1. Utilities | Sector Analysis Nihar Shah Michael Song 02.23.2010

2. Recommendation Decrease weight in SIM portfolio by 72 bps Final: Underweight 150 bps

3. Introduction Utilities Sector –Size: 1721.2B –Industries IndustryMarket CapP/EROE %Div. Yield %Price to Book Diversified Utilities135.0B11.513.00%4.69%1.84 Electric Utilities301.6B15.110.00%3.95%1.81 Foreign Utilities1170.9B86.01.60%1.58%1.98 Gas Utilities104.3B15.713.80%3.99%3.31 Water Utilities9.5B0.0-5.20%3.47%1.75 Source: Yahoo Finance as of 2/23/10

4. Largest Companies in (SPUT) CompanyMarket CapSales (in M)EPS5 Yr Growth LT GrowthROEYieldROE + Yield SPUT355.0 BN/A 8.00%5.00%12.30%4.60%16.90% EXC29.5 B17.32 B4.0910.00%0.00%22.90%4.70%27.60% SO25.9 B15.74 B2.073.00%4.00%13.00%5.40%18.40% NGG24.7 B24.13 B3.852.00%7.00%25.20%4.60%32.90% DUK21.40 B12.73 B.83-8.00%4.00%7.40%5.80%13.20% FPL19.40 B15.65 B3.9712.00%7.00%13.60%4.30%17.90% AEP16.10 B13.44 B2.885.00%4.00%12.00%4.90%16.90% FE12.10 B12.97 B3.2911.00%3.00%13.60%5.50%19.10% EIX11.00 B12.54 B2.5910.00%3.00%11.30%3.70%15.00% OKE4.60 B10.23 B2.653.00%10.00%14.40%4.00%18.40%

5. S&P/SIM Weight (.78)%

6. S&P/Sector Performance (YTD) Outperform

7. Business Analysis Electric Water Gas Foreign Diversified

8. Utilities – Catalysts/Risks Catalysts –Rate Regulation Increase –Weather Patterns –Improvement in Economy –Green Policy (Nuclear/Water) Risks –Rate Regulation Neutral/Decrease –Inconsistent or over-demand –Commodity Prices –Green Policy (Electric/Diversified/Gas)

9. Industry vs Sector Performance

10. Sector vs S&P Performance Correlation: 80.93% Outperform

11. Economic Analysis

13. Forecast: GDP will very slowly increase over the short term

14. Economic Analysis

15. Forecast: Interest Rate will increase in the short term

16. Economic Analysis

18. Forecast: Natural Gas Price will stay relatively constant in the short term

19. Economic Analysis

20. Forecast: Potential for long term growth

21. Regulation State commissions are responsible for determining utilities’ proper rate bases and allowable operating expenses. Individual states’ rulings often differ with regard to these determinations. They also differ in allowed accounting treatments for depreciation accruals and investment tax credits. Although rulings are often presumed to be based solely on the public interest, commissions actually seek to provide a balance between investor and consumer interests.

22. Green Policy (Update) On June 26, 2009, the House of Representatives passed, by a narrow 217– 205 margin, its version of a new energy bill, H.R. 2454. Included in the bill, called the American Clean Energy and Security Act, 2005–2050, were provisions for a cap-and-trade system that would incrementally reduce GHG emissions, beginning with a cap on 2012 emissions that is 3% below 2005 levels. The bill, whose principal sponsor was Henry Waxman (D.– California), also included a requirement that utilities get 15% of their electricity from renewable energy sources and, through increasing their energy efficiencies, reduce their electricity use 5% by 2020. Individual states, however, would be allowed to vary these two percentages as long as the total came to 20%.

23. Financial Analysis Sector

24. Financial Analysis

25. Margins Net Profit N/A

26. Summary AnalysisConclusionsView BusinessMature industry, cyclical in natureNeutral EconomicExpect slow growth Slightly Negative FinancialDeclining Revenue, stable profit margin stable ROE, and declining Net Profit Margin. Negative ValuationSector seems to be trading at a slight discount. Slightly positive Overall: Slightly negative for short term

27. Recommendation Decrease weight in SIM portfolio by 72 bps Final: Underweight 150 bps

28. Questions