WWBD? What Would Ben (Graham) Do? - AB Freeman School of ...

November 25, 2011 

CLECO CORPORATION 

CNL/NYSE 

Continuing Coverage: Power Up! 

Investment Rating: Market Outperform 

PRICE: $ 33.81 S&P 500: 1,158.67 DJIA: 11,231.78 RUSSELL 2000: 666.16 

� Strong cash position allows for flexibility and improves investor value. 

� Current business environment makes Cleco an acquisition candidate. 

� Future holds steady, predictable growth and returns. 

� Expanded rate base increases operational efficiencies and decreases 

risks. 

� Our 12-month target price is $41.00. 

Valuation 

EPS* 

P/E 

CFPS 

P/CFPS 

2010 A 

$ 2.22 

15.2x 

$ 5.33 

6.3x 

2011 E 

$ 2.74 

12.3x 

$ 7.03 

4.8x 

2012 E 

$ 3.03 

11.2x 

$ 7.39 

4.6x 

* Excluding non-recurrinng 

items 

Market Capitalization Stock Data 

Equity Market Cap (MM): $ 2,051.25 52-Week Range: $30.05- $37.74 

Enterprise Value (MM): $ 3,276.70 12-Month Stock Performance: 190.07% 

Shares Outstanding (MM): 60.67 Dividend Yield: 171.00% 

Estimated Float (MM): 59.41 Book Value Per Share: $ 23.18 

6-Mo. Avg. Daily Volume: 5,360,000 Beta: 0.80 

Company Quick View: 

Location: Pineville, Louisiana 

Industry: Electric Utility 

Description: Cleco Corporation is a public utility holding company that provides energy 

services to central Louisiana. The corporation operates two primary business segments: 

Cleco Power and Midstream. 

Key Products & Services: Cleco Power focuses on generation, transmission, and 

distribution of electricity services. Midstream owns and operates an unregulated power 

generation station. 

Company Website: www.cleco.com 

Analysts: Investment Research Manager: 

Omar Cameron Seth Hamstead 

Aashish Chhachhi 

Nianxiong (Eric) Huang 

David Marsh 

Jeffrey Rohr 

Wall Street's Farm Team 

The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's 

A.B. Freeman School of Business. The reports are not investment advice and you should not and may not rely 

on them in making any investment decision. You should consult an investment professional and/or conduct your 

own primary research regarding any potential investment. 

BURKENROAD REPORTS

CLECO Corporation (CNL) BURKENROAD REPORTS (www.burkenroad.org) November 25, 2011 

STOCK PRICE 

PERFORMANCE 

Figure 1: 

5-year Stock Price 

Performance 

INVESTMENT 

SUMMARY 

Source: http://www.finance.yahoo.com/CNL 

We rate Cleco as a Market Outperform based on a weighted average of 

the price to earnings, price to book value, discounted cash flow and 

dividend discount valuation methods. We project a 21% increase from the 

November 25, 2011 price of $33.81 for a 12-month target price of $41.00. 

Cleco is an electric utility holding company based in Pineville, Louisiana. 

The Company has two operating subsidiaries, Cleco Power and Cleco 

Midstream Resources LLC (Midstream). Cleco Power is a regulated 

utility company that owns electricity generating units with a net capacity 

of 2,403 megawatts (MW) and serves approximately 279,000 customers 

throughout Louisiana. Midstream owns two combined-cycle gas turbine 

units with a net capacity of 755 MW. Midstream generates electricity for 

sale on the wholesale market. 

One-time transactions, including a 2010 restructuring of the tolling 

agreement with J.P. Morgan Ventures Energy Corporation, have left 

Cleco with significant cash. Our forecast predicts that Cleco will 

effectively utilize this strong cash position for the benefit of stakeholders. 

Management has indicated that increasing dividends and stock 

repurchases are to be part of a long-term plan to deliver value to its 

shareholders. 

Cleco has positioned itself for the future through capital investments. The 

Madison Unit 3 plant was successfully completed and came online in 

2010. The Acadiana Load Pocket and Advanced Metering projects are 

proceeding on schedule towards their respective completion dates in 2012 

and 2013. The combined result of these three capital investments puts 

Cleco in an auspicious position to compete in Louisiana’s electricity 

market. 

2


PREVIOUS 

BURKENROAD 

RATINGS AND 

PRICES 

INVESTMENT 

THESIS 

Strong cash position 

allows for flexibility 

and improves 

investor value. 

Financial and environmental regulations also impact our price forecast. 

Cleco secured a new rate plan that allows the Company to target a return 

on equity of 10.7% beginning in 2010. This rate increase will have a 

direct positive impact on Cleco’s earnings potential. Environmental 

regulations, however, continue to challenge managers of electric utility 

companies. 

Table 1: Previous Burkenroad Ratings and Prices 

Date Rating Price* 

11/16/10 Market Outperform $35.85 

11/13/09 Market Perform $28.33 










*Price at time of report date 

Cleco’s success relies heavily on its ability to maintain strong cash flows, 

to achieve a sufficient return on equity, to continue to grow its rate base, 

and to position itself well in anticipation of future regulations. This 

section reviews Cleco’s recent performance and analyzes its outlook for 

the future. 

Cleco considerably increased its cash reserves in 2011 mainly from the 

Company’s sale of its Acadia Unit 2 generating facility to Entergy 

Louisiana in April. In addition, higher than average electricity use by 

Cleco’s customers throughout much of the year contributed to higher 

revenues. These developments followed an equally strong year in 2010 

during which Cleco made significant gains on a toll settlement with JP 

Morgan. This situation allows Cleco to easily maintain its target debt-toequity 

ratio, effectively fund current capital projects, and it provides 

Cleco the flexibility to engage in new projects if necessary. 

In addition, the cash position allowed Cleco to twice increase its 

dividends in 2011, most recently to $1.25 per share (annualized) in the 

third quarter. Cleco had also increased its dividend payments in 2010, 

after paying dividends at a flat rate for the previous seven years. In the 

third quarter of 2011, Cleco repurchased over $13 million of common 

stock. 

3


Current business 

environment makes 

Cleco an acquisition 

candidate. 

Future holds steady, 

predictable growth 

and returns. 

Expanded rate base 

increases 

operational 

efficiencies and 

decreases risks. 

Cleco’s current financial and business environment positions it as a 

candidate for acquisition. The Company’s free cash flows are greater than 

10% of its market capitalization, which indicates the opportunity for a 

leveraged buyout. Additionally, Entergy recently decided to connect to 

the Midwest Independent Transmission System Operator (MISO). With 

Entergy’s decision, Cleco will have the option to join the MISO grid as 

well, thus, increasing potential synergies between the two companies and 

making an acquisition possible. 

In 2010, regulators approved a new rate plan that permits Cleco to earn a 

target return on equity of 10.7%, effectively increasing the rate Cleco is 

allowed to charge for retail electricity. Investors can, therefore, expect to 

regularly enjoy higher earnings in the future. Moreover, Cleco is subject 

to forces that affect the utility sector as a whole. Projected GDP growth 

and projected increases in fuel prices over the next few years will likely 

help to improve Cleco’s total revenue. Total revenues will increase along 

with fuel costs because the amount Cleco’s regulated business is 

permitted to charge is affected by total costs. 

Although rapid expansion is unlikely, if Cleco seeks to expand its service 

area, it must undergo competitive bid processes to secure long-term 

contracts with local municipalities. Because these contracts do not expire 

often, opportunities are few. Industrial expansion in the Haynesville shale 

area in northern Louisiana is a possible source of customer growth for the 

Company. However, as the area becomes fully developed, this 

opportunity will gradually wane. 

Cleco’s rate base, the property on which it may earn a rate of return, 

expanded steadily throughout 2010 and 2011. The Acadiana Load Pocket 

transmission project and the Advanced Metering project will both 

contribute to the rate base in 2011 and over the following several years. 

The completion of Madison Unit 3 and the purchase of Acadia Unit 1 in 

2010 gave Cleco $1.3 billion of additional assets and added 600 

megawatts (MW) of capacity to the Company’s electricity generation 

portfolio. 

Overall, the Company’s increased capacity allows it to rely less on 

outside power purchases. Cleco can, therefore, forecast its expenses with 

considerable accuracy and reduce its exposure to the risk associated with 

unpredictable wholesale electricity prices. 

At the end of 2011, Cleco’s Midstream segment will terminate its tolling 

agreement with J.P. Morgan Ventures Energy Corporation. The two units 

under its control, Coughlin Units 6 and 7, will then become available to 

sell electricity on the wholesale market. Both units are combined-cycle 

gas turbines that emit less carbon than typical gas plants and are the only 

such unregulated units in Louisiana. Midstream is, consequently, prepared 

to take advantage of future wholesale demand for clean energy. 

4


VALUATION Our 12 month target price for Cleco is $41 per share based on the 

following four valuation methods: Discounted Cash flow (DCF), 

Dividend Discount Model (DDM), Price to Earnings multiple (P/E) and 

the Price to Book Value multiple (P/BV). The peers used for the relative 

valuation techniques include Southern Company, American Electric 

Power, TECO Energy and CMS Energy. 

Price to Earnings To estimate the target price of Cleco, we multiplied the forecasted 

earnings for the next four quarters by the average P/E multiple of Cleco’s 

peers. The target price using this method is $46.41. 

Price to Book Value The Price to Book Value method compares the price per share of a 

company to its book value per share. We multiplied the average P/BV 

multiple of Cleco’s peers by the book value estimates for the coming year 

to yield a target price of $43.60. 

Discounted Cash 

Flow 

Dividend Discount 

The relative valuation techniques only compare a company against its 

peers; they may overlook the internal strengths of a company. To address 

this problem we estimated the future Free Cash Flows (FCF) and then 

discounted them at the Weighted Average Cost of Capital (WACC) to 

arrive at the enterprise value. By subtracting the debt and adding cash 

back to this enterprise value we derived the value of equity. After 

factoring in the WACC, the resultant target price is $34.64. 

The Dividend Discount Method (DDM) involves forecasting future 

dividends and discounting them at a company’s cost of equity. Cleco’s 

dividend growth rate exceeds the cost of equity; consequently, we 

deployed a modified version of DDM. We calculated the terminal value 

on the basis of the diluted earnings per share at the end of explicit 

forecasting period. This method produces a target price of $ 39.01. 

Current Price as of November 25, 2011 

5

INDUSTRY 

ANALYSIS 


Cleco operates in the electric utilities industry. According to 2009 

statistics from the United States Census Bureau, the industry accounts for 

almost 5% of U.S. annual GDP and is among the largest industries in the 

country. This industry comprises four sectors: electricity generation, 

energy network operations, energy trading and marketing, and energy 

service providers and retailers. This report focuses primarily on the 

electricity generation segment because that is where Cleco operates. 

Production Process Electricity is typically produced by electromechanical generators 

consisting of an engine powered by fuel combustion or nuclear fission. 

The energy produced rotates a magnet inside a coil of wires, generating 

an electrical current. Generators can also be powered by energy from 

other sources including solar radiation, geothermal energy, flowing water 

and wind. Steam operated turbines produce most of the electricity in the 

United States. The most common fuels are coal and natural gas. Cleco’s 

generating units are primarily steam turbines powered by coal, natural 

gas, and petroleum coke, and combined-cycle turbines powered by natural 

gas. Figure 3 illustrates U.S. electricity generation by fuel type. As shown 

in the figure, coal (45%) is by far the leading fuel source of electric power 

generation in the United States. 

Figure 3. U.S. Electric Power Industry Net Generation by Fuel, 2009 

Series1, 

Nuclear, 20%, 

20% 

Series1, 

Hydroelectric, 

7%, 7% 

Series1, Natural 

Gas, 23%, 23% 

Source: Energy Institute of America 

Industry Drivers Electric power is a critical resource for residential, commercial and 

industrial uses throughout United States. Population and economic 

activity are therefore primary drivers of the electric utility industry. 

Consequently, electric utilities benefit from steady GDP and population 

growth in their service areas. The International Energy Agency predicts 

that U.S. demand for electricity will double over the next twenty-five 

years. 

6 

Series1, Other, 

5%, 5% 

Series1, Coal, 

45%, 45%


Regulations 

Regulations are also an important industry driver because all utility 

companies are subject to state and federal regulations. Regulators often 

set the maximum profits that a utility can realize from selling power. 

Price regulations increase the importance of the economic factors. 

Environmental regulations are also imposed on U.S. electric utility 

companies by both state and federal agencies. Twenty-six states have 

implemented Renewable Portfolio Standards (RPS) that require a certain 

portion of energy to be produced from renewable sources. Electric 

utilities’ heavy dependence on burning coal makes the industry one of the 

nation’s main emitters of greenhouse gases. Greenhouse gases contribute 

to global climate change, and industry analysts anticipate increased 

government action to limit emissions. Therefore, RPS will probably 

increase in the future. Carbon trading, carbon taxing, and carbon capping 

are federal options that would impose a price on carbon emissions, and 

increase costs for electricity generating companies. 

Weather 

Weather is another industry driver. Demand for electricity spikes when 

extreme hot or cold weather occurs. Increased demand benefits Cleco 

because utility companies are permitted to charge their customers higher 

prices during peak usage seasons. Conversely, if unusually mild 

temperatures occur during peak usage seasons electric utility companies 

will realize decreased revenues. 

Barriers to Entry Considerable barriers to entry provide an advantage to existing utility 

companies. The industry is capital-intensive and new entrants need 

considerable capital to set up generation plants. In addition, the 

involvement of regulatory bodies makes gaining approval for new 

infrastructure a long and complicated process. Cleco enjoys high 

customer satisfaction in its territory. Therefore, a new competitor would 

be unlikely to successfully operate in Cleco’s region or to draw away 

Cleco’s customers. Municipalities sign long-term power contracts with 

utility companies, and changes in these contracts are relatively rare. 

Bargaining Power 

of Suppliers 

Generally, the bargaining power of suppliers is somewhat low. Suppliers 

in the industry include raw fuel providers and other electricity providers. 

Utility companies buy raw fuel from suppliers on long-term contracts as 

well as on the spot market. The bargaining power of the suppliers is 

relatively low during the life of a contract. Utility companies also buy fuel 

in the futures market to hedge their supply risk. Utility companies are 

occasionally forced to buy power from other utility companies when they 

cannot meet customer demand. When a company is forced to make an 

energy purchase because of high demand, the supplier holds a strong 

position and can charge a high price. 

7


Bargaining Power 

of Buyers 

Availability of 

Substitutes 

The bargaining power of buyers is low. To encourage competition, retail 

electricity markets have been fully or partly deregulated in fifteen states 

and the District of Columbia. Customers in those states have the ability to 

choose their electricity providers. Business and industrial customers have 

some leverage when signing the long-term power purchasing contracts 

with utility companies. In Louisiana, individual retail customers have low 

bargaining power because consumers are unable to change their 

electricity provider. Louisiana municipalities and other political entities 

act on behalf of consumers to negotiate electricity contracts with utilities. 

Because Cleco, Entergy Louisiana, and SWEPCO are the only competing 

suppliers in Louisiana, bargaining power is limited for buyers in 

Louisiana. 

The availability of substitutes is low. Customers can employ alternate 

ways to generate electricity, but very few substitute products exist. 

Although trends in solar energy and other alternative energy sources 

could potentially affect Cleco and other utility companies in the future, 

these sources currently tend to be prohibitively expensive to retail 

electricity customers. 

Competitive Rivalry Competitive rivalry is medium. When utilities compete for contracts with 

municipalities in Louisiana, the competitors compete on both price and 

service. Base rates are determined by state regulators. To be competitive 

in the industry, a company needs to expand its capacity and customer 

base. After expansion, the key factor to increasing profit is to increase 

efficiency and customer satisfaction. The efficiency of generating profit is 

determined by government regulations, fuel cost, and technology. The 

wholesale electricity market operates in an unregulated business 

environment. Because of the lack of regulations, barriers to entry are 

lower and competitive rivalry is higher in this segment. 

COMPANY 

DESCRIPTION 

History, Location 

and Facilities 

Cleco is an electric utility holding company that, through subsidiaries, 

generates, transmits, and sells retail and wholesale electricity in 

Louisiana. The Company is based in Pineville, Louisiana and supplies 

electricity to approximately 279,000 customers across the central and 

southeastern parts of the state. 

Louisiana Ice and Utilities, Cleco’s earliest incarnation, began in Bunkie 

Louisiana in 1914 as an ice manufacturing operation. The excess power 

generated for the ice manufacturing process was sold to nearby homes 

and businesses as a secondary source of revenue. Financier Floyd Wilson 

Woodcock played an essential role in changing that company’s focus 

from ice manufacturing to electricity generation. A pivotal date in Cleco’s 

transition was January 1935 when Mr. Woodcock and five East Coast 

businessmen reorganized the business. 

8


The reorganization resulted in the Company’s first articles of 

incorporation and a new name, Louisiana Ice and Electric Company. 

Under Woodcock’s leadership, that company’s breadth of production 

expanded to include refrigerators and lighting equipment. F. Hugh 

Coughlin, the Company’s second President, completed the transformation 

Woodcock initiated. His 20-year tenure as president included significant 

acquisitions and reorganizations that resulted in the company Cleco is 

today. Most notably, Cleco’s merger with Gulf Public Service Company 

in 1951 doubled the size of Cleco. 

In the years following this merger, Cleco divested itself of nearly all 

nonelectric generating assets. In 1968 Cleco was admitted for trading on 

the New York Stock Exchange. The most recent reorganization occurred 

in 1999 when Cleco implemented a public utility holding company 

structure, with Cleco Utility Group and Cleco Midstream Resources LLC 

as the two primary subsidiaries. 

Today, the two subsidiaries are known as Cleco Power and Midstream 

Resources LLC (Midstream). Cleco Power provides retail electricity 

service and Midstream owns and operates a merchant power plant. The 

shaded regions in Figure 4 represent Cleco’s current retail service areas 

throughout the state of Louisiana. 

Figure 4. Cleco Service Areas 

Source: http://www.cleco.com 

9


Unit Name 

Cleco owns and operates eleven generating units between Cleco Power 

and Midstream. Table 2 lists each generating unit’s names, type and 

generation capacity in megawatts (MW). 

Table 2. Generating Units 

Cleco Power 

Net Capacity 

Type Fuel 

(MW) 

Cleco Power 

Nesbitt 1 422 Steam Natural gas/oil 

Rodemacher 2 146 Steam Coal/ natural gas 

Madison 3 515 Steam Petroleum coke 

Acadia 1 583 Combined cycle Natural gas 

Teche 1 18 Steam Natural gas 


Teche 3 328 Steam Natural gas/oil 


Dolet Hills 319 Steam Lignite/natural gas 

Franklin 8 Gas Natural gas 

Midstream 

Coughlin 6 258 Combined Cycle Natural gas 

Coughlin 7 497 Combined Cycle Natural gas 

Total 3158 (MW) 

Products Cleco Power 

Cleco Power is a regulated electric utility that provides retail electricity to 

customers in Louisiana. The rate Cleco Power charges its customers is 

regulated by the Louisiana Public Service Commission (LPSC) and the 

Federal Energy Regulatory Commission (FERC), along with other 

government bodies. 

Cleco Power delivers its power to customers through a network of 

transmission and delivery lines owned by Cleco and other companies. The 

amount of power the transmission grid can carry is limited by physical 

constraints and is subject to state and federal regulation. 

Midstream 

Midstream is a merchant electricity producer that owns two electricity 

generating facilities located at a single merchant power plant. Midstream 

sells electricity on the wholesale electricity market to electric utilities and 

other merchant power companies. Midstream can also earn revenue 

through tolling agreements with outside parties. These agreements give 

10


the counterparty the right to sell all of the electricity generated at a given 

facility. The counterparty is responsible for all fuel and maintenance costs 

associated with operating the facility during the term of the agreement. 

Strategy Through Cleco Power and Midstream, Cleco has articulated a strategy for 

increasing revenues and augmenting future growth. Cleco’s strategy is 

based upon its subsidiaries’ core businesses. Cleco Power derives a great 

deal of its success from its ability to generate unit fuel diversity at low 

costs. Many of Cleco’s generating facilities are capable of using multiple 

fuel sources. Figure 5 illustrates Cleco’s reliance by fuel type based on 

each facility’s primary fuel source. 

Natural Gas 69% 

Figure 5. Cleco’s Primary Fuel Source Portfolio 

In addition, the regulated utility aims to deliver top-notch customer 

service, maintain high customer satisfaction, and have strong regulatory 

relationships to position the Company to continue growing by acquiring 

new customers and making efficient investments. 

Cleco Power 

The overarching goal of Cleco Power is to extract maximum allowable 

returns through fuel diversity, state of the art technology, and renewable 

capability in a regulated market. Cleco Power relies on solid-fuel, 

petroleum coke, natural gas, and coal-based sources to efficiently produce 

electricity at its power plants in central Louisiana. Cleco Power has 

established a four-year formula rate plan with riders for large projects and 

targets a 10.7% return on equity. 

11 

Petroleum Coke 

16% 

Lignite 10% 

Coal 5%


Strategically, Cleco Power views its vast customer base and smart 

investments as the key to navigating the recent economic slowdown. 

Cleco Power identifies two major investments as integral parts of its longterm 

strategy: 1) the Acadiana Load Pocket transmission project and 2) 

the advanced metering infrastructure project. With the Acadiana project, 

Cleco Power intends to relieve constraints in its southern Louisiana 

service territory by developing 90 miles of new transmission 

infrastructure. By replacing all its existing meters with smart meters, 

Cleco Power believes its Advanced Metering project will provide better 

information for customers and the Company by enhancing outage 

detection. 

Midstream 

Midstream competes in an unregulated market. The overarching goal is to 

position Midstream’s assets to extract maximum long-term value. 

Through its Coughlin plant, a combined-cycle generator, Midstream is 

well-suited to capitalize on future environmental regulations that may 

emphasize the use of cleaner generating facilities. 

Cleco Corporation 

Finally, Cleco has a long-term goal of maintaining a strong investment 

grade rating. Despite the investments Cleco has made, the corporation still 

has a significant amount of cash on hand. Additionally, the availability of 

credit ensures that the corporation will not need to issue equity in the 

immediate future. By monetizing the Acadia Unit 2 asset, the Company 

has been able to wipe out most of its debt and secure capital to embark 

upon future investments. 

Competitors Cleco Power 

Cleco Power operates under franchise agreements with various 

government entities, including municipalities and parishes. The 

agreements secure it the right to provide power to customers in those 

regions. In addition to renewing expiring agreements, the Company 

continually attempts to expand the region for which it provides electricity. 

Consequently, Cleco Power is primarily in competition with the region’s 

other retail electricity providers. 

SWEPCO (Southwestern Electric Power Company) is a utility 

headquartered in Shreveport, Louisiana that provides electricity to 

customers in Louisiana, Arkansas, and Texas. It is a subsidiary of 

American Electric Power, one of the largest electric utilities in the United 

States. 

Entergy is a large energy company serving customers in Louisiana, 

Arkansas, Mississippi and Texas. Cleco Power primarily competes with 

its electric utility subsidiaries in the region, namely Entergy Louisiana, 

Entergy Gulf States Louisiana, and Entergy New Orleans. 

12


Latest 

Developments 

The Louisiana Energy and Power Authority (LEPA) is a state-run, 

nonprofit agency that represents communities that own their own 

independent power distribution systems. LEPA runs a computerized 

“Energy Control Center” out of Lafayette, Louisiana, that dispatches 

electricity and allows its members to have reliable electricity at the lowest 

possible cost. Cleco Power also competes against municipalities that 

produce their own power but are not represented by LEPA. 

Midstream 

Midstream’s customers are typically merchant providers and regulated 

utilities that buy and sell electricity on the wholesale market. Cleco 

Power, if it produces power in excess of customer demand, can also 

engage in similar wholesale activities. For these reasons, Midstream and 

Cleco Power are in competition with the region’s other wholesale power 

providers. These include electric utilities, independent power producers 

and industrial companies that produce power for internal use and sell the 

excess. Louisiana is home to dozens of such companies, ranging in 

generation capacity from under 1 megawatt (MW) to over 1 gigawatt 

(GW). As a result, the wholesale generation market is very competitive. 

The largest natural gas field in North America was found in Haynesville, 

Louisiana in 2008. The quantity of gas in the field totals about 130-150 

billion cubic feet. The proximity of this important resource will benefit 

Cleco in the future. Because the field is located within Cleco’s current 

service area, a resulting increase in industrial activity may benefit Cleco. 

On July 7, 2011, the EPA finalized the “Cross State Air Pollution Rule.” 

The rule could impact the operations of utility companies in Louisiana. 

The rule greatly reduces Louisiana’s emission allowances for nitrogen 

oxide during the summertime ozone season. In addition to federal 

environmental regulations, the state of Louisiana is initiating 

requirements to increase the use of renewable sources of power. The 

states’ “renewable pilot program” requires local energy companies, 

including Cleco, to install at least 300 MW of, solar, and other renewable 

capacity by the end of 2014. In preparation, Cleco plans to test burn 

biomass at the Madison 3 plant by the end of 2011. 

In April 2011, Entergy announced its decision to join the Midwest 

Independent Transmissions System Operator (MISO). Entergy’s target 

implementation date is December 2013. Cleco Power is currently 

studying whether to continue operating its transmission system 

independently or to join MISO or the Southwest Power Pool (SPP). The 

pending decision may have influenced the Company’s choice of 

replacement for retiring CEO Mike Madison. Bruce Williamson, formerly 

CEO of Dynegy, officially became the CEO of Cleco on July 5, 2011. 

Williamson’s experience at Dynegy, a Midwest based power company, 

gives him an in-depth familiarity with MISO. 

13


In November 2011, Cleco restructured its management team. George 

Bausewine, president and COO of Cleco Power will retire in February 

2012, after which several current managers will be promoted and 

responsibilities will be redistributed. The new structure is outlined in the 

Management Background and Performance section. 

PEER ANALYSIS We consider Cleco’s peers to be utility companies that have the ability to 

convert multiple sources of fuel into electricity, but that primarily rely on 

coal and natural gas. Cleco’s peers vary by market capitalization, but all 

operate in a similar geographic location. Regulated utility companies 

operate as monopolies based on long-term contracts with municipalities 

within their service area. Cleco may compete with its peers for natural 

resources but does not currently compete for customers. 

Company Ticker Market 

Cap (bil) 

Table 3 presents key ratios for comparing Cleco to its peers. Cleco stands 

out because of low P/E and P/BV ratios. These rates are significantly 

lower than the industry average, which suggests Cleco is either 

undervalued or, when compared to peers, investors lack confidence in the 

Company’s ability to create long-term growth. It is important to note that 

Cleco has less debt and a significantly higher return on equity (ROE) than 

its peers. Recent transactions, including the 2010 sale of Acadia unit 2, 

significantly impacted both of these figures. 

Table 3. Peer Comparisons 

P/E P/BV 

14 

EV/ 

EBITDA 

Debt/ 

Equity 

Div. 

Yield 

Southern Company SO $35.86 17.95 2.11 9.75 122.73 4.50% 12.16% 

American Electric 

Power 

AEP 17.68 12.05 1.27 7.33 133.29 4.80 9.05 

TECO Energy TE 4.01 16.88 1.83 7.85 140.52 4.50 10.90 

CMS Energy CMS 4.86 12.79 1.64 7.37 264.45 4.20 12.01 

Cleco CNL 2.06 11.94 1.47 6.79 119.18 3.30 21.00 

Southern Company 

(SO/NYSE) 

ROE 

Southern Company is the largest company included in Cleco’s peer group 

and is among the largest energy companies in America. Southern 

Company’s customer base includes 4.4 million retail customers in 

Georgia, Mississippi, Alabama, and Florida. Southern Company builds 

and maintains power generating facilities to serve the electricity needs of 

its customer base. Like Cleco, Southern Company also sells power on the 

wholesale market. The company relies on coal, nuclear, oil, gas and 

hydroelectric resources for electricity generation. Southern Company also 

owns a significant telecommunications subsidiary called Southern 

Telecom.


American 

Electric Power 

(AEP/NYSE) 

TECO Energy 

(TE/NYSE) 

CMS Energy 

(CMS/NYSE) 

MANAGEMENT 

PERFORMANCE 

AND 

BACKGROUND 

American Electric Power is one of the largest electricity generating 

companies in the United States. The company relies on natural gas, coal, 

lignite and hydroelectric resources to generate electricity. The company 

owns and leases approximately 38,000 megawatts of generating capacity. 

American Electric’s 39,000- mile transmission network is the largest in 

the nation and is used to serve customers in Arkansas, Indiana, Kentucky, 

Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and 

West Virginia. 

TECO Energy is an electric and gas utility that generates, transmits, and 

sells electricity in central Florida. The company serves approximately 

672,000 customers with retail electricity services. TECO also sells and 

distributes natural gas and owns and operates mineral mines and coal 

processing facilities. 

CMS Energy is a utility holding company that consists of two subsidiaries 

and operates throughout the state of Michigan. The first subsidiary, 

Consumer’s Energy, is an electricity and natural gas supplier that services 

over six million customers. The second subsidiary, CMS Enterprises, is 

an independent power generation facility. CMS Enterprises also 

participates in natural gas transmission. 

Cleco’s board of directors features an eclectic group of accomplished men 

and women, all of whom have substantial experience in the finance, 

public, energy, and government sectors. Elected by Cleco’s shareholders, 

the current board of directors comprises 11 individuals. Among the 

responsibilities of the board of directors are evaluating the performance of 

the CEO and other key executives, determining executive compensation, 

and adhering to a management succession plan. The board of directors has 

the responsibility to evaluate executive performance annually. 

One measure of management effectiveness is return on invested capital 

(ROIC). Table 4 compares Cleco’s recent ROIC values to its peer 

average. Cleco was slightly below its peers in 2008 and 2009, but rose 

substantially in 2010. This is likely a result of Cleco Power’s new rate 

plan, approved in 2010 by regulating authorities, which gives it the right 

to earn a higher return on equity. 

Table 4. ROIC Comparison 

Cleco ROIC Average Peer ROIC 

2008 3.52% 4.68% 

2009 3.27% 4.09% 

2010 5.23% 3.66% 

15


Bruce Williamson President and Chief Executive Officer of Cleco Corporation (52) 

Bruce A. Williamson has served as CEO of Cleco since July 2011. Mr. 

Williamson came to Cleco after a ten-year tenure with Dynegy Inc. He 

had served as the as director and president of the electric utility since 

April 2007. Prior to his time at Dynegy, Williamson joined PanEnergy in 

1997, and worked with that company through its merger with Duke 

Energy. Mr. Williamson received his bachelor’s degree in Finance from 

the University of Montana-Missoula in 1981. 

George W. 

Bausewine 

President and Chief Operating Officer of Cleco Power (56) 

George W. Bausewine has served as president and chief operating officer 

of Cleco Power LLC since August, 2010. He has held numerous 

executive positions with Cleco dating back to 1998. Mr. Bausewine 

received his BA in Business Administration from Rolling College and 

his MBA from Southern Methodist University. 

Darren Olagues Senior Vice President and Chief Financial Officer (40) 

Darren J. Olagues has served as the chief financial officer and senior vice 

president of Cleco since May 7, 2009. Prior to joining Cleco, Mr. 

Olagues worked as the vice president of asset management and 

development for Exelon Power. As a CPA, Mr. Olagues also has 

significant professional background in financial accounting; he served as 

the CFO of Sithe Energies from October 2002 to February 2005, and was 

previously employed by PricewaterhouseCoopers as a manager of 

auditing and regulatory services. Mr. Olagues received his BSM from 

Tulane University in 1992. In November 2011, Mr. Olagues assumed 

temporary duties as corporate treasurer. 

Wade A. Hoefling Senior Vice President General Counsel and 

Director Regulatory Compliance (55) 

Wade A. Hoefling has served as senior vice president, general counsel 

and director of regulatory compliance of Cleco and Cleco Power since 

January 2007. He has over 25 years’ legal experience in the energy 

sector. Prior to his time at Cleco, Mr. Hoefling served as vice president 

and general counsel for energy trading of Reliant Resources Inc. Mr. 

Hoefling holds a bachelor's degree from Harvard and a JD from Harvard 

Law School. He is a member of the Texas Bar Association and the 

Oklahoma Bar Association. 

Judy P. Miller Senior Vice President of Corporate Services and Internal Audit (53) 

Judy Miller was named senior vice president of corporate services and 

internal audit in November 2011. From 2004 to 2011, Ms. Miller served 

as corporate secretary for Cleco Corporation. She also held the title of 

assistant controller from June 2000 to January 2004. 

16


Jeffrey W. Hall Senior Vice President of Governmental Affairs and 

Chief Diversity Officer (59) 

Jeffery W. Hall has served as senior vice president of governmental 

affairs and chief diversity officer of Cleco since 2006. Mr. Hall has held 

numerous executive and upper-level management positions at Cleco 

dating back to 1997. Mr. Hall holds a bachelor’s degree in accounting 

from Gambling State University. He is a graduate of the Louisiana 

Leadership Program. 

R. Russell Davis Senior Vice President of External Relations and 

Information Technology (54) 

Russell Davis has served as senior vice president of external relations 

and information technology since November 2011. Prior to his current 

position, Mr. Davis served as vice president for investor relations and 

chief accounting officer. Additionally, Mr. Davis enjoyed a brief tenure 

as interim CFO of Cleco. Prior to joining Cleco Mr. Davis worked for a 

number of electric-utility companies in both Texas and Oklahoma. Mr. 

Davis received his bachelor of business administration in accounting 

from McMurry University in Abilene, Texas. In addition, Mr. Davis is a 

member of both of the American Institute of Certified Public 

Accountants and the Society of Louisiana Certified Public Accountants. 

SHAREHOLDER 

ANALYSIS 

Institutions held 74.5% of Cleco as of June 30, 2011. The largest 

institutions holding shares are Blackrock Fund advisors, Vanguard 

Group, Artisan Partners And Allianz Global Investors of America. Table 

5 lists the top ten shareholders of Cleco, all of which are institutional 

investors. 

The top-ten institutions hold 40.4% of the total shares outstanding. From 

June 30 t, 2010 to June 31, 2011, these institutions have been net sellers of 

4,324,260 shares. Mutual funds hold 45.4% of the shares outstanding. 

29.3% of the holdings fall under index funds, 20.3% under growth and 

11.7% under value funds. These holdings represent a good mix of all 

investment strategies indicating that institutions see both short-term and 

long-term value in Cleco. 

17


RISK ANALYSIS 

AND 

INVESTMENT 

CAVEATS 

Table 5: Top-10 Shareholders 

Holder No. of Shares % Outstanding 

Blackrock Fund advisors 3,568,571 5.84 

Vanguard Group 2,943,269 4.82 

Artisan partners limited partnership 2,779,269 4.55 

Allianz global investors of America L.P. 2,568,302 4.21 

Scrodher Investment Management Group 2,557,215 4.19 

Price Associates 2,388,980 3.91 

State Street Corporation 2,132,780 3.49 

Blackrock Institutional Trust Co 1,639,527 2.69 

Oppenheimer Funds 1,562,552 2.56 

Northern Trust Corporation 1,409,404 2.31 

Source: Bloomberg. Filing Date June 30, 2011 

In 2010, Cleco issued 262,162 shares of common stock worth $263,000 

to meet the compensation requirements for its management. Cleco did 

not buy back any stock in 2008, 2009 or 2010. In 2010 the board 

terminated a 1991 agreement that entitled management to buy back up to 

30 million common shares. In its place, in January 2011 the board 

directed management to buy back shares whenever needed to maintain 

the diluted common number of shares outstanding at the 2010 level. 

Insiders hold 1% of the shares outstanding. The major holdings per 

insider are shown in Table 6. Between February 2011 and October 2011, 

insiders have purchased 1800 common shares. During this same period 

20,059 shares were sold by insiders, representing a net sell-off by 

insiders. 

Table 6: Major Direct Holders 

Holder No. of Shares % Outstanding 

Madison, Michael 205,801 0.3531 

Williamson, Bruce A. 88,110 0.1512 

Samil, Dilek 87,870 0.1507 

Walker, William H. Jr. 73,350 0.1258 

Bausewine, George W 68,917 0.1182 

Source: Yahoo Finance 

Cleco faces many risk factors across its business segments that could 

have a significant effect on the future success of the Company. Risks can 

derive from Cleco’s business operations, from current and future 

regulatory activities, and from the Company’s financial structure. 

18


Operational Risks Environmental Considerations 

As an electricity producer, Cleco must comply with federal, state and 

local environmental regulations on CO2 emissions, air quality, water 

quality, waste management, and other factors. New regulations or 

changes in existing regulations could prove costly to Cleco because 

upgrades and compliance may require significant expenditures. Future 

regulations and new generation technologies could make the use of 

existing power plants unfeasible and limit the viability of certain fuel 

sources used by Cleco. 

Market Risks and Risk Management 

Cleco’s expenses are directly tied to the cost of fuels used for generating 

power, and therefore, the Company is exposed to considerable risk 

related to shifting fuel prices. Cleco attempts to hedge its exposure to 

market volatility by entering into financial derivative contracts and by 

engaging in other risk management activities. These positions can 

nevertheless result in financial losses, and the Company’s ability to 

recover any losses is subject to regulation by the Louisiana Public 

Service Commission (LPSC), Federal Energy Regulatory Commission 

(FERC), and other government bodies. 

Generation Outages 

Cleco’s generating facilities, even when properly maintained, risk 

unplanned equipment failures and outages. Insufficient fuel supply, 

unexpected interruptions in fuel deliveries, severe weather, and other 

variables outside of Cleco’s control can decrease Cleco’s ability to 

generate power. Outages can result in lost revenue and unexpected costs 

if Cleco has to purchase power from other sources. 

Customer Demand 

Cleco’s revenues can be adversely affected by any significant changes in 

the electricity demands of its customer base. Downturns in the overall 

state of the economy, for example, can negatively impact demand, 

especially from commercial and industrial customers. Demand is also 

closely tied to weather patterns, and unexpectedly mild conditions can 

result in reduced electricity usage. In addition, weather causes peaks and 

troughs in customer demand on both a daily and a seasonal basis. Cleco 

sees its highest demand during the summer when electricity is used for 

cooling, and also sees increased usage during the winter when electricity 

is used for heating. 

Regulatory Risks Cleco must comply with industry regulations imposed by governing 

organizations. Specifically, Cleco operates under the jurisdiction of the 

LPSC and FERC. Cleco has successfully sought and received rate 

adjustments from both organizations in the past, but future requests may 

not be granted. Table 7 illustrates Cleco’s operations and the regulatory 

agency that oversees them. 

19


Table 7. Operations and Regulatory Agencies 

Under Jurisdiction of the LPSC Under Jurisdiction of FERC 

Retail Rates Rates for Wholesale Service 

Service Standards Transmission of Power and Reliability 

Accounting Practices Accounting Practices 

Interconnections with Other Utilities 

Financial Risks Cleco’s total debt-to-equity (D/E) ratio of 1.19 is the lowest among all 

peers discussed in this report and is also lower than the 1.50 industry 

average. A concomitant benefit of a low D/E ratio is a higher credit 

rating and, consequently, lower costs of raising debt in the capital 

market. 

Company 

Cleco targets a debt to capital ratio of 55%-60%. This stated target 

indicates a slight debt increase because Cleco’s current debt level is only 

45% of capital. Cleco does not face insolvency risk, and 60% debt to 

capital is a comfortable leverage level. Thus, raising debt levels to 55%- 

60% will increase tax savings while not increasing bankruptcy risk. 

Cleco’s Debt Service Coverage Ratio of 0.712 is slightly below the 

industry average. Cleco’s strong net income growth and low interest are 

offset by a recent large debt retirement. The debt retirement, a one-time 

event that increased current liabilities, does not detract from Cleco’s 

strong financial position. 

Table 8 compares Cleco to its peers across several important financial 

ratios. 

Table 8. Ratio Comparison 

Current 

Ratio 

20 

Quick 

Ratio 

Debt to 

Equity Ratio 

Debt Service 

Coverage Ratio 

Cleco 1.275 1.000 1.192 0.712 

American Electric Power 0.770 0.547 1.342 0.704 

TECO Energy 0.900 0.667 2.320 1.835 

CMS Energy 1.365 0.784 2.645 0.810 

Southern Company 0.910 0.390 1.111 1.087 

Industry Average 1.070 0.750 1.500 1.029 

Altman Z-Score The Altman Z-score analysis, created by Professor Edward Altman in 

1968, is used to predict the probability of a company going bankrupt 

within two years. Altman believes that a Z-score above 2.99 is ideal, and 

that a Z-score below 1.80 indicates that a company is close to 

bankruptcy. Studies show that the Z-score test has 72% accuracy. The Zscore 

formula is described in Table 9.


FINANCIAL 

PERFORMANCE 

AND 

PROJECTIONS 

Operating 

Activities 

Table 9. Z-Score Formula 

Ratio Multiplier 

Working capital to total assets 1.2 

Retained earnings to total assets 1.4 

Operating earnings to total assets 3.3 

Market cap to total liabilities 0.6 

Sales to total assets 1 

Cleco’s Z-score is 1.22 for 2010, increasing from 1.06 in 2008. Although 

1.22 puts Cleco in the distress zone according to Altman, we do not 

believe this is an effective analysis. The Company earns a regulated 

return on equity set forth by state and federal authorities and 

consequently is not in any danger of bankruptcy. Moreover, most of the 

metrics compare key company statistics to total assets. Cleco is in fact a 

healthy company with sound capital structure and steadily increasing 

working capital, EBIT, and sales. Comparing these values to total assets, 

which will inevitably be high for an electric utility, is not meaningful 

when using the Z-score to evaluate Cleco against non-utility companies. 

A low Z-score is typical in a regulated utility company. Table 10 shows 

that, among its peers, Cleco’s Z-score is among the highest and is above 

the industry average. 

Table 10. Altman Z-Score Comparison 

Cleco 1.22 

Southern Company 1.35 

American Electric Power 0.90 

TECO Energy 1.25 

CMS Energy 0.76 

Industry Average 1.10 

Our financial forecasts for Cleco were based on a number of factors, 

including the Company’s recent financial performance, management 

goals for the future, independent research, and macroeconomic and 

company-specific assumptions. 

Because Cleco earns a regulated rate of return, we first forecast operating 

expenses, and then forecast operating revenues based on expenses. To 

determine the most significant drivers of Cleco’s operations, we ran 

multiple regressions using quarterly data from 2002 to 2011. The most 

important factors affecting operating expenses were the season, natural 

gas prices, and the overall economy as represented by U.S. GDP. 

21


Investing and 

Financing 

Activities 

Operating revenues were primarily determined by operating expenses, 

the number of cooling degree days, and the implementation of Cleco’s 

new formula rate plan in 2010. 

Using government GDP projections, National Weather Service weather 

forecasts, and Burkenroad Reports gas price forecasts, we were able to 

project future operating expenses and revenues. To refine our figures, we 

took into account increases in Cleco Power’s generation capacity and the 

fact that Midstream will cease its tolling agreement at the end of 2011. 

We also considered historical ratios to help project accounts receivable, 

accounts payable, inventories, and related figures. 

We projected purchases, construction, and other capital expenditure 

figures based on the cost of current capital projects, including the 

Acadiana Load Pocket and the Advanced Metering projects, and based 

on historical expenditures. We calculated debt and equity values 

primarily using debt schedules in Cleco’s annual report, keeping in mind 

management’s stated target ratio of 51% debt. We arrived at our 

projected dividend payments based on Cleco press releases and 

management guidance that Cleco will target payments equal to 50% of 

earnings in the future. 

Gas price increases, GDP growth, and Cleco’s new rate plan all 

contribute to our predictions for strong cash flows from operations and 

overall earnings growth. Forward-looking assumptions are inherently 

uncertain, but Cleco’s control over its generation assets and its status as a 

regulated utility prevent it from being highly sensitive to deviations from 

our projections. 

SITE VISIT Our site visit to Cleco’s headquarters was scheduled for Friday, October 

14, 2011 at 12:00 p.m. The members of the Cleco analyst team met at 

approximately 7:30 a.m., to depart for Pineville, Louisiana. Jeffrey Rohr, 

Nianxiong Huang, Aashish Chhachhi, David Marsh, Omar Cameron and 

Seth Hamstead were all present for the meeting. We arrived in Pinesville 

at approximately, 11:00 a.m., making the journey a full 3-1/2 hour trip. 

At 11:50 a.m., we entered Cleco’s headquarters where we were greeted 

by management. 

At Cleco’s headquarters we met with VP of investor relations and CAO, 

Russell Davis; president & COO, George Bausewine; senior VP and 

CFO, Darren Olagues; group VP of Cleco Power, Keith D. Crump; and 

group VP of Cleco Power, William G. Fontenot. President and CEO, 

Bruce Williamson was unable to attend the meeting. 

Mr. Davis offered significant insight into the Company’s background and 

history, and how Cleco’s subsidiaries, Cleco Power and Midstream, 

operate within the electric utility industry. Mr. Davis also articulated 

Cleco’s current strategic vision. Mr. Davis praised the strong liquidity 

22


INDEPENDENT 

OUTSIDE 

RESEARCH 

position the Company enjoys as well as Cleco’s current infrastructure 

investment projects such as the Acadiana Load Pocket initiative and the 

advanced metering infrastructure project. Both of these two major 

investments are slated for completion within the next two years. In 

addition, both projects are expected to increase efficiency in operations. 

Mr. Olagues and his colleagues offered their opinion on the most 

challenging issues facing Cleco in the immediate future. They mentioned 

that the large amount of cash on hand represents a fundamental challenge 

for Cleco because the corporation generally does not hold cash at the 

subsidiary level. Cleco Power would usually use the cash resources to 

invest in infrastructure improvements or to pay down corporate debt. 

However, neither of these options is currently available; the only option 

is to give the additional cash to the parent company to pay out as 

dividends or to repurchase stock. Mr. Olagues added that steady yet 

sustained growth typically characterizes electric utility companies; he 

indicated that seeking out growth opportunities is a current challenge for 

the Company. 

At the conclusion of the site visit, management offered a guided tour of 

Cleco’s control room where highly skilled analysts monitor the 

fluctuating energy prices, weather conditions, and power usage to 

dispatch Cleco’s output accordingly. Shortly, thereafter the Cleco analyst 

team departed Pineville for New Orleans. 

While researching Cleco, our team relied on the knowledge of several 

outside sources. We sought the advice of an industry expert working at a 

regional transmission organization for information regarding the 

fundamentals of generation, transmission and distribution and the role of 

state and federal regulations in the industry. In addition, we consulted 

with energy faculty at Tulane University, specifically those with 

professional experience with electric utilities. We complemented this 

information by reading third-party reports relating to electric utility 

forecasting as well as the industry as a whole. 

Other sources of information included Bloomberg, Thomson Reuters, 

Yahoo Finance, The Wall Street Journal, Cleco’s management team and 

its corporate Web site, and SEC filings. 

23


WWBD? 

What Would Ben (Graham) Do? 

BEN GRAHAM 

ANALYSIS 

(slightly modified) 

Ben Graham is considered the father of value investing, and the analysis 

developed by him helps investors evaluate promising opportunities. 

Under Ben Graham’s analysis, potential investments are tested on eight 

criteria. The first six criteria focus on whether a stock is undervalued 

while the last two place emphasis on a stock’s growth both past and 

future. 

A company is considered an attractive investment opportunity by 

Graham if it meets more than half of the eight hurdles. Cleco might be of 

interest to Graham because it satisfies four of the eight criteria. Namely, 

an earning price yield double that of the 10 year treasury, a dividend 

yield half of the yield on the 10 year treasury, debt lower than book 

value, and earnings growth over 7% in the past five years. Cleco’s stock 

price is currently just above 1.5 times the book value of the Company 

which leads to a lower margin of security in case of a market crash. 

Moreover, Cleco’s earnings growth has not been stable over the past five 

years. 

It is important to note that Cleco’s volatility in earnings was primarily a 

result of fluctuating revenues from tolling operations. As of 2011, Cleco 

has eliminated its tolling practice. Going forward, investors can expect a 

steady earnings growth backed by relatively inelastic retail energy 

consumption. Also, the stock price exceeds 1.5 times book value by only 

a very slender margin. These aspects when taken in conjunction with the 

Ben Graham analysis lead us to reaffirm our belief in Cleco as a strong 

investment opportunity. (See the following table for the complete Ben 

Graham analysis.) 

24


CLECO CORPORATION (CNL) 

Ben Graham Analysis 

Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury 

Earnings per share (ttm) $ 3.04 

Price: $ 33.81 

Earnings to Price Yield 9.01% 

10 Year Treasury (2X) 3.94% 

Yes 

Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs 

P/E ratio as of 12/31/06 21.9 





Current P/E Ratio 

No 

11.1 

Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury 

Dividends per share (ttm) $ 1.06 

Price: $ 33.81 

Dividend Yield 3.14% 

1/2 Yield on 10 Year Treasury 

Yes 

0.99% 

Hurdle # 4: A Stock Price less than 1.5 BV 

Stock Price $ 33.81 

Book Value per share as of 9/30/11 $ 23.25 

150% of book Value per share as of 9/30/11 

No 

$ 34.88 

Hurdle # 5: Total Debt less than Book Value 

Interest-bearing debt as of 9/30/11 $ 1,383,684 

Book value as of 9/30/11 

Yes 

$ 1,406,113 

Hurdle # 6: Current Ratio of Two or More 

Current assets as of 9/30/11 $ 530,984 

Current liabilities as of 9/30/11 $ 351,413 

Current ratio as of 9/30/11 

No 

1.5 

Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years 

EPS for year ended 12/31/10 $ 4.20 




EPS for year ended 12/31/06 

Yes 

$ 1.36 

Hurdle # 8: Stability in Growth of Earnings 

EPS for year ended 12/31/10 $ 4.20 139% 


EPS for year ended 12/31/08 $ 1.70 -33% 


EPS for year ended 12/31/06 

No 

$ 1.36 

Stock price data as of November 25, 2011 

25


2011 E 

2012 E 

2010 A 31-Mar A 30-Jun A 30-Sep A 31-Dec E 2011 E 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2012 E 


Quarterly and Annual Earnings 

In thousands 

2009 A 

2008 A 

$ 1,086,102 $ 238,468 $ 260,485 $ 324,532 $ 261,652 $ 1,085,137 $ 265,115 $ 292,493 $ 346,083 $ 286,700 $ 1,190,390 

26,067 

2,781 

4,222 

9,133 

3,181 19,317 

44,529 12,728 12,983 16,064 

9,158 50,933 

9,279 10,237 12,113 10,034 41,664 

1,564 

147 

55 

202 

1,158,262 254,124 277,745 349,729 273,991 1,155,589 274,394 302,730 358,195 296,734 1,232,054 

(9,596) 

(434) (4,822) 

1,852 

(3,404) 

1,148,666 253,690 272,923 351,581 273,991 1,152,185 274,394 302,730 358,195 296,734 1,232,054 

363,550 96,968 78,268 122,774 93,604 391,614 95,740 103,707 125,899 105,126 430,471 

141,864 

8,449 25,477 24,739 

4,927 63,592 

5,039 

5,458 

6,626 

5,533 22,656 

119,516 27,662 31,671 32,872 36,268 128,473 35,745 38,596 46,539 39,104 159,984 

81,228 16,809 28,269 14,587 11,824 71,489 12,093 15,283 21,204 19,919 68,499 

112,203 29,098 29,985 30,557 30,994 120,634 31,506 31,817 32,130 32,443 127,896 

34,626 

9,460 

9,464 

9,845 

9,853 38,622 10,078 10,916 13,253 11,066 45,313 

338 

10 

(506) 

27 

(469) 

853,325 188,456 202,628 235,401 187,470 813,955 190,201 205,778 245,651 213,190 854,819 

295,341 65,234 70,295 116,180 86,521 338,230 84,194 96,952 112,545 83,545 377,235 

409 

115 

170 

509 

794 

12,413 

1,978 

876 

902 

1,536 

5,292 

1,536 

1,536 

1,536 

1,536 

6,145 

38,849 

611 61,440 

(1) 

62,050 

148,402 

5,242 

1,205 

1,050 

2,128 

1,007 

5,390 

1,007 

1,007 

1,007 

1,007 

4,029 

(6,991) (1,318) (1,344) (3,360) (1,481) (7,503) (1,481) (1,481) (1,481) (1,481) (5,923) 

493,665 67,825 132,487 116,358 87,584 404,254 85,256 98,015 113,608 84,607 381,486 

100,339 27,328 25,935 26,105 21,364 100,732 21,364 21,364 21,364 21,364 85,457 

(4,563) 

(714) 

(316) 

(326) 

(563) (1,919) 

(563) 

(563) 

(563) 

(563) (2,253) 

397,889 41,211 106,868 90,579 66,783 305,441 64,455 77,214 92,806 63,806 298,281 

142,498 12,195 36,520 24,737 24,676 98,128 23,755 28,348 33,961 23,521 109,586 

255,391 29,016 70,348 65,842 42,107 207,313 40,700 48,866 58,845 40,285 188,696 

46 

12 

15 

27 

112 

112 

$ 255,345 $ 29,004 $ 70,221 $ 65,842 $ 42,107 $ 207,174 $ 40,700 $ 48,866 $ 58,845 $ 40,285 $ 188,696 

60,431 60,576 60,656 60,468 60,656 60,589 60,656 60,656 60,656 60,656 60,656 

60,755 60,905 61,023 60,873 61,082 61,058 61,199 61,316 61,499 61,786 62,246 

808,646 

$ 

1,032,970 

$ 

33,651 

11,461 

853,758 

36,768 

10,460 

1,080,198 

853,758 

1,080,198 

261,456 

216,906 

109,060 

51,300 

235,706 

471,261 

99,028 

47,089 

78,204 

77,876 

29,947 

76 

746,949 

106,809 

1,512 

73,269 

(17,423) 

34,471 

(110) 

965,321 

114,877 

5,417 

64,953 

(5,542) 

5,581 

(2,807) 

166,941 

77,228 

(26,173) 

115,886 

9,579 

106,307 

46 

1,263 

(7,970) 

172,998 

72,042 

(19,642) 

120,598 

Operating revenues 

Electric operations 

Tolling operations 

Other operations 

Affiliate revenue 

Gross operating revenue 

Electric customer credits 

Total operating revenue 

Operating expenses: 

Fuel used for electric generation 

Power purchased for utility customers 


Maintenance 

Depreciation 

Taxes other than income taxes 

(Gain) Loss on sale of assets 

Total operating expenses 

Operating income 

Interest income 

Allowance for other funds used during construction 

Equity loss (gain) from investees 

Gain on toll settlement 

Other income 

Other expense 

Income before interest charges 

Interest charges, net of capitalized interest 

Allowance for borrowed funds used during construction 

Income from continuing operations before income taxes 

Federal and state income taxes 

Net income (loss) 

Preferred dividend requirements, net 

Preferred stock redemption costs, net of tax 

Net income applicable to common stock 

Average shares of common stock outstanding: 

Basic 

Diluted 

18,457 

102,141 

46 

106,261 

$ 

102,095 

$ 

60,188 

60,498 

59,990 

60,215 

$ 4.23 $ 0.48 $ 1.16 $ 1.09 $ 0.69 $ 3.42 $ 0.67 $ 0.81 $ 0.97 $ 0.66 $ 3.11 

$ 1.99 $ 0.01 $ 0.65 

$ 0.66 

$ 2.24 $ 0.47 $ 0.51 $ 1.09 $ 0.69 $ 2.76 $ 0.67 $ 0.81 $ 0.97 $ 0.66 $ 3.11 

1.77 

(0.19) 

1.96 

$ 

$ 

$ 

1.70 

$ 

1.70 

$ 

Basic earnings per share 


Non-recurring items 

Net income adjusted for non-recurring items 

$ 4.20 $ 0.48 $ 1.15 $ 1.08 $ 0.69 $ 3.39 $ 0.67 $ 0.80 $ 0.96 $ 0.65 $ 3.03 

$ 1.98 $ 0.01 $ 0.65 

$ 0.65 

$ 2.22 $ 0.47 $ 0.50 $ 1.08 $ 0.69 $ 2.74 $ 0.67 $ 0.80 $ 0.96 $ 0.65 $ 3.03 

1.76 

(0.18) 

1.94 

$ 

$ 

$ 

1.70 

$ 

1.70 

$ 

Diluted earnings per share 


Non-recurring items 

Net income adjusted for non-recurring items 

$ 0.98 $ 0.25 $ 0.28 $ 0.28 $ 0.28 $ 1.12 $ 0.31 $ 0.31 $ 0.31 $ 0.31 $ 

1.25 

0.90 

$ 

0.90 

$ 

Cash dividends paid per share 

26



Quarterly and Annual Earnings 

2011 E 

2012 E 

2008 A 2009 A 2010 A 31-Mar A 30-Jun A 30-Sep A 31-Dec E 2011 E 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2012 E 

SELECTED COMMON-SIZE AMOUNTS (% of electric operations revenues less ffuel 

and power cossts 

unless otherwise 

noted) 


Electric operations (% of total operating revenue) 

95.63% 94.72% 94.55% 94.00% 95.44% 92.31% 95.50% 94.18% 96.62% 96.62% 96.62% 96.62% 96.62% 

Tolling operations (% of total operating revenue) 

0.00% 

0.00% 

2.27% 1.10% 1.55% 2.60% 1.16% 1.68% 0.00% 0.00% 0.00% 0.00% 0.00% 

Other operations (% of total operating revenue) 

3.40% 

3.94% 

3.88% 5.02% 4.76% 4.57% 3.34% 4.42% 3.38% 3.38% 3.38% 3.38% 3.38% 

Affiliate revenue (% of total operating revenue) 

0.97% 

1.34% 

0.14% 0.06% 0.02% 0.00% 0.00% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 


(% of electric operations) 

22.82% 32.33% 32.69% 40.19% 29.57% 36.80% 35.34% 35.46% 36.11% 35.46% 36.38% 36.67% 36.16% 


(% of electric operations) 

45.62% 26.82% 13.06% 3.54% 9.78% 7.62% 1.88% 5.86% 1.90% 1.87% 1.91% 1.93% 1.90% 

Other operations (% of revenues less power costs) 27.30% 29.97% 18.35% 18.62% 18.21% 16.26% 20.67% 18.35% 20.59% 19.94% 20.62% 21.02% 20.54% 

Maintenance 

14.44% 15.53% 13.99% 12.63% 18.04% 8.24% 7.25% 11.35% 7.36% 8.34% 9.93% 11.31% 9.29% 

Depreciation 

23.89% 23.68% 19.32% 21.87% 19.13% 17.26% 19.00% 19.15% 19.17% 17.36% 15.05% 18.43% 17.35% 

Taxes other than income taxes 10.57% 9.07% 5.96% 7.11% 6.04% 5.56% 6.04% 6.13% 6.13% 5.95% 6.21% 6.29% 6.15% 

Total operating expenses (% of total revenues) 

89.37% 87.49% 74.29% 74.29% 74.24% 66.95% 68.42% 70.64% 69.32% 67.97% 68.58% 71.85% 69.38% 

Operating income (% of total revenues) 

10.63% 12.51% 25.71% 25.71% 25.76% 33.05% 31.58% 29.36% 30.68% 32.03% 31.42% 28.15% 30.62% 

YEAR TO YEAR CHANGE 


Electric operations 

4.53% -21.72% 34.31% -5.67% -0.24% -0.34% 6.12% -0.09% 11.17% 12.29% 6.64% 9.57% 9.70% 

Other operations 4.20% -8.48% 32.33% 17.03% 26.73% 20.74% -9.36% 14.38% -27.10% -21.15% -24.60% 9.57% -18.20% 


-13.96% 10.92% 39.05% 2.52% -4.03% 22.06% 7.81% 7.72% -1.27% 32.50% 2.55% 12.31% 9.92% 


22.33% -53.97% -34.60% -82.48% 3.95% -52.13% -71.78% -55.17% -40.36% -78.58% -73.22% 12.31% -64.37% 


-3.37% 10.13% 

9.59% 3.78% 6.12% 8.53% 10.81% 7.49% 29.22% 21.87% 41.58% 7.82% 24.53% 

Maintenance 

-4.87% 

8.94% 58.34% 21.48% 30.68% -37.56% -47.21% -11.99% -28.05% -45.94% 45.36% 68.46% -4.18% 

27



Quarterly and Annual Balance Sheets 

In thousands 

2011 E 

2012 E 

31-Dec-10 A 31-Mar A 30-Jun A 30-Sep A 31-Dec E 31-Dec-11 E 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2012 E 

$ 191,128 $ 137,191 $ 162,126 $ 158,232 $ 170,198 $ 170,198 $ 206,445 $ 160,258 $ 201,950 $ 177,538 $ 177,538 

14,959 

5,352 

8,073 

3,554 

3,554 

3,554 

3,554 

3,554 

3,554 

3,554 

3,554 

38,820 36,425 46,007 52,299 35,619 35,619 36,487 40,255 47,113 39,029 39,029 

831 

1,369 

6,688 

6,688 

6,658 

7,342 

8,680 

7,197 

7,197 

52,546 47,944 51,043 49,290 40,966 40,966 40,782 44,970 53,168 44,084 44,084 

50,104 47,194 40,444 36,705 36,705 36,705 36,705 36,705 36,705 36,705 36,705 

44,649 32,380 40,757 33,112 30,480 30,480 30,884 34,073 40,316 33,398 33,398 

82,737 57,024 43,944 38,070 73,719 73,719 50,267 81,676 66,102 82,793 82,793 

48,265 50,058 52,622 52,257 43,023 43,023 29,337 47,667 38,578 48,319 48,319 

6,399 

4,114 

5,148 

5,004 

4,614 

4,614 

4,675 

5,158 

6,103 

5,056 

5,056 

10,348 

4,882 20,986 

9,162 12,882 12,882 12,882 12,882 12,882 12,882 12,882 

4,106 

3,554 26,304 25,057 25,057 25,057 25,057 25,057 25,057 25,057 25,057 

49,789 51,109 51,965 50,628 50,628 50,628 50,628 50,628 50,628 50,628 50,628 

13,508 12,997 12,973 12,869 12,869 12,869 12,869 12,869 12,869 12,869 12,869 

661 

2,842 

1,346 

4,745 

4,745 

4,745 

4,745 

4,745 

4,745 

4,745 

4,745 

608,850 494,435 563,738 530,984 551,748 551,748 551,975 567,838 608,450 583,853 583,853 

3,810,896 3,828,289 3,839,211 3,859,621 3,949,300 3,949,300 3,988,410 4,027,747 4,067,098 4,106,465 4,106,465 

(1,162,456) (1,178,593) (1,198,373) (1,218,818) (1,219,174) (1,219,174) (1,219,330) (1,219,486) (1,219,642) (1,219,798) (1,219,798) 

2,648,440 2,649,696 2,640,838 2,640,803 2,730,126 2,730,126 2,769,081 2,808,261 2,847,456 2,886,667 2,886,667 

135,785 150,804 170,684 223,640 170,684 170,684 170,684 170,684 170,684 170,684 170,684 

2,784,225 2,800,500 2,811,522 2,864,443 2,900,810 2,900,810 2,939,765 2,978,945 3,018,140 3,057,351 3,057,351 

86,732 87,343 13,083 13,081 13,081 13,081 13,081 13,081 13,081 13,081 13,081 

5,274 

5,040 

4,940 

4,580 

4,580 

4,580 

4,580 

4,580 

4,580 

4,580 

4,580 

26,089 26,304 27,126 25,349 25,349 25,349 25,349 25,349 25,349 25,349 25,349 

203,696 206,203 208,247 213,847 213,847 213,847 213,847 213,847 213,847 213,847 213,847 

266,431 261,106 256,513 249,410 249,410 249,410 249,410 249,410 249,410 249,410 249,410 

13,817 13,768 13,719 13,676 13,676 13,676 13,676 13,676 13,676 13,676 13,676 

145,374 142,903 139,648 136,393 133,311 133,311 130,019 126,727 123,435 120,144 120,144 

20,922 20,309 20,183 19,778 16,696 16,696 13,613 10,531 

7,448 

4,366 

4,366 

$ 4,161,410 $ 4,057,911 $ 4,058,719 $ 4,071,541 $ 4,122,507 $ 4,122,507 $ 4,155,314 $ 4,203,984 $ 4,277,416 $ 4,285,656 $ 4,285,656 

31-Dec-09 A 

$ 145,193 

29,941 

29,550 

12,129 

28,878 

15,449 

21,975 

80,038 

41,410 

3,571 

2,854 

35,059 

6,799 

30,269 

9,914 

896 

493,925 

2,144,491 

(999,204) 

1,145,287 

1,101,743 

2,247,030 

251,617 

5,096 

26,510 

264,343 

201,381 

157,098 

47,847 

$ 3,694,847 

31-Dec-08 A 

$ 97,483 

62,311 

40,677 

3,428 

34,209 

13,663 

19,713 

57,221 

37,547 

3,751 

368 

69,154 

22,934 

2,553 

1,367 

466,379 

2,015,269 

(948,581) 

1,066,688 

978,598 

2,045,286 

249,144 

6,067 

Restricted cash, less current portion 

40,671 

Regulatory assets - deferred taxes 

174,804 

Regulatory assets - other 

158,206 

Net investment in direct financing lease 

Intangible assets 

167,826 

Other deferred charges 

32,821 

Total assets 

$ 3,341,204 

Current liabilities 

Short-term debt 

$ - 

Long-term debt due within one year 

63,546 

Accounts payable 

117,337 

Retainage payable 

12,734 

Accounts payable - affiliate 

8,229 

Customer deposits 

27,155 

Provision for rate refund 

Taxes accrued 

Interest accrued 

16,787 

Accumulated current deferred taxes, net 64,838 

Regulatory liabilities - other 

392 

Risk management liability 

30,109 

Interest rate risk management liability 

Deferred compensation 

5,118 

Uncertain tax positions 

Other current liabilities 

14,588 

Total current liabilities 

360,833 

Deferred credits: 

Deferred federal and state income taxes 

373,825 

Deferred investment tax credits 

11,286 

Postretirement benefit obligations 

155,910 

Regulatory liabilities - other 

85,496 

Restricted storm reserve 

27,411 

Uncertain tax provision 

76,124 

Tax credit fund investment, net 

Contingent sale obligations 

Other deferred credits 

82,635 

Total deferred credits 

812,687 

Long-term debt, net 

1,106,819 

Total liabilities 

2,280,339 

Stockholders' equity: 

Preferred stock not subject to mandatory redemption 

1,029 

Common stock, $1 par value 

60,066 

Premium on capital stock 

394,517 

Retained earnings 

615,514 

Treasury stock, at cost 

(428) 

Other comprehensive income 

(9,833) 

Total common shareholders' equity 

1,059,836 

Total shareholders' equity 

1,060,865 

Total liabilities and shareholders' equity 

$ 3,341,204 

Cash and cash equivalents 

Restricted cash 

Customer accounts receivable, net 

Accounts receivable - affiliate 

Other accounts receivable 

Tax receivables 

Unbilled revenues 

Fuel inventory, at average cost 

Materials and supplies, inventory, at average cost 

Prepayments 

Risk management asset 

Accumulated deferred fuel 

Accumulated deferred federal and state income taxes,net 

Cash surrender value of company owned life insurance policies 


Other current assets 

Total current assets 

Property, plant and equipment 

Accumulated depreciation 

Net property, plant and equipment 

Construction work-in-progress 

Total property, plant and equipment, net 

Equity investment in investee 

Prepayments 

$ 150,000 $ 150,000 $ - $ - $ - $ - $ - $ - $ - $ - $ - 

12,269 12,683 12,683 13,108 13,108 13,108 13,108 13,108 13,108 88,108 88,108 

123,042 86,140 110,814 93,186 103,750 103,750 106,378 116,611 141,573 119,843 119,843 

2,726 

4,535 

3,967 

3,231 

3,231 

3,231 

3,231 

3,231 

3,231 

3,231 

3,231 

155 

1 

38,934 40,256 41,303 42,181 41,535 41,535 41,651 41,768 41,884 42,002 42,002 

9,598 10,032 14,854 

3,917 

3,917 

3,917 

3,917 

3,917 

3,917 

3,917 

3,917 

34,462 57,091 53,120 62,377 62,377 62,377 62,377 62,377 62,377 62,377 62,377 

43,562 40,502 38,828 33,272 30,494 30,494 30,494 30,494 30,494 30,494 30,494 

9,027 

7,574 

5,743 

5,159 

5,159 

5,159 

5,159 

5,159 

5,159 

5,159 

5,159 

29,962 29,962 29,962 29,962 29,962 29,962 29,962 29,962 

7,751 

8,585 

8,345 

7,562 

7,562 

7,562 

7,562 

7,562 

7,562 

7,562 

7,562 

31,853 63,603 73,325 42,674 42,674 42,674 42,674 42,674 42,674 42,674 42,674 

14,302 13,059 15,040 14,784 14,784 14,784 14,784 14,784 14,784 14,784 14,784 

477,681 494,061 378,022 351,413 358,553 358,553 361,297 371,647 396,726 450,113 450,113 

553,211 545,333 588,282 624,429 643,043 643,043 651,161 659,326 667,493 675,665 675,665 

8,669 

8,360 

8,051 

7,741 

7,420 

7,420 

7,099 

6,778 

6,457 

6,136 

6,136 

166,387 108,238 108,968 109,865 109,865 109,865 109,865 109,865 109,865 109,865 109,865 

44,313 32,455 26,577 

7,026 

7,026 

7,026 

7,026 

7,026 

7,026 

7,026 

7,026 

25,993 26,208 26,433 24,656 24,656 24,656 24,656 24,656 24,656 24,656 24,656 

60,395 26,087 20,375 47,715 47,715 47,715 47,715 47,715 47,715 47,715 47,715 

56,563 48,494 48,494 48,494 48,494 48,494 48,494 48,494 48,494 

30,243 29,443 29,443 29,443 29,443 29,443 29,443 29,443 29,443 

106,845 105,640 40,784 44,070 44,070 44,070 44,070 44,070 44,070 44,070 44,070 

965,813 852,321 906,276 943,439 961,732 961,732 969,529 977,373 985,219 993,070 993,070 

1,399,709 1,377,684 1,387,346 1,370,576 1,370,992 1,370,992 1,371,452 1,371,956 1,372,511 1,298,123 1,298,123 

2,843,203 2,724,066 2,671,644 2,665,428 2,691,276 2,691,276 2,702,277 2,720,975 2,754,457 2,741,305 2,741,305 

- 

11,478 

111,358 

813 

2,370 

34,195 

$ 

11,880 

33,592 

13,767 

7,091 

15,260 

241,804 

460,894 

9,954 

146,270 

149,638 

25,434 

115,643 

108,839 

1,016,672 

1,320,299 

2,578,775 

1,029 

1,029 

60,540 60,645 60,677 60,684 60,684 60,684 60,684 60,684 60,684 60,684 60,684 

405,313 406,819 407,638 409,040 409,040 409,040 409,040 409,040 409,040 409,040 409,040 

863,237 876,959 930,098 978,942 1,004,060 1,004,060 1,025,866 1,055,838 1,095,789 1,117,180 1,117,180 

(274) 

(252) 

(231) (13,228) (13,228) (13,228) (13,228) (13,228) (13,228) (13,228) (13,228) 

(11,638) (11,355) (11,107) (29,325) (29,325) (29,325) (29,325) (29,325) (29,325) (29,325) (29,325) 

1,317,178 1,332,816 1,387,075 1,406,113 1,431,231 1,431,231 1,453,037 1,483,009 1,522,960 1,544,351 1,544,351 

1,318,207 1,333,845 1,387,075 1,406,113 1,431,231 1,431,231 1,453,037 1,483,009 1,522,960 1,544,351 1,544,351 

$ 4,161,410 $ 4,057,911 $ 4,058,719 $ 4,071,541 $ 4,122,507 $ 4,122,507 $ 4,155,314 $ 4,203,984 $ 4,277,416 $ 4,285,656 $ 

4,285,656 

1,029 

60,277 

399,148 

667,220 

(311) 

(11,291) 

1,115,043 

1,116,072 

3,694,847 

$ 

28


2011 E 

2012 E 

31-Dec-10 A 31-Mar A 30-Jun A 30-Sep A 31-Dec E 31-Dec-11 E 31-Mar A 30-Jun A 30-Sep A 31-Dec E 2012 E 


Quarterly and Annual Balance Sheets 

31-Dec-09 A 

3.38% 14.36% 16.86% 14.88% 13.00% 3.09% 13.30% 13.30% 13.15% 13.15% 3.17% 

3.89% 12.76% 14.93% 9.42% 11.12% 2.65% 11.26% 11.26% 11.26% 11.26% 2.71% 

7.20% 22.48% 16.10% 10.83% 26.91% 6.40% 18.32% 26.98% 18.45% 27.90% 6.72% 

4.20% 19.73% 19.28% 14.86% 15.70% 3.73% 10.69% 15.75% 10.77% 16.28% 3.92% 

230.57% 1044.46% 967.61% 751.12% 996.43% 236.95% 1009.16% 927.65% 794.94% 972.81% 234.30% 

0.46% 1.99% 1.81% 1.30% 1.67% 0.40% 1.67% 1.51% 1.28% 1.54% 0.37% 

1.82% 8.01% 7.40% 5.63% 6.09% 1.45% 4.96% 3.48% 2.08% 1.47% 0.35% 

10.71% 33.95% 40.60% 26.50% 37.87% 9.00% 38.77% 38.52% 39.52% 40.39% 9.73% 

3.39% 15.87% 15.13% 12.00% 15.16% 3.60% 15.18% 13.80% 11.69% 14.15% 3.41% 

3.46% 

2.57% 

9.37% 

4.85% 

134.15% 

0.60% 

5.60% 

13.04% 

4.01% 

31-Dec-08 A 

3.77% 

1.82% 

5.30% 

3.48% 

98.75% 

0.56% 

3.04% 

10.86% 

2.51% 

SELECTED COMMON SIZE BALANCE SHEET AMOUNTS (% of revenues) 

Customer accounts receivable, net 


Fuel inventory, at average cost 

Materials and supplies, inventory, at average cost 


Prepayments 




14.63% 12.18% 13.89% 13.04% 13.38% 13.38% 13.28% 13.51% 14.22% 13.62% 13.62% 

63.64% 65.30% 65.07% 64.86% 66.22% 66.22% 66.64% 66.80% 66.57% 67.36% 67.36% 

3.26% 3.72% 4.21% 5.49% 4.14% 4.14% 4.11% 4.06% 3.99% 3.98% 3.98% 

2.08% 2.15% 0.32% 0.32% 0.32% 0.32% 0.31% 0.31% 0.31% 0.31% 0.31% 

0.13% 0.12% 0.12% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 

4.89% 5.08% 5.13% 5.25% 5.19% 5.19% 5.15% 5.09% 5.00% 4.99% 4.99% 

6.40% 6.43% 6.32% 6.13% 6.05% 6.05% 6.00% 5.93% 5.83% 5.82% 5.82% 

0.33% 0.34% 0.34% 0.34% 0.33% 0.33% 0.33% 0.33% 0.32% 0.32% 0.32% 

3.49% 3.52% 3.44% 3.35% 3.23% 3.23% 3.13% 3.01% 2.89% 2.80% 2.80% 

0.50% 0.50% 0.50% 0.49% 0.40% 0.40% 0.33% 0.25% 0.17% 0.10% 0.10% 

11.48% 12.18% 9.31% 8.63% 8.70% 8.70% 8.69% 8.84% 9.27% 10.50% 10.50% 

23.21% 21.00% 22.33% 23.17% 23.33% 23.33% 23.33% 23.25% 23.03% 23.17% 23.17% 

33.64% 33.95% 34.18% 33.66% 33.26% 33.26% 33.00% 32.63% 32.09% 30.29% 30.29% 

68.32% 67.13% 65.82% 65.46% 65.28% 65.28% 65.03% 64.72% 64.40% 63.96% 63.96% 

0.02% 0.03% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 

31.65% 32.84% 34.18% 34.54% 34.72% 34.72% 34.97% 35.28% 35.60% 36.04% 36.04% 

13.37% 

31.00% 

29.82% 

6.81% 

0.14% 

7.15% 

5.45% 

0.00% 

4.25% 

1.29% 

6.54% 

27.52% 

35.73% 

69.79% 

0.03% 

30.18% 

13.96% 

31.93% 

29.29% 

7.46% 

0.18% 

5.23% 

4.73% 

0.00% 

5.02% 

0.98% 

10.80% 

24.32% 

33.13% 

68.25% 

0.03% 

31.72% 

SELECTED COMMON SIZE BALANCE SHEET AMOUNTS (% of total assets) 

Total current assets 


Construction work-in-progress 


Prepayments 

Regulatory assets - deferred taxes 


Net investment in direct financing lease 

Intangible assets 


Total current liabilities 

Total deferred credits 

Long-term debt, net 

Total liabilities 

Total preferred stock not subject to mandatory redemption 

Total common shareholders' equity 

29



Quarterly and Annual Statements of Cash Flows 

In thousands 

2011 E 

2012 E 

2008 A 2009 A 2010 A 31-Mar A 30-Jun A 30-Sep A 31-Dec E 2011 E 31-Mar A 30-Jun A 30-Sep A 31-Dec E 2012 E 

Cash flows from operating activities: 

Net income before preferred dividends 

$ 102,141 $ 106,307 $ 255,391 $ 29,016 $ 70,347 $ 65,842 $ 42,107 $ 207,312 $ 40,700 $ 48,866 $ 58,845 $ 40,285 $ 188,696 

Adjustments: 

Depreciation and amortization 

120,652 121,436 170,399 48,098 48,119 17,887 40,174 154,278 44,935 45,959 47,867 43,315 182,076 

Gain on sale of property, plant and equipment 

(110) 

76 

Gain on forgiveness of debt 

(129,870) 

Provision for doubtful accounts 

3,826 

1,682 

1,553 

1,484 

1,484 

1,520 

1,677 

1,963 

1,626 

6,787 

Equity loss (gain) from investees 

5,542 17,423 (38,849) 

(611) (61,441) 

1 

(62,051) 

Return on equity investment in investee 

5,106 

750 

58,665 

58,665 

Unearned compensation 

2,540 

6,087 

5,587 

2,487 

1,308 

2,270 

6,065 


(64,953) (73,269) (12,413) (1,978) 

(876) 

(903) 12,761 

9,004 12,761 12,761 12,761 12,761 51,044 

Cash-surrender value of company/trust-owned life insurance 

5,334 

(5,180) (2,759) (1,141) 

(202) 

2,398 

1,055 

Amortization of investment tax credits 

(1,380) (1,332) (1,285) 

(321) 

(321) 

(321) 

(321) 

(321) 

(321) (1,284) 

Deferred income taxes 

5,154 

(5,983) 54,873 (13,144) 21,436 37,044 18,614 63,950 

8,118 

8,165 

8,168 

8,171 32,622 

Deferred fuel costs 

6,444 

7,223 21,086 

3,030 (19,107) 

9,655 

(3,720) (10,142) 

Gain (loss) on economic hedges 

2,213 

167 

(405) 

Changes in assets and liabilities 

Accounts receivable, net 

(5,557) 

8,310 (35,156) 

5,042 (24,965) 

1,649 23,520 

5,246 

(2,204) (9,633) (17,019) 15,542 (13,314) 

Notes and accounts receivable, affiliate 

14,242 

(8,701) 

2,109 

(538) 

1,371 

241 

(6,688) (5,614) 

30 

(684) (1,338) 

1,483 

(509) 


(1,954) (2,262) (22,675) 12,269 

(8,377) 

7,646 

2,632 14,170 

(403) (3,189) (6,243) 

6,918 

(2,918) 

Fuel, material and supplies inventories 

(12,282) (26,680) (7,465) 23,920 10,517 

6,238 (26,415) 14,260 37,138 (49,738) 24,662 (26,432) (14,370) 

Prepayments 

1,050 

1,575 (2,316) 

2,520 

(935) 

504 

390 

2,479 

(61) 

(483) 

(945) 

1,047 

(442) 


2,806 11,231 

3,459 (31,823) 24,248 (27,411) 10,564 (24,422) 

2,628 10,233 24,962 (21,730) 16,093 

Notes and accounts payable, affiliate 

(34,260) (22,796) (2,215) 

(154) 

(398) 

(552) 


5,961 12,906 12,313 

3,205 

3,221 

3,292 

(646) 

9,072 

116 

117 

117 

117 

467 

Long-term receivable 

27,976 

Postretirement benefit obligations 

4,899 (11,555) 

2,553 (58,149) 

509 

897 

(56,743) 

Regulatory assets and liabilities, net 

43,790 32,922 (88,333) (12,266) (6,265) (21,673) (8,875) (49,079) (10,138) (10,850) (12,446) (7,580) (41,013) 

Contingent sale obligations 

10,900 

10,900 

Other deferred accounts 

(114,855) (46,051) 

4,491 

1,877 

(2,606) (1,455) 

3,083 

899 

3,083 

3,083 

3,083 

3,083 12,330 

Retainage payable 

12,709 (11,921) 

1,913 

1,004 

(1,434) (2,051) 

(2,481) 

Taxes accrued/receivable 

1,984 23,612 (34,266) 

2,958 

6,229 

3,759 

12,946 

Interest accrued 

(4,439) (4,138) 

2,466 12,555 (13,192) 11,375 

10,738 

Margin deposits 

(16,482) 

Risk management assets and liabilities, net 

4,406 

7,885 

749 

1,241 

1,890 

3,880 

Other, net 

(595) (1,066) (2,642) (2,815) 

3,406 

(4,283) 

(3,692) 

Net cash provided by operating activities 

89,526 135,179 193,405 

26,111 121,719 114,812 108,662 371,304 137,903 55,962 144,117 78,284 416,265 

Cash flows from investing activities 

Additions to property, plant and equipment 

(335,757) (250,286) (283,389) (45,692) (20,389) (79,588) (67,361) (213,030) (70,461) (70,998) (71,325) (71,653) (284,436) 


64,953 73,269 12,413 

1,978 

876 

903 (12,761) (9,004) (12,761) (12,761) (12,761) (12,761) (51,044) 

Proceeds from sales of property, plant & equipment 

1,894 

751 

801 

Cash from reconsolidation of VIEs 

812 

3,879 

3,879 

Return on equity investment in investees 3,852 

850 

Return of equity investment in investee 

89,654 

89,654 


(18,522) (45,539) (44,571) (9,239) 

9,239 

Premiums paid on company/trust-owned life insurance 

(1,664) (2,752) (3,554) 

Advances on company-owned life insurance loan, net 

(13,207) 

Cash transferred from restricted accounts, net 

(85,021) 46,531 45,535 

9,391 

(3,542) 

6,295 

12,144 

Settlements received from insurance policies 

941 

Return of investment in tax credit fund 

244 

244 

Contributions to tax credit fund 

(18,479) 

(18,479) 

Other Investment activities 

599 

23 

216 

113 

44 

373 

Net cash provided by investing activities 

(368,725) (177,176) (285,137) (43,346) 61,595 (72,346) (80,122) (134,219) (83,222) (83,759) (84,086) (84,414) (335,481) 

Cash flows from financing activities 

Change in short-term debt, net 

150,000 

(150,000) 

- 

(150,000) 

Retirement of long-term obligations 

(350,412) (114,846) (200,867) (21,283) 15,000 

(5,986) 

(12,269) 

Repurchase of common stock 

13,009 

13,009 

Repayment of capital leases 

(1,422) (1,701) 

416 

416 

460 

504 

555 

612 

2,131 

Issuance of long-term debt 

651,541 255,369 247,245 

Deferred financing costs 

(361) (1,953) (6,851) 

Settlement of treasury rate lock 

4,696 

5,675 

Redemption of preferred stock 

(1,039) 

(1,039) 

Dividends paid on preferred stock 

(46) 

(46) 

(46) 

(12) 

(14) 

(26) 

Dividends paid on common stock 

(54,036) (54,221) (58,988) (15,171) (16,997) (17,002) (16,990) (66,160) (18,894) (18,894) (18,894) (18,894) (75,576) 

Change in revolving credit facility (5,000) (10,000) 

(15,000) 

Other financing 

983 

2,130 

3,200 

(236) 

(329) 

(363) 

(928) 

Net cash provided by (used in) financing activities 

247,669 89,707 137,667 (36,702) (158,379) (46,360) (16,574) (258,015) (18,434) (18,390) (18,339) (18,282) (73,444) 

Net increase in cash and cash equivalents 

(31,530) 47,710 45,935 (53,937) 24,935 

(3,894) 11,966 (20,930) 36,247 (46,187) 41,692 (24,413) 

7,340 

Cash and cash equivalents at beginning of period 

129,013 97,483 145,193 191,128 137,191 162,126 158,232 191,128 170,198 206,445 160,258 201,950 170,198 

Cash and cash equivalents at end of period 

97,483 145,193 191,128 137,191 162,126 158,232 170,198 170,198 206,445 160,258 201,950 177,538 177,538 

Operating cash flow per share excluding working capital changes 

$ 3.16 $ 2.90 $ 5.33 $ 1.08 $ 1.94 $ 2.20 $ 1.82 $ 7.03 $ 1.76 $ 1.91 $ 2.10 $ 1.71 $ 7.39 

Operating cash flow per share including working capital changes 

$ 1.49 $ 2.23 $ 3.18 $ 0.43 $ 1.99 $ 1.89 $ 1.78 $ 6.08 $ 2.25 $ 0.91 $ 2.34 $ 1.27 $ 

6.69 

30



Ratios 

2011 E 

2012 E 

For the percod ended 2008 A 2009 A 2010 A 31-Mar A 30-Jun A 30-Sep A 31-Dec E 2011 E 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2012 E 

Productivity Ratios 

Receivables turnover 

22.55 22.63 26.42 6.74 6.62 7.15 6.23 26.80 7.61 7.89 8.20 6.89 33.01 

Working capital turnover 21.66 5.84 36.16 3.86 2.93 1.92 1.47 8.73 1.43 1.57 1.76 1.72 7.54 

Net fixed asset turnover 1.05 0.77 0.47 0.10 0.10 0.13 0.10 0.43 0.10 0.11 0.13 0.10 0.44 

Gross fixed asset turnover 0.55 0.41 0.32 0.07 0.07 0.09 0.07 0.30 0.07 0.08 0.09 0.07 0.31 

Total asset turnover 0.35 0.25 0.29 0.06 0.07 0.09 0.07 0.28 0.07 0.07 0.08 0.07 0.29 

# of days Sales in A/R 14 13 13 14 16 15 13 12 13 13 13 13 12 

# of days Sales in Unbilled Revenues 7 10 15 12 14 9 11 10 11 11 11 11 10 

# of days cash-based expenses in payables 48 61 61 49 58 42 61 55 61 61 61 61 60 

Liquidity Measures 

Current ratio 1.29 2.04 1.27 1.00 1.49 1.51 1.54 1.54 1.53 1.53 1.53 1.30 1.30 

Quick ratio 0.49 0.89 0.59 0.45 0.69 0.74 0.71 0.71 0.80 0.68 0.78 0.60 0.63 

Cash ratio 0.49 0.89 0.59 0.45 0.69 0.74 0.71 0.71 0.80 0.68 0.78 0.60 0.63 

Cash flow from operations ratio 0.25 0.56 0.40 0.05 0.32 0.33 0.30 1.04 0.38 0.15 0.36 0.17 0.92 

Working capital 105,546 252,121 131,169 374 185,716 179,571 193,195 193,195 190,678 196,192 211,724 133,740 133,740 

Financial Risk (Leverage) Ratios 

Total debt/equity ratio 2.15 2.31 2.16 2.04 1.93 1.90 1.88 1.88 1.86 1.83 1.81 1.78 1.09 

Debt/equity ratio (excluding deferred taxes) 1.80 1.90 1.74 1.63 1.50 1.45 1.43 1.43 1.41 1.39 1.37 1.34 0.65 

Total LT debt/equity ratio 1.81 2.09 1.79 1.67 1.65 1.65 1.63 1.63 1.61 1.58 1.55 1.48 0.79 

LT debt/equity (excluding deferred taxes) 1.46 1.68 1.37 1.26 1.23 1.20 1.18 1.18 1.16 1.14 1.11 1.05 0.35 

Interest coverage ratio (Earnings = EBIT) 2.40 2.16 4.92 2.48 5.11 4.46 4.10 4.01 3.99 4.59 5.32 3.96 4.46 

Interest coverage ratio (Earnings = EBI) 2.15 2.04 3.50 2.04 3.70 3.51 2.94 3.04 2.88 3.26 3.73 2.86 3.18 

Total debt ratio 0.68 0.70 0.68 0.67 0.66 0.65 0.65 0.65 0.65 0.65 0.64 0.64 0.39 

Profitability/Valuation Measures 

Gross profit margin 31.56% 40.84% 54.25% 56.26% 60.65% 55.58% 62.77% 58.68% 61.99% 62.68% 61.71% 61.40% 33.74% 

Operating profit margin 10.57% 9.07% 5.96% 7.11% 6.04% 5.56% 6.04% 6.13% 6.13% 5.95% 6.21% 6.29% 6.15% 

Return on assets 3.35% 3.07% 6.48% 0.71% 1.73% 1.62% 1.03% 5.07% 0.98% 1.17% 1.39% 0.94% 4.49% 

Return on equity 9.84% 9.82% 20.21% 2.19% 5.16% 4.71% 2.97% 15.07% 2.82% 3.33% 3.92% 2.63% 12.68% 

Earnings before interest margin 14.31% 18.43% 30.57% 21.93% 35.16% 26.06% 22.96% 26.57% 22.41% 23.01% 22.24% 20.59% 22.07% 

EBITDA margin 23.22% 28.71% 52.75% 38.21% 59.53% 41.79% 43.28% 45.56% 42.55% 42.89% 40.69% 39.45% 41.34% 

EBIDA/Assets 5.07% 4.55% 8.91% 1.35% 2.36% 2.25% 1.54% 7.50% 1.49% 1.67% 1.88% 1.43% 7.77% 

Dividend (Distribution) payout percentage 5.10% 4.86% 4.48% 1.14% 1.23% 1.21% 1.19% 4.62% 1.30% 1.27% 1.24% 1.22% 4.89% 

31

This Page Intentionally Left Blank



BURKENROAD REPORTS RATING SYSTEM 

MARKET OUTPERFORM: This rating indicates that we believe forces are in place that would enable this 

company's stock to produce returns in excess of the stock market averages over the next 12 months. 

MARKET PERFORM: This rating indicates that we believe the investment returns from this company's 

stock will be in line with those produced by the stock market averages over the next 12 months. 

MARKET UNDERPERFORM: This rating indicates that while this investment may have positive 

attributes, we believe an investment in this company will produce subpar returns over the next 12 

months. 

BURKENROAD REPORTS CALCULATIONS 

• CPFS is calculated using operating cash flows excluding working capital changes. 

• All amounts are as of the date of the report as reported by Bloomberg or Yahoo Finance unless 

otherwise noted. Betas are collected from Bloomberg. 

• Enterprise value is based on the equity market cap as of the report date, adjusted for long-term 

debt, cash, and short-term investments reported on the most recent quarterly report date. 

• 12-month Stock Performance is calculated using an ending price as of the report date. 

The stock performance includes the 12-month dividend yield. 

2011-2012 COVERAGE UNIVERSE 

AFC Enterprises Inc. (AFCE) 

Amerisafe Inc. (AMSF) 

CalIon Petroleum Company (CPE) 

Cal-Maine Foods Inc. (CALM) 

Carbo Ceramics Inc. (CRR) 

CLECO Corporation (CNL) 

Conn's Inc. (CONN) 

Craftmade International Inc. (CRFT) 

Crown Crafts Inc. (CRWS) 

Cyberonics Incorporated (CYBX) 

Denbury Resources Inc. (DNR) 

EastGroup Properties Inc. (EGP) 

Energy Partners Ltd. (EPL) 

Evolution Petroleum Corp. (EPM) 

Gulf Island Fabrication Inc. (GIFI) 

Hibbett Sports (HIBB) 

Hornbeck Offshore Services Inc. (HOS) 

Houston Wire & Cable Company (HWCC) 

IBERIABANK Corp. (IBKC) 

ION Geophysical Corp. (IO) 

PETER RICCHIUTI 

Director of Research 

Founder of Burkenroad Reports 

Peter.Ricchiuti@tulane.edu 

ANTHONY WOOD 

Senior Director of Accounting 

Awood11@tulane.edu 

NATALIE DOMINO 

RANDALL FROST 

RICHARD GRAY 

Associate Directors of Research 

Key Energy Services (KEG) 

Marine Products Corp. (MPX) 

McMoRan Exploration Co. (MMR) 

MidSouth Bancorp Inc. (MSL) 

PetroQuest Energy Inc. (PQ) 

Pool Corporation (POOL) 

Powell Industries Inc. (POWL) 

Reddy Ice Holdings Inc. (RDDY) 

Rollins Incorporated (ROL) 

RPC Incorporated (RES) 

Sanderson Farms Inc. (SAFM) 

SEACOR Holdings Inc. (CKH) 

Sharps Compliance Inc. (SMED) 

Shaw Group Inc. (SHAW) 

Stone Energy Corp. (SGY) 

Superior Energy Services Inc. (SPN) 

Susser Holdings Corp. (SUSS) 

Team Incorporated (TISI) 

Teche Holding Company (TSH) 

Willbros Group Inc. (WG) 

BURKENROAD REPORTS 

Tulane University 

New Orleans, LA 70118-5669 

(504) 862-8489 

(504) 865-5430 Fax

Named in honor of William B. Burkenroad Jr., an alumnus and a longtime 

supporter of Tulane’s business school, and funded through contributions 

from his family and friends, BURKENROAD REPORTS is a nationally 

recognized program, publishing objective, investment research reports on 

public companies in our region. Students at Tulane University’s Freeman 

School of Business prepare these reports. 

Graduates of the BURKENROAD REPORTS Program have moved on to positions 

at a number of highly respected financial institutions including: 

ABN AMRO Bank · AYCO · Aegis Value Fund · Invesco/AIM Capital Management 

· Alpha Omega Capital Partners · American General Investment Management · 

Banc of America Securities · Bank of Montreal · Bancomer · Barclays Capital · 

Barings PLC · Bearing Point · Bessemer Trust · Black Gold · Capital Blackrock 

Financial Management · Boston Consulting Group · California Board of Regents 

· Cambridge Associates · Central Bank of Turkey · Chaffe & Associates · Citadel 

Investment Group · Citibank · Citigroup Private Bank · City National Bank 

· Cornerstone Resources · Credit Suisse · Deutsche Banc · Duquesne Capital 

Management · Financial Models · First Albany · Fiduciary Trust · Fitch Investors 

Services · Forex Trading · Franklin Templeton · Fulcrum Global Partners · Gintel 

Asset Management · Global Hunter Securities · Goldman Sachs · Grosever Funds 

· Gruntal & Co. · Guggenheim Securities , LLC · Hancock Investment Services · 

Hanifen Imhoff Inc. · Healthcare Markets Group · Capital One Southcoast Capital 

· Howard Weil Labouisse Friedrichs · J.P. Morgan Securities · Jefferies & Co. · 

Johnson Rice & Co. · KBC Financial · KDI Capital Partners · Key Investments 

· Keystone Investments · Knight Securities · Legacy Capital · Liberty Mutual · 

Lowenhaupt Global Advisors · Manulife/John Hancock Investments · Marsh & 

McLennan · Mercer Partners · Merrill Lynch · Miramar Asset Management · 

Morgan Keegan · Morgan Stanley/Smith Barney· New York Stock Exchange · 

Piper Jaffray & Co. · Professional Advisory Services · Quarterdeck Investment 

Services · RBC Dominion Securities · Raymond James · Restoration Capital · Rice 

Voelker, LLC · Sanford Bernstein & Co. · Second City Trading LLC · Sequent 

Energy · Sidoti & Co · Simmons & Co. · Southwest Securities · Spear, Leeds 

& Kellogg · Stewart Capital LLC · Susquehanna Investment Group · Thomas 

Weisel Partners · TD Waterhouse Securities · TXU · Texas Employee Retirement 

System ·Tivoli Partners ·Tudor Pickering & Co. · Tulane University Endowment 

Fund · Turner Investment Partners · UBS · Value Line Investments · Wells Fargo 

Capital Management · Whitney National Bank · William Blair & Co. · Zephyr 

Management 

To receive complete reports on any of the companies we follow, contact: 

Peter Ricchiuti, Founder & Director of Research 

Tulane University 

A.B. Freeman School of Business 

BURKENROAD REPORTS 

Phone: (504) 862-8489 

Fax: (504) 865-5430 

E-mail: Peter.Ricchiuti@Tulane.edu 

Please visit our web site at www.BURKENROAD.org 

Printed on Recycled Paper

WWBD? What Would Ben (Graham) Do? - AB Freeman School of ...

Create successful ePaper yourself

Delete template?

Save as template?