7% 52.7% 51.2% 53.0% 52.0% Long.Tenn Debt Ratio                                                                                                                  54.5%
Pension Assets*12/17 $304.4 mill.                                                                              46.2% 47.3% 48.8% 48.2% 45.2% 48.6% 46.5% 47.3% 47.3% 48.8% 47.0% 48.0% Common Equity Ratio                                                                                                                   45.5%
Oblig $362.0 mill. 1503.9 1527.7 1660.1 1576.7 1824.5 1943.5 2118.4 2150.8 2269.9 2338.2                                                                                                              2530 2575 Total Capital ($mill)                      3025 Pfd Stock None                                                                                                 1595.6 1756.0 1865.8 1947.1 2102.3 2257.5 2488.4 2695.5 2821.2 2928.4                                                                                      3045 3160 Net Plant ($mill)                          3550 6.7%            6.0%              7.0%            8.3%             6.5%                   6.1%     5.7%         5.3%            5.8%        5.8%         5.5% 5.5% Return on Total Cap'I                      6.0%
Common Stock 40,661,003 shs.
as of 1/31/18                                                                                                   11.2%            9.3% 11.1% 13.6% 11.0%                                                    9.4%     9.3%         8.1%            9.0%         8.6%        8.5% 8.5% Return on Shr. Equity                      9.0%
11.2%            9.3% 11.1% 13.6% 11.0%                                                    9.4%     9.3%         8.1%            9.0%         8.6%        8.5% 8.5% Return on Com Equity E 9.0%
MARKET CAP: $2.0 billion (Mid Cap)                                                                              11.2%            9.3% 11.1% 10.0%                                   6.3%                   4.9%     4.8%         3.4%            4.4%         3.9%        3.5% 3.5% Retained to Com Eq                         3.5%
ELECTRIC OPERATING STATISTICS                                                                                       *-                 --              -- 26% 43% 47% 49% 57%                                                                     51%          54%         57%         58% All Div'ds to Net Prof               61%
    %Change Retail Sales (KWH) 2015 2016 2
                                                              +2.3                   +.1
                                                                                                       ~l                    ES_S_:_E_ILP-a-so-ELle-cir-ic_CLom_p_a-ny-'-(E_P_E_)_pLro-vi-de_s_eLle-c-tri-c--'-a-bl-e.---'Ge~n-e-ra-tin-g'--so-u-rc-esL:-n-u-cl-eaLr,-4-9-o/c-,;-g-a-s,-3-6-%-;-p-urLch-a-se-d-,~
1--B-US_I_N....
Avg. lndust. Use (MWHI                                  21687 21036 21553 service to 417,000 customers in an area of approximately 10,000 15%. Fuel costs: 27% of revenues. '17 reported depreciation rate:
Avg. lndust. Revs._P.er KWH (&#xa2;)                              NA                   NA                 NA square miles in the Rio Grande valley in western Texas (68% of 2.3%. Has about 1,100 employees. Chairman: Charles A.
Capac~ at Peak (MW)                                      2055 2080 2082 revenues) and southern New Mexico (19% of revenues), including Yamarone. President & CEO: Mary E. Kipp. Incorporated: Texas.
Peak load, Summer IMw)
Annual load Factor(%)
1794 1892 19 NA                  NA                 Jl         El Paso, Texas and Las Cruces, New Mexico. Vvholesale is 13% of Address: Stanton Tower, 100 North Stanton, El Paso, TX 79901.
                                                                                                     +1.7 revenues. Electric revenue breakdown by customer class not avail* Tel.: 915-543-5711. Internet: www.epelectric.com.
    %Change Customers (yr-en~                                 +1.4                +1.6 F~ed Charge Cov. (%)                                       218                  267                263         We estimate that El Paso Electric                                                                                             more volatile.
Company's earnings will advance                                                                                               The utility is required to file a general ANNUAL RATES Past                                                Past Est'd '15*'17                                                                                                                                                          rate case in New Mexico by July of of change (per sh) 10 Yrs.                                      5 yrs.
* to '21-'23                            slightly this year. The utility will have a Revenues                                     2.0%                         ..                2.5%               full year's worth of the rate increase in                                                                                     2019. EPE may file sooner; we note that "Cash Flow"                                  5.5%                  1.0%
4.0%               Texas that took effect in July of 2017. EPE                                                                                   the portion of Units 3 and 4 of a new gas-Earnings                                     6.5%                                           4.5%                                                                                                                                             fired generating station that is allocated to Dividends                                           ..          18.0%                        7.0%              is also benefiting from above-average cus-Book Value                                   7.5%                  6.5%                     4.0%               tamer growth that stems from the healthy                                                                                      New Mexico is not reflected in rates. How-economy in El Paso and environs. On the                                                                                        ever,. the regulatory climate in New Mexi-Cal*                QUARTERLY REVENUES ($ mill.)                                                 Full endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                                         other hand, the weather was favorable for                                                                                     co is difficult (not just for EPE), so the the company in 2017, and we assume                                                                                            company might well wait until it is re-2015 163.8 219.5 289.7 176.9 849.9                                                                                                                                                                                                          quired to file before it puts forth its rate 2016 157.8 217.9 323.2 188.0 886.9                                                                            normal weather this year. Our 2018 earn-2017 171.3 251.8 297.5 196.2 916.8                                                                            ings estimate, which we lowered by $0.20                                                                                       application.
2018 170                           255                 305                 195                 925            a share, is within management's guidance                                                                                      We expect a dividend hike at the 2019 175                          260                  315                200                  950            of $2.30-$2.65 a share. Next year, the utili-                                                                                 board meeting in May. This has been EARNINGS PER SHARE A                                                               ty will benefit from rate relief in Texas                                                                                     the pattern since the directors initiated a Cal*                                                                                             Full common dividend several years ago. We endar Mar.31 Jun.30 Sep.JO Dec.31 Year                                                                         through transmission and distribution reg-ulatory mechanisms. However . . .                                                                                              estimate an increase of $0.10 a share 2015                  .09               .52               1.40                  .02               2.03 (7.5%) in the annual disbursement. EPE's 2016               d.14                 .55               1.84                  .14               2.39        Earnings have become less predic-2017               d.10                 .89               1.47                  .16               2.42        table. The company owns a 15.8% share of                                                                                      goal is a payout ratio in a range of 55%-
2018               d.15                  .75              1.70                  .15                2.45       the Palo Verde nuclear station in Arizona.                                                                                     65%.
2019               d.10                  .80              1.75                  .15                2.60       Like any utility that owns nuclear assets,                                                                                    This stock has a dividend yield th,at is QUARTERLY DIVIDENDS PAID a                                                                EPE invests in a trust to provide funds for
* below the industry mean. Like many Cal*                                                                                             Full utility issues, the recent quotation is endar Mar.31 Jun.JO Sep.JO Dec.31 Year                                                                         nuclear decommissioning. The gains or 2014              .265               .28                 .28                 .28                  1.11        losses on the nuclear decommissioning                                                                                         within our 2021-2023 Target Price Range.
2015              .28                .295                .295                .295                 1.17        trust are now being reflected in the income                                                                                   Accordingly, total return potential over 2016              .295               .31                 .31                 .31                  1.23        statement, instead of through Accumu.                                                                                         that time frame is unspectacular, despite 2017              .31                .335                .335                .335                  1.32       lated Other Comprehensive Income on the                                                                                        good dividend growth prospects.
2018              .335                                                                                        balance sheet. This will make earnings                                                                                         Paul E. Debbas, CFA                                         April 27. 2018 (A) Diluted earnings. Exel. nonrecurring gains dates in late March, June, Sept., and Dec. '16: 9.48%; earned on avg. com. eq., '17:                                                                                                                                             Company's Financial Strength                     B++
(loss): '03, 81&#xa2;; '04, 4&#xa2;; '05, (2&#xa2;); '06, 13&#xa2;; '10, (C) Incl. deferred charges. In '17: $96.0 mill., 8.9%. Regulatory Climate: TX, Average; NM, Stock's Price Stability                                                                                                                                                           90 24&#xa2;. Next earnings report due early May. $2.37/sh. (D) In millions. (E) Rate allowed on Below Average.                                                                                                                                                                          Price Growth Persistence                           70 (B) Initial dividend declared 4/11; payment common equity in TX in '17: 9.65%; in NM in                                                                                                                                                                                         Earnings Predictability                            75
 &#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wnhout warranties of any kind. -
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN.                                                                                   This  publication          is strictly for        subscriber's own,     non-commercial,      internal  use. No  part      I       I     I'     ,        :ll!l!'lll!III of nmay be reproduced, resold, stored or transmnted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS EDISON INTERNAT'L NYSE-EIX                                                                                          RECENT
                                                                                                                       !PRICE 65 ,22 IP/ERATIO 14,3                       (Trailing: 14.5)
Median: 12.0 RELATIVE PIE RATIO O, 76 DIV'YLDD 3.8%
TIMELINESS                3 Lowered 3/2/18                        High:            60.3 i-=L=ow=:~-4~2=.8~_2=6~.7~--c.23.1 55.71 36.7              39.4 30.4 41.6 32.6 48.0 39.6 54.2 44.3 68.7 44.7 69.6 55.2 78.7 58.0 83.4 62.7 67.6 57.6 Target Price Range 2021 2022 2023 SAFETY                    2 Raised 5/3113                         LEGENDS                              .                                                                                                                                                                               120 TECHNICAL                 4 Raised 4/20/18 *                   -          J::d ~vi1~t~1!sr ~~te
                                                                  * , ,
* Relative ~rice Strength                                                                                             .....-             - ' * *-
100 BO
,_B_E_TA=.B~0~(~1.=00===M=ark=e=t)=-----1 O~~~~!~~r!a indicates recession r--t---i----::;r'c:.....::.,._"'-i-.;;::=:::l:;;:;<,;:.'fll,.,...4tr,;;nt#:.:."'~'.:.'' !!f'--1ft-                          1                     --i-**-----t---i-*-*._._.--f-*-*._._.-j-. 64 2021-23 PROJECTIONS                                  i;;::=;{+i!':':q*pill!li*;;:::r=~*-~--+="'./C:....1-,..,.,,,.,,Jrc!j*~JJJ1il!'._'.' .'.'.."'111.'.:+*-**.'..'11..':.:_"_:.i"~--+-_jf-*,,_ _j~--+--~--+-_jf-49 Gain AnRetuTomtal " 11111" 1''                                            I 1., .. ,:--,-.-,,*'
01 Price                                                                       I
                                                                                     ...... *: ......~lt.J..,...;..,-:1
                                                                                                                               - -*11 "'1 11'' ' .,, .. ,, ..,        *****                                                                                                              32 High 100                  1+55%1               14%           r--.-...,.,-....~:::....:~:..;.b--~,,H111'11':-,1,1'rt!;,'&#xb5;u.:fll'l,...:;-+--L-1----+---l---+----'l----+------'l----+---l----+-----'l----+-
Low              75        +15%                   8%                                __..,-- 1'           ' ''                                                                                                                                                                          24 Insider Decisions                                                                           1                    1       * ................ *** "*". ** ****** ........                **** **          **** ........                                                                  20 J J A S O N D J F                                                           I                   l                                                                                                                                                                     16 I
toBuy Options to Sell O O O O O O O O O 2 0 1 0 0 1 O11 O 2 o 1 o o 1 OOO j                  II                                                                                                                              % TOT. RETURN 3/18                 -8 12 Institutional Decisions                                                                      j           1       1                 I                                                                                   ,1                                  THIS        VLARITH."
2Q2D17         3Q2D17          402017         Percenl 15                            llr .  ,.I,           .       I                          h                 ,. .                                 11                     1 yr.       ~~c:            IN~~     ,..
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                                                                                                                                                               *::::trttt lIIIIlIIII                           1i11111ii111ii---1---1           3 yr.         11.4
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 @VALUELINE PUB. LLC1* 1-23 35.26 37.25 31.30 36.38 38.74 40.25 43.31 37.98 38.09 39.16 36.41 38.61 41.17 35.37 36.43 37.81 38.35 40.20 Revenues per sh                                                                                                                                                       46.75 4.79              5.88           3.79            6.99            7.25           7.60            8.08         7.96      8.41       9.03         9.63          8.80         9.95 10.35 10.43 11.03 11.45 12.05 "Cash Flow" per sh                                                  14.25 1.82             2.38             .69           3.34            3.28           3.32            3.68         3.24      3.35       3.23        4.55           3.78         4.33       4.15          3.94      4.51       4.55      4.70 Earnings per sh A                            5.50
           **             *-             .80           1.02            1.10           1.18            1.23         1.25       1.27      1.29         1.31          1.37          1.48      1.73          1.98      2.23       2.45      2.57   Div'd Decl'd per sh e
* 3.10 4.88              3.95           5.32            5.73            7.78           8.67            8.67       10.07 13.94           14.76 12.73                11.05 11.99             12.97 , 11.46 11.75 13.30 15.05                      Cap'I Spending per sh                   15.75 13.62 16.52 18.57 20.30 23.66 25.92 29.21                                                                   30.20 32.44          30.86 28.95                30.50 33.64              34.89 36.82 35.82 37.35 38.90                        Book Value per sh c                     44.50 325.81 325.81 325.81 325.81 325.81 325.81 325.81                                                            325.81 325.81        325.81 325.81               325.81 325.81           325.81 325.81 325.81 325.81 325.81                     Common Shs Outst'g 0                  325.81 7.8             7.0           37.6            11.7            13.0 _16.0                     12.4           9.7      10.3       11.8          9.7         12.7          13.0      14.8          17.9      17.2 Bold fig res are      Avg Ann'I P/E Ratio                        15.5
         .43             .40           1.99              .62             .70            .85            .75           .65       .66        .74          .62           .71          .68        .75          .94        .85      Value Line       Relative P/E Ratio                          .85 esllnate&
           ..             -- 3.1% 2.6% 2.6% 2.2% 2.7%                                                            4.0% 3.7%             3.4% 3.0%                  2.8% 2.6%               2.8% -2.8% 2.9%                                     Avg Ann'I Div'd Yield                     3.6%
CAPITAL SlRUCTURE as of 12/31/17                                                                  14112       12374 12409          12760 11862                 12581 13413             11524 11869 12320 12500 13100                         Revenues ($mill)                        15200 Total Debt $14516 mill. Due in 5 Yrs $4793 mill.                                                 1266.0      1115.0 1153.0         1112.0 1594.0              1344.0 1539.0           1480.0 1422.0 1603.0 1620 1670                         Net Profit ($mill)                        1970 LT Debt $11642 mill. LT Interest $569 mill.
(LT interest earned: 4.0x) 30.7%       33.0% 32.1%           25.7% 14.3%                25.2% 22.4%               6.6% 11.1% 5.0% 10.0% 10.0%                         Income Tax Rate                         10.0%
Leases, Uncapitalized Annual rentals $335 mill.                                                    8.9%      10.5% 16.9%           14.8% 8.5%                   7.8% 5.8%               8.0%          6.8% 7.2% 8.0% 7.0%                   AFUDC %to Net Profit                      7.0%
Pens. Assets-12/17 $3616 mill. Oblig $4179 mill.                                                 51.2%       49.3% 51.8%           55.3% 45.2%                45.7% 44.1%             45.0% 41.8% 45.6% 48.0% 48.0%                          Long-Term Debt Ratio                   47.5%
Pfd Stock $2193 mill. Pfd Div'd $124 mill.                                                       44.5%       46.5% 44.3%           40.6% 46.2%                46.2% 47.2%             46.7% 49.2% 45.8% 44.0% 44.5%                         Common Equity Ratio                     45.5%
4,800, 198 sh. 4.08%-4. 78%, $25 par, call. $25.50-                                               21374       21185 23861          24773 20422                 21516 23216             24352 24362 25506 27500 28525                         Total Capital ($mill)                  31800
  $28.75/sh.; 3,250,000 sh. variable, noncum., call.                                                18969       21966 24778
  $100; 1,250,000 sh. 6.5%, cum., $100 liq. value; 32116 30273                30455 32981              35085 37000 39050 41125 43675                         Net Plant ($mill)                       50700 350,000 sh. 6.25%, $1000 liq. value; 460,012 sh.                                                   7.4%        6.9% 6.3%             6.0% 8.9%                  7.3% 7.7%               7.1%          6.9% 7.3% 7.0% 7.0%                    Return on Total Cap'I                    7.5%
5.1 %-5. 75%, $2500 liq. value.                                                                  12.1%       10.4% 10.0%           10.0% 14.2%                11.5% 11.9%             11.1% 10.0% 11.6% 11.5% 11.0%                          Return on Shr. Equity                  12.0%
Common Stock 325,811,206 shs. as of 2/20/18                                                      12.8%       10.8% 10.4%           10.5% 15.9%                12.5% 13.0%             12.0% .10.8% 12.7% 12.5% 12.0%                         Return on Com Equity E                 12.5%
MARKET CAP: $21 billion (Large Cap)                                                                8.6%        6.7% 6.5%             6.3% 11.4%                 8.1% 8.8%               7.2%          5.6% 6.6% 5.5% 5.5%                    Retained to Com Eq                        6.0%
ELECTRIC OPERATING STATISTICS                                                                       35%          41%       40%        43%         32%            40%          37%        44%           53%       52%        57%       58%    All Div'ds to Net Prof                    58%
  %Change Relail Sales (!Mil) 2015
                                                      -1.4 2016
                                                                     -2.6 2 &deg;;~        t-B-U-SI-N~ES_S_:_E_d~is-on-ln-te~rn-at-io-na-l~(f-orm-e-rly~SC_E_C_o~~-)-is-a~ho-ld-in-g~d-e-nt-ia-l,~3-7o/c-,;-c-om~m-er-ci-al~,4-4_%_;-in~du-s-tri-al-,6-o/c-,;-o-th-er-,-13_%__~G-en_e_ra--~
Avg. lndu~. Use (MWHI                               703            664              NA           company for Southern California Edison Company (SCE), which ting sources: gas, 6%; nuclear, 6%; hydro, 5%; purchased, 83%.
Avg. lndu~. Revs..P.er K\!ni (&#xa2;)                  9.07            6.51              NA           supplies electricity to 5.1 mill. customers in a 50,000-sq.-mi. area in Fuel costs: 38% of revs. '17 reported depr. rate: 3.8%. Has 12,500 Capac~ at Peak (Mw~                                  NA              NA             NA           central, coastal, & southern CA (excl. Los Angeles & San Diego). empls. Chairman: William P. Sullivan. Pres. & CEO: Pedro J. Piz-Peak load, Summer )                            23079 23091 Annual load Factor(,)                             52.2            50.7 235~i                     Edison Energy is an energy svcs. co. Disc. Edison Mission Energy zaro. Inc.: CA Address: 2244 Walnut Grove Ave., P.O. Box 976,
  %Change Cu~omers (yr-end)                            +.6            +.5             +.7          (independent power producer) in '12. Elec. rev. breakdown: resi- Rosemead, CA 91770. Tel.: 626-302-2222. Web: www.edison.com.
F~edChargeCov.(%)                                   247            246 t------------------------------------------1 Investors remain concerned about the the beginning of 2018.) The utility's three-241 t-A_N_N_U~A-L-R/l~T~E-S-P-as-t--Pa_s_t_E_s-t'-d-,1-5_-,1-i7                                        possible wildfire liability of Edison In-                                                         year capital spending plan calls for $1.4 of change (per sh)                10 Yrs.               SYrs.            to '21-'23              ternational's                          utility                    subsidiary.                      billion for grid modernization, which is Revenues                                 -.5%             -.5%              4.0%                 Southern California Edison's service area                                                         somewhat controversial because the Cali-
  "Cash Flow"                            4.0%              3.5%               5.0%                 had wildfires in the fall of 2017. The cause                                                      fornia commission has not been asked to Earnings                                2.5%             2.5%               4.5%
Dividends                               6.0%             9.0%                8.0%                of the wildfires has not yet been deter-                                                           approve such spending in previous rate Book Value                              4.5%             3.0%               3.5%                 mined, but SCE has already been hit with                                                           cases. An order is expected by yearend.
t--C-al---.--Q-UA_R_T-ER-LY_R_EV_E_N-UE-S-($_m_il_l.)-,-F-ul-il                                    some lawsuits alleging that its power lines                                                       Tax reform is slightly negative for the endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                           were at fault. (It has $1 billion in liability                                                     company. Edison International has about 1-2-0-15-+-2-1--
52 2908 3763
                                                                   - - -+-.ccc.:..'--I 234 1 11 524 insurance.) Under California's inverse con-                                                        $1.75 billion of long-term debt at the 2016 2440                      2777 3767                        2885 11869                      demnation law, a utility can be held liable                                                        parent level, so corporate interest and 2017 2463                      2965 3672                        3220 12320                      if its power lines contributed to the wild-                                                        other expenses will have a lower tax 2018 2500                      3000 3800                        3200 12500                      fires, even if the utility followed accepted                                                      shield. This is also true for the company's 2019 2600                      3150 4000                        3350 13100                      inspection and safety rules. If this occurs,                                                       nonutility              energy-services                          subsidiary, t--C-al---+---EA-R-NI-NGS-P-ER_S_H-AR_E_A---+-F-ul-il                                              there is no assurance that the utility will                                                        Edison Energy, which is still in its start-endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                                           be allowed to pass these costs through to                                                          up phase and is in the red. Management 1-2-0-15--t-.-91--1-.1-5--1'-.- --_---+......:..:. :;_c....i 15              94           4 15          ratepayers. So, the company is pursuing a                                                          estimates that the corporate and non-2016                .85             .86           1.27              .96           3.94          three-pronged strategy to address this                                                             utility drag on earnings will amount to 2017              1.11              .85           1.43           1.12             4.51          risk, seeking legislative, regulatory, and                                                         $0.25-$0.30 a share this year. Note that 2018               1.10             .90           1.45            1.10            4.55          judicial solutions to this problem.                                                                the company is not providing earnings 2019               1.15             .90           1.50            1.15            4.70          SCE is awaiting an order on its gener-                                                             guidance as long as the general rate case 1--C-aJ-.-+--Q-UA-R-TE-R-LY_D_IV-ID-EN_D_S_PA-ID_e_.__,_F-ul-,I                                    al rate case. The utility has revised its                                                          is pending.
endar Mar.31 Jun.30 Sec.30 Dec.31 Year                                                           request to pass through to customers the                                                           The wildfire risks hurt the stock last 1- - - -~_= ~~. = = ~~_~ ~ ~~_- - --.4-,                                                           benefits of federal tax reform. SCE is ask-                                                        year, and the price has risen .just 2014               355            355              355            355             1 2 201S              .41 75 .4175 .41 75 .4175 1.67                                                ing for a reduction of $106 million in 2018                                                        slightly in 2018. The dividend yield and 2016              .48           .48              .48             .48              1.92          and increases of $431 million and $503                                                             3- to 5-year total return potential are 2017 .5425 .5425 .5425 .5425 2.17                                                               million at the start of 2019 and 2020, res-                                                        above average for this industry.
2018 .605                       .605                                                            pectively. (The order will be retroactive to                                                       Paul E. Debbas, CFA                                        April 27, 2018 (A) Di!. EPS. Exel. nonrec. gains (losses): '02, lions: '12, ($5.11); '13, 11&#xa2;; '14, 57&#xa2;; '15, 11&#xa2;. charges. In '17: $15.08/sh. (D) In millions. (E) Company's Financial Strength                                                                                                          A
$1.48; '03, (12&#xa2;); '04, $2.12; '09, (64&#xa2;); '10, Next earnings report due late July. (B) Div'ds Rate base: net orig. cost. Rate allowed on com. Stock's Price Stability                                                                                                                    90 54&#xa2;; '11, ($3.33); '13, ($1.12); '15, ($1.18); '17, paid late Jan., Apr., July, & Oct.
* Div'd rein- eq. in '15: 10.45%; earned on avg .. com. eq., Price Growth Persistence                                                                                                              50
($1.37); gains (Joss) from discontinued opera- vestment plan available. (C) Incl. deferred '17: 12.2%. Regulatory Climate: Average.
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wtthout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly tor subscriber's own, non-commercial, internal use. No part Ina."'"***~* I '
of It may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating 01 marketing any printed or electronic publication, service or product.
Earnings Predictability
:Hll"'11!HI II      60

18-WSEE-328-RTS
   'IDACORn INC t-------,,--r+--                         1             _ 1 N,--YS_E----rlDA_-,------r-__._P,--RICE~-',--J-RAT~IO_ ,~Med~ian_:
IRECENT               88 84 IP/E 211 (Trailing:21.1) RELATIVE 112 DIV'D 2701.~         14.---101--P/E_RAT~IO_,---,--L_YLD~-'~/O.JIIUW.;ll~--1 TIMELINESS                2       Raised     1 22117 21                High:           39.2 35. 1 I 32.8 37.8 42.7 45.7 54.7
* 70.1                                                                                    70.5 83.4 100.0 91.4                                                    Target Price Range Low:            30.1              21.9 20.9                        30.0             33.9 38.2                          43.1         50.2        55.4 65.0 77.5 79.6                                                      2021 2022 2023 SAFETY                    2 Raised 8/2/13                      _L_EG~.~r:Dividends p sh                              f--t-----l--+~---1--+----+--+----+--+----+--+----+--+---+ 120 TECHNICAL 3 Lowered2/23/18                                     .... i~i~f~eb~r/gleg\~ln~~e t---+-----1--+----+--+---+--+---+-~,+---+--+---+--+-.-
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1          2021-23 PROJECTIONS                                                                                                                                                                    * .....rj'il                                                            '
48 Ann'I Total 1-                                 i Gain (N'll Return 3%
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                                                                                                                                                                                                                                                                                   ." TOT'*STOCK RETURN 3/18 THIS    VL ARITH..
INDEX
                                                                                                                                                                                                                                                                                                                - 8 Percent            15 to Buy             139                116              127 shares                 10                             II            I,"                       Ill                                   *             *                     ,                     l                    1 yr.       9.2       9.7 ::
loSell               91               113                86 traded                  5                           -11111                            '"' 1111 111111.                   ,11 *"                                     111.11 .. , , * .. 111                        3yr.      52.7       24.3 _
,__Hld_'s~(IOO~Ol,--45_9_85~4_5_7_08~_38_2_00_.__ _ _ ___.                                                                                11111 1111111111 1111111111 1111111111                                                    nflllllll 1111111111    m                     Syr. 111.6           68.8 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019                                                                                                                                                                                      &#xa9;VALUELINEPUB.LLCi, 1-23 24.43 20.41 20.00 20.15 21.23 19.51 20.47 21.92 20.97 20.55 21.55 24.81 25.51 25.23 25.04 26.76 26.60 27.00 Revenues per sh                                                                                                                                                                                 28.75 4.08          3.50              4.12              3.87       4.58           4.11              4.27             5.07            5.35             5.84             5.93              6.29          6.58       6.70                6.86      7.50         7.65        8.05 "Cash Flow" per sh                9.25 1.63           .96               1.90             1.75       2.35           1.86              2.18             2.64            2.95             3.36             3.37              3.64          3.85       3.87                3.94      4.21         4.15        4.35 Earnings per sh A                  4.75 1.86          1.70               1.20             1.20       1.20           1.20              1.20             1.20            1.20              1.20            1.37              1.57          1.76       1.92                2.08       2.24         2.40       2.56 Div'd Decl'd per sh e
* t          3.05 3.53          3.89              4.73              4.53       5.16           6.39              5.19             5.26            6.85             6.76             4.78              4.68          5.45       5.84                5.89      5.66          6.25       6.40 Cap'I Spending per sh              6.75 23.01 22.54 23.88 24.04 25.77 26.79 27.76 29.17 31.01 33.19 35.07 36.84 38.85 40.88 42.74 44.65 46.40 48.15 Book Value per sh c                                                                                                                                                                             53.25 38.02 38.34 42.22 42.66 43.63 45.06 46.92 47.90 49.41 49.95 50.16 50.23 50.27 50.34 50.40 50.42 50.40 50.40 Common Shs Outst'g O 50.40 18.9          26.5               15.5             16.7       15.1           18.2              13.9             10.2            11.8              11.5            12.4              13.4          14.7       16.2                19.1       20.6 Bold fig res are Avg Ann'I P/E Ratio                       16.0 1.03          1.51                 .82             .89         .82             .97              .84               .68             .75              .72              .79              .75           .77        .82               1.00       1.04         Value Line      Relative P/E Ratio                  .90 6.0% 6.7% 4.1%                                     4.1%       3.4% 3.5%                       4.0% 4.5% 3.4% 3.1% 3.3% 3.2% 3.1% 3.1%                                                                                            2.8% 2.6%                 estlnates      Avg Ann'I Div'd Yield            4.0%
CAPITAL STRUCTURE as of 12/31/17                                                                  960.4 1049.8 1036.0 1026.8 1080.7 1246.2 1282.5 1270.3 1262.0 1349.5                                                                                       1340      1360 Revenues ($mill)                    1450 Total Debt $1746. 1 mill. Due in 5 Yrs $305.0 mill.                                                 98.4 124.4 142.5 166.9 168.9 182.4 193.5 194.7 198.3 212.4                                                                                                 210        220 Net Profit ($mill)                  245 LT Debl$1746. 1 mill. LT Interest $82.0 mill.                                                   16.3% 15.2%                              ..               .. 13.4% 28.3% 8.0% 19.0% 15.5% 18.6% 10.5% 10.5% Income Tax Rate                                                                                   10.5%
(LT interest earned: 3.9x)                                                                      10.2% 10.5% 19.1% 23.3% 20.3% 12.3% 13.6% 16.3% 16.3% 13.9% 14.0% 14.0% AFUDC %to Net Profit                                                                                                                  14.0%
Pension Assets-12/17 $697.7 *mill.                                                              47.6% 50.2% 49.3% 45.6% 45.5% 46.6% 45.3% 45.6% 44.8% 43.7% 44.0% 42.0% Long-Tenn Debt Ratio                                                                                                                  44.0%
52.4% 49.8% 50.7% 54.4% 54.5% 53.4% 54.7% 54.4% 55.2% 56.3%
Oblig $999.3 mill. t--=-c=--=-~==-c-t--=c~c-+~~t--=c~c-+~,-,-+-c-c=-c,-+-=-'--1-,-,~c-+-~,.,..t--56~.0~%c-+-_58~.0cc%=-+=Cccom~mc,,o.c.cn~E_,qc..,ui.,,_,tvR=at_io_+-5~6.=0%=,-;
2485.9 2807.1 3020.4 3045.2 3225.4 3465.9 3567.6 3783.3 3898.5 3997.5                                                                                         4180 4165 Total Capital ($mill)                    4775 Pfd Stock None                                                                                 2758.2 2917.0 3161.4 3406.6 3536.0 3665.0 3833.5 3992.4 4172.0 4283.9                                                                                         4425 4560 Net Plant ($mill)                        4850 Common Stock 50,392,360 shs.                                                                       5.3% 5.7% 6.0% 6.8% 6.5% 6.4% 6.6% 6.2%                                                                                           6.1% 6.3%               6.0% 6.5% Return on Total Cap'I                    6.0%
as of 2/16/18                                                                                      7.6% 8.9% 9.3% 10.1% 9.6%                                                           9.9% 9.9% 9.5%                                9.2% 9.4%              9.0% 9.0% Return on Shr. l:quity                    9.0%
7.6% 8.9% 9.3% 10.1% 9.6%                                                           9.9% 9.9% 9.5%                                9.2% 9.4%              9.0% 9.0% Return on Com Equity E 9.0%
MARKET CAP: $4.5 billion (Mid Cap)                                                                 3.4% 4.8% 5.5% 6.5% 5.7%                                                            5.6% 5.4% 4.8%                                4.3% 4.4% 4.0% 4.0% Retained to Com Eq                                     3.5%
ELECTRIC OPERATING STATISTICS                                                                       55%             46%             41%               36%             41%               43%           46%         50%                 53%       53%          57%         59% All Div'ds to Net Prof              63%
2015 2016 ~~~1--B-U-SI_NLES_S_:_ID_ALC_O_R_P-,ILn-c.-is_a_,._ho-ld-in_g_cLom_p_a-ny_fLo-rl-da_h_oLP-~-e-r-'-r-ig-at-io-n,L1-1_%_;_mLhe-r.-1-0_%L.-G-e-ne-raLti-ng-so-u-~-es_:_h-yd_r_o,-5-0L%-;_w_a_l.~
   %ChangeRetailSales(K\',\l)                            +1.2          -.5 Avg. lmfust. Use (MWH)                                  NA         NA             NA Company, a regulated electric utility that serves 545,000 customers 18%; gas, 8%; purchased, 24%. Fuel costs: 33% of revenues. '17 Avg.lndust.Revs1eri(1Mj (&#xa2;)                           5.70 5.63 5.83 throughout a 24,000-square-mile area in southern Idaho and east- reported depreciation rate: 2.9%. Has 2,000 employees. Chairman:
Capacity at Peak (MW)                                   NA         NA             ~~ ern Oregon (population: 1 million). Most of the company's revenues Robert A. Tinstman. President & CEO: Darrel T. Anderson. In-Peak load, Summer IMw)                              3402 3299 34NA are derived from the Idaho portion of its service area. Revenue wrporated: Idaho. Address: 1221 W. Idaho St., Boise, Idaho Annual Load Factor(%)                                    NA         NA
   %ChangeCustomers(yr-end)                              +1.4 +1.8 +2.0 breakdown: residential, 41%; commercial, 24%; industrial, 14%; ir- 83702. Telephone: 208-388-2200. Internet: www.idawrpinc.com.
t-------------------------------------------1 F~ed Charge Gov. (%)                                   307        295            329 IDACORP's 10-year streak of earnings 2017 was driven in part by weather) due ANNUAL RATES Past                                         Past Est'd '15-'17 growth might. well come to an end in to the effects of energy efficiency. The util-of change (per sh)                 10 Yrs.                5Yrs.        to '21-'23               2018. This is despite the performance of ity's cost control has been effective, too.
Revenues                                 2.5%              4.0%           2.0%                 the company's utility subsidiary, Idaho We forecast a resumption of profit "Cash Flow"                              5.5%              4.0%           4.5%                  Power, which is faring well, is financially growth in 2019. We think IDACORP will Earnings                                 7.5%              4.5%           3.5%                 sound, and has good growth prospects. A benefit from the growth of Idaho Power.
Dividends                                5.5% 10.5%                       6.5%
Book Value                               5.5%              5.5%           3.5%                 year ago, IDACORP's income benefited Our $4.35-a-share estimate would produce QUARTERLY REVENUES($ mill.)                                   Full          from some tax adjustments. Favorable                                                                                               an increase of 5%.
Cal-endar         Mar.31 Jun.30 Sep.30 Dec.31                                       Year           weather conditions, helped, as well. Our                                                                                           The utility has a regulatory mechan-earnings estimate of $4.15 a share, which                                                                                         ism to supplement its income, if 2015          279.4 336.3 369.2 285.4                                      1270.3 2016          281.0 315.4 372.0 293.6                                      1262.0             we trimmed by a nickel, is within the com-                                                                                         necessary. If Idaho Power's earned re-2017          302.6 333.0 408.3 305.6                                      1349.5             pany's targeted range of $4.10-$4.25.                                                                                              turn on equity falls below 9.5% through 2018          310              335                390         305          1340                Given that IDACORP earned $4.21 a                                                                                                 2019, the utility may use up to $25 million 2019          315              340                395         310          1360               share in 201 7, another year of profit                                                                                             of accumulated deferred investment tax Cal-                  EARNINGS PER SHARE A                                     Full          growth is hardly out of the question, based                                                                                        credits annually to bring its ROE to that endar Mar.31 Jun.30 Sep.30 Dec.31                                               Year           on the company's guidance.                                                                                                         level. (A proposed regulatory settlement 2015              .47 1.31                           1.46         .63           3.87          We expect dividend growth to contin-                                                                                               would extend this mechanism indefinitely 2016              .51             1.12 1.65                       .66           3.94          ue, even if earnings growth is inter-                                                                                              beyond next year.) Note that the ROEs 2017              .66                .99             1.80         .77           4.21          rupted. Management anticipates recom-                                                                                              shown in the statistical array are for 2018              .60             1.00               1.85         .70           4.15          mending to the board annual increases of                                                                                           IDACORP as a whole, not just its utility 2019              .65             1.05               1.90         .75           4.35          at least 5%. The company is targeting a                                                                                            subsidiary.
Cal- QUARTERLY DIVIDENDS PAID 8
* t                                            Full          payout ratio in a range of 50%-60%.                                                                                                This stock is timely, but is priced ex-endar Mar.31 Jun.30 Sea.30 Dec.31 Year                                                          Idaho Power is performing well. The                                                                                                pensively. The dividend yield is below economy of the company's service area is                                                                                           average for a utility. The recent quotation 2014           .43               .43                .43        .47              1. 76         healthy. Customer growth was 2.0% last                                                                                             is near the upper end of our 2021-2023 2015           .47               .47                .47        .51              1.92 2016           .51               .51                .51        .55              2.08          year, which is more than double the indus-                                                                                         Target Price Range. Accordingly, total re-2017           .55               .55                .55        .59              2.24          try norm. Kilowatt-hour sales generally                                                                                            turn potential is negligible.
2018           .59                                                                            aren't rising as fast (the 2.6% increase in                                                                                        Paul E. Debbas, CFA                                     April 27, 2018 (A) Diluted EPS. Exel. nonrecurring gains paid in late Feb., May, Aug., and Nov.
* Div'd Net original cost. Rate allowed on common                                                                                                                                 Company's Financial Strength                      A (loss): '03, 26&#xa2;; '05, (24&#xa2;); '06, 17&#xa2;. '17 earn- reinvestment plan available. t Shareholder in- equity in '11: 10% (imputed); earned on avg.                                                                                                                      Stock's Price Stability                          95 ings don't sum due to rounding. Next earnings vestment plan available. (C) Incl. intangibles. In com. eq., '17: 9.6%. Regulatory Climate:                                                                                                                          Price Growth Persistence                         90 report due early May. (B) Div'ds historically '17: $21.49/sh. (D) In millions. (E) Rate base: Above Average.                                                                                                                                                       Earnings Predictability                          95
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed lo be reliable and is provided wtthout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part                                                                                                    To subscribe call 1-800-VALUELINE of tt may be reproduced, resold, stored or transmttted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS 0 0 1--A_L_LI_A----=-NT_EN_E_R-.-G_Y_NY,--SE----'-L-'-'-r-NT_.-------1-l~-,-~fc_Et__,.3_8_.1-,-7-'--l~--.T10_1::-:-7.,--7(_~~-.-~i~~-;1!_:0+-~p_J1-,-~t_0.__,93__,_l -,----3.--.5&deg;_YoBa_----1 TIMELINESS             2 Raised3/9/18             High:       23.3        21.2          15.8        18.8          22.2
_i~
23.8         27.1        34.9       35.4. 41.D        45.6        42.7                          Target Price Range Low:          17.5        11.4         10.2        14.6          17.0            20.9          21.9        25.0       27.1      30.4        36.6        36.8                          2021 2022 2023 SAFETY                 2 Raised 9/28/07          LEGENDS TECHNICAL              3 Lowered 3/2/18        -       gii~:d ~"tt~~!sf ~~te            1-+----1--+----11----t-----11----t-----1--+-----1--+--- --1--+-----1-BO BETA .70 (1.00=Market)
                                                 * * *
* Relative ~rice Strength 2-for-1 spl! 5/16                        l--+----t---t-----1,---t-----11----+----:-                                                **---1---t-----1---t-----1---t----t-60 50 2021-23 PROJECTIONS                     O~~~~~/.;'r~aindicatesrecession                                                   ~
* _..-                *--.,.,, ***                                ***** ****** 40 Ann'I Total                                            1                            /                                             1 1 ** ,, 111* . .,11               *-                             ***** -----*
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                                                                                                                                                                                                                                 % TOT. RETURN 2118 THIS STOCK VLARITH.'
INDEX
                                                                                                                                                                                                                                                          ~7.5 to Buy           198         194       190     shares         16 '              I " I                                                                                            I                                         1 yr.      1.0       10.1   ~
tos,11           188         187       165     traded          8 I        ,. 111 ilmhlll!lhl*lo.l                    "        II                                        I      "' ,,      I    ,, II                     3yr.      34.3       24.2    -
Hld's(DODl  179256 182717 166325                                   lllllllllllll llllllllWIIIIIIII 11111111111111111111 11111111111 1111111111111111111111111111111111 1111111111 II                                       Syr.      92.2       76.2 Alliant Energy, formerly called Interstate En- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 @VALUELINEPUB.LLC, 1-23 ergy Corporation, was formed on April 21, 16.67 15.51 15.40 16.51 13.94 14.77 15.10 14.34 14.58 14.62 15.30 15.55 Revenues per sh                                                                                                                          17.75 1998 through the merger of WPL Holdings,                                   2.28         2.10         2.60         2.75             2.95          3.34        3.44       3.45      3.45         3.97       4.25       4.45 "Cash Flow" per sh                 5.00 IES Industries, and Interstate Power. WPL                                  1.27           .95        1.38         1.38              1.53         1.65        1.74       1.69      1.65         1.99       2.10       2.25 Earnings per sh A                  2.60 stockholders received one share of Inter-                                    .70          .75          .79          .85               .90         .94        1.02       1.10      1.18         1.26        1.34      1.42 Div'd Decl'd per sh e
* t           1.66 state Energy stock for each WPL share, IES                                 3.98         5.43         3.91         3.03              5.22         3.32        3.78       4.25      5.26         6.34        6.75      7.10 Cap'I Spending per sh               5.30 stockholders received 1.14 Interstate Ener- 12.78 12.54 13.05 13.57 14.12 14.79 15.54 16.41                                                                                      16.96 18.08 19.00 20.25 BookValuepersh c                                  22.85 gy shares for each IES share, and Interstate 220.90 221.31 221.79 222.04 221.97 221.89 221.87 226.92 227.67 23,1.35 233.00 235.00 Common Shs Outst'g o 235.00 Power stockholders received 1. 11 Interstate                               13.4         13.9         12.5         14.5              14.5         15.3        16.6       18.1      22.3         20.6 Bold fig res.,. Avg Ann'I PIE Ratio                      15.0 Energy shares for each Interstate Power                                      .81          .93          .80          .91               .92         .86          .87        .91     1.17         1.01        Value Lin*       Relative PIE Ratio                 .85 share.                                                                    4.1%         5.7%         4.6%         4.3%             4.1%          3.7%       3.5%        3.6%      3.2%        3.1%          estin ates      Avg Ann'I Div'd Yield           4.3%
CAPITAL STRUCTURE as of 12/31/17                                        3681.7 3432.8 3416.1 3665.3 3094.5 3276.8 3350.3 3253.6 3320.0 3382.2                                                             3560 3650 Revenues ($mill)                        4175 Total Debt $5186.5 mill. Due in 5 Yrs $1500.D mill.                      280.0 208.6 303.9 304.4 337.8 382.1 385.5 380.7 373.8 455.9                                                                       490        530 Net Profit ($mill)                   610 LT Debt $4010.6 mill. LTlnterest $180.D mill.                           33.4%              --    30.1% 19.0% 21.5% 12.4% 10.1% 15.3% 13.4% 12.5% 12.0% 12.0% Income Tax Rate                                                                             12.0%
:r (L interest earned: .ox)    4
                                                                                 --          ..           --            --                -*         *-           *- 6.5% 7.0% 7.0% 7.0% 7.0% AFUDC %to Net Profit                                            7.0%
Pension Assets-12/17 $950.7 mill. Oblig. $1303.1 36.3% 44.3% 46.3% 45.7% 48.4% 46.1% 49.7% 48.6% 52.8% 49.0% 50.0% 50.0% Long-Term Debt Ratio                                                                                                            50.0%
mill.                                                                   58.6% 51.2% 49.5% 50.9% 48.4% 50.8% 47.5% 51.4% 47.2% 51.0% 50.0% 50.0% Cominon Equity Ratio                                                                                      50.0%
Pfd Stock $400.D mill. Pfd Div'd $10.2 mill.                           4815.6 5423.0 5840.8 5921.2 6476.6 6461.0 7257.2 7246.3 8177.6 8192.8                                                              8300 8400 Total Capital ($mill)                   8700 16,DDD,DOD shs.                                                         5353.5 6203.0 6730.6 7037.1 7838.0 7147.3 6442.0 8970.2 9809.9 10797.9 11125 11645 Net Plant ($mill)                                                                               12900 common stock 231,348,646 shs.                                             7.0%         5.1%         6.6%         6.4%             6.3%          7.0%       6.3%        6.3%      5.6%        5.6%        6.0% 6.5% Return on Total Cap'I                   7.0%
9.1%         6.9%         9.7%         9.5% 10.1% 11.0% 10.6% 10.2%                                    9.7% 10.9% 11.0% 11.0% Return on Shr. Equity                             11.5%
9.3%         6.8%         9.9%         9.5% 10.3% 11.3% 10.9% 10.2%                                    9.7% 10.9% 11.0% 11.0% Return on Com Equity E 11.5%
MARKET CAP: $8.8 billion (Large Cap)                                      3.8%           .9%        3.8%         3.3%             3.9%          4.9%       4.3%        3.6%      2.8%        4.0%        4.0% 4.0% Retained to Com Eq                       4.0%
ELECTRIC OPERATING STATISTICS                                              62%          88%          64%         *67%              64%           57%        59%         65%       72%          63%        64%        63% All Div'ds to Net Prof              64%
2015 2016 2~1~ 1--8-US_I_N~ES_S_:_A_lli~an_t_E-ne-rg~y-C-o-rp-.,~f-or_m_e-rly~n-a_m_e_d~ln-te-rs-ta-te~En-e-r-~s-o-ur-ce-s~,-20-1-7:-c~o-al-,4-0-%~;-ga_s_,-17~'/c-,;-o-th-e-r,-43-%-,.-F-u-el_c_os~ts_:_4_5'/c-,.,
  %Change Retail Sales (KWH)              -.1      +2.0 Avg. lndu~. Use (M'Mi)             11735 11987 12102 gy, is a holding company formed through the merger of WPL Hold- of revs. 2017 depreciation rate: 5.5%. Estimated plant age: 15 Avg. lndu~. RevsJl_er KWH (i)        6.92        7.04        7.16 ings, IES Industries, and Interstate Power. Supplies electricity, gas, years. Has approximately 3,989 employees. Chairman & Chief Ex-Capacity at Peak (MIi)              5385 5615 ~~i~ and other services in Wisconsin, Iowa, and Minnesota. Elect. revs. ecutive Officer: Patricia L. Kampling. Incorporated: Wisconsin. Ad-Peak load, Summer (Mw)              5385 5615 Annual load Factor(Yo)                 NA          NA         NA by state: WI; 38%; IA, 61%; MN, 1%. Elect. rev.: residential, 36%; dress: 4902 N. Biltmore Lane, Madison, Wisconsin 53718. Tele-
  %Change Cuslomers (yr-end)             +.3       +1.0         +.4 commercial, 24%; industrial, 30%; wholesale, 8%; other, 2%. Fuel phone: 608-458-3311. Internet: www.alliantenergy.com.
1------------------------------------------t F~ed Charge Cov. (%)                  315         295        319        Alliant Energy's largest utility subsid-                                                               much of the anticipated savings will be re-ANNUAL RATES Past                         Past Est'd '14-'16            iary has reached a settlement of its                                                                   turned to customers through fewer/lower of change (per sh)         10 Yrs.        5Yrs.       to '21-'23        rate case. Under the agreement, electric                                                               rate increases over time.
Revenues                         .5% -1.5%               3.0%           rates for Interstate Power and Light Com-                                                              Wind energy remains an area of focus "Cash Flow"                    3.5%        6.5%          5.5%           pany (IPL) would rise $130 million (7.8%)                                                              for Alliant. In December, the utility Earnings                       5.0%         6.5%         6.5%
Dividends                      7.5%         6.5%         6.0%           in 2018. That is down from the original                                                                agreed to purchase English -Farms Wind Book Value                     4.0%        4.5%          5.0%           $176 million (11.6%) reque~t. but within                                                               Farm for an undisclosed sum. The 170-Cal,           QUARTERLY REVENUES ($ mill.)                           our range of estimates. The Iowa Utilities                                                             megawatt, Iowa-based project is expected Full endar         Mar.31 Jun.30 Sep.30 Dec.31 Year                          Board also approved a return on common                                                                 to power approximately 75,000 homes 2015          897.4 717.2 898.9 740.1 3253.6 equity of 9.6% and said that temporary                                                                 upon completion. Alliant is aiming to gen-2016          843.8 754.2 925.0 797.0 3320.0                           rates, which have been in effect since April                                                           erate at least one-third of its Iowa energy 2017          853.9 765.3 906.9 856.1 3382.2                           2017, would remain until the board                                                                     mix from wind starting in 2020.                                              .
2018         950         790        945         875        3560        reviews and approves tariff filings to be                                                              The board raised the dividend in the 2019         960         815        975         900        3650        made by Alliant. The company said it                                                                  first quarter of 2018. This is the usual Cal-              EARNINGS PER SHARE A                      Full would use the funds to upgrade power                                                                   timing of the annual increase. The direc-endar         Mar.31 Jun.30 Sep.30 Dec.31                    Year       grids and improve facilities like the Mar-                                                             tors boosted the yearly disbursement by 2015             .44         .30       .80         .15       1.69      shalltown natural gas generating station.                                                              $0.08 a share (6.3%), the same increase as 2016             .43         .37       .57         .28       1.65      Earnings should advance in 2018 and                                                                    in each of the past four years. Alliant is 2017             .44         .41       .73         .41       1.99      2019. Each year, the utility is expected to                                                            tar~eting a payout ratio of 60%-70% .
2018             .50         .40       .85         .35       2.10      benefit from electric and gas rate increases                                                           This good-quality stock is well ranked 2019             .53         .43       .90         .39       2.25      at IPL and Wisconsin Power and Light                                                                   for year-ahead relative price perform-Cal-        QUARTERLY DIVIDENDS PAID e -t                  Full       Company (WPL). Our 2018 profit estimate                                                                ance. The dividend yield is slightly below endar Mar.31 Jun.30 Seo.30 Dec.31 Year                                  is near the midpoint of management's                                                                   the median for a utility. Appreciation 2014           .255       .255       .255        .255        1.02 guidance range of $2.04-$2.18 a share,                                                                 potential, while improved since our De-2015           .275       .275       .275        .275        1.10      while our 2019 estimate calls for 7% year-                                                             cember report, is still well below the value 2016           .295       .295       .295        .295        1.18      on-year growth. It should be noted that                                                                Line median. Accordingly, we advise long-2017           .315       .315       .315        .315        1.26      tax reform is not forecasted to have a ma-                                                             term investors to wait on the sidelines .
2018           .335                                                    terial impact on earnings. This is because                                                             Daniel Henigson                                        March 16, 2018 (A) Diluted EPS. Exel. nonrecur. gains (losses): Aug., and Nov.
* Div'd reinvest. plan avail. t Orig. cost. Rates all'd on com. eq. in IA in '17:                                                             Company's Financial Strength                      A
'DB, 4&#xa2;; '09, (44&#xa2;); '10, (8&#xa2;); '11, (1&#xa2;); '12, (8&#xa2;). Shareholder invest. plan avail. (C) Incl. 10.5%; in WI in '17 Regul. Clim.: WI, Above                                                                   Stock's Price Stability                          95 N~~t earnings _report ~ue_ early May. (8) deferr~d chgs. In '17: $69.7 mill., $0.30/sh. (D) Avg.; IA, Avg.                                                                                                     Pric~ Growth ~ersi~~ence                        90 D1v1dends h1stoncally paid 1n mid-Feb., May, In millions, adJusted for split. (E) Rate base:
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided w!hout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRD_RS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, intemal_use. No part of it may be reproduced, resold, stored or transmitted in any pnnted, electronic or other form, or used for generating or marketing an printed or electronic publication, service or product.
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TIMELINESS             3 Lowered2123118              High:             36.7            29.7          26.8               30.6             36.6         38.0         47.2         58.7           59.7 48.4 63.8 52.2 64.5 55.7 59.8 50.0 Target Price Range 2021 2022 2023 i-=L'-"o-'-'w'-:.,__=-24-'-'-=-5.,__-'-16"-'.=-5-'---;18.5             23.8             27.4         33.0         35.1         42.6 SAFETY                 3 New 5/4/12                _L_EG~-~f:           Dividends Psh                                                                                                                                                                                                     120 TECHNICAL              5 Lowered4/6/1B              .... ~~J~~eb~r/~~e~;~n~~e 1*0=0===M=ark=e=t)=-__, o~g~~~/ir~a indicates recession t--+-----l---+-----l--+----t...,,,.-'""'=i-_.._:.....:-==i--,,....,=1---+--- -t--+--_**-*--+*_*-_-_*+* 64
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: :~ri           1~1 i6g Hld'slODD 56186 53930 45947 traded
                                               ~~ shares                  20 10             I   .::1 .,.                   II.                   II,            ..                           I       h 111111111111111111111 1111111111111111111111 1111111111 111111111111111111111 llllllli11111111IIIJ111 1111111111 II I       I      .II ,I       II                   g:: 1t~
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                                                                                                                                                                                                                                                                                          =
2002 2003 2004 2005 2006                                           2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 &#xa9;VALUELINEPUB.LLCi,1-23 29.18 32.57 31.49                        30.79 35.09 31.72 30.66 30.80 28.76 29.80 25.68 25.21                                                                                  26.01 26.45 26.25 27.00 Revenues per sh                                     29.50 3.20       4.00          3.62            3.70             4.40          4.62              4.76             5.42         5.18         5.45          5.39          5.92           6.74            6.76        6.95       7.30 "Cash Flow" per sh              8.25
                       ** d14.32            1.71          1.31            1.44             1.77          2.02              2.14             2.53         2.26         2.46          2.99          2.90           3.39            3.34        3.45       3.55 Earnings per sh A               4.00 1.00          1.24            1.28             1.32          1.34              1.36             1.44         1.48         1.52          1.60          1.92           2.00            2.10        220        230 Div'd Decl'd per sh B
* t        2.60 2.25       2.26          2.81           3.00              3.47         5.26               6.30             5.20         5.89         5.95         5.76           5.89           5.96            5.60        5.70       6.70 Cap'I Spending per sh           6.25 19.92 20.60 20.65                        21.12 21.25 21.86 22.64 23.68 25.09 26.60 31.50 33.22 34.68 36.44 37.95 39.10 Book Value per sh c                                                                                                                  42.75 35.60 35.79 35.97                        38.97 35.93 36.00 36.23 36.28 37.22 38.75 46.91 48.17 48.33 49.37 50.25 50.40 Common Shs Outst'g 0                                                                                                                 51.00 17.1          26.0           21.7              13.9          11.5              12.9             12.6         15.7          16.9         16.2          18.4           17.2            17.8 Bold fig res are Avg Ann'I PIE Ratio                   16.0
                                              .91         1.40            1.15              .84            .77                .82            .79         1.00           .95           .85           .93           .90               .89       Value Line     Relative P/E Ratio               .90
           --          --           --     3.4%          3.6%           4.1%             5.4%         5.7%               4.9%              4.5%        4.2%          3.7%         3.3%           3.6%          3.4%             3.5%          estin ates     Avg Ann'I Div'd Yield         4.1%
CAPITAL STRUClURE as of 12/31/17                                                   1260.8 1141.9 1110.7 1117.3 1070.3 1154.5 1204.9 1214.3 1257.2 1305.7                                                                                  1320      1360 Revenues ($mill)                1500 Total Debt $2137.3 mill. Due in 5 Yrs $332.0 mill.                                       ITT           ru ru ~ m                                                    ~           ~              1~ ~ ~                                       170        180 Net Profit ($mill)               205 LT Debt $1815.6 mill. LT Interest $83.5 mill.                                      37.3% 17.2% 25.0%                                    9.8%        9.6% 13.2%                      ** 13.7% 13.7%                           7.6%        2.5% 3.5% Income Tax Rate                      6.5%
Incl. $22.2 mill. capitalized leases.
(LT interest earned: 3.1x)                                                            2.3%          4.4% 14.2%                          3.3%        9.4%          8.7%         8.9%           9.8%           4.3%            5.2%        6.0%       6.0% AFUDC %to Net Profit            5.0%
46.8% 56.4% 57.2% 52.2% 53.8% 53.5% 53.4% 53.1% 52.0% 50.2% 49.5% 48.5% Long-Tenn Debt Ratio                                                                                                        46.0%
53.2% 43.6% 42.8% 47.8'/, 46.2% 46.5% 46.6% 46.9% 48.0% 49.8% 50.5% 51.5% Common Equity Ratio                                                                                                       54.0%
Pension Assets-12/17 $586.5 mill.                                                  1434.3 1803.9 1916.4 1797.1 2020.7 2215.7 3168.0 3408.6 3493.9 3614.5                                                                                  3775      3840 Total Capital ($mill)           4050 Oblig $696.8 mill. 1839.7 1964.1 2118.0 2213.3 2435.6 2690.1 3758.0 4059.5 4214.9 4358.3                                                                                                   4465       4620 Net Plant ($mill)               4975 Pfd Stock None 7.0%          6.0%               5.9%             7.0%         5.5%         5.5%         4.8%           5.2%           5.9%            5.6%        5.5%       5.5% Return on Total Cap'I           6.0%
Common Stock 49,397, 196 shs.                                                         8.9%          9.3%               9.4% 10.8%                    9.0%         9.1%         8.2%           8.6%           9.8%            9.0%        9.0%       9.0% Return on Shr. Equity           9.5%
as of 2/9/18                                                                          8.9%          9.3%               9.4% 10.8%                    9.0%         9.1%         8.2%           8.6%           9.8%            9.0%        9.0%       9.0% Return on Com Equity E 9.5%.
MARKET CAP: $2.7 billion (Mid Cap)                                                    2.3%          3.2%               3.5%             4.7%         3.2%         3.5%         3.8%           3.0%           4.1%            3.4%        3.5% 3.5% Retained to Com Eq                    3.5%
ELECTRIC OPERATING STATISTICS                                                          74%           66%                63%              56%          65%          61%          54%            65%            58%             62%         64%        64% All Div'ds to Net Prof           64%
2015 2016 ~i~1-B-U-SI-NLES_S_:_N_oLrth_W_e_s-te~rn-C-o-rp-o~ra-ti-on-(d~oi-ng-bu_sLin-~-s-a_sLN-ort_h__-'-5-%_;_0-thLer-,-4&deg;-Vo.-GLe-n-er_a_tinLg-s_o_ur-ceLs-:h-y-d-ro-,3-6-%-;-co-a-l,-2-9&deg;~V.-;w-i-nd-,~
   %Change Relai1Sales([(V,\j)               -.1           -.7 Avg. lndust. Use (MWHI               30133 29784 30987 Western Energy) supplies electricity & gas in the Upper Midwest 6%; other, 4%; purchased, 25%. Fuel costs: 31% of revenues. '17 Avg. lndust. Revs.Jer i(IMl 111           NA            NA             NA and Northwest, serving 433,000 electric customers in Montana and reported deprec. rate: 3.0%. Has 1,600 employees. Chairman:
Capacity at Peak (Mw)                    NA            NA             NA South Dakota and 286,000 gas customers in Montana (87% of Stephen P. Adik. President & CEO: Robert C. Rowe. Inc.: Dela-Peakload,Wnler(Mil)                  2096 2138 Annual Load Factor(%)                     NA            NA 21Jl gross margin), South Dakota (12%), and Nebraska (1%). Electric ware. Address: 3010 West 69th Street, Sioux Falls, South Dakota
   %Change Customers ~1-nd)              +1.3         +1.2            +1.3 revenue breakdown: residential, 40%; commercial, 51%; industrial, 57108. Tel.: 605-978-2900. Internet: www.northwesternenergy.com.
F~ed ChargeCov. (%)                     252           253            275           We estimate that NorthWestern's                                                                                        wholesale customers (versus the compa-earnings will advance moderately this                                                                                  ny's request for a 20% allocation). This ANNUAL RATES Past                            Past Est'd '15-'17 of change (per sh)          10Yrs.          5Yrs.           ID '21-'23             year. In 2018, the company will benefit                                                                                forced NorthWestern to take a $0.12-a-Revenues                       -2.0%        -3.0%                2.0%              from a full year's effect of a $5.1 million                                                                            share charge in 2012. Management is "Cash Flow"                     5.5%         5.0%               4.0%               gas rate hike that took effect in Montana                                                                              deciding whether pursuing this matter Earnings                        8.0%          7.0%              3.5%               last September. The refinancing of debt in                                                                             further is worthwhile.
Dividends                       5.5%          7.0%              4.5%
Book Value                      5.5%          8.0%               3.5%              the fourth quarter of 2017 is another: plus.                                                                           Another legal matter is pending. The Cal-          QUARTERLY REVENUES($ mill.)                          Full          However, there will be some dilution from                                                                              Montana commission disallowed recovery endar Mar.31 Jun.JO Sep.JO Dec.31 Year                                              the equity issued in 2017 and 2018 via its                                                                             of certain costs associated with a plant 2015 346 _0 270 _6 272 .7 325 _0 1214_3                                           at-the-market program. Our 2018 share-                                                                                 outage in 2013. This forced NorthWestern 2016 332.5 293.1 301 _0 330 _6 1257 _2                                            earnings estimate, which we trimmed by                                                                                 to take a $0.13-a-share charge in the 2016.
2017 367.3 283.9 309.9 344.6 1305.7                                               $0.05 a share, is within NorthWestern's                                                                                The utility is seeking relief in the Montana 2018         365        300         315           340             1320            targeted range of $3.35-$3.50.                                                                                         District Court. It expects a decision within 2019         375        310         325           350             1360            An electric rate case is upcoming in                                                                                   the next 12 months.
1--C-al---+---EA-R-NI-NG_S_P_E_R-SH-A-RE-A--1--F-u~II                                 Montana. The utility expects to file an ap-                                                                            The board of directors raised the divi-endar Mar.31 Jun.JO Sep.JO Dec.31 Year                                              plication by September, with an order due                                                                              dend in the first quarter. The hike was
>-~-~-1:--1:-~~--}-~---~:~-i-*--:~-~...,f--~-:~-<~ ~rtt:~;~ 1;~                                                 0
                                                                                                                                ~i;t;e"ri!~~=~ni~~~t~~~i-i:!~                                                !  0 y~~te!~u~~- ~~!~ w~~~:~~st~:r::~ig                                           a:
2017          1.17          .44         .75           .98           3.34          ever, regulation in. Montana has worsened                                                                              payout ratio in a range of 60%-70%.
2018          1.15           .45        .80         1.05            3.45          in recent years, which is a cause for con-                                                                             This stock has a dividend yield and 3-2019          1.20           .45        .85         1.05            3.55          cern. Still, a partial year of rate relief                                                                             to 5-year total return potential that t--C-al---+-Q-U-AR_TE_R_t:_Y_DIV-I-DE-N-DS_P_A_ID_B_*_t-t--F-ul~I                     would benefit earnings in 2019.                                                                                        are above the utility average. This fol-endar Mar.31 Jun.30 Seo.JO Dec.31 Year                                              NorthWestern had a setback in the                                                                                      lows a price decline of more than 10%
1-2-0-14-+==0~=~==-=-.a==- --_- i                                                     U.S. Court of Appeals. The utility ap-                                                                                 since the start of 2018. This has been a 4            40         40            40            1 60 2015           :48          :48         :48           :48            1_92         pFeadled aEn unfavRorabl e rulinCg froi:n _the                                                                         bhad ybear for utilityhequities, (mt ht~e _fadlloff 2016           .50          .50         .50           .50            2.00              e era1 nergy egu 1atory omm1ss1on,                                                                                   as een greater t an most m t 1s m us-2017           .525         .525       .525           .525           2.10         which ruled that just 4% of the cost of a                                                                              try. There isn't a clear reason why.
2018           .55                                                                gas-fired plant could be allocated to                                                                                  Paul E. Debbas, CFA                                          April 27, 2018 (A) Diluted EPS. Exel. gain (loss) on discont. (B) Div'ds historically paid in late Mar., June, on com. eq. in MT in '14 (elec.): 9.8%; in '17 Company's Financial Strength                                                                                                                  B+
ops.: '05, (6&#xa2;); '06, 1&#xa2;; nonrec. gains: '12, 39&#xa2; Sept. & Dec.
* Div'd reinvestment plan avail. (gas): 9.55%; in SD in '15: none specified; in Stock's Price Stability                                                                                                                       95 net; '15, 27&#xa2;. '15 EPS don't add due to round- (C) Incl. defd charges. In '17: $14.42/sh. (D) In NE in '07: 10.4%; earned on avg. com. eq., '17: Price Growth Persistence                                                                                                                    85 ing. Next earnings report due late July. mill. (E) Rate base: Net orig. cost. Rate allowed 9.5%. Regulatory Climate: Below Average.                                                                                                            Earnings Predictability                       85
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind.
THE PUBLISHER          IS  NOT    RESPONSIBLE      FOR     ANY      ERRORS        OR   OMISSIONS           HEREIN.         This    publication    is strictly for subscriber's   own,    non-commercial,       internal     use. No part  llilL'Hl1~,,m1,,._..,      1a,:11Ill'lll!III of nmay be reproduced, resold, stored or transmnted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS 0
I--O_G_E_E_N_ER_G_Y_C-,--O_R~P._NY_SE.-----O_GE-r-----'1'-r-~~f_JfT_3_1_.2-,--0.,__l:_no_15_.2_(_i~~-,--l~~;_U:~-+)~_rEi_rr,t_0_.8..,.......JOl.__~_                                                                                          _4_.6&deg;_Yo_L---_
TIMELINESS 3 Lowered1/l2/lB                             High:
Low:
20.7 14.6 18.1 9.8 18.9 9.9 23.1 16.9 28.6 20.3 30.1 25.1 40.0 27.7 39.3 32.8 36.5 24.2 34.2 23.4 37.4 32.6 33.1 29.6 Target Price Range 2021 2022 2023 SAFETY                    2 Lowered 12/18115 LEGENDS TECHNICAL 4 Raised 3116118                            -        -~ii~:ci iivi1;1~~!l ~~te ' t - - - + - - - - - , 1 - - - - + - - - - - + - - - - - - - - - - - - - - - - - - - f - 80 BETA .95 (1.00 = Market)
                                                        .* , , Relative 2-for-1   SRltt 7/13~rice Strength          t--t----+---t----+--.1nr-t-----+---l----+--l----+--t----+--I----+ 60
                                                                                                                                                                      <'.*TOI*                                                                                                                   50 2021-23 PROJECTIONS                          o~~~~!/ir~a indicates recession                                                                                 '            1 I----.                                                                                       40 Ann'ITotal                               I                I                                                _             111 1111 1, p1 1 111~k.t<.,,,          , 1 p.,,,,,i, 1.":"---- --.
1      1 Price Gain                   Return                                 1                1
                                                                                                                                                                                                           *'                  "-                                                                30 High 50 (+_ 60%1 16%                                                                                                                      .. " ***"'''                                     'llili r:.r                                                                                         25 Low           35 (+10%                      8%                                   1                1                    " A'"'                                                                                                                                                                  20 111 1 11 1 Insider Decisions                                         1 '         ' 1il r i,,,1,11            I          "~                                                                                                                                                                                15 M J J A S O N D J
                                                       ,w   *
                                                              .....                 ii...- 11 .. 11
                                                                     ~ ** ****111 (1t!.* ***** *.......... ******
to Buy O O O O O O O O O i,...*:::'=-=i---=:*:,,                           ..'-"''l-1--"-1-+:.i..+'--l---+---l---+---l---+'~~-1.-.-.,~
Options 000000000                                                                I                l                                                                                        ,;,-..,,,* ..,k..~.~.-..-l---+---l---+---1-----1-10 to Sell       o o o 1 o o 2 o O l---+-------''1----+----'-,-+----+--+----+---+----+---+----+---+'---+-----1 % TOT. RETURN 2118 - 7.5 Institutional Decisions                                                                           I                                                                                                                                                                  THIS       vLARITll'
  .to Buy to Sell 2Q2D17 3Q2017 4Q2D17 159 202 Hld's(OOD 145860 145781 124353 151 155 155 138 Percent shares traded 18 1 12Jlimitltffiffi 6
1    I 1,,111lllllll"h-l"ffit11.clllk4Hn h-.J!Hil l !Hh111"11ftl;:ti":,.Hl Ullllillll """"' 111111111 Ulllllllll 111111ij111 II tl                     "       ;;:,rn'--'*--1--..__j 1
3 yr.
yr.
U11111111111111illll!l U~~+-c-~-+--5,,,yr=.~2~6~.5~~76~.2~-1--~-1 STOCK
                                                                                                                                                                                                                                                                      -11.7 7.7 INDEX 10.1 24.2
                                                                                                                                                                                                                                                                                              ~
:=
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 &#xa9;VALUELINEPUB.LLCi,1-23 19.26 21.62 27.37 32.83 21.96 20.68 21.77 14.79 19.04 19.96 18.58 14.45 . 12.30 11.00                                                                                                             11.31 11.32 11.75 12.50 Revenues per sh                                                 14.75 1.87          1.82            1.87       1.94       2.23         2.39              2.40     2.69         3.01              3.31                3.69            3.46
* 3.40           3.23        3.31            3.34         3.60       4.00 "Cash Flow" per sh                         4.75
          .72           .87             .89       .92        1.23         1.32              1.25    1.33         1.50              1.73                1.79,           1.94         1.98      1.69       1.69            1.92         2.05        2.15 Earnings per sh A                          2.50
          .67           .67             .67       .67          .67          .68              .70      .71            .73              .76                .80              .85        .95      1.05       1.16            1.27         1.40        1.54 Div'd Decl'd per sh 8
* 1.85 1.49          1.04            1.51       1.65       2.67          3.04             4.01     4.37         4.36              6.48                5.85            4.99         2.86     2.74        3.31            4.13         3.15        3.15 Cap'I Spending per sh                      2.75 6.27          6.87            7.14      7.59        8.79          9.16 10.14 10.52 11.73 13.06 14.00 15.30 16.27 16.66                                                                          17.24 19.28 19.95 20.55 Book Value per sh c                                             22.50 157.00 174.80 180.00 181.20 182.40 183.60 187.00 194.00 195.20 196.20 197.60 198.50 199.40 199.70 199.70 199.70 199.70 199.70 Common Shs Outst'g 0 199.70 14.1          11.8            14.1       14.9        13.7         13.8              12.4    10.8         13.3              14.4                15.2            17.7         18.3     .17.7        17.7           18.3 Botdfig*res are Avg Ann'I P/E Ratio                                 17.0
          .77           .67             .74       .79          .74          .73              .75      .72            .85              .90                .97              .99        .96        .89        .93             .91        Value Une           Relative PIE Ratio                       .95 estln ates 6.6%           6.5%            5.3%      4.9%        4.0%         3.8%              4.5%     5.0%        3.7%             3.1%                 2.9%            2.5%        2.6%       3.5%        3.9%           3.6%                               Avg Ann'I Div'd Yield                 4.3%
CAPITAL STRUCTURE as of 12/31/17                                                      4070.7 2869.7 3716.9 3915.9 3671.2 2867.7 2453.1                                                  2196.9      2259.2 2261.1                  2350 2500 Revenues ($mill)                                  2950 Total Debt $3168.1 mill. Due in 5 Yrs $668.9 mill.                                      231.4 258.3 295.3 342.9 355.0 387.6 395.8                                                         337.6       338.2 384.3                   410         430 Net Profit ($mill)                           500 LT Debt $2749.6 mill. LT Interest $140.4 mill.                                       30.4% 31.7% 34.9% 30.7% 26.0% 24.9% 30.4%                                                         29.2%        30.5% 32.5%                 14.0% 14.0% Income Tax Rate                                 14.0%
(LT interest earned: 4.3x) 1.7%    9.1%        5.7%              9.0%                2.7% 2.6% 1.7%                         3.7%        6.4% 15.0%                  8.0% 7.0% AFUDC %to Net Profit                              3.0%
Leases, Uncapitalized Annual rentals $4.8 mill.                                      53.3% 50.6% 50.8% 51.6% 50.7% 43.1% 45.9%                                                         44.3%        41.1% 41.7%                 43.0% 44.0% Long-Term Debt Ratio                            45.5%
46.7% 49.4% 49.2% 48.4% 49.3% 56.9% 54.1%                                                         55.7%        58.9% 58.3%                 57.0% 56.0% Common Equity Ratio                             54.5%
Pension Assets-12/17 $635.3 mill.                                                    4058.6 4129.7 4652.5 5300.4 5615.8 5337.2 5999.7                                                  5971.6      5849.6 6600.7                  6980 7350 Total Capital ($mill)                             8225 Oblig $687.5 mill.                5249.8 5911.6 6464.4 7474.0 8344.8 6672.8 6979.9                                                  7322.4      7696.2 8339.9                  8660 8910 Net Plant ($mill)                                 9450 Pfd Stock None 7.0%     7.9%        7.8%              7.8%                 7.7%           8.6%         7.8%      6.9%        7.0%           7.0%          7.0% 7.0% Return on Total Cap'I                            7.5%
Common Stock 199,706,104 shs.                                                         12.2% 12.7% 12.9% 13.4% 12.8% 12.8% 12.2%                                                         10.2%         9.8% 10.0%                10.0% 10.5% Return on Shr. Equity                           11.0%
as of 1/31/18                                                                         12.2% 12.7% 12.9% 13.4% 12.8% 12.8% 12.2%                                                         10.2%         9.8% 10.0%                10.0% 10.5% Return on Com Equity                         E 11.0%
MARKET CAP: $6.2 billion (Large Cap)                                                   5.4%     6.0%         6.7%             7.7%                 7.2%           7.3%         6.5%      4.0%         3.3%          3.5%          3.0% 3.0% Retained to Com Eq                                3.0%
ELECTRIC OPERATING STATISTICS                                                           55%      53%          48%               43%                 44%            43%           47%      61%         67%             64%          68%         72% All Div'ds to Net Prof                      74%
2015 2016 2017 1 - - - - ' - - - - - - ' - - - ' - - - - - ' - - - ' - - - - - ' - - - - - ' - - , - - ' - - - - - ' - - - ' - - - - - ' - - - . . . . . J . - - - - - - - - ' - - - - - - l
   %ChangeRetai1Sales(KWtl)                    -2.9        -1.1         -2.2 BUSINESS: OGE Energy Corp. is a holding company for Oklaho- ing sources: coal, 34%; gas, 25%; wind, 4%; purchased, 37%. Fuel Avg. lndust. Use (MWHl                        754          NA           NA ma Gas and Electric Company (OG&E), which supplies electricity to costs: 40% of revenues. '17 reported depreciation rate (utility):
Avg.lndust.RevsjlerKWtl(&#xa2;)                   5.05        5.17         5.30 842,000 customers in Oklahoma (84% of electric revenues) and 2.5%. Has 2,400 employees. Chairman, President and Chief Exec-
   ~!fk~a~'.    ~ii:J~~I                     65
                                                 ~~
65
                                                             ~~           NA western Arkansas (8%); wholesale is (8%). Owns 25.7% of Enable utive Officer: Sean Trauschke. Incorporated: Oklahoma. Address:
Annual Load Factor(%)                          NA          NA 6~                      Midstream Partners. Electric revenue qreakdown: residential, 40%; 321 North Harvey, P.O. Box 321, Oklahoma City, Oklahoma 73101-
_%_Ch_an_ge_cus1_o_me_rs_1Y_r-e_n~___+_1_.2__+_1_.1__+_1_.o 1-co_m_m_e_rc_ia_1,_2_6'_Vo;_i_nd_u_st_ria..;.l,_9_%..;.;_oi_lfi_el..;.d,_7_%..:.;_ot_h_er'-,_18_%_._G_e_ne_ra_t-_ _                   o3_2_1._T_e_le:....ph_o_ne_:_40_5-_5_5_3-_3o_o_o_.l_nt_ern_et_:www
__.o...:g.:...e._co_m_._ _ _--1 F~edChargeCov.(%)                            314         336         315             OGE Energy's utility subsidiary has                                                                           Rate relief should benefit the compa-t-A-N_N_u""'A'-L-RA--'T-'-E-S_P_a-st--P-as-t-Es-t'_d_'1-5_-,1--i7                       filed a general rate case in Oklahoma.                                                                        ny's profits this year and next. Our ofchange(persh)                  10Yrs.         5Yrs.         to'21-'23               Oklahoma Gas and Electric is asking the                                                                      2018 estimate of $2;05 a share is at the Revenues                            -8.0% -10.0%                 4.5%                 Oklahoma Corporation Commission (OCC)                                                                        upper end of OGE Energy's targeted range "Cash Flow"                          4.0%         -.5%           4.5%                for an increase of $1.9 million, based on a                                                                   of $1.90-$2.05. Also, we expect higher Bfv7~i~~~s                            t~~        tg~ ~:8~                             return of 9.9% on a common-equity ratio of                                                                   equity income from the stake in Enable as Book Value                            7.5%       6.5%            4.0%                 53%. (The request would have been over                                                                       the master limited partnership's prospects Cal,             QUARTERLY REVENUES ($ mill.)                       Full
                                                                                         $70 million were it not for the pass-                                                                        improve.
endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                               through to customers of reduced federal                                                                       Two                    environmental                                 compliance taxes.). The utility is seeking to place in                                                                   projects are on track for completion 2015 480.1 549.9 719.8 447.1 2196.9 2016 433.1 551.4 743.9 530.8 2259.2                                                 the rate base a $390 million project to                                                                       by yearend. OG&E is adding scrubbers to 2017 456.0 586.4 716.8 501.9 2261.1                                                  modernize the 462-megawatt Mustang                                                                           two units at the Sooner coal-fired plant at 2018 475                      600        750         525          2350               gas-fired plant; restore the depreciation                                                                    a cost of $542 million. Another coal-fired 2019 500                      650        800         550          2500               rates to their level before the OCC cut                                                                      unit is being converted to a gas-fired facil-Cal-                  EARNINGS PER SHARE A                          Full           these last year; and raise its allowed ROE                                                                    ity at cost of $76 million. The utility will endar Mar.31 .Jun.30 Sep.30 Dec.31 Year                                               from the current 9.5%. New tariffs are ex-                                                                   file a rate application in Oklahoma in late 2015              .22             .44        .88         .15         1.69            pected to take effect at the start of Octo-                                                                  2018 in order to place these projects in the 2016              .13             .35        .92         .29         1.69            ber. Note that in Arkansas, OG&E will                                                                        rate,base .
2017              .18             .52        .92         .30         1.92            recover its investment in Mustang through                                                                    The dividend yield of this stock is 2018              .20             .50      1.05          .30         2.05            the state's formula rate plan.                                                                               above the utility average. What's more, 2019              .20             .55      1.10          .30         2.15            The new federal tax law is benefiting                                                                        OGE Energy expects to hike the disburse-Cal-            QUARTERLY DIVIDENDS PAID 8
* Full            earnings.. The revaluation of deferred                                                                       ment by 10% annually through next year.
endar Mar.31 Jun.30 Seo.30 Dec.31 Year                                                taxes produced a nonrecurring gain of                                                                        Even if the board doesn't maintain such a
                                                                                         $1.18 a share in the fourth quarter of                                                                       high growth rate beyond 2019, the in-2014 .225                      .225 .225 .25                            .93 2015 .25                       .25        .25         .275           1.03            2017. This year, the lower tax rate applied                                                                  creases we project should produce a re-2016 .275                      .275 .275              .3025           1.13           to OGE Energy's income from its interest                                                                     spectable total return over the 3- to 5-year 2017 .3025 .3025 .3025 .3325                                          1.24           in Enable Midstream Partners will add                                                                        period.
2018 .3325                                                                           $0.08 to share net.                                                                                           Paul E. Debbas, CFA                                              March 16, 2018 (A) Oil. EPS. Exel. nonrecur. gain (losses): '02, historically paid in late Jan., Apr., July, & Oct.
* Rate allowed on com. eq_. in OK in '16: 9.5%; in (20&#xa2;); '03, (7&#xa2;); '04, (3&#xa2;); '15, (33&#xa2;); '17, $1.18; Div'd reinvestment plan available. (C) Incl. de- AR in '11: 9.95%; earned on avg. com. eq., '17:
I  Company's Financial Strength Stock's Price Stability A
85 gains on disc. ops.: '02, 6&#xa2;; '05, 25&#xa2;; '06, 20&#xa2;. !erred charges. In '17: $1.42/sh. (D) In mill.,                                                               17.0%. Regulatory Climate: Average.                                    Price Growth Persistence                                  55 Next earnings report due early May. (8) Div'ds adj. for split. (E) Rate base: Net original cost.                                                                                                                                       Earnings Predictability                                   80
 &#xa9; 2018 Value Line, Inc. All nghts reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part                                                                         To subscribe call 1-800-VALUELINE of tt may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS 0
t--P_IN_N_A---::-C_LE_*W_ES---,-T_N_YS~E-_PNW---.-----.---~1---,--~~fc_ErT----r-80_.1--r-5~1:---,-Tlo_1_8'-,-1(_i~--r~/~~-:1~_:0t--~TELA_J~---,--15_0.__,96_,_~_f~-,---3'---,-6&deg;_Yo_ _----i TIMELINESS 4 Lowered 3130118                       High:       51.7        42.9      38.0        42.7        48.9         54.7               61.9                    71.1          73.3            82.8           92.5         85.6                                                      Target Price Range Low:        36.8        26.3      22.3        32.3        37.3         45.9               51.5                    51.2          56.0            62.5          75.8          73.8                                                       2021 2022 2023 SAFETY                  1 RaisedS/3/13          -
LEGENDS 0.63 x Dividends p sh 120 100 TECHNICAL               5 Lowered4/6/18         .... i~i~fieb~r/g~e;~~n~~e                                              /"....                                                                                  ,,,, 11 ,, 1                                                             ****    *     ****         **     80 BETA .65 (1.00 = Marl<et)                       O~tions: Yes                                                                                                                      .--- ii" "'' * ~- * *                                                                                  * * * * * * * * * *
* 64 2021 23
* PROJECTIONS                   haded area indic~les recession ,t---t-----1-7/4-~                        ..-.. ,i,"':,,It;.,;;:;:;;:,,,;:I,: ;,;;;,?,
1 11      ;!'
11 ,'f't;;,1T1 1  J'ttt'-'--t---=~~-.-:.:-:.::.j_;:-:_:--_                                                         -t----t--t----t-48 Ann'I Total ,. 1,,           I 1,                  1              , ,,-;;,,,, 11 Price          Gain      Return ""                   II*' I 1.i.-.r:::;, I .,,, 1*'111'              1 High          90 (+10%1                7%             ****                                                                                                                                                                                                                                                                  32 Low           75           (-5%        3%        *..:__ --:-... *1 *** . . .II l,,1!.                              .... *******                                                             * .*                                                                                                                            24 1               1                                                                                                                   *** ** * ***..                                                                                                    20 Insider Decisions                                                                             ****      * ******                               ... * ****.*** * *-**** ****
J J A S O N D J F                                      I               I                                                                                                                                                                                                                                     16 to Buy o o o o o o o o o                                              I               I                                                                                                                                                                                                                                     12 Options o o o o 12 o o 112 to Sell o o 3 o o 2 1 1 o I               j
                                                                                                                                                                                                                                                                           %      TOT.      RETURN           1     9      _
31                 8 I               j
                                                                        '1111 Institutional Decisions                                                                                                                                                                                                                                                                  THIS       VLARITH."
2Q2017      3Q2017    4Q2017 Percent          30                                                                                                                                                                                                                      STOCK          INDEX            ,..
lo Buy toSell 194 224 Hld's(OOO 107032 104825 94333 218
* 182 shares 185       183 traded 20 10 I                            11               1,1     ,.                ..,
1111111111 1111111111 111111111 1111111111 111111111111 IIII 1111 ""             It      tltftltrttlh\-;tffi  ...litTtr.ttt--t---13yr.
1 yr.              -1.2 39.0 9.7 _
24.3 _
                                                                                                                                                                                              .l!:IIIL!!111~11111Llf.l!:111~1111~11,IL.lf.l!:ll,.,,..,.-=-+-:-:::-:-:-+-5-,i;y,:,r.,;.,.,,=65,-;.3==-:::=6-,-8..,. ,8::-r:17"::-=-i 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011                                                                     2012 2013 2014 2015 2016 2017 2018 2019                                                                                                           &#xa9;VALUELINEPUB.LLC1<1-23 28.90          30.87       31.59     30.16      34.03      35.07       33.37      32.50 30.01             29.67 30.09                    31.35 31.58                            31.50           31.42 31.90 32.80 34.30                                           Revenues per sh                                      39.75 7.01           7.33.       6.93      5.76       9.70       9.29         8.13      8.08       6.85         7.52        7.92                 8.15                  8.09           9.09            9.. 39         9.79 10.10 10.65                                 "CashFlow"persh                                      12.75 2.53           2.52        2.58      2.24       3.17       2.96         2.12      2.26       3.08         2.99        3.50                 3.66                  3.58           3.92            3.95           4.43         4.50                   4.70         Earnings per sh A                                       5.50 1.63           1.73        1.83      1.93       2.03       2.10         2.10      2.10       2.10         2.10        2.67                 2.23                   2.33          2.44            2.56           2.70         2.86                    3.02        Div'd Decl'd per sh 8
* 3.50 9.81           7.60        5.86      6.39       7.59       9.37         9.46     7.64        7.03         8.26        8.24                 9.36                   8.38          9.84          11.64 12.80 11.25 10.80                                           Cap'l Spending per sh                                 11.00 29.44          31.00       32.14     34.57      34.48      35.15        34.16     32.69 33.86 34.98 36.20                                 38.07 39.50                           41.30           43.15 44.80 46.35 48.00                                           Book Value per sh c                                  54.00 91.26          91.29       91.79     99.08      99.96     100.49      100.89     101.43 108.77 109.25 109.74                           110.18 110.57                           110.98        111.34 111.75 112.00 112.25                                          Common Shs Outst'g O                                113.00 14.4           14.0        15.8      19.2       13.7       14.9         16.1      13.7       12.6         14.6        14.3                 15.3                   15.9          16.0            18.7           19.3 Bold fig res are                            Avg Ann'l P/E Ratio                                     15.0
         .79           .80         .83      1.02        .74         .79          .97       .91        .80          .92          .91                   .86                 .84            .81             .98             .97       Value Une                           Relative P/E Ratio                                        .85 4.5%           4.9%        4.5%      4.5%       4.7%       4.8%        6.2%      6.8%        5.4%        4.8%        5.3%                4.0%                   4.1%           3.9%             3.5%           3.2%            estln ates                        Avg Ann'I Div'd Yield                                 4.2%
CAPITAL STRUCTURE as of 12/31/17                                        3367.1 3297.1 3263.6              3241.4 3301.8 3454.6 3491.6 3495.4                                                   3498.7 3565.3                   3675 3850 Revenues ($mill)                                                                  4500 Total Debt $4829.4 mill. Due in 5 Yrs $1188.4 mill.                       213.6 229.2 330.4                 328.2 387.4 406.1 397.6 437.3                                                         442.0 497.8                    505                     535 Net Profit {$mill)                                              630 LT Debt $4789.7 mill. LT Interest $213.6 mill.                          23.4% 36.9% 31.9%                  34.0% 36.2% 34.4% 34.2% 34.3%                                                        33.9% ~2.5%                   18.0% 18.0% Income Tax Rate                                                               18.0%
Incl. $13.4 mill. Palo Verde sale leaseback lessor                                                                                                                                               14.1% 13.9%                  13.0% 10.0% AFUDC %to Net Profit                                                             8.0%
17.5% 11.2% 11.7%                  12.8%         9.7% 10.0% 11.6% 11.8%
notes.
(LT interest earned: 4.4x)                                              46.8% 50.4% 45.3%                  44.1% 44.6% 40.0% 41.0% 43.0%                                                         45.6% 48.9%                 48.0% 48.5% Long-Tenn Debt Ratio                                                           45.5%
Leases, Uncapitalized Annual rentals $13.4 mill.                        53.2% 49.6% 54.7%                  55.9% 55.4% 60.0% 59.0% 57.0%                                                         54.4% 51.1%                  52.0% 51.5% Common Equity Ratio                                                            54.5%
Pension Assets-12/17 $3057.0 mill.                                      6477.6 6686.6 6729.1              6840.9 7171.9 6990.9 7398.7 8046.3                                                    8825.4 9796.4                  9985 10480 Total Capital ($mill)                                                          11175 Oblig $3394.2 mill.         8916.7 9257.8 9578.8              9962.3 10396 10889 11194 11809                                                         12714 13445                  14075 14625 Net Plant ($mill)                                                              16125 Pfd Stock None                                                                                                                                                                                                    6.1%         6.0% 6.0% Return on Total Cap'I                                                             6.5%
4.7%      4.8%        6.5%        6.4%         6.8%                7.1%                   6.4%           6.4%            6.0%
Common Stock 111,799,789 shs.                                             6.2%      6.9%        9.0%         8.6%        9.8%                9.7%                   9.1%           9.5%            9.2%           9.9%        10.0% 10.0% Return on Shr. Equity                                                          10.5%
as of 2/16/18                                                              6.2%      6.9%       9.0%         8.6%        9.8%                9.7%                   9.1%           9.5%            9.2%           9.9%        10.0% 10.0% Return on Com Equity E                                                         10.5%
MARKET CAP: $9.0 billion (Large Cap)                                         .3%       .7%      3.1%         2.8%        4.1%                4.1%                   3.5%           3.9%            3.5%           4.2%         3.5% 3.5% Retained to Com Eq                                                                4.0%
ELECTRIC OPERATING STATISTICS                                               96%       89%        66%          68%         58%                  58%                   62%            59%              62%           58%          63%                     63% All Div'ds to Net Prof                                          63%
                             .           2015 2016             2017      1---~-~--~-~--                                                            ~-~-~--~-~-~- -~-~------~--1
   %ChangeRetai1Sales[K'Mi)               +1.3         +.3          **     BUSINESS: Pinnacle West Capital Corporation is a holding compa- commercial, 40%; industrial, 5%; other, 5%. Generating sources:
Avg. lnlfusl. Use (Ml'IH)               658        640        620       ny for Arizona Public Service Company (APS), which supplies elec- nuclear, 29%; gas & other, 26%; coal, 22%; purchased, 23%. Fuel Avg.lndusl.Revs._p_eriMII(/)           8.17       8.37       8.34       tricity to 1.2 million customers in most of Arizona, except about half costs: 28% of revenues. '17 reported deprec. rate: 2.8%. Has 6,300 Capaci~a!Peak(Mwl                     9250       9192       8438        of the Phoenix metro area, the Tucson metro area, and Mohave employees. Chairman, President & CEO: Donald E. Brandt. Inc.:
Peak load, Surnmer(Mll)               7031       7051       7363 AnnualloadFactor(o/o)                  48.3       48.0       46.3       County in northwestern Arizona. Discontinued Suncor real estate AZ. Address: 400 North Fifth St., P.O. Box 53999, Phoenix, AZ
   %ChangeCustomers(yr-end)               +1.3       +1.3       +1.8       subsidiary in '10. Electric revenue breakdown: residential, 50%; 85072-3999. Tel.: 602-250-1000. lnternet:.www.pinnaclewest.com.
foedChargeCov.(%)                       438        416        425       Pinnacle West's utility subsidiary has                                                                                 crease this year. Pinnacle West raised ANNUAL RATES Past                          Past Est'd ,15 ., 17         asked the Arizona Corporation Colll-                                                                                   its 2018 earnings guidance by a dime a ofchange(persh)               10Yrs.       5Yrs.       to'21-'23        Dlission for a rate increase. Although                                                                                share, to $4.35-$4.55, due largely because Revenues                         -.5%       1.0%          4.0%          the rate order last year for Arizona Public                                                                            the company raised its expectation for the "Cash Flow"                      1.5%       5.0%          5.0%          Service froze base tariffs mid-2020, the                                                                               Allowance for Funds Used During Con-Earnings                         4.0%       5.0%          5.0%                                                                                                                                                                                                               d                                           A Dividends                        2.5%       2.5%          s.5%           ruling also allowed APS to file for recovery                                                                          struction, a noncash ere it to income. d-Book Value                       2.0%       4.0%          4.0%           of an environmental project at the Four                                                                               ditional expense-management initiatives Cal-            QUARTERLY REVENUES($ mill.)                 Full       Comers coal-fired station through a rider                                                                             are another factor. We raised our estimate endar Mar.31 Jun.30 Sep.30 Dec.31 Year                                   (surcharge) on customers' bills. The utility                                                                          by $0.10 a share, to $4.50.
2o1 5 671 .2 890.7 1199.1 734.4 3495.4                                 is seeking an increase of $65 million                                                                                  We forecast higher profit growth in 2016 677.2 915.4 1166.9 739.2 3498.7                                    (about 2%), and no *change in the allowed                                                                             2019. The aforementioned rate rider 2017 677.7 944.6 1183.3 759.7 3565.3                                    return on equity of 10%. A decision is ex-                                                                            should help. In addition, the utility's 2018          700          975      1225        775       3675          pected in time for the rider to take effect                                                                           strong (and rising) customer growth rate is 2019          725         1025      1300        800       3850          at the start of 2019. The project should be                                                                           stimulating modest kilowatt-hour sales Cal-                 EARNINGSPERSHAREA                      Full       completed soon at a cost of $390 million.                                                                             growth, despite the effects of energy ef-endar Mar.31 Jun.30 Sep.30 Dec.31                            Year       The costs that the company will incur this                                                                             ficiency. Our $4. 70-a-share earnings es-2015              .14       1.10      2.30         .37       3.92      year will be deferred for recovery begin-                                                                              timate would produce an increase of 4%.
2016              .04       1.08      2.35         .47       3.95      Anning nhext year unde: talhe rid~r. .                                                                  d              T!1,i sd untdiinely stock has a aldividend 2017              .21       1.49      2.46         .27        4.43             ot er large capit proJect 1s un er                                                                             yie1 an 3- to 5 -year tot                                                                                      return 2018              .25 1.30             2.60        .35        4.50      construction. APS is building five gas-                                                                               potential that are about average, by 2019              .25        1.35      2.70        .40        4.70      fired units and retiring two at an esti-                                                                              utility standards. Perhaps conservative Cal-            QUARTERLY DIVIDENDS PAID e
* Full       mated cost of $500 million. This will in-                                                                             investors will find this acceptable, given endar Mar.31 Jun.30 Seo.30 Dec.31                            Year        crease the utility's generating capacity by                                                                           the equity's top-notch Safety rank and the
_       290 megawatts. Costs associated with this                                                                             company's high rating for Financial 2014             568         568       568        595        2 30 2015            :595        :595      :595       :625        2.41       phroject :Will. be deferrebd until APS _recovers                                                                      Strengthh. However. li~e n:iohs~ utility is -
2016            .625        .625      .625       .655         2.53      t ese m its next                                ase rate increase,                                                    sues, t e recent pnce 1s wit m our 202 1-2017            .655        .655      .655       .695         2.66      presumably in mid-2020.                                                                                               2023 Target Price Range.
2018            .695                                                    We estiD1ate a D1odest earnings in-                                                                                    Paul E. Debbas, CFA                                                                         April 27. 2018 (A) Diluted EPS. Exel. nonrec. gain (losses): '16 EPS don't sum due to rounding. Next earn- avail. (C) Incl. defd chgs. In '17: $14.34/sh. Company's Financial Strength                                                                                                                                                       A+
 '02, (77&#xa2;); '09, ($1.45); '17, 8&#xa2;; gains (losses) ings report due early May. (B) Div'ds historical- (D) In mill. (E) Rate base: Fair value. Rate al- Stock's Price Stability                                                                                                                                                   95 from disc. ops.: '05, (36&#xa2;); '06, 10&#xa2;; '08, 28&#xa2;; ly pd. in early Mar., June, Sept., & Dec. There lowed on com. eq. in '17: 10.0%; earned on Price Growth Persistence                                                                                                                                                           70
 '09, (13&#xa2;); '10, 18&#xa2;; '11, 10&#xa2;; '12, (5&#xa2;). '15 & were 5 declarations in '12.
* Div'd reinv. plan avg. com. eq., '17: 10.0%. Regul. Climate: Avg. Earnings Predictability                                                                                                                                                       95
 &#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed lo be reliable and is provided wnhout warranties of any kind. -                                                                                                                                 ,
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part                                                                            I               I             I'            ,ll.1!:illl""!lll!:11 of nmay be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS PORTLAND GENERAL NYSE-POR                                                                 IRECENT PRICE        40 , 92 IPIERATIO 18, .          4Crajling:17.9)
Median: 16.0 RELATIVE PIE RATIO O98 DIV'YLDD 3.5%-"'~*
I TIMELINESS            4   Lowered 3/23/18         High:         31.3        27.7        21.4      22.7         26.0      28.1       33.3       40.3        41.0         45.2      50.1          45.6                          Target Price Range Low:           25.5        15.4        13.5      17.5         21.3      24.3       27.4        29.0        33.0        35.3      42.4          39.0                          2021 2022 2023 SAFETY                2 Raised 5/4112         -
LEGENDS 0.73 x Dividends p sh TECHNICAL             5 Lowered 4120/18                  divided b~ Interest Rate
                                                 , . , . Relative rice Strength 80 BETA .65 (1.00 = Market)                                                                                                                                                                                                                                   60 O~~~~:/ir~a indicates recession                                                                                                                                                                              50
                                                                                                                          -                                       -- ,.,-.r,,,,
                                                                                                                                                                                  ,111,111*1 2021-23 PROJECTIONS 40 Ann'I Total I                        I                 I                                                                                                                                    **---
_u.or11111l11111**
Price        Gain       Return                                                                          /                                                                                       *,
* 111111 I I ,
30 I', .1 l""lllll1i                     I High         50 (+20&deg;4               9%
1
                                                                                                                                           '                                                                                                                 25 I  11111111 Low          35        (-15%          1%
                                                         '*' .........,:! F<.,,**'11) 111!1!     ,....    ,1 *'
20 Insider Decisions J J A S 0 N D J F to Buy 0 0 0 0 0 0 0 0 0                            /
V         I I              I  I""* *.......... ......***** ....******* ****...... ********... ........... *********. ...........                                                                 15 10 Options 10 O 010 O 0 0 0 5                                            i                 !
toSell       O O OO0 0 0 0 1                                                                                                                                                                                                                           ~7.5
                                                                                                                                                                                                                       % TOT. RETURN 3/18 Institutional Decisions 2Q2017     3Q2017     4Q2017 Percent             121  I          I   I)                        ., I.                 1,                                                I THIS STOCK VLARITH.'
INDEX 1 yr.    -6.0         9.7 to Buy to Sell 147 112 122 118 136 shares 91 traded 14 I II
                                                                                                              ""II@ 1~~1!1~111 ~l!ltl~I I ~~l!l~l l ~~ij~I 1111                                                                            Ill                      3yr. 19.9        24.3
                                                                                                                                                                                                                                                         ~
7                                                                                                                                                 5 yr. 55.5        68.8
                                                                                                                                                                                                                                                         ~
Hld'sfOOD 88988 88359 81125                                                                        11111 11111                                                                            Ill 2002 2003 2004 2005F 2006 2007 2008 2009 2010 2011 2012                                                                                                                                     2018 2019                @ VALUE LINE PUB. LLC , 1-23
          --          --          --    23.14       24.32        27.87       27.89       23.99     23.67        24.06     23.89      23.18       24.29       21.38        21.62     22.54         22.70 23.50        Revenues per sh                       25.75
          --          --          --      4.75        4.64         5.21       4.71         4.07      4.82         4.96     5.15        4.93       6.08        5.37         5.78       6.16          6.40        6.85 "Cash Flow" per sh                      8.00
          --          --          --      1.02        1.14         2.33        1.39        1.31      1.66         1.95     1.87        1.77       2.18        2.04         2.16      2.29           2.20        2.35 Earnings per sh A                        2.75
          --          --          --        --          .68         .93         .97        1.01      1.04         1.06     1.08        1.10       1.12         1.18         1.26      1.34          1.42        1.50 Div'd Decl'd per sh e
* t                1.80
          --          --          --      4.08        5.94         7.28       6.12         9.25      5.97         3.98     4.01        8.40      12.87        6.73         6.57       5.77          6.35        5.10 Cap'I Spending per sh                    5.00
          --          --          --    19.15       19.58        21.05       21.64       20.50     21.14        22.07     22.87       23.30      24.43       25.43        26.35     27.11         27.85 28.70        Book Value per sh c                   31.50
          --          --          --    62.50       62.50        62.53       62.58       75.21     75.32        75.36     75.56       78.09     78.23        88.79        88:95     89.11         89.25 89.40        Common Shs Outst'g o 90.00
          --          --          --        --        23.4         11.9        16.3        14.4      12.0         12.4     14.0        16.9        15.3        17.7         19.1      20.0     Bold fig res are      Avg Ann'I P/E Ratio                      15.5
          --          --          --        --        1.26          .63         .98         .96       .76          .78       .89         .95        .81         .89         1.00      1.01          Value Line estln ates Relative P/E Ratio                        .85
          --          --          --        --       2.5%         3.3%       4.3%        5.4%       5.2%        4.4%      4.1%        3.7%       3.3%        3.3%         3.1%      2.9%                             Avg Ann'I Div'd Yield                  4.2%
CAPITAL STRUClURE as of 12/31/17                                         1745.0 1804.0 1783.0 1813.0 1805.0 1810.0 1900.0                                1898.0       1923.0 2009.0              2025 2100 Revenues ($mill)                                2325 Total Debt $2426 mill. Due In 5 Yrs $460 mill.                              87.0         95.0 125.0 147.0 141.0 137.0 175.0                                172.0        193.0 204.0                195         210 Net Profit ($mill)                        255 LT Debt $2426 mill.               LTlnterest $123 mill.
Incl. $49 mill. capitalized leases.
28.7% 28.8% 30.5% 28.3% 31.4% 23.2% 26.0%                                       20.7%         20.6% 25.3%             12.5% 12.5% Income Tax Rate                              12.5%
(LT interest earned: 3.1x)                                                17.2% 31.6% 17.6%                   5.4%      7.1% 14.6% 33.7%                 19.8%         16.6%      8.8%          7.0% 5.0% AFU DC %to Net Profit                           4.0%
Leases, Uncapitalized Annual rentals $9 mill.                            46.2% 50.3% 53.0% 49.6% 47.1% 51.3% 52.7%                                       47.8%         48.4% 50.1%            47.0% 50.5% Long-Tenn Debt Ratio                          48.5%
Pension Assets-12/17 $629 mill.                                          53.8% 49.7% 47.0% 50.4% 52.9% 48.7% 47.3&deg;,P                                     52.2%         51.6% 49.9%             53.0% 49.5% Common Equity Ratio                          51.5%
Oblig $869 mill.            2518.0 3100.0 3390.0 3298.0 3264.0 3735.0 4037.0                                4329.0       4544.0 4842.0              4710 5190 Total Capital ($mill)                           5500 Pfd Stock None                                                           3301.0 3858.0 4133.0 4285.0 4392.0 4880.0 5679.0                                6012.0       6434.0 6741.0              6930 6985 Net Plant !$mill)                               7000 Common Stock 89,114,522 shs.                                               5.0%        4.5%       5.4%        6.2%      5.9%        5.1%       5.8%        5.4%         5.6%      5.5%          5.5% 5.5% Return on Total Cap'I                           6.0%
as of 2/2/18                                                               6.4%        6.2%       7.9%        8.8%      8.2%        7.5%       9.2%        7.6%         8.2%       8.4%          8.0% 8.5% Return on Shr. Equity                          9.0%
6.4%        6.2%       7.9%        8.8%      8.2%        7.5%       9.2%        7.6%          8.2%      8.4%          8.0% 8.5% Return on Com Equity                E          9.0%
MARKET CAP: $3.6 bi11ion (Mid Cap)                                         2.0%         1.5%      3.0%        4.1%      3.5%        2.9%       4.6%        3.3%         3.5%      3.6%          3.0% 3.0% Retained to Com Eq                               3.5%
ELECTRIC OPERATING STATISTICS                                               69%         76%        62%          54%      57%         61%        50%         56%          57% -58%                 64%         63% All Div'ds to Net Prof                    63%
2015 2016 2017                      BUSINESS: Portland General Electric Company (PGE) provides
  %Cha~e Relail Sales (Kl'lli)           +.6        -2.1        +3.9                                                                                                   28%; coal, 15%; wind, 8%; hydro, 8%; purchased, 41%. Fuel costs:
Avg. In ust. Use (MNH~             17485 16146 16041                     electricity to 875,000 customers in 52 cities in a 4,000-square-mile                        30% of revenues. '17 reported depreciation rate: 3.6%. Has 2,900 Avg. lndu&. Revsi         (&#xa2;)         5.01       4.99 4.94               area of Oregon, including Portland and Salem. The company is in                             employees. Chairman: Jack E. Davis. President and Chief Execu-Capaci~ al Peak ~                    4609 4730 4743                      the process of decommissioning the Trojan nuclear plant, which it                           tive Officer: Maria M. Pope. Incorporated: Oregon. Address: 121 Peak Load, Summer )                  3914 3726 3976 Annu~ load Facior ( */                  NA          NA           NA      closed in 1993. Electric revenue breakdown: residential, 48%; com-                          S.W. Salmon Street, Portland, Oregon 97204. Telephone: 503-464-
  %ChangeCuslomers yr-nd)              +1.2       +1.2         +1.3       mercial, 33%; industrial, 11 %; other, 8%. Generating sources: gas,                         8000. Internet: www.portlandgeneral.com.
F~ed Charge Cov. (%)                   243         271         298       Portland General Electric has filed a                                                       Unrecovered costs associated with the ANNUAL RATES Past                         Past Est'd '15-'17 rate case. The utility requested an in-                                                     Carty gas-fired plant continue to be a of change (per sh)         10 Yrs.        5Yrs.         to '21-'23       crease of $89 million (4.8%), based on a re-                                                drag on earnings. The facility was com-Revenues                      -1.5% -2.0%                  3.0%          turn of 9.5% on a common-equity ratio of                                                    pleted in 2016, several months after PGE "Cash Flow"                    1.5%        3.0%            5.5%           50%. An order from the Oregon Public                                                       declared the contractor of the project in Earnings                       4.0%        3.5%            4.0%
Dividends                      9.0%        3.5%            6.0%          Utility Commission (OPUC) is expected in                                                    default of the construction agreement.
Book Value                     3.0%        3.5%            3.0%          December, with new tariffs taking effect at                                                 However, $123 million of the plant's $637 Cal-           QUARTERLY REVENUES ($ mill.)                            the start of 2019.                                                                          million cost are not reflected in rates. PGE Full endar Mar.31 Jun.JO Sep.JO Dec.31 Year                                   Earnings are likely to decline this                                                         filed suit against the contractor's insurer, 2015 473.0 450.0 476.0 499.0 1898.0 year. Favorable weather patterns helped                                                     seeking to collect a $14 5. 6 million perform-2016 487.0 428.0 484.0 524.0 1923.0                                     the bottom line in 201 7, but the weather                                                   ance bond, plus damages. The company ex-2017 530.0 449.0 515.0 515.0 2009.0                                     in early 2018 turned the other way. In                                                      pects resolution of this matter to take two 2018 530                455        515       525            2025        fact, the Portland area had its second-                                                     to four years, but was citing the same time 2019 555                470        530       545            2100        warmest January on record. We have                                                          frame two years ago. Unrecovered costs Cal-               EARNINGS PER SHARE A                       Full lowered our *earnings estimate by $0.20 a                                                   and litigation expenses reduced earnings endar Mar.31 Jun.JO Sep.JO Dec.31 Year                                   share, to $2.20. Our revised estimate is                                                    by $0.09 a share in 2017, and the loss will 2015            .62         .44        .40         .57         2.04     within PGE's guidance of $2.10-$2.25 a                                                      widen to an estimated $0.12 a share this 2016            .68         .42        .38         .68         2.16     share.                                                                                      year due to the lower tax shield from the 2017            .82         .36        .44         .67         2.29     There is a possible risk to earnings                                                        reduced federal tax rate.
2018            .70         .42        .43         .65         2.20     this year. PGE is going to ask the OPUC                                                     We forecast an earnings recovery in 2019            .75         .45        .45         .70         2.35     for permission to defer (for future                                                         2019. We assume normal weather condi-Cal-        QUARTERLY DIVIDENDS PAID e
* t                    Full     recovery) costs in 2018 associated with the                                                 tions and reasonable treatment in the endar Mar.31 Jun.JO Seo.JO Dec.31 Year                                   upgraded customer information system the                                                    aforementioned rate case.
2014          .275       .275       .28         .28            1.11 company expects to complete soon. If the                                                    This unti..m.ely stock has a dividend 2015          .28        .28        .30         .30            1.16     OPUC doesn't approve this request and                                                       yield and 3- to 5-year total return 2016          .30        .30        .32         .32            1.24     the utility must incur these costs, this                                                    potential that are about average for a 2017          .32        .32        .34         .34            1.32     would reduce earnings by $0.10 a share                                                      utility.
2018          .34        .34                                            this year.                                                                                  Paul E. Debbas, CFA                                        April 27, 2018 (A) Diluted EPS. Exel. nonrecurring losses: '13, Div'd reinvestment plan avail. t Shareholder in- 9.5%; earned on avg. com. eq., '17: 8.5%.                                                           Company's Financial Strength                        B++
42&#xa2;; '17, 19&#xa2;. '15 EPS don't sum due to round- vestment plan avail. (C) Incl. deferred charges. Regulatory Climate: Average. (F) '05 per-share                                                        Stock's Price Stability                                95 ing. Next earnings report due late July. In '17: $4.92/sh. (D) In mill. (E) Rate base: Net data are pro forma, based on shs. outstanding                                                              Price Growth Persistence                                65 (8) Div'ds paid mid-Jan., Apr., July, and Oct.
* orig. cost. Rate allowed on com. eq. in '18: when stock began trading in '06.                                                                        Earnings Predictability                                 80
&#xa9; 2018 Value Line, Inc. All nghts reserved. Factual matenal ,s obtained from sources believed to be reliable and is provided wnhout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANX ERRO_RS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial,.intemal_use. No part                                       To subscribe call 1-800-VALUELINE of nmay be reproduced, resold, stored or transmrtted many printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS 1--X_C_E_L-EN_E_R_G_Y_N_oo_-x---,--EL_,----,---__._l~~~rit_T---r-4_5._&1,.........l_~'Ir---,--,0_1s_.s_(_i~~---,--
1 1~~:_:1~:---10-~rELA_Jr~,t_1._00--'-~-~~_3_.4_%
0 fl:tl_---i TIMELINESS 4 Loweied 3123118                          High:           25.0             22.9              21.9       24.4       27.8          29.9        31.8       37.6          38.3         45.4          52.2           48.4                                  Target Price Range
                                                   >----"L=ow~:~~19_.6~~15~-~3..........16.0                           19.8      21.2          25.8        26.8       27.3          31.8         35.2          40.0           41.5                                  2021 2022 2023 SAFETY                1   Raised   5/1/15             LEGENDS TECHNICAL 5 Lowered 4/27/18
                                                     -. . .
* 0.68    x Dividends p sh
                                                               ~~j~f~eb~r/~!e~~!tJ~e l---+-----+--+-----+--+-- ---+--+----+--+----+--+- ----+--+----+- 80 1-8-E_TA=.B~0=(~   1*0=0==~M=ark=e=t)= ~ - - I O~~~~~/i,~a indicates recession t - - - + - - - + - - - + - - - + - - - + - - - + - - - + - - - - + - - + - - - - + - - + - - - + - - - + - - - + - ~ ~
2021-23 PROJECTIONS                                                                                                                                                              - - ,,,c--~*        1
                                                                                                                                                                                                                 ''       ,, *                                     * * * * *   * * * * *
* 40
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                                                                 +-,-,,..__J,,,;!I--.-+-_-.+:-+-___-_,.....-+--~-,,L-*l-*-..*-,,**r,,.-,.i-;,;:iio;;;::,,;;:,,t;:;ntITult:.:.l--:.:.:.!'.:.:.....1-----l----l--....::..::..:i=.=...-l----l---l----+-!~
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o o ---1-----;i---1--;-----t--+----- +--+--*-**=**-*=*~*~**--+*_***=*c..**-***--+*--+----+-""---+--+-----+-- +----+-10 to Buy      OOO1 OOO Options o o O O O O O O12                                                      I                         l                                                                                                                                                                                   - 7.5 to Sell     OO 1 o o 1 1 o o Institutional Decisions                                                        1*            I          JI                                                                                                                                             % TOT. RETURN 3/18 I                                                    I                                                                                                                v~::::,*
:~:~fi 2Q2017
                   ~~~
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                                ~~~
Hld's(OOO 416718 418292 379245 4Q2017
                                             ~~~
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                                                                                                                                                                                                                                                        ~ ~;:
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5.6 l-:2=0:-=0"='2'r-2=0=-=0=3-r-=20=0"""4"T":'2o""o"=s--2=oo=s,..,..,2=0=07-200s                          2009        2010        2011         2012        2013        2014        2015 2016 2017 2018 2019                                                  &#xa9;VALUELINEPUB.LLC,, 1-23 23.89 19.90 20.84 23.86 24.16 23.40 24.69                                                           21.08       21.38      21.90        20.76       21.92       23.11        21.72 21.90 22.46 22.55 22.90                                       Revenues per sh                           25.25 3.14       3.35         3.27         3.28          3.61          3.45             3.50              3.48        3.51      3.79          4.00        4.10       4.28          4.56         5.04           5.47            5.90        6.15      "Cash Flow" per sh                          7.25
          .42      1.23         1.27         1.20          1.35          1.35             1.46              1.49        1.56      1.72          1.85        1.91       2.03          2.10         2.21            2.30           2.45        2.55      Earnings per sh A                           3.00 1.13         .75          .81          .85           .88           .91              .94               .97       1.00       1.03         1.07        1.11       1.20          1.28          1.36           1.44           1.52        1.60      Div'dDecl'dpersh 8
* 1.90 6.04       2.49         3.19         3.25          4.00.         4.89             4.66              3.91        4.60      4.53          5.27        6.82       6.33          7.26         6.42           6.54            8.25        7.95      Cap'I Spending per sh                       6.75 11.70 12.95 12.99 13.37 14.28 14.70 15.35                                                           15.92       16.76      17.44         18.19      19.21       20.20        20.89 21.73 22.56 23.55 24.85                                       Book Value per sh c                       28.00 398.71 398.96 400.46 403.39 407.30 428.78 453.79                                                   457.51       482.33     486.49        487.96     497.97      505.73       507.54 507.22 507.76 509.50 518.00                                    Common Shs Outst'g O                     522.50 NMF         11.6         13.6         15.4          14.8          16.7             13.7              12.7        14.1       14.2         14.8        15.0       15.4          16.5          18.5          20.2 Bold fig res are                 Avg Ann'I P/E Ratio                         16.0 NMF           .66          .72          .82           .80           .89               .82              .85        .90        .89           .94         .84        .81           .83           .97          1.02           Value Uno             Relative PIE Ratio                            .90 6.6% 5.2% 4.7% 4.6% 4.4% 4.0%                                                     4.7%             5.1%        4.5%       4.2%          3.9%        3.9%       3.8%         3.7%          3.3% 3.1%                        estin ates           Avg Ann'I Oiv'd Yield                      4.0%
CAPITAL STRUClURE as of 12/31/17                                                    11203           9644.3        10311      10655         10128       10915      11686        11024 11107 11404 11500 11850                                        Revenues ($mill)                          13250 Total Debt $15791 mill. Due in 5 Yrs $4262 mill.                                     645.7             685.5       727.0      841.4         905.2       948.2    1021.3       1063.6 1123.4 1171.0                           1240 1320              Net Profit ($mill)                          1575 LT Debt $14520 mill. LT Interest $646 mill.                                         34.4%             35.1%       37.5%      35.8%        33.2%       33.8%       33.9%       35.8% 34.1% 30.7%                             9.0% 9.0%               Income Tax Rate                            9.0%
Incl. $151 mill. capitalized leases.                                                                                                                                                                                                                AFUDC %to Net Profit                       7.0%
(LT interest earned: 3.5x)                                                          15.9%             16.8%       11.7%       9.4%        10.8%       13.4%       12.5%          7.7%         7.8% 9.4% 11.0% 10.0%
52.2%             51.6%       53.1%      51.1%        53.3%       53.3%       53.0%       54.1% 56.3% 55.9% 58.0% 57.0%                                         Long-Term Debt Ratio                     58.0%
Leases, Uncapitalized Annual rentals $238 mill.                                     47.1%             47.7%       46.3%      48.9%        46.7%       46.7%       47.0%        45.9% 43.7% 44.1% 42.0% 43.0%                                        Common Equity Ratio                      42.0%
Pension Assets-12/17 $3088 mill.                                                    14800             15277       17452      17331         19018       20477      21714        23092 25216 25975 28450 29775                                         Total Capital ($mill)                    34800 Oblig $3828 mill. 17689                               18508       20663      22353         23809       26122      28757        31206 32842 34329 36775 39050                                        Net Plant ($mill)                         42900 Pfd Stock None                                                                                                                                                                                                              5.5% 5.5%               Return on Total Cap'I                      6.0%
6.0%              6.2%       5.7%       6.5%          6.1%        6.0%       6.0%          5.8%          5.7% 5.8%
Common Stock 508,064,983 shs.                                                         9.1%              9.3%        8.9%      9.9%        10.2%         9.9%      10.0%        10.0% 10.2% 10.2% 10.5% 10.5%                                        Return on Shr. Equity                    10.5%
as of 2/19/18                                                                         9.2%              9.4%        8.9%      9.9%        10.2%         9.9%      10.0%        10.0% 10.2% 10.2% 10.5% 10.5%                                        Return on Com Equity           E          10.5%
MARKET CAP: $23 billion (Large Cap)                                                   3.8%              3:7%        3.6%      4.3%          4.7%        4.5%       4.5%          4.3%          4.0% 3.9% 4.0% 4.0%                                  Retained to Com Eq                         4.0%
ELECTRIC OPERATING STATISTICS                                                          59%               61%         59%       56%           54%         54%        55%           57%           61%            62%            62%          62%      All Oiv'ds to Net Prof                      63%
   %ChangeRelai1Sales(1<.'Mi) 2015
                                              -.6 2016
                                                           +.3 20   !~       1--8-US_I_N... ES_S_:_X_c... el_E_n_e_rg,_y_ln_c___is..._th_e_p_a...                                                                                                  br-e-ak-d-ow_n_:-re-si-de_n_tia...l,-3-1_%_;~
re-nt-of_N,_o_rt_he_r_n...S-ta-te-s--'--m-i-ll.-e-le,_ci_ric-,-1.-9...m-il-1.-ga_s,_.-E-le-c.-re,_v___
large C&I Use (Ml',li)               23521 22519 22642                              Power, which supplies electricity to Minnesota, Wisconsin, North sm. comm'I & ind'I, 36%; lg. comm'! & ind'I, 18%; other, 15%. Gen-large C&I Revs. per KWH (II             6.10          6.17          6.36            Dakota, South Dakota & Michigan & gas to Minnesota, Wisconsin, erating sources not available. Fuel costs: 40% of revs. '17 reported Capaci~ al Peak (Mwl                      NA            NA            NA            North Dakota & Michigan; Public Service of Colorado, which sup- depr. rate: 3.1 %. Has 11,500 employees. Chairman, Pres. & CEO:
Peak Load, Summer (Mw)
Annual Load Factor(%)
19583 20423 195 NA            NA             Jl
                                                                         +.9 plies electricity & gas to Colorado; & Southweslern Public Service, Ben Fowke. Inc.: MN. Address: 414 Nicollet Mall, Minneapolis, MN which supplies electricity to Texas & New Mexico. Customers: 3.6 55401. Tel.: 612-330-5500. Internet: www.xcelenergy.com.
   %ChangeCuslomers(yr-end)                  +.9           +.9 F~edChargeCov.(%)                        358           342           330           Xcel Energy is awaiting orders on rate                                                                   2019. Xcel's goal for long-term earnings 1-A-N_N_U_,A,.._L_RA_T'--'E'-S-P_a_s_t--P-as-t-Es-t-'d-,1           - -.,--i          cases in three states. The largest ones                                                                 growth is 5%-6% annually.
5 17 of change (per sh)          10 Yrs.          svrs. to *21.123                       are Public Service of Colora<;lo's multiyear                                                            Xcel's utilities have some proposals Revenues                      -1.0%             .5%            2.5%                 electric and gas applications. The utility                                                              pending involving renewable energy.
   "Cash Flow"                     4.0%          6.0%             6.5%                 requested electric hikes totaling $245 mil-                                                             The aim is. to retire coal-fired units and re-Earnings                        5.5%          5.0%
* 5.5%
Dividends                       4.5%          5.5%             5.5%                 lion from 2018 through 2020, and gas in-                                                                place them with renewables, gas, and Book Value                      4.5%          4.5%             4.5%                 creases totaling $139 million over that                                                                 storage - and to do this without raising span. Each filing is based on a 10% return                                                              rates for customers. SPS received approval Cal-         QUARTERLY REVENUES 1$ mill.)                          Full endar Mar.31 Jun.30 Sep.30 Dec.31                                   Year            on a 55.25% common-equity ratio. An in-                                                                 in New Mexico, and awaits a decision in terim gas increase of $63 million took ef-                                                               Texas, for a $1.6 billion project to add 2015 2962 2515 2901                                 2646       11024                                                                                                                       wind in the two states. P.S. of Colorado ex-2016 2772 2500 3040 2795                                       11107               feet at the start of 2018, and the company 2017 2946 2645 3017 2796                                       11404               is asking for" a $75 million interim gas                                                                pects a ruling in July on its plan to spend 2018 2900 2650 3050 2900                                        11500              raise at the start of June. Southwestern                                                                up to $1.5 billion to add wind, solar, and 2019 3000 2700 3150 3000                                        11850              Public Service asked the regulators in                                                                  gas.
EARNINGS PER SHARE A                                           Texas and New Mexico for a total of $97                                                                 The board of directors raised the com-Cal-                                                               Full endar Mar.31 Jun.30 Sep.30 Dec.31                                   Year            million, based on a 10.25% return on a                                                                  mon dividend, effective with the April 2.10           58% common-equity ratio. Rulings are ex-                                                                payment. The increase was $0.02 a share 2015           .46          .39          .84           .41                                                                                                                                  (5.6%) quarterly, the same as in recent 2016           .47          .39          .90           .45          2.21           pected this summer in New Mexico and 2017           .47          .45          .97           .42          2.30           early in the fourth quarter {retroactive to                                                             years. Xcel's goals for the dividend are 2018           .55          .45 1.00                   .45           2.45          January of 2018) in Texas.                                                                              growth of 5%-7% annually and a payout 2019           .58          .47 1.03                   .47           2.55          Rate relief is boosting Xcel's earning                                                                   ratio of 60%-70%.
QUARTERLY DIVIDENDS PAID e
* power and enabling the company to                                                                       This untimely stock has a dividend Cal-                                                               Full endar       Mar.31 Jun.30 Seo.30 Dec.31                             Year           reduce the gap between its earned                                                                        yield and 3- to 5-year total return and allowed returns on equity. Man-                                                                     potential that are about average, by 2014        .28           .30         .30           .30             1.18                                                                                                                   utility standards. This might be. accept-2015         .30          .32         .32           .32             1.26           agement's earnings guidance for 2018 is 2016         .32          .34         .34           .34              1.34          $2.37-$2.47 a share. Our estimate of $2.45                                                              able for conservative accounts, given the 2017        .34           .36          .36          .36              1.42          is near the upper end of this range. We                                                                 issue's top rank for Safety.
2018         .36          .38                                                      forecast more-modest profit growth in                                                                    Paul E. Debbas, CFA                                                    April 27, 2018 (A) Diluted EPS. Exel. nonrecurring gain                                  1&#xa2;. '17EPS don't sum due to rounding. Next                                 tangibles. In '17: $5.92/sh. (D) In mill. (E) Rate                            Company's Financial Strength                                   A+
(losses): '02, ($6.27); '10, 5&#xa2;; '15, (16&#xa2;); '17,                        earnings report due early May. (B) Div'ds his- base: Varies. Rate allowed on com. eq.                                                                     Stock's Price Stability                                       100 (5&#xa2;); gains (losses) on discontinued ops.: '03, lorically paid mid-Jan., Apr., July, and Oct.                                                        (blended): 9.6%; earned on avg. com. eq., '17:                                Price Growth Persistence                                        55 27&#xa2;; '04, (30&#xa2;); '05, 3&#xa2;; '06, 1&#xa2;; '09, (1&#xa2;); '10,
* Div'd reinvestment plan available. (C) Incl. in- 10.4%. Regulatory Climate: Average.                                                                                          Earnings Predictability                                       100
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wnhout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, internal use. No part                                                                     To subscribe call 1-800-VALUELINE of n may be reproduced, resold, stored or transmnted in any printed, electronic or other form, 01 used for generating or marketing any print*.~ or electronic publication, service or product.

18-WSEE-328-RTS December 15, 2017                                       ELECTRIC UTILITY (CENTRAL) INDUSTRY                                                                                                                                  901
    , All of the major electric utilities located in the                                                                                          INDUSTRY TIMELINESS: . 63 (of 97) central region of the United States are reviewed in this Issue; eastern electrics, in Issue 1; and' *the                                                                                  have formula rate plans that cover other kinds of spend-remaining utilities, in Issue 11.                                                                                                     ing in most of their jurisdictions. The aforementioned gas main replacement by WEC Energjs Chicago utility Electric companies have been disseminating                                                                                      is being recovered through monthly surcharges *on cus-their new long-term *capital spending plans. In                                                                                       tomers' bills.
many cases, the capital budgets are increasing. We discuss where these monies are going.                                                                                                 Merger And Acquisition Update
                                                                                                                                         . The roster of companies in the Electric Utility Indus-We provide an update of merger and acquisition                                                                                  try has shrunk in recent years thanks to mergers and activity in the Electric Utility Industry.                                                                                            acquisitions. Pending deals that await regulatory ap-proval include the combination of Great Plains Energy Most equities in this industry have performed                                                                                   and Westar Energy and the takeover of Avista (covered in extremely well in: 2017. The stocks are expensively
* Issue 11). This year, the share prices of several other priced~                                                                                                                               utilities have risen sharply due to takeover speculation.
This includes ~ctren. We advise against buying a stock solely because of takeover speculation, however. Even if Rising Capital Budgets                                                                                                                a deal is reached, obtaining regulatory approval is often At the Edison Electric Institute Financial Conference,                                                                          difficult. Many proposed transactions in this industry held annually in November, many electric companies                                                                                    have fallen through, including the first deal between
 *unveil their long-term (typically three or five years)                                                                                Great Plains and Westar. The companies reworked their' capital spending plans: For many utilities, the budget                                                                                agreement to make it (presumably) amenable to the for the period beginning in 2018 is higher than the one                                                                               regulators.
for the period that began in 2017. This doesn't necessar-ily mean that capital spending in 2018 will be greater                                                                                Conclusion than the 2017 figure, only that the expenditures over the                                                                                 In 2017, most electric utility' equities have risen multiyear p~riod will probably exceed those of the pre-                                                                               sharply in price. Those that have advanced at a mere vious period.                                                                                '                                        single-digit pace are the exception, not the rule. There are some exceptions. SCANA (covered in Issue 1) has Where is this spending targeted? .This depends on the                                                                           plummeted due to the. severe problems with its utility's company. Electric transmission* is a key area of 'invest-                                                                             nuclear construction* project, which was canceled. The ment for Fortis (the parent company of ITC Holdings, a                                                                                equities of two California companies, PG&E Corp. and transmission-only utility in the upper Midwest), Ameri~                                                                               Edison International (coverec:l in Issue 11). have been can Electric Power, Ameren, and ALLETE. Several com-                                                                                  weak due. to the market's worries about liability for*
panies are adding wind or solar projects to meet their                                                                                wildfires in the Golden State this year. Otherwise, steep states' renewable-energy requirements. CMS Energy is                                                                               . price increases have been the norm. Takeover specula-replacing old equipment, some of which dates back                                                                                     tion has buoyed some stocks, and investors continue to before 1970. WEC Energy Group is replaciIJg gas mains                                                                                 reach for yield in a low interest-rate environment.
at its utility that serves Chicago. ~ctren is modernizing its electric system. ~ntergyplans to install an advanced                                                                                  The average dividend yield of stocks in the Electric metering infrastructure and is building gas-fired power                                                                               Utility Industry is just 3.3%. Seeing yields below 3% is plants to meet the rising demand for electricity in its                                                                               no longer unusual, and one equity, MGE Energy, has a service area. (By contrast, many utilities are seeing little                                                                          yield. of just 2%. Seeing a recent quotation above the i;ir no load growth due to energy efficiency measures and                                                                             upper end of our 2020-2022 Targe_t Price Range is also no t.he slow recovery from the severe 2007-2009 recession.)                                                                              longer unusual. Although many' of these stocks might
* And OGE Energy is spending money for environmental                                                                                    well continue to perform well in the near term, we advise compliance.                                                                                                                           long-term investors to exercise qmtion here.
Paul E. Debbas, CFA How will the utilities fund these* projects? *To the extent that internal cash flow is insufficient, most will                                                                                                                            Ele_ctric Utility rely 9n debt financing. Low interest rates make this kind                                                                                RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.)
of financing attractive. Some companies, such as Ame-                                                                                     150 ren, expect to avoid equity isst1ances of any kind. Fortis intends to limit its equity needs to stock that is issued                                                                                 120 through its dividend reinvestment and other stock                                                                                                                                                                   .
plans. CMS Energy will raise some stock in this way as well, but will also benefit from the use of tax-loss 90 75
                                                                                                                                                                ~
                                                                                                                                                                           /\-           .               "     -    v""- l.--1'-
                                                                                                                                                                                                  ~
carryforwards. DTE Energy and ~ctren will need to issue some equity, however.
60 4'5
                                                                                                                                                     '""~
I" ro"  """
This capital spending will expand the utilities' rate base, and thus, boost their earning power. The utility                                                                                       30
* subsidiaries of American Electric Power, CMS Energy, and. DTE Energy will have frequent rate cases to earn a return on its capital expenditures. Companies recover their transmission investment through forward-looking                                                                                        15 2011            2012           2013        2014    2015     2016    2017 formula rate plans. Entergy and CenterPoint Energy                                                                                                                                 Index: June, 1967 = 100
  &#xa9; 2017 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wnhout warramies of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRQRS OR OMISSIONS HEREIN. This publication is strict~ for subscribers own, non-commercial, imernal use. No part                                      To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or olher fonn, or u_sed for generating or marketing any printed or electronic publication, service or product

18-WSEE-328-RTS March 16, 2018                                           ELECTRIC UTILITY (CENTRAL) INDUSTRY                                                                                                                                    901 All of the major electric utilities located in the                                                                                       INDUSTRY TIMELINESS: 13 (of 97) central region of the United States are reviewed in this Issue; eastern electrics, in Issue 1; and the                                                                                  than they are today. However, the decline in profitability remaining utilities, in Issue 11.                                                                                                   of these assets has induced several companies to get out of this business. Ameren discontinued its nonregulated We discuss the new federal tax law's effects on                                                                                operations in 2013. American Electric Power has all but companies in the Electric Utility Industry.                                                                                          completed the transition from a hybrid company to a regulated entity. Entergy is also exiting almost all of its Some companies in this Industry are making a                                                                                   nonregulated activities, although this process will not be transition from a hybrid (utility and nonutility)                                                                                    completed until 2022. This will reduce the business risk company to an entirely regulated entity.                                                                                             that these companies face. Not every company is ceasing its nonutility operations. DTE Energy is retaining them, Mergers and acquisitions are an ongoing theme                                                                                  as they have less risk than nonregulated power genera-in this industry.                                                                                                                    tion and account for about 20% of corporate profits.
lkctren also has some nonutility operations.
Following a stellar showing in 2017, the prices of most of the stocks in this industry have declined                                                                                    Mergers And Acquisitions so far in 2018. Still, the group isn't cheap.
In recent years, there has been a lot of merger and acquisition activity among electric companies, or with More On The New Federal Tax Law                                                                                                      electric utilities buying gas utilities. A few deals are pending. Great Plains Energy and Westar Energy hope to Now that every company in the Electric Utility Indus-                                                                          complete their combination by mid-2018. Avista (covered try has reported its results for the fourth quarter of                                                                               in Issue 11) has agreed to be acquired by Hydro One, a 2017, we can say more than we did in the Electric Utility                                                                            Canadian company. And Sempra Energy (also reviewed (East) report 'in Issue 1 about the effects ,of the new                                                                              in Issue 11) intends to buy Oncor, an electric transmis-federal tax law on this industry. The lower tax rate                                                                                 sion and distribution utility in Texas.
forced each company to revalue its deferred taxes and record a noncash credit or charge in the fourth quarter of                                                                           Conclusion 2017. For some companies, such as CenterPoint Energy, DTE Energy, and OGE Energy, this resulted in a large                                                                                     Most electric utility equities performed extremely well gain. On the other hand, charges sent the bottom lines of                                                                            in 201 7, aided by a strong, broader stock market, the Ameren, CMS Energy, and Entergy into the red for the                                                                                 desire of many investors for high-yielding issues in an period. Note that we have changed the way we are                                                                                     era of low interest rates, and (in some cases) takeover treating these items in our earnings presentations,                                                                                  offers or takeover speculation. Many stock prices didn't which are now.excluded as nonrecurring items.                                                                                        just rise, they advanced more than 10%. This has changed so far in 2018, as electric utility issues have What about the effects of tax reform on earnings and                                                                           given back some of their gains of last year. We think this cash flow in 2018? For regulated utility operations, there                                                                            is due partly to reversion to the mean, and partly to is virtually no doubt that the benefit of lower federal                                                                               investors' trepidation about rising interest rates. Even taxes will be passed through to customers. The only                                                                                   after the price declines, many recent quotation*s are still questions are how, and in which time frame? Many                                                                                     within their 2021-2023 Target Price Range. Thus, most utility parent companies have debt that is held at the                                                                               stocks in this Industry are not cheap. The average parent level, and the lower tax shield on the interest                                                                                dividend yield is 3.6%, which is low, by historical stan-expense will have a modest negative effect on profits.                                                                                dards. Total return potential over the 3- to 5-year period (Fortis says this will hurt its earnings by 3% this year.)                                                                           isjust 6%.
Companies that have nonutility operations or invest-                                                                                                                                                          Paul E. Debbas, CFA ments, such as the equity income that CenterPoint and OGE get from their stakes in Enable Midstream Part-ners, will see a benefit of lower tax rates. Tax reform will reduce cash flow for utilities, however. That's because                                                                                                                             Electric Utility federal income taxes are mostly or entirely a noncash                                                                                    RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.)
item, while the pass-through to ratepayers means less                                                                                     150 cash from them. In order to compensate for this, and maintain their credit ratings, some companies are issu-                                                                                   120 ing common equity. This includes Ameren and Entergy,                                                                                         90                                                               .
rvv,..._ ~
which have issued little or no equity in recent years.                                                                                                   /\.                                     i...    -
Other companies, such as WEC Energy Group, do not 75     'J'
                                                                                                                                                                                   ~ '-/
need to sell common stock.
From Partly Regulated To Entirely Regulated
                                                                                                                   *                       '60 45 Some companies in the Electric Utility Industry are                                                                                   30 (or were) hybrids. That is, they have nonregulated operations in addition to their regulated utilities. Most notably, several companies own nonregulated generat-ing assets. This was attractive a decade ago, when                                                                                           15 2012          2013              2014            2015   2016    2017    2018 natural gas (and thus, power) prices were much higher                                                                                                                              Index: June, 1967 = 100
 &#xa9; 2019 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wihout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strict~ for subscriber's own, non-commercial, internal use. No part                                      To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electroruc or other form, or usad for generating or marketing any printed or electronic publication, sarvice or product.

18-WSEE-328-RTS February 16, 2018                                               ELECTRIC UTILITY (EAST) INDUSTRY                                                                                                                                137 All of the major electric utilities located* in the                                                                                      INDUSTRY TIMELINESS: 88 (of 97) eastern region of the United States are reviewed in this Issue; western electrics, in Issue 11; and the                                                                              will be a bit less lucrative than it would have been had it remaining ~tilities, in Issue 5.                                                                                                    been completed on time and on budget, though, and the utility is still assuming construction risk. By contrast, We discuss how tax reform will affect companies SCE&G canceled its project, and the state legislature in the Electric Utility Industry.                                                                                                   does not want the utility to continue to collect money from customers for the unsuccessful project. (The com-Several companies covered .in Issue 1 have in- pany believes the state's Base Load Review Act allows it volvement with nuclear power. Two have worries to continue collecting these monies.) Dominion Energy stemming from nuclear construction, and a few agreed to take over SCANA, as long as there is no have nonregulated assets that are threatened by unfavorable regulatory or legislative changes. With the unfavorable market conditions.                                                                                                      price of SCANA stock well below the value of Dominion Energjs offer, the market is skeptical that the deal will Most electric utility stocks have retreated in be completed.
price so far in 2018. However, they are still expen-                                                                                     Other companies reviewed in Issue 1 have a different sive, by historical standards.                                                                                                      concern: the lack of profitability of their nonregulated nuclear plants. A combination of low gas prices, subsi-dized renewable energy, and weak demand for power has The New Federal Tax Law                                                                                                             hurt these assets. Utilities believe current market prices A new federal tax law took effect at the start of 2018. don't recognize the benefits of nuclear generation (fuel For regulated utilities, it is highly likely that all of the diversity and no carbon emissions). So, some companies benefits of a lower tax rate will be passed through to . are seeking subsidies from the states in which their customers. The only questions are when, and how? nuclear units are based, similar to the "zero emissions However, although a one-for-one pass-through will not credits" that were granted by the Illinois legislature and affect reported profits, this will reduce a utility's cash the New York regulators for plants owned by Exelon.
flow. That's because it will receive less cash from its However, this company still has a unit in Pennsylvania customers, but its cash outlays for taxes won't decline that is threatened with a premature closing, and its correspondingly because utilities' tax liabilities aren't facility in New Jersey will be shut in 2018, a year ahead entirely in cash. Some companies are paying no cash of schedule. Some companies are still seeking some kind taxes at all. In addition, as a trade-off for retaining full of subsidy that would allow them to keep their troubled tax deductibility for interest payments on utility issued nuclear plants open: FirstEnergy in Ohio, Public Service 0
debt, utilities are no longer eligible for bonus deprecia- Enterprise Group in New Jersey, and Dominion Energy tion, which was a boon for cash flow. (In some cases, in Connecticut.
interest payments on debt issued at the parent level will be only partially deductible.) The absence of bonus Conclusion 1
depreciation will have a positive effect on a utility's                                                                                  After the stellar performance of most stocks in the rate-base growth, because deferred taxes that are sub- Electric Utility Industry in 2017, share prices of most tracted from the rate base will be lower than they electric companies declined in the first few weeks of otherwise would have been. This should benefit long- 2018. In our view, this is partly due to reversion to the term earnings growth. However, due to the negative mean, and partly due to investors' increased concern effects on cash flow, the credit-rating agencies have about the likelihood of a few interest-rate increases by placed a negative outlook on some electric companies' the Federal Reserve this year. The average dividend creditworthiness.                                                                                                                   yield for this industry is up to 3.6%. This is above the Of course, not every company covered in the Electric level seen in 2017, but is still low, by historical stan-Utility Industry is entirely regulated. NextEra Energy dards. Moreover, many of these equities continue to and Dominion Energy, which each have significant non- trade within their 3- to 5-year Target Price Range.
utility operations, have stated that the lower federal tax                                                                                                                                                  Paul E. Debbas, CFA rate will boost earnings in 2018. Nonregulated entities are not expected to pass the tax savings onto their customers.                                                                                                                                                                         Electric Utility The decline in federal tax rates meant that companies                                                                             RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.)
had to revalue their deferred tax balances. For NextEra                                                                                  150 Energy and Dominion Energy, this resulted in noncash credits that led to profits that were significantly higher                                                                               120 than normal in the fourth quarter of 2017. We are                                                                                        105 90                                                               . _,...,...,
including these credits or charges in our earnings pre-75 _,. .I'\ -                                       .     - 'Vh sentation.                                                                                                                                                             ~~                         '-v 60 Nuclear Worries Georgia Power (a subsidiary of Southern Compan)1                                                                                      45 and South Carolina Electric & Gas (a subsidiary of SCANA) each have electric utility subsidiaries with                                                                                         30 nuclear construction projects that experienced signifi-cant delays and cost overruns. However, the future of each project is very much different. Georgia Power has received permission from the state commission to con-                                                                                       15 2012           2013            2014          2015    2016    2017 2018 tinue construction, despite the problems. The project                                                                                                                             Index: June, 1967 = 100
&#xa9; 2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reflable and is provided w!hout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strict~ for subscribers own non-commercial, internal use. No part                                        To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or lransmitted in any printed, electronic or other form, or used for generating or marketing any prinled or eleclronic publication, service or product.
* 18-WSEE-328-RTS November 17, 2017                                               ELECTRIC UTILITY (EAST) INDUSTRY                                                                                                                                    137 All of the major electric utilities located in the                                                                                       INDUSTRY TIMELINESS: 91 (of 97) eastern region of the United States are reviewed in this Issue; western electrics, in Issue 11; and the                                                                              canceled construction of the project. The utility has come remaining utilities, in Issue 5.                                                                                                    under much criticism since then, and although it be-lieves it is entitled to a return on its investment under Most electric utilities covered in Issue 1 have                                                                                state law, this is in question. Georgia Power, a larger some involvement with nuclear power. We discuss                                                                                     utility with a larger parent company, intends to proceed the latest happenings affecting these companies'                                                                                    with construction. Its plan requires the go-ahead from nuclear plants. Most noteworthy is the divergent                                                                                    the state commission, however. More information on paths that the two nuclear projects in the South-                                                                                   each of these situations is available in our full-page east are taking.                                                                                                                    reports on Southern Company and SCANA in this Issue.
Most electric utility equities have performed                                                                                  Conclusion well in 2017. We discuss some of the outliers. The                                                                                       Most electric utility stocks have performed very well group remains expensively priced, in our view.                                                                                      in 2017. Price increases of more than 10% are the rule, not the exception. Despite interest-rate increases from Nuclear Update                                                                                                                      the Federal Reserve (and the expectation of more to Except for AVANGRID, Consolidated Edison, Ever-                                                                               come), interest rates are still low, by historical stan-source Energy, and PPL Corporation, every electric com-                                                                             dards, and yields on money-market funds, CDs, and pany covered in this Issue owns nuclear plants-at the                                                                               savings accounts remain low enough to be unappealing utility level, a nonutility subsidiary, or both. Companies                                                                          to some income-oriented investors. Electric utility stocks with regulated nuclear plants are in the best position                                                                              appeal to these accounts thanks to their above-average because these units are not affected by unfavorable                                                                                 dividend yields. Indeed, even at a historically low aver-conditions in the power markets. On the other hand,                                                                                 age yield *of 3.3%, this figure is still more than a many nonutility nuclear plants without power contracts                                                                              percentage point above the median of all dividend-(i.e., merchant plants) have seen their margins squeezed                                                                            paying issues under our coverage. Another positive fac-in recent years due to low prices of natural gas, subsi-                                                                            tor for stock prices is takeover speculation. Several deals dized renewable energy, and weak demand for power.                                                                                   (mostly involving mid-cap utilities) have occurred in Some facilities are even losing money. The most worri-                                                                               recent years. Most stocks in the Electric Utility Industry some situation of all is the construction of nuclear units,                                                                          are trading within their 2020-2022 Target Price Range, which has been plagued by significant delays and cost                                                                                and some are above this range.
overruns.                                                                                                                                AVANGRID has been one of the top performers this Duke Energy, which has utility-owned plants solely, is                                                                        year, having risen more than 30%. We think takeover in the most stable situation, although the company took                                                                             speculation can be credited. Another top performer is a modest charge in the third quarter to write off the costs                                                                         Avista (covered in Issue 11). The company has accepted it incurred for a possible new unit. NextEra Energy has                                                                              a takeover offer from a Canadian utility. NextEra Energy both regulated and nonregulated nuclear facilities. Its                                                                              has seen its stock price rise over 30%, as the company's nonregulated units have not faced severe market prob-                                                                                solid performance and presence in renewable energy lems, and the company is in a good position. On the other                                                                            have attracted investors. On the other hand, the price of hand, nonregulated plants owned by Exelon and                                                                                        SCANA stock has plummeted nearly 40% due to the FirstEnergy have been hurt by poor market conditions                                                                                 aforementioned nuclear problems. PG&E Corporation for the past several years, which weakened each compa-                                                                               (covered in Issue 11) has seen its share price decline ny's earning power to the point where the board decided                                                                              modestly due to concern that its utility caused or con-to cut the dividend. Dominion Energy and Public Service                                                                              tributed to recent wildfires in northern California. The Enterprise Group are also experiencing challenges, but                                                                               price of Westar stock (covered in Issue 5) has fallen these are much less severe. In order to address unfavor-                                                                             because its revised deal with Great Plains Energy is not able market conditions that do not recognize the envi-                                                                               as lucrative as the initial transaction that *failed to win rorimental benefits of nuclear plants (no carbon emis-                                                                               regulatory approval.
* sions), Illinois and New York hav~ enacted laws or                                                                                                                                                        Paul. E. Debbas, CFA regulations that provide zero-emissions credits for nuclear facilities. These subsidies should help, although                                                                                                                          Electric Utility they are not a cure-all. Connecticut just passed a law                                                                                  RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.)
allowing the Millstone plant (owned by Dominion) to bid                                                                                  150 into markets along with other nonemitting sources of power. So far, Ohio, Pennsylvania, and New Jersey have                                                                                   120 not passed similar laws. (Exelon has said it will shut the 105 90                                                                  ~  .
Three Mile Island plant in Pennsylvania if legislation is                                                                                                    ,.J
                                                                                                                                                                        /'\  -                              -    v"&deg;'   .,...,-.1'-
                                                                                                                                                                                      ""'-.. ~ "'v 75                    ._.
not enacted.) There is also the possibility of changes at                                                                                              ~
the federal level (from the Federal Energy Regulatory                                                                                       60 Commission) that would be favorable for owners of 45 merchant nuclear plants.
Several years ago, electric utility subsidiaries of Southern Company (Georgia Power) and SCANA (South                                                                                           30 Carolina Electric & Gas) each started building two units at the site of an existing nuclear plant. These projects had extensive delays and cost overruns that led to the bankruptcy filing of the contractor, Westinghouse. The                                                                                      15 2011            2012           2013         2014   2015      2016     2017 utilities have moved in different directions. SCE&G                                                                                                                              Index: June, 1967 = 100 THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber's own, non-commercial, .internal use. No part                                  To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.

18-WSEE-328-RTS April 27, 2018                                                 ELECTRIC UTILITY (WEST) INDUSTRY                                                                                                                             2222 All of the major electric utilities located in the                                                                                       INDUSTRY TIMELINESS: 77 (of 97) western region of the United States are reviewed in this Issue; eastern electrics, in Issue 1; and the
* not been good for North Western. In fact, the company's remaining utilities, in Issue 5.                                                                                                   chief executive officer has mentioned this problein in recent conference calls for quarterly earnings. We are From time to time, we discuss regulatory cli- still keeping an eye on Oklahoma for a possible down-mates and provide a list showing each state's grade, since the latest rate orders in the state have been regulatory climate, plus that of the Federal En- disappointing for utilities there. On the other hand, we ergy Regulatory Commission (FERC).                                                                                                 continue to consider Illinois and Michigan for possible upgrades.
California is trying to resolve regulatory and legal matters associated with wildfires in the Wildfires In California state.                                                                                                                                 The three California-based companies reviewed in this Issue (PG&E, Edison International, and Sempra En-Most electric utility stocks have lost value so far erg}1 are concerned about adverse legal and regulatory this year. This does not mean that the group is outcomes associated with wildfires in the Golden State.
cheap, however.                                                                                                                    Pacific Gas and Electric (a subsidiary of PG&E) and Southern California Edison (a subsidiary of Edison International) had wildfires in their service areas in Ranking The Regulators                                                                                                             2017. The companies' stocks fell sharply last year due to Occasionally, The Value Line Investment Survey pres- investors' worries about a possibly huge liability stem-ents its rankings of regulatory climates for most states, ming from the state's inverse condemnation law, which the District of Columbia, and the Federal Energy Regu- holds that utilities may be held liable
* for damages latory Commission (FERC). Each utility (even those in caused by their power lines, even if they followed estab-states that have deregulated the power-generation func- lished inspection and safety procedures. PG&E sus-tion) is still subject to regulatory ove~sight of their pended its common and preferred dividends, too. Also in transmission and distribution operations, Every utility 2017, San Diego Gas & Electric (a subsidiary of Sempra) will need to deal with a regulatory commission at some took a charge for costs associated with a wildfire 10 point to place new plant in the rate base, recover years earlier after the regulators ruled that the utility increased expenses, or make changes in rate design (i.e., may not pass these costs through to their ratepayers.
the levels of rates among customer classes and the The utilities are trying to find a solution to the inverse proportion of customers' bills that comes from fixed condemnation problem through the legislature, the com-monthly charges).                                                                                                                  mission, and the courts.
A state's regulatory environment is a key factor in our rankings, but is not the only one. The governor, legisla- Conclusion ture, and courts also play a role. For instance, California                                                                            So far in 2018, most stocks covered in the Electric is dealing with problems associated with a state law that Utility Industry have declined in price_ This is partly can increase a utility's liability for wildfires. (yve discuss due to reversion to the mean, following a stellar perfor-this matter later in this report.) The legislature and mance for most of these equities in 201 7, and partly due governor will likely have a bigger impact on this law to the rise in interest rates (and the market's expecta-than the commission will.                                                                                                          tion that these will climb further). Even after the pull-Note that the table below does not include some states back this year, these issues are not cheap. Many are still because we do not cover a utility that serves that state or trading within their 2021-2023 Target Price Range.
because inv~stor-owned utilities have virtually no pres-                                                                                Since* Issue 11 came out three months ago, we decided ence in the state. These are Nebraska, Nevada, Rhode to change the way we treat credits or charges that most Island, Tennessee, Utah, and Vermont. Washington and utilities took in the fourth period of 2017 for the effects Alaska will probably be removed from the table if the of the new federal tax law. We are now excluding these pending takeover of Avista by Hydro One, a Canadian from our earnings presentations.
company, is completed.                                                                                                                                                                                    Paul E. Debbas, CFA
* Above Average: Alabama, Alaska, Colorado, Georgia,                                                                                                                              Electric Utility Idaho, Indiana, Massachusetts, Ohio, South Carolina,                                                                                   RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.)
Wisconsin, FERC.                                                                                                                       150
* Average: Arizona, California, Delaware, Florida, Iowa,                                                                               120 Kansas, Kentucky, Louisiana, Maine, Michigan, Minne-                                                                                                                                                       .
90                                                          rv~ ~
sota, Mississippi, New Hampshire, New Jersey, North 75          .I'\ -                                        -                   -
Carolina, North Dakota, Oklahoma, Oregon, Pennsylva-nia, South Dakota, Texas, Virginia, Washington, Wyo-                                                                                      60                    ~               ,,,J-J" '../
ming.                                                                                                                                     45
* Below Average: Arkansas, Connecticut, District of Columbia, Hawaii, Illinois, Maryland, Missouri, Mon-                                                                                      30 tana, New Mexico, New York, West Virginia.
Since we last ran this table, in July of 2017, we have lowered the regulatory climate of Montana from Average                                                                                    15 2012           2013 2014                     2015    2016      2017   2018 to Below Average. Most recent rulings in the state have                                                                                                                         Index: June, 1967 = 100
@    2018 Value Line, Inc. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided wihout warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRO.RS OR OMISSIONS HEREIN. This publ~ation is strictly 'for subscriber's own, non-commercial, internal use. No part                                  To subscribe call 1-800-VALUELINE of it may be reproduced, resold, stored or transmitted in any pnnted, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product

l 8-WSEE-328-RTS January 26, 2018                                               ELECTRIC UTILITY (WEST) INDUSTRY                                                                                                                            2223 All of the major electric utilities located in the                                                                                     INDUSTRY TIMELINESS: 3 (of 97) western region of the United States are reviewed in this Issue; eastern electrics, in Issue 1; and the                                                                               and liabilities on companies' balance sheets. For those remaining utilities, in Issue 5.                                                                                                    that did not arise from the regulated operations, there will be one-time, noncash gains or losses for the fourth We look back at 2017 and look forward to 2018.                                                                               quarter of 2017. We will include these in our earnings The new year *has brought changes in federal tax                                                                                    presentation. So far, CenterPoint Energy (covered in.
laws.                                                                                                                                Issue 5) and AVANGRID (covered in Issue 1) have stated that this will be positive, but Sempra Energy and Xcel The potentially high liability for wildfires is                                                                               Energy will take charges against December-period re-concerning to electric utilities in California.                                                                                     sults. Sempra also expects some negative effects associ-ated with its foreign operations ..
After a strong showing last year, electric utility equities have given back some of their gains in                                                                                     Wildfires In California early 2018. However, they have hardly become                                                                                             In 2017, wildfires in California affected the service cheap.                                                                                                                               areas of the utilities owned by PG&E Corporation and Edison International. The causes of the fires have not A Look Back At 2017 And A Look Ahead To 2018                                                                                        yet been determined, but the market is worried that the The year that just ended was a good one for the                                                                               utilities will be found liable due to the effects their power Electric Utility Industry as a whole. The prices of most                                                                            lines might have had on the wildfires. Under the state's stocks didn't just rise, they rose more than 10%. Inves-                                                                            inverse condemnation law, this may occur eveq if the tors continued to "reach for yield" in an environment of                                                                             company complied with established inspection and low interest rates. Merger and acquisition activity (and                                                                            safety rules. The possibly huge liability prompted the speculation) also sent share prices higher. Among the                                                                               board of directors of PG&E to suspend common and standout performers were A vista, which rose 29% be-                                                                                preferred dividends. (By contrast, the board of Edison cause the company agreed to be acquired. Two utilities                                                                              International raised the disbursement.) Change$ to covered in Issue 1, AVANGRID and NextEra Energy,                                                                                    these laws might come, but at this point, no bills to advanced over 30%. For the former company, we attri-                                                                                address this problem have been introduced in the Cali-
.bute this to takeover speculation; for the latter, simply a                                                                         fornia legislature. And even if the law is changed, there strong performance.                                                                                                                 is no assurance that this will apply to the wildfires of last year.                                                                                ,
On the other hand, the prices of a few electric utility equities fell sharply last year. PG&E Corporation and                                                                                   Another question is whether utilities will be allowed Edison International were hurt by the market's worries                                                                              to pass costs of restoration and repair through to cus-about possibly huge liabilities resulting from wildfires in                                                                         tomers. Last year, the California regulators ruled that California in 2017. (:,Ne discuss this matter in the next                                                                           San Diego Gas & Electric (a subsidiary of Sempra) may section.) SCANA (reviewed in Isslie 1) lost 46% of its                                                                              not do so in connection with a 2007 wildfire. This forced value due to the cancelation of its nuclear construction                                                                             the company to write off a regulatory asset in the third project, which faced significant delays and cost overruns.                                                                          quarter of 2017.
These were the exceptions to the rule.
Conclusion Ironically, in early 2018 SCANA stock was the top                                                                                 Although electric utility equities have not performed performer in the industry. The company agreed to a                                                                                  well so far in 2018, their valuations are still high, by takeover by Dominion Energy (also covered in Issue 1).                                                                               historical standards. The average dividend yield of Otherwise, the new year has seen declines in most                                                                                   stocks in this industry is 3.6%. Moreover, many of these issues. We suspect some investors are locking in profits.                                                                           issues are still trading within their 2020-2022 Target Perhaps the expectation of rate hikes by the Federal                                                                                Price Range. Accordingly, the group's average annual Reserve is also weighing on stock prices in this industry.                                                                           total return potential over that time frame is just 4%.
Paul E. Debbas, CPA This year might well see additional merger and acqui-sition activity. Besides the deals mentioned above, the                                                                                                                           Electric Utility proposed combination of Great Plains Energy and We-                                                                                    RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.)
star Energy (reviewed. in Issue 5) is expected to be                                                                                     150 completed in 2018.
120 Changes in federal tax laws require a discussion. Most                                                                              90 r V v-., I.../"-,
compaI).ies are still evaluating the effects of the new law,                                                                                                                                              -
and might not make any public statements about it until they release fourth-quarter earnings in February (for most companies). For the regulated utility business, 75 60 45
                                                                                                                                                      ,,I
                                                                                                                                                                                 -   """      ~ 'v whatever benefits the companies receive from lower taxes will be passed through to customers-the only real question is how, and over which time frame. However,                                                                                       30 some utilities have nonutility siblings under the um-brella of their parent companies, and these should benefit from tax reform. Hawaiian Electric Industries, with its -American Savings Bank subsidiary, is an ex-                                                                                      15 2011            2012            2013 2014           2015     2016     2017 ample. Another consideration is the deferred tax assets                                                                                                                         Index: June, 1967 = 1DO
&#xa9; 2018 Value Lina, Inc. All rights reserved. Factual malenal is obtained from sources believed lo be reliable and is provided w!hout warranties ol any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is str~t~ Jar subscnber's own, non-commercial, internal use. No part                                   To subscribe call 1-800-VALUELINE ol it may be reproduced, resold, stored or transmitted in any pnnled, electronic or other lorm, or used Jar generating or marketing any pnnled or electronic publication, service or product

18-WSEE-328-RTS WESTAR ENERGY NYSE-WR                                                                      IRECENT PRICE          49 , 72 IPIERATIO 20 , 1                 erailing:21.9)
Median: 16.0 RElATNE PIE RATIO 105 DN'YLDD 3.2%lill.
I TIMELINESS - Suspended 6/10/16                    High:          28.6      25.9        22.3       25.9         29.0         33.0           35.0      43.2           44.0          57.5       57.3       53.3                           Target Price Range Low:           22.8       16.0       14.9        20.6        22.6         26.8           28.6       31.7          33.9          40.0       49.2       47.1                           2021 2022 2023 SAFETY                 2 Raised 4/1105             LEGENDS 120 TECHNICAL - Suspended 6/10/16 -                           ~ii~:d ~vi1;t~~!sr ~~ta                                                                                                                                                                              100
                                                   , , , , Relative ~rice Strength                                                                                                                                                                               80 BETA .70 (1.00 = Marl<et)
O~~~~!/i!a indicates rec~ssion                                                                                                                                                        -...... *-*-**          64 2021-23 PROJECTIONS Price Gain Ann'I Total Return I
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                                                                                                                                                          ,ffiff                                                                3yr. 38.3       24.2 lo Soll          201 Hld's!DOO 118673 118474 107206 146 2002 2003 2004 2005 2006 2007 2008 2009 130 traded               1:. . .
1Mtt11111 2011 2012 2013 11.11 1111111111 "I
111111         Httffillffi11111 2014 2015 2016 2017 2018 2019 hi 1111111111 I                       5yr. BB.O       76.2
                                                                                                                                                                                                                                  &#xa9;VALUE LINE PUB. LLC , 1-23 24.77        20.06        17.02      18.23       18.37       18.09 16.98           17.04 18.34 17.27 17.88 18.48                                   19.76 17.40 18.07 18.09 18.60 18.95                                    Revenues per sh                 20.70 4.77         3.77         3.12       3.28       3.94         3.77       3.14       3.59        4.24         3.97         4.30          4.41       4:55           4.26          4.83       4.90       5.30       5.65    "Cash Flow" per sh                6.75 1.00         1.48          1.17      1.55       1.88         1.84       1.31       1.28         1.80        1.79         2.15          2.27       2.35           2,09          2.43       2.27       2.60       2.80    Earnings per sh A                  3.45 1.20          .87           .80       .92         .98        1.08       1.16        1.20        1.24         1.28        1.32          1.36       1.40           1.44          1.52        1.60      1.60        1.68   Div'd Decl'd per sh Bat            1.92 1.89         2.06          2.19      2.45       3.95         7.84       8.65       5.26        4.82         5.55         6.40          6.08       6.47           4.95          7.67       5.38       6.50       6.75    Cap'I Spending per sh              7.50 13.68        14.23        16.13      16.31       17.62       19.14 20.18           20.59 21.25 22.03 22.89 23.88                                  25.02 25.87 26.84 27.50 28.35 29.10                                     Book Value per sh c             31.60 71.51        72.!!4       86.03      86.84      87.39        95.46 108.31         109.07 112.13 125.70 126.50 128.25                             131.69 141.35 141.79 142.09 142.50 143.00                                Common Shs Outst'g E 145.00 14.0         10.8          17.4      14.8        12.2        14.1       17.0       14.9         13.0         14.8        13.4          14.0       15.4           18.5          21.6       23.4    Bold fig res are     Avg Ann'I P/E Ratio                 15.0
         .76         .62           .92       .79         .66          .75      1.02         .99         .83          .93          .85           .79        .81            .93         1.13       1.15       Value Line         Relative P/E Ratio                  .85 85tin ates 8.6%         5.5%         3.9%      4.0%        4.3%         4.2%      5.2%       6.3%         5.3%        4.8%         4.6%          4.3%       3.9%           3.7%           2.9%       3.0%                          Avg Ann'I Div'd Yield             3.7%
CAPITAL SlRUCTURE as of 12/31/17                                          1839.0 1858.2 2056.2 2171.0 2261.5 2370.7 2601.7 2459.2                                                2562.1 2571.0           2650 2710 Revenues ($mill)                            3000 Total Debt $3963.3 mill. Due in 5 Yrs $725 mill.                           136.8 141.3 203.9 214.0 275.1                                  292.5 313.3 291.9                        346.6 323.9.            370        400 Net Profit ($mill)                     500 LT Debt $3687.6 mill. LT Interest $170.0 mill.
(LT interest earned: 3.Bx)                                                24.8% 29.4% 29.0% 35.2% 30.9% 33.1% 31.9% 33.5%                                                         33.8% 31.0%           20.0% 20.0% Income Tax Rate                         20.0%
                                                                                 ..          --          --           -*           -*            --          -- 10.4%               10.4% 10.0%           10.0% 10.0% AFUDC %to Net Profit                    10.0%
Pension Assets 12/17 $719 mill. Oblig. $1.1 bill.                         49.8% 53.4% 53.6% 49.5% 51.2% 50_.0% 50.0% 47.5%                                                        47.9% 51.0%           50.0% 50.0% Long-Tenn Debt Ratio                    50.0%
49.7% 46.1% 46.0% 50.1% 48.8% 50.0% 50.0% 52.5%                                                         52.1% 49.0%           50.0% 50.0% Common Equity Ratio                     50.0%
4400.1 4866.8 5180.9 5531.0 5938.2 6131.1 6596.2 6958.8                                                7305.8 7595.7           7750 7850 Total Capital ($mill)                       8225 Pfd Stock None 5533.5 5771.7 6309.5 6745.4 7335.7 7848.5 8441.5 8793.1                                                9506.3 9553.8           9700 9800 Net Plant ($mill)                         10500 4.2%                               5.3%
Common Stock 142,094,275 shs.
                                              '                               6.2%
4.4%
6.2%
5.5%}}