electric & gas utility guide · our forecast should provide insight into the direction of a...

F I X E D I N C O M E R E S E A R C H

Jacob P. Mercer, CFASenior Research Analyst

Mark D. ChurchillAssociate Research Analyst

ELECTRIC & GAS UTILITY GUIDE

J A N U A R Y 2 0 0 4

Utility Cover 0104.qxd 1/23/04 8:06 AM

January 2004

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I. Executive Summary ............................................................................................. 3II. Sector Themes ..................................................................................................... 4III. Methodology ....................................................................................................... 6IV. Company Report Overview.................................................................................. 8V. Company Reports .............................................................................................. 15

Avista Corp ................................................................................................... 16Black Hills Corp ........................................................................................... 20El Paso Electric ............................................................................................. 24Great Plains Energy ....................................................................................... 28IDACORP ..................................................................................................... 34MDU Resources Group .................................................................................. 40OGE Energy ................................................................................................. 44Portland General Electric ............................................................................... 50Puget Energy ................................................................................................. 54Vectren ......................................................................................................... 60Wisconsin Energy .......................................................................................... 66Xcel Energy .................................................................................................. 72

VI. Summary .......................................................................................................... 80VII. Appendix .......................................................................................................... 85VIII. Important Research Disclosures .......................................................................... 94

January 2004

2 | �� Piper Jaffray Fixed Income Research

January 2004


As a guide for your journey, the Electric & Gas Utility Guide provides a road map throughthe current electric and gas utility environment. There are a myriad of factors that weanalyze when evaluating utility credits, including but not limited to regulatory environ-ment, service territory, customer growth rates, load growth, non regulated investments, andmanagement execution. This book will focus on the financial profiles of twelve electricand gas utility companies. Comparative results and summary tables appear in theSummary section.

We analyze twelve electric and gas utilities. The company analysis focuses on the uniquerisks and characteristics of each company. Our goal is to present an in depth analysis ofthe utility sector, providing a clear and concise picture of each utility and how it compareswith its peer group.

We forecast financial results to estimate potential changes in coverage and leverage. Thefoundation for our analysis is our financial models. When available, we provide a mini-mum of four years of financial statements for each operating utility and holding company.The model depends on multiple assumptions that could influence the actual outcome.Some of the key variables include weather, interest rates, and management decisions. Inaddition to our base case, we provide high and low margin estimates and the effect that ithas on leverage and coverage levels. The high and low margin are influenced by a num-ber of factors including weather, nonregulated businesses, and commodity prices.

Our model measures the changing financial profiles of companies and estimates the vulner-ability to a change in corporate credit rating by Standard & Poor’s. Through analysis ofthe publicly available Standard & Poor’s financial targets, and our financial forecasts, wemeasure the financial profile today and our expectations for 2004 to demonstrate thestrengths and weaknesses of each credit relative to its peer group. The forecasted financialprofile and the accompanying sensitivity analysis provides a structure with which to mea-sure each credit’s vulnerability to a change in corporate credit rating.

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January 2004


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Most companies are going “back to basics” and trying to improve on core competencies.In focusing on regulated operations, a number of companies in the sector are looking at in-creasing reliability in their service territories and using this as an earnings growth vehicle.Investments in nonregulated businesses have decreased dramatically for many companiesbased on investor criticism, rating agency pressure, and poor returns on invested capital.While this remains the theme in the sector, there are still a number of companies such asBlack Hills, MDU Resources, and Great Plains Energy that continue to invest heavily intheir nonregulated ventures.

Other events including the blackout in the Northeast and investor backlash after the crisisthat hit the industry in the second half of 2002 have pushed utilities to invest in core opera-tions. The blackout in the Northeast has demonstrated the importance of the nation’stransmission and distribution system. We believe the blackout should be a long-term cata-lyst for utilities to invest in regulated transmission and distribution assets. State utilitycommissions as well as federal politicians have an incentive to upgrade the electrical infra-structure of the United States.

Despite the fact that many areas of the country have generation overcapacity and weakwholesale prices, a number of companies are looking to increase their generation capacity.This has resulted in aggressive forward looking capital expenditure plans to build genera-tion facilities for Xcel Energy, Alliant Energy, and Wisconsin Energy. Oklahoma Gas &Electric and Puget Sound Energy decided that it was cheaper to buy the assets than buildand have already announced acquisitions within their service territories.

We view the return to core operations as a positive trend for the sector. Nonetheless, weexpect continued negative ratings actions in the near term, albeit at a slower pace than thelast couple of years. In 2002, S&P downgraded 182 holding companies and operatingsubsidiaries, compared to only 15 upgrades. For the first three quarters of 2003, therewere 102 downgrades compared to 11 upgrades. With this credit deterioration, the aver-age credit rating for the utility sector is now in the “BBB” category, down from the “A”category just a few years ago. Furthermore, S&P has stated that the prospects for creditquality remain “challenging,” as indicated by ratings outlooks, 40% of which are nega-tive.

We expect merger and acquisition activity to continue in 2004. Private equity funds andfinancial buyers continue to invest in the sector such as Kohlberg Kravis Roberts & Co’spurchase of Unisource, Goldman Sachs purchase of Cogentrix, and a group led by TexasPacific Group bidding on Portland General Electric. Asset sales were also notable asmany companies looked to unload assets to shore up liquidity and reduce maturing debt.We believe passage of the energy legislation with PUHCA repeal could be a catalyst formore activity in the future.

Operating costs are coming under pressure with increases in pension expense, employeebenefits, and insurance. Many companies, using assumed rates of return as high as 10%on pension assets, are being pressured by the SEC and auditors to reduce assumed rates tomore conservative levels. The revisions to assumed rates of return are increasing the pen-sion expense and consequently reducing the cash flows of companies. Operating costs arecoming under further pressure as employee benefits and insurance costs are rising at rates

January 2004


higher than previously anticipated. Some of the costs can be built in to future rate cases,but underfunded pensions and increasing operating expenses are negatives to credit quality.

High natural gas prices are once again an issue for utilities. The recent increase in naturalgas prices is a negative to credit quality for most gas utilities, despite the fact that most gasutilities pass on the costs of natural gas directly to their customers. High prices have led tolower gas consumption by consumers putting stress on gross margins and working capitalrequirements of many gas utilities. The large gas bills are also causing larger write-downsin accounts receivable. On the other side of the coin, the high price of gas is providing up-side for companies with exploration and production assets. Companies that have a largepercentage of their electric generation mix weighted toward coal or nuclear generation arealso benefiting.

January 2004


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�� Forecasts and stress scenarios in our model are based on forecasting earnings before inter-est, tax, depreciation, and amortization (EBITDA). Multiple scenarios are modeled to ar-rive at expected, high, and low EBITDA values through analyzing margins from previoustime periods. The expected scenario is our forecast based on our assumptions of earnings,dividend decisions, and expected financing. High and low margin values are representa-tive of the best and worst margins in the time period drawn upon for the forecast. We typi-cally use the last three years for the margin forecast, but lengthen or shorten the periodwith the availability of information. In the case of a company that has drastically changeddue to merger or divestiture, certain accommodations have been made to ensure the pastresults are indicative of future time periods. After arriving at our EBITDA scenarios, theassumptions of cash flows (interest expense, taxes, dividends, and capital expenditures) areapplied to arrive at free cash flows that determine the resulting credit metrics.

The foundation for our analysis is our financial models. We model the financial state-ments of each company, and the operating companies where applicable, to provide atminimum a four year horizon for analysis. The model depends on multiple assumptionsthat could influence the actual outcome. Key assumptions include operations that are con-sistent with past performance, cash flows that are consistent with company guidance whengiven or with recent history when no guidance is provided, and normal weather. Ouranalysis goes beyond company guidance to anticipate changes in dividend policy, equityissuance, asset sales, and other events that we anticipate may occur.

��

Our forecast should provide insight into the direction of a company’s credit profile, whichshould be valuable to forecasting ratings changes. Because Standard & Poor’s makescredit risk profiles and financial targets publicly available we have applied our forecasts tothe benchmarks to identify changing financial profiles. Our model graphically representsthe strengths and weaknesses within a company’s financial profile and its sensitivity tovarying financial performance using four financial metrics: pretax interest coverage, fundsfrom operations (FFO) interest coverage, FFO to total debt, and total debt to capitalization.We use Standard & Poor’s financial targets to apply a rating to each metric for the currentand forecasted time periods. A change in the financial profile may signify a credit trend.Graphical representations of the credit profiles appear in each company presentation. Weassume the current business risk profile is held constant for our forecast (an explanation ofthe importance of business profile appears in the appendix).

A sample financial profile proxy graph (Figure 1) appears with captions to help explain thegraph. Each point on the graph represents the Standard & Poor’s rating for the credit met-ric. The corporate credit rating balances the current and forecasted strengths and weak-nesses in the metrics. Figure 1 demonstrates an improving credit by the nature of the fore-casted profile appearing closer to the center of the graph than the current profile (assumingthe risk profile of the company remains constant). On average, the credit metrics improvedapproximately two credit rating notches from the current profile to the forecasted profile.Credit quality improvement to this degree implies the credit may receive a rating upgradeif the expectations of our forecast are met. The graph also helps to identify strength in theFFO interest coverage and pretax interest coverage ratios relative to the FFO to total debtand total debt to total capitalization ratios.

January 2004


FFO/Total Debt

FFO Interest Coverage

Pretax Interest Coverage

Total Debt/Total Capital

Current Profile

Forecasted Profile

Current Pretax Coverage

metric corresponds to BB

Current FFO coverage

metric corresponds to BBB-

Current TD/TC metric

corresponds to BB+

Current FFO/TD metric

corresponds to B+

AA

A

BBB

BB

B

Forecasted FFO coverage metric

improves to A-

Forecasted FFO/TD metric

improves to BB-

Forecasted TD/TC metric

improves to BBB-

Forecasted Pretax Coverage

metric improves to BBB

��

Figure 1

January 2004


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�� The Performance Metrics displays key coverage and leverage ratios for historic and fore-casted time periods under high, expected, and low margin cases. The high and low casesare determined by stressing the company at the best and worst margins for recent time peri-ods (typically three years but varies on certain companies due to the reliability of the pastto serve as an indicator of the current structure of the company). A tighter spread on a ra-tio of one company relative to another indicates more stable results. Metric definitionsappear below.

EBITDA/Interest divides the EBITDA for the time period specified by the interest amountaccrued for that time period.

Total Debt/LTM EBITDA compares the total debt (short-term debt, long-term debt and pre-ferred stock) to the EBITDA for the last twelve months.

Return on Equity provides the earnings for the last twelve months based on the averagedollar amount of equity capital invested in the firm.

Dividend Payout compares the dividend and forecasts with the earnings for the last twelvemonths. The dividend assumption from our expected scenario is held constant for the highand low estimate. Therefore, the large variance on the estimates for some companies doesnot take into account that management would likely cut or increase the dividend from ourestimates if these scenarios occurred.

2002 6M03 9M03 2003E 6M04E 2004EEBITDA/Interest

High Margin 6.45x 4.71x 5.98xExpected 4.88x 4.98x 6.75x 6.15x 4.53x 5.62xLow Margin 5.96x 4.37x 5.37x

Total Debt/LTM EBITDAHigh Margin 2.67x 2.72x 2.86xExpected 3.14x 2.95x 2.71x 2.83x 2.98x 3.17xLow Margin 2.94x 3.18x 3.41x

Return on EquityHigh Margin 19.1% 17.7% 15.9%Expected 14.7% 18.9% 19.5% 17.6% 15.8% 14.4%Low Margin 16.7% 14.5% 13.6%

Dividend PayoutHigh Margin 63.0% 67.3% 71.9%Expected 86.3% 71.0% 66.6% 69.1% 76.9% 81.2%Low Margin 73.4% 84.8% 89.4%

Figure 2

January 2004


�� As Figure 3 demonstrates, the Customer Distribution section provides a segmentation ofcustomers to demonstrate the diversification of the customer base. Customer segments indi-cate economic sensitivity and margins.

�� Figure 4, the Consumer Growth graph, provides the total number of customers at the regu-lated utility and the growth over a period of the last five years. Customer growth is an in-dicator of future capital expenditure requirements and the potential for growth in regulatedoperations.

Residential85%

Commercial & Industrial

12%

Public Authorities &

Other3%

450000

455000

460000

465000

470000

475000

480000

485000

490000

1998 1999 2000 2001

Cu

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0.00%

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1.00%

1.50%

2.00%

2.50%

3.00%G

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Figure 3

Figure 4

January 2004


�� !�� The Revenue Sources section depicts segmented revenue streams to provide an idea of thediversification and importance of operating segments to a company.

��

For electric utilities, the Consumer Revenue Distribution section visualizes the revenue fromcustomer segments of the regulated utility operations. Customer segments indicate eco-nomic sensitivity and margins.

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Electric Rev - KCP&L Electric Rev - Strategic Energy Other

Residential34%

Commercial39%

Wholesale10%

Industrial9%

Subsidiary6%

Other2%

Figure 5

Figure 6

January 2004


!�� The System Generation section shows the nameplate capacity in megawatts and breaksdown the generation mix of the regulated electric utility. System generation mix can beused to determine generation diversification and reliance on fuel types.

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Figure 7 depicts segmented operating income sources to provide an idea of the diversifica-tion and importance of operating segments to a company.

Other16%

Kansas City Power & Light

84%

Coal55%

Gas20%

Nuclear14%

Oil11%

Figure 7

Figure 8

January 2004


��

The Consolidated Debt Maturities graph highlights liquidity concerns by distributing thematuring issues of debt in annual time periods.

$0

$500

$1,000

$1,500

$2,000

$2,500

2004 2005 2006 2007 Beyond

(in

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Long Term Debt Preferred Stock Common Equity

Figure 9

��#�� !�� The Capital Structure section delineates the type and amount of the company’s sources ofcapital. Included in the capital structure are shareholders’ equity, preferred stock, minorityinterest, and long term debt.

January 2004


�%$&�� The EBITDA Estimate section visualizes quarterly EBITDA from the first quarter of 2001through our forecasts for the fourth quarter of 2004. The Total Debt/EBITDA ratio (usingthe last twelve months of EBITDA) is laid over the top to demonstrate how it changes withEBITDA over time.

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$50

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Figure 11

�� '(� �� The Coverage/Leverage section displays the EBITDA/Interest coverage ratio and the TotalDebt/Capital leverage ratio for the same periods depicted in the EBITDA Estimates graph.

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Figure 12

January 2004


�� As shown in Figure 14, the Ratings Ranges section, provides the upper and lower bound ofthe Standard & Poor’s financial targets for each company, taking into account theCompany’s current business risk profile and corporate credit rating. The current and fore-casted ratios appear within the figure.

Figure 14

�� !�� The Ratings Scales graphically represents the strengths and weaknesses of a credit usingStandard & Poor’s rating scale and credit metrics. The “Current S&P Financial ProfileProxy” graph shows the metrics from the last reported time period (third quarter 2003),and the “2004 Estimated S&P Financial Profile Proxy” shows the metrics at December 31,2004 using our forward forecast.

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FFO/Total Debt



Total Debt/Total Capital AA

B

A

BBBB

FFO/Total Debt



Total Debt/Total Capital AAA

BBBBB

B

Figure 15

S&P BBB Reported S&P BBB S&P BBB Estimated S&P BBBUpper Range 3Q03 Lower Range Upper Range 2004 Lower Range

FFO/Total Debt31.0% 25.3% 22.0% 31.0% 24.1% 22.0%

FFO Interest Coverage4.5x 5.3x 3.1x 4.5x 4.8x 3.1x

Pretax Interest Coverage4.0x 4.0x 2.6x 4.0x 3.8x 2.6x

Total Debt/Total Capital46.0% 49.5% 53.5% 46.0% 49.2% 53.5%

January 2004


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January 2004


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Ba1/BB+ (Unsecured)

Electric & Gas Credit Trend: Improving

Performance Metrics Customer Distribution

2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest


Total Debt/LTM EBITDA


Return on Equity

High Margin 8.2% 9.5% 8.5%Expected 4.4% 5.4% 5.6% 6.5% 6.0% 6.8%Low Margin 4.0% 1.2% 3.4%

Dividend Payout


Revenue Sources

Operating Income Sources Customer Growth

System Generation - 1511 MW Customer Growth

Gas Customer Distribution

Residential

89%

Commercial

11%

Other

0%

Electric Customer Distribution

Residential

88%

Commercial

11%

Other

1%

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Avista Utilities Energy Mktg and Trading Avista Advantage Other

Electric

290,000

295,000

300,000

305,000

310,000

315,000

320,000

1998 1999 2000 2001 2002

Cu

sto

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0.00%

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1.50%

2.00%

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Ra

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Gas

230,000

240,000

250,000

260,000

270,000

280,000

290,000

1998 1999 2000 2001 2002

Cu

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0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

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Themal

36%

Hydroelectric

64%

Avista Utilities

57%

Energy

Marketing and

Trading

43%

January 2004


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EBITDA Estimates

Coverage/Leverage

Ratings Ranges S&P Corporate Credit Rating: BB+

S&P BB Reported S&P BB S&P BB Estimated S&P BBUpper Range 3Q03 Lower Range Upper Range 2004 Lower Range

FFO/Total Debt

20.5% 11.7% 15.0% 20.5% 13.1% 15.0%


3.0x 2.4x 2.1x 3.0x 2.4x 2.1x


2.4x 1.7x 1.5x 2.4x 1.8x 1.5x


55.0% 53.9% 62.5% 55.0% 52.7% 62.5%

Ratings Scales

Current S&P Financial Profile Proxy

Total Debt/

Total Capital

FFO/Total Debt

Pretax Interest

Coverage

2004 Estimated S&P Financial Profile Proxy

FFO Interest

Coverage

Total Debt/

Total Capital

FFO/Total Debt

Pretax Interest

Coverage

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January 2004


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Avista Corp. is an energy company engaged in the generation, transmission and distribution of energy as well as otherenergy-related businesses. The company is organized into four lines of business – Avista Utilities, Energy Trading andMarketing, Information and Technology, and Other. Avista Capital, a wholly owned subsidiary of Avista Corp., is theparent company of all the subsidiary companies engaged in the non-utility lines of business.

Avista Utilities, an operating division of Avista Corp. and not a separate entity, represents the regulated utility opera-tions. Avista Utilities generates, transmits and distributes electricity in parts of eastern Washington and northern Idaho.Avista Utilities also provides natural gas distribution service in parts of eastern Washington, northern Idaho, northeastand southwest Oregon and in the South Lake Tahoe region of California.

Capital Structure Consolidated Debt Maturities

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Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsAVISTA CORP AVA 05379BAC1 9.750 6/1/2008 400,000,000 SENIOR NOTES Ba1/BB+AVISTA CORP AVA 05379BAE7 7.750 1/1/2007 150,000,000 1ST MORTGAGE Baa3/BBB-AVISTA CAP II AVA 05379HAA2 FLOATER 6/1/2037 6/1/2007 50,000,000 CAPITAL SECURITIES Ba2/BB-AVISTA CORP AVA 05379BAF4 6.125 9/1/2013 45,000,000 1ST MORTGAGE Baa3/BBB-AVISTA CORP AVA 05379BAF4 6.125 8/9/2004 30,000,000 SENIOR NOTES Ba1/BB+

January 2004


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EB

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ST

Deb

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Liq

uid

ity

An

aly

sis

Cu

rren

t R

atio

:1

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x1

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x1

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x1

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Qu

ick

Rat

io:

0.4

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0.1

2x

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0.7

2x

0.4

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0.5

5x

0.5

4x

0.5

4x

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9x

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3x

0.5

8x

0.5

5x

0.5

8x

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rkin

g C

apit

al:

$2

9$

13

$2

05

$1

88

$8

5$

3$

33

$3

3$

25

$1

2($

1)

$3

($1

)

So

urc

e: C

om

pa

ny

Rep

ort

s, P

iper

Ja

ffra

y

January 2004


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Baa3/BBB- (Unsecured)

Electric Credit Trend: Declining

Performance Metrics Customer Growth

2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity


Dividend Payout


Revenue Sources Customer Revenue Distribution

Operating Income Sources System Generation - 435 MW


Coal

57%

Gas

41%

Other

2%

Residential

82%

General and

Commercial

18%

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2004 2005 2006 2007 Beyond

(in

mil

lio

ns)

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Electric Utility Power Generation Energy Marketing Other

0

500

1,000

1,500

2,000

4Q02 2Q03 4Q03E 2Q04E 4Q04E

Cap

itali

zati

on

(in

mil

lio

ns)

Long Term Debt Minority Interest

Preferred Stock Common Equity

Electric Utility

31%

Other

7%

Power

Generation

55%

Energy

Marketing

7%

Electric Utility

56,500

57,000

57,500

58,000

58,500

59,000

59,500

60,000

60,500

1998 1999 2000 2001 2002C

us

tom

ers

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

Gro

wth

Ra

te

January 2004


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Electric

EBITDA Estimates

Coverage/Leverage

Ratings Ranges S&P Corporate Credit Rating: BBB-


FFO/Total Debt

36.5% 29.8% 24.5% 36.5% 17.3% 24.5%


5.1x 5.3x 3.3x 5.1x 3.2x 3.3x


4.7x 2.8x 2.8x 4.7x 2.4x 2.8x


45.0% 52.3% 52.5% 45.0% 57.5% 52.5%

Ratings Scales


Total Debt/

Total Capital

FFO/Total Debt

FFO Interest

Coverage

Pretax Interest

Coverage


Total Debt/

Total Capital

FFO/Total Debt

FFO Interest

Coverage

Pretax Interest

Coverage

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

7.00x

8.00x

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

E

1Q04

E

2Q04

E

3Q04

E

4Q04

E

EB

ITD

A/In

tere

st

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

To

tal D

eb

t/C

ap

ital


$0

$10

$20

$30

$40

$50

$60

$70

$80

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

E

1Q04

E

2Q04

E

3Q04

E

4Q04

E

EB

ITD

A (

millio

ns)

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

7.00x

To

tal D

eb

t/E

BIT

DA


BB

B

BBB

A

AA AA

A

BBB

BB

B

January 2004


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Black Hills is a diversified energy holding company with regulated and unregulated operations. The Company’s inte-grated energy group produces and markets power and fuel and transports crude oil. The company produces and sellselectricity primarily in the western United States. It also produces coal, natural gas, and crude oil primarily in theRocky Mountain region, and markets fuel products primarily in the Rocky Mountain, western, and mid-continent re-gions of the United States and in Western Canada. The Company’s regulated electric utility, Black Hills Power, is en-gaged in the generation, transmission, and distribution of electricity. It serves approximately 60,000 electric customers,in a service area covering a 9,300 square mile area of western South Dakota, eastern Wyoming, and southeastern Mon-tana. Over 90 percent of the electric revenues are generated in South Dakota. The Company’s communications groupoffers broadband communication services to residential and business customers in Rapid City and the northern BlackHills region of South Dakota.

��

Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsBLACK HILLS CORP BKH 092113AE9 6.500 5/15/2013 250,000,000 SENIOR NOTES Baa3/BBB-BLACK HILLS POWER INC BKH 092114AA5 7.230 8/15/2032 75,000,000 1ST MORTGAGE Baa1/BBBBLACK HILLS CORP BKH 092113AA7 8.300 9/1/2024 9/1/2004 45,000,000 1ST MORTGAGE Baa1/BBBBLACK HILLS CORP BKH 092113D@5 9.350 5/29/2021 5/29/2010 35,000,000 1ST MORTGAGE NA/BBBBLACK HILLS CORP BKH 092113AB5 8.060 2/1/2010 30,000,000 1ST MORTGAGE Baa1/BBB

January 2004


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Ye

ar

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ece

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er

31

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me

Sta

tem

ent

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mm

ary

1999

2000

2001

1Q

02

2Q

02

3Q

02

4Q

02

2002

1Q

03

2Q

03

3Q

03

LT

M 3

Q02

LT

M 3

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Rev

enues

$792

$999

$1,1

46

$171

$261

$240

$673

$1,3

26

$299

$300

$297

$1,4

34

$1,5

50

EB

ITD

A87

128

209

47

49

50

66

198

59

59

62

158

233

EB

IT62

95

155

31

31

33

44

128

39

38

42

95

152

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14

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$59

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$233

-

Inte

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se15

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40

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817

41

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35

56

-

Div

iden

ds

23

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88

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31

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10

31

35

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Cap

ital

Exp.

102

135

378

58

52

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58

233

25

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31

112

136

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e C

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$69

$54

$70

$76

$76

$69

$81

$271

$70

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Tota

l A

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1,3

20

1,6

62

1,7

77

1,8

43

1,9

13

2,0

35

2,0

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2,1

26

2,0

96

1,9

92

1,9

13

1,9

92

Short

Ter

m D

ebt

99

226

396

431

443

401

356

356

361

26

18

401

18

Long T

erm

Deb

t161

307

416

465

476

473

541

541

617

825

747

473

747

Pre

ferr

ed S

tock

04

66

66

66

66

66

6

Tota

l D

ebt

260

537

818

902

924

880

902

902

984

857

771

880

771

Tota

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et D

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236

510

784

833

870

810

826

826

914

776

500

810

500

Shar

ehold

ers'

Equit

y217

316

529

541

546

540

530

530

556

681

693

540

693

Tota

l C

apit

al476

853

1,3

47

1,4

43

1,4

70

1,4

19

1,4

32

1,4

32

1,5

40

1,5

38

1,4

64

1,4

19

1,4

64

Marg

in A

naly

sis

Oper

atin

g P

rofi

t M

argin

12.6

%14.3

%20.2

%31.4

%20.9

%23.0

%10.2

%16.4

%22.4

%22.6

%23.2

%12.6

%16.7

%

EB

ITD

A M

argin

11.0

%12.8

%18.2

%27.7

%18.7

%20.7

%9.8

%14.9

%19.8

%19.8

%21.0

%11.0

%15.0

%

EB

IT/E

BIT

DA

71.2

%74.4

%74.2

%66.4

%63.1

%67.3

%66.4

%64.7

%65.4

%64.2

%67.7

%60.2

%65.1

%

Cap

ex/R

even

ue

12.9

%13.5

%33.0

%33.8

%20.0

%27.2

%8.6

%17.6

%8.4

%7.3

%10.4

%7.8

%8.8

%

Ret

urn

on E

quit

yN

/A19.8

3%

20.8

4%

16.0

5%

9.1

8%

9.4

0%

11.6

1%

11.6

1%

11.2

2%

10.5

0%

11.2

6%

9.4

0%

11.2

6%

Cove

rage/

Lev

erage

Tota

l D

ebt/

LT

M E

BIT

DA

2.9

9x

4.2

1x

3.9

2x

4.9

4x

5.9

0x

5.5

7x

4.5

6x

4.5

6x

4.6

9x

3.8

9x

3.3

1x

5.5

7x

3.3

1x

EB

ITD

A/I

nte

rest

5.6

2x

4.2

2x

5.2

2x

4.8

8x

4.6

0x

6.1

2x

3.8

9x

4.7

7x

4.1

9x

3.8

7x

4.5

2x

4.5

3x

4.1

3x

EB

ITD

A-C

AP

EX

/Inte

rest

-0.9

9x

-0.2

4x

-4.2

4x

-1.0

9x

-0.3

2x

-1.9

3x

0.4

7x

-0.8

5x

2.4

1x

2.4

5x

2.2

8x

1.3

2x

1.7

2x

EB

IT/I

nte

rest

4.0

0x

3.1

4x

3.8

7x

3.2

4x

2.9

1x

4.1

2x

2.5

8x

3.0

9x

2.7

4x

2.4

8x

3.0

6x

2.7

3x

2.6

9x

Capit

al

Str

uct

ure

Tota

l D

ebt/

Tota

l C

apit

al54.5

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%60.3

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%62.5

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%61.6

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%

Pre

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ed S

tock

/Cap

ital

0.0

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%0.4

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Tota

l D

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Equit

y119.9

%169.7

%154.5

%166.6

%169.2

%163.1

%170.4

%170.4

%176.9

%125.9

%111.2

%163.1

%111.2

%

ST

Deb

t/T

ota

l D

ebt

38.1

%42.0

%48.5

%47.8

%47.9

%45.6

%39.4

%39.4

%36.7

%3.0

%2.3

%45.6

%2.3

%

Liq

uid

ity

An

aly

sis

Curr

ent

Rat

io:

0.8

9x

0.7

2x

0.3

9x

0.4

2x

0.4

4x

0.6

7x

0.7

4x

0.7

4x

0.5

7x

1.0

5x

1.4

1x

0.6

7x

1.4

1x

Quic

k R

atio

:0.7

8x

0.5

6x

0.2

4x

0.3

2x

0.3

0x

0.3

0x

0.3

7x

0.3

7x

0.4

8x

0.8

6x

1.1

9x

0.3

0x

1.1

9x

Work

ing C

apit

al:

($24)

($167)

($357)

($371)

($383)

($247)

($196)

($196)

($321)

$20

$161

($247)

$161

So

urc

e: C

om

pa

ny

Rep

ort

s, P

iper

Ja

ffra

y

January 2004


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Baa3/BBB- (FMB)

Electric Credit Trend: Improving


2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity


Dividend Payout

High Margin 0% 0% 0%Expected 0% 0% 0% 0% 0% 0%Low Margin 0% 0% 0%




$0

$50

$100

$150

$200

$250

2004 2005 2006 Beyond

(in

mil

lio

ns)

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Electric Utility

0

200

400

600

800

1,000

1,200

4Q02 2Q03 4Q03E 2Q04E 4Q04E

Cap

italizati

on

(in

millio

ns)

Long Term Debt Common Equity

Electric Utility

275,000

280,000

285,000

290,000

295,000

300,000

305,000

310,000

315,000

320,000

1998 1999 2000 2001 2002C

us

tom

ers

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Gro

wth

Ra

te

Electric Utility

100%

Total Retail

85%

Other

1%

Total

Wholesale

14%

Coal

7%

Natural

Gas/Oil

53%

Nuclear

40%

January 2004


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Electric

EBITDA Estimates

Coverage/Leverage



FFO/Total Debt

31.0% 20.5% 22.0% 31.0% 19.9% 22.0%


4.5x 3.8x 3.1x 4.5x 4.0x 3.1x


4.0x 1.9x 2.6x 4.0x 2.3x 2.6x


46.0% 55.7% 53.5% 46.0% 51.2% 53.5%

Ratings Scales


Pretax Interest

Coverage

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El Paso Electric Company is a public utility engaged in the generation, transmission and distribution of electricity in anarea of approximately 10,000 square miles in west Texas and southern New Mexico. The Company also serves whole-sale customers in the states of Texas and New Mexico and in the Republic of Mexico. The Company owns or hassignificant ownership interests in six electrical generating facilities providing it with a total capacity of 1,500 MW.

The Company serves approximately 316,000 residential, commercial, industrial and wholesale customers. TheCompany distributes electricity to retail customers principally in El Paso, Texas and Las Cruces, New Mexico (repre-senting approximately 57% and 8%, respectively, of the Company’s electric utility operating revenues for the yearended December 31, 2002).

Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsEL PASO ELECTRIC CO EE 283677AT9 8.900 2/1/2006 236,000,000 1ST MORTGAGE Baa3/BBB-EL PASO ELECTRIC CO EE 283677AU6 9.400 5/1/2011 2/1/2006 285,900,000 1ST MORTGAGE Baa3/BBB-

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KCP&L: A3/BBB (Unsecured)

Electric Credit Trend: Declining


2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity


Dividend Payout





Coal

55%

Gas

20%

Oil

11%

Nuclear

14%

$0

$100

$200

$300

$400

$500

2004 2005 2006 2007 Beyond

(in

millio

ns

)

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Electric Rev - KCP&L Electric Rev - Strategic Energy Other

0

500

1,000

1,500

2,000

2,500

4Q02 2Q03 4Q03E 2Q04E 4Q04E

Cap

itali

zati

on

(in

mil

lio

ns)


Electric Utility

430,000

440,000

450,000

460,000

470,000

480,000

490,000

1998 1999 2000 2001 2002C

us

tom

ers

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Gro

wth

Ra

te

Other

16%

Kansas City

Power & Light

84%

Residential

34%

Commercial

39%

Wholesale

10%

Other

2%

Subsidiary

6%

Industrial

9%

January 2004


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EBITDA Estimates

Coverage/Leverage

Ratings Ranges S&P Corporate Credit Rating: BBB


FFO/Total Debt

31.0% 25.3% 22.0% 31.0% 24.1% 22.0%


4.5x 5.3x 3.1x 4.5x 4.8x 3.1x


4.0x 4.0x 2.6x 4.0x 3.8x 2.6x


46.0% 49.5% 53.5% 46.0% 49.2% 53.5%

Ratings Scales


Total Debt/

Total Capital

FFO Interest

Coverage

FFO/Total Debt

Pretax Interest

Coverage


0.00x

2.00x

4.00x

6.00x

8.00x

10.00x

12.00x


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50.0%

55.0%

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$0

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$100

$150

$200

$250


EB

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3.00x

4.00x

5.00x

6.00x

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DA


AA

A

BBB

BB

B

AA

A

BBB

BB

B

Total Debt/

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FFO/Total Debt

FFO Interest

Coverage

Pretax Interest

Coverage

January 2004


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Great Plains Energy Inc. is a public utility holding company for its primary direct subsidiaries, Kansas City Power &Light, Strategic Energy, LLC and KLT Gas Inc. KCP&L is an integrated electric utility and a regulated provider of elec-tricity in the Midwest, serving approximately 485,000 retail customers in 24 counties of western Missouri and easternKansas. Strategic Energy, LLC (SEL) is an energy management company providing electricity load aggregation andpower supply coordination services nationally in markets offering retail choice. SEL manages electricity procurementfor commercial, institutional and government customers in California, Ohio, Pennsylvania, Michigan, New York, Mas-sachusetts and Texas. KLT Gas Inc. specializes in the acquisition and development of unconventional natural gas prop-erties, primarily coalbed methane. It focuses on extracting methane that is trapped in underground coal, exploring anddrilling wells to demonstrate production and reserve value.

Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsKANSAS CITY POWER & LT GXP 485134BB5 7.125 12/15/2005 250,000,000 SENIOR NOTES A3/BBBKANSAS CITY POWER & LT GXP 485134BE9 6.000 3/15/2007 225,000,000 SENIOR NOTES A3/BBBKANSAS CITY POWER & LT GXP 485134BC3 6.500 11/15/2011 150,000,000 SENIOR NOTES A3/BBBKANSAS CITY POWER & LT GXP 48513HBE0 7.350 8/3/2004 20,500,000 1ST MORTGAGE A2/BBBKANSAS CITY POWER & LT GXP 48513HBC4 7.850 7/2/2004 7,500,000 1ST MORTGAGE A2/BBB

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4.2

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ST

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Tota

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EB

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EB

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EB

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Curr

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Work

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($331)

($306)

($525)

($304)

($297)

($132)

($277)

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($158)

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IPC: A2/A (FMB)

Electric Credit Trend: Stable


2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity


Dividend Payout





$0

$100

$200

$300

$400

$500

$600

$700

$800

2004 2005 2006 2007 Beyond

(in

mil

lio

ns)

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Electric Utility Energy Marketing Other

0

500

1,000

1,500

2,000

2,500

4Q02 2Q03 4Q03E 2Q04E 4Q04E

Cap

italizati

on

(in

millio

ns)


Electric Utility

350,000

360,000

370,000

380,000

390,000

400,000

410,000

420,000

1998 1999 2000 2001 2002C

us

tom

ers

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

Gro

wth

Ra

te

Utility

Operations

100%

Residential

40%

Commercial

25%

Industrial

23%

Irrigation

12%

Hydro

59%

Diesel

0%

Gas

3%

Coal

38%

January 2004


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Electric

EBITDA Estimates

Coverage/Leverage

Ratings Ranges S&P Corporate Credit Rating: A-

S&P A Reported S&P A S&P A Estimated S&P AUpper Range 3Q03 Lower Range Upper Range 2004 Lower Range

FFO/Total Debt

30.5% 24.8% 24.5% 30.5% 15.4% 24.5%


4.5x 5.7x 3.8x 4.5x 3.5x 3.8x


4.0x 1.3x 3.3x 4.0x 2.6x 3.3x


43.0% 54.6% 49.5% 43.0% 56.8% 49.5%

Ratings Scales


Total Debt/

Total Capital

Pretax Interest

Coverage

FFO Interest

Coverage

FFO/Total Debt


Total Debt/

Total Capital

Pretax Interest

Coverage

FFO Interest

Coverage

FFO/Total Debt

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

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3Q03

4Q03

E

1Q04

E

2Q04

E

3Q04

E

4Q04

E

EB

ITD

A/In

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48.0%

50.0%

52.0%

54.0%

56.0%

58.0%

60.0%

To

tal D

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t/C

ap

ital


$0

$20

$40

$60

$80

$100

$120

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

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E

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E

3Q04

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4Q04

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EB

ITD

A (

millio

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0.00x1.00x2.00x3.00x4.00x5.00x6.00x7.00x8.00x9.00x

To

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AA

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January 2004


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IDACORP, Inc. is a holding company whose principal subsidiary is Idaho Power Company (IPC). IPC is a regulatedelectric utility engaged in the generation, transmission, distribution, sale and purchase of electric energy. IPC is the par-ent of Idaho Energy Resources Co., a joint venture in Bridger Coal Company, which supplies coal to the Jim Bridgergenerating plant owned in part by IPC.

Another subsidiary of IDACORP, IDACORP Energy, a marketer of electricity and natural gas is in the process of wind-ing down its operations. IDACORP’s other operating subsidiaries include Ida-West Energy, a developer and manager ofindependent power projects; IdaTech, a developer of integrated fuel cell systems; IDACORP Financial Services, Inc.,holds affordable housing and other real estate investments; Velocitus, a commercial and residential Internet service pro-vider; and IDACOMM, a provider of telecommunications services.

Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsIDAHO POWER CORP IDA 45138LAJ2 6.600 3/2/2011 120,000,000 1ST MORTGAGE A2/AIDAHO POWER CORP IDA 45138LAK9 4.750 11/15/2012 100,000,000 1ST MORTGAGE A2/AIDAHO POWER CORP IDA 45138LAL7 6.000 11/15/2032 100,000,000 1ST MORTGAGE A2/AIDAHO POWER CORP IDA 45138LAG8 7.200 12/1/2009 80,000,000 1ST MORTGAGE A2/AIDAHO POWER CORP IDA 45138LAH6 7.380 12/1/2007 80,000,000 1ST MORTGAGE A2/A

January 2004


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$929

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EB

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328

329

70

31

40

38

180

36

38

72

201

184

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247

242

47

817

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-

Inte

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18

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17

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64

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To

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Ass

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2,6

40

4,0

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3,6

42

3,3

99

3,3

79

3,4

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3,2

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37

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Short

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109

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399

422

525

532

266

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247

182

95

532

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Long T

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Deb

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864

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702

899

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Pre

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106

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53

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69

1,1

58

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To

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Sh

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old

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Eq

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821

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892

875

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856

841

869

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To

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1,7

89

1,9

51

2,2

17

2,1

99

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05

2,1

80

2,0

93

2,0

93

2,0

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1,9

99

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69

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1,9

69

Marg

in A

naly

sis

Op

erat

ing

Pro

fit

Mar

gin

20.0

%33.1

%27.4

%31.6

%17.2

%17.4

%19.4

%21.5

%19.2

%21.7

%32.4

%23.1

%23.5

%

EB

ITD

A M

argin

18.5

%31.2

%25.8

%29.4

%14.7

%15.5

%17.4

%19.3

%16.8

%19.1

%30.3

%21.1

%21.2

%

EB

IT/E

BIT

DA

70.6

%75.5

%73.6

%67.1

%25.0

%41.3

%37.9

%47.9

%32.1

%36.6

%66.3

%53.7

%47.7

%

Cap

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A2/A- (FMB)

Electric & Gas Credit Trend: Declining


2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity


Dividend Payout


Revenue Sources




Residential

89%

Commercial

11%

Industrial &

Other

0%


Residential

83%

Commercial

15%

Other

2%

Industrial

0%

Pipeline and

Energy

Services

10%

Utility Services

3%

Natural Gas

Distribution

0%

Independent

Power

Production

and Other

22%

Construction

Materials and

Mining

29%

Natural Gas

and Oil

Production

27%

Electric

9%

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Montana-Dakota Utilities Centennial Energy Holdings

Coal

83%

Combustion-

Turbine

17%

Electric

113,000

113,500

114,000

114,500

115,000

115,500

116,000

116,500

1998 1999 2000 2001 2002

Cu

sto

me

rs

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%G

row

th R

ate

Gas

220,000

225,000

230,000

235,000

240,000

1998 1999 2000 2001 2002

Cu

sto

me

rs

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Gro

wth

Ra

te

January 2004


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Electric & Gas

EBITDA Estimates

Coverage/Leverage



FFO/Total Debt

47.0% 45.0% 36.5% 47.0% 38.0% 36.5%


7.0x 9.2x 5.1x 7.0x 7.2x 5.1x


6.5x 6.6x 4.7x 6.5x 5.2x 4.7x


37.5% 41.3% 45.0% 37.5% 44.1% 45.0%

Ratings Scales


FFO/Total Debt

Pretax Interest

Coverage

Total Debt/

Total Capital

FFO Interest

Coverage


FFO/Total Debt

Pretax Interest

Coverage

Total Debt/

Total Capital

FFO Interest

Coverage

0.00x

2.00x

4.00x

6.00x

8.00x

10.00x

12.00x

14.00x

1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03E1Q04E2Q04E3Q04E4Q04E

EB

ITD

A/In

tere

st

30.0%

34.0%

38.0%

42.0%

46.0%

50.0%

To

tal D

eb

t/C

ap

ital


$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03E 1Q04E 2Q04E 3Q04E 4Q04E

EB

ITD

A (

millio

ns)

0.00x

0.50x

1.00x

1.50x

2.00x

2.50x

3.00x

To

tal D

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t/E

BIT

DA


AA

A

BBB

BB

B

AA

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BBB

BB

B

January 2004


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MDU Resources is a diversified natural resource company. Montana-Dakota Utilities Co., a public utility division ofthe Company, through the electric and natural gas distribution segments, generates, transmits and distributes natural gasin the northern Great Plains. Great Plains Natural Gas Co, another public utility division of the Company, distributesnatural gas in southeastern North Dakota and western Minnesota.

The Company, through its wholly owned subsidiary, Centennial Energy Holdings, Inc. owns WBI Holdings, Inc., KnifeRiver Corporation, Utility Services, Inc., Centennial Energy Resources LLC, and Centennial Holdings Capital LLC.WBI Holdings is comprised of the pipeline and energy services and the natural gas and oil production segments. KnifeRiver mines aggregates and markets crushed stone, sand, gravel and other related construction materials, includingready-mixed concrete, cement, asphalt and other value-added products, as well as performs integrated construction ser-vices in the north central and western United States and in the states of Alaska, Hawaii and Texas. Utility Services is adiversified infrastructure company specializing in electric, gas and telecommunication utility construction, as well as in-dustrial and commercial electrical, exterior lighting and traffic signalization throughout most of the United States. Cen-tennial Resources owns electric generating facilities in the United States and has an investment in an electric generatingfacility in Brazil. Centennial Capital insures and reinsures various types of risks as a captive insurer for certain of theCompany’s subsidiaries.


$0

$100

$200

$300

$400

$500

2004 2005 2006 2007 Beyond

(in

mil

lio

ns)

0

500

1,000

1,500

2,000

2,500

3,000

4Q02 2Q03 4Q03E 2Q04E 4Q04E

Cap

ital

izat

ion

(in

mil

lio

ns)


��

Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsMDU RESOURCES GROUP INC MDU 55269QAF9 8.600 4/1/2012 35,000,000 1ST MORTGAGE A2/A-MDU RESOURCES GROUP INC MDU 552690AF6 5.980 12/15/2033 30,000,000 1ST MORTGAGE A2/A-MDU RESOURCES GROUP INC MDU 55269QAE2 8.250 4/1/2007 30,000,000 1ST MORTGAGE NA/A-MDU RESOURCES GROUP INC MDU 55269QAJ1 5.830 10/1/2008 15,000,000 1ST MORTGAGE A2/A-MDU RESOURCES GROUP INC MDU 55269QAH5 6.710 10/1/2009 15,000,000 1ST MORTGAGE A2/A-MDU RESOURCES GROUP INC MDU 55269QAG7 6.520 10/1/2004 15,000,000 1ST MORTGAGE A2/A-

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2002

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3Q

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$716

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89

EB

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82

89

131

122

424

97

122

163

385

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46

51

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116

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Curr

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Rat

io:

1.8

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om

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January 2004


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OG&E: A2/BBB+ (Unsecured)

Electric Credit Trend: Stable


2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity


Dividend Payout





Residential

86%

Commercial

12%

Other

2%

$0

$200

$400

$600

$800

$1,000

$1,200

2004 2005 2006 2007 Beyond

(in

mil

lio

ns)

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Electric Utility Natural Gas Pipeline

0

500

1,000

1,500

2,000

2,500

3,000

4Q02 2Q03 4Q03E 2Q04E 4Q04E

Cap

itali

zati

on

(in

mil

lio

ns)


Electric Utility

680,000

685,000

690,000

695,000

700,000

705,000

710,000

715,000

720,000

725,000

1998 1999 2000 2001 2002C

us

tom

ers

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

Gro

wth

Ra

teGas

39%

Gas/Oil

16%

Gas/Jet Fuel

1%

Coal44%

Electric Utility

88%

Natural Gas

Pipeline

12%

January 2004


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Electric

EBITDA Estimates

Coverage/Leverage

Ratings Ranges S&P Corporate Credit Rating: BBB+


FFO/Total Debt

27.0% 27.4% 20.5% 27.0% 19.6% 20.5%


4.0x 5.2x 3.0x 4.0x 4.1x 3.0x


3.5x 2.6x 2.4x 3.5x 2.9x 2.4x


47.0% 50.1% 55.0% 47.0% 58.2% 55.0%

Ratings Scales


FFO/Total Debt

Total Debt/

Total Capital

FFO Interest

Coverage

Pretax Interest

Coverage


FFO/Total Debt

Total Debt/

Total Capital

FFO Interest

Coverage

Pretax Interest

Coverage

0.00x

2.00x

4.00x

6.00x

8.00x

10.00x

12.00x

1Q00

2Q00

3Q00

4Q00

1Q01

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3Q01

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1Q02

2Q02

3Q02

4Q02

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3Q03

4Q03

E

1Q04

E

2Q04

E

3Q04

E

4Q04

E

EB

ITD

A/In

tere

st

44.0%

46.0%

48.0%

50.0%

52.0%

54.0%

56.0%

58.0%

60.0%

To

tal D

eb

t/C

ap

ital


$0

$50

$100

$150

$200

$250

$300

1Q00

2Q00

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EB

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A (

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0.00x0.50x1.00x1.50x2.00x2.50x3.00x3.50x4.00x4.50x

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January 2004


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OGE Energy Corp. is an energy and energy services provider offering physical delivery and management of both elec-tricity and natural gas in the south central United States. The Company conducts these activities through two businesssegments, the Electric Utility and the Natural Gas Pipeline segments.

The Electric Utility segment generates, transmits, distributes and sells electric energy in Oklahoma and western Arkan-sas. Its operations are conducted through Oklahoma Gas and Electric Company (OG&E) and are subject to regulationby the Oklahoma Corporation Commission, the Arkansas Public Service Commission and the Federal Energy Regula-tory Commission. OG&E sold its retail gas business in 1928 and is no longer engaged in the gas distribution business.OG&E is the largest electric utility in Oklahoma and its franchised service territory includes the Fort Smith, Arkansasarea.

The Natural Gas Pipeline segment is conducted through Enogex Inc. and its subsidiaries and consists of three relatedbusinesses: (i) the transportation and storage of natural gas, (ii) the gathering and processing of natural gas and (iii) themarketing and trading of natural gas. The vast majority of Enogex’s natural gas gathering, processing, transportationand storage assets are located in the major gas producing basins of Oklahoma. Enogex also owns a controlling interestin the Ozark Gas Transmission System, a FERC regulated interstate pipeline that extends from southeast Oklahomathrough Arkansas to southeast Missouri.

Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsENOGEX INC OGE 293489AA8 8.125 1/15/2010 400,000,000 SENIOR NOTES Baa3/BBB+OKLAHOMA GAS & ELECTRIC OGE 678858BB6 6.500 7/15/2017 125,000,000 SENIOR NOTES A2/BBB+OKLAHOMA GAS & ELECTRIC OGE 678858AZ4 6.650 7/15/2027 125,000,000 SENIOR NOTES A2/BBB+OKLAHOMA GAS & ELECTRIC OGE 678858BD2 7.125 10/15/2005 110,000,000 SENIOR NOTES A2/BBB+OKLAHOMA GAS & ELECTRIC OGE 678858BA8 7.300 10/15/2025 10/15/2005 110,000,000 SENIOR NOTES A2/BBB+

January 2004


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Baa2/BBB+ (FMB)

Electric Credit Trend: Developing


2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity

High Margin 10.6% 11.7% 7.0%Expected 5.9% 4.2% 2.6% 5.7% 5.1% 4.1%Low Margin 3.0% -0.6% -0.1%

Dividend Payout





$0

$100

$200

$300

$400

$500

$600

$700

$800

2004 2005 2006 2007 Beyond

(in

mil

lio

ns)

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Electric Utility

0

500

1,000

1,500

2,000

2,500

4Q02 2Q03 4Q03E 2Q04E 4Q04E

Cap

italizati

on

(in

millio

ns)


Electric Utility

680,000

690,000

700,000

710,000

720,000

730,000

740,000

750,000

1998 1999 2000 2001 2002C

us

tom

ers

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Gro

wth

Ra

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Electric Utility

100%

Residential

39%

Commercial

37%

Industrial

18%

Other

6%

Coal

34%

Gas/Oil

40%

Hydro

26%

January 2004


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EBITDA Estimates

Coverage/Leverage



FFO/Total Debt

24.5% 25.1% 17.5% 24.5% 28.5% 17.5%


3.8x 4.2x 2.7x 3.8x 4.7x 2.7x


3.3x 1.8x 2.2x 3.3x 2.1x 2.2x


49.5% 46.3% 57.0% 49.5% 41.5% 57.0%

Ratings Scales


Total Debt/

Total Capital

FFO Interest

Coverage

Pretax Interest

Coverage

FFO/Total Debt


Total Debt/

Total Capital

FFO Interest

Coverage

Pretax Interest

Coverage

FFO/Total Debt

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Portland General Electric (PGE) is a single, integrated electric utility engaged in the generation, purchase, transmission,distribution, and retail sale of electricity in the State of Oregon. PGE also sells wholesale energy to utilities, brokers,and power marketers located throughout the western United States. PGE’s service area is located entirely within Oregonand covers 3,150 square miles. It includes 51 incorporated cities, of which Portland and Salem are the largest, within astate-approved service area allocation of 4,095 square miles. PGE estimates that at the end of 2002 its service areapopulation was approximately 1.5 million, comprising about 44% of the state’s population. The Company added ap-proximately 7,700 customers during 2002, and at December 31, 2002 served approximately 743,000 retail customers.

On July 2, 1997, Portland General Corporation, the former parent of PGE, merged with Enron Corp, with PGE operat-ing as a wholly owned subsidiary of Enron. On December 2, 2001, Enron, along with certain of its subsidiaries, filed toinitiate bankruptcy proceedings under Chapter 11 of the federal Bankruptcy code. PGE is not included in the filing.

During the bankruptcy process Enron put PGE up for sale and received and has accepted an offer from Oregon ElectricUtility Co. for $2.35 billion in cash and the assumption of debt. Oregon Electric is a newly-formed entity financiallybacked by investment funds from Texas Pacific Group, a private equity investment firm. The sale is subject to a biddingprocess before the bankruptcy court will allow the deal to close.

��

Issuer Ticker Cusip Coupon Maturity Call Date Outstanding Collateral RatingsPORTLAND GEN ELECTRIC ENRNQ 736508BC5 7.875 3/15/2010 150,000,000 SENIOR NOTES Baa3/BBBPORTLAND GENERAL ELEC ENRNQ 736508BG6 8.125 2/1/2010 150,000,000 1ST MORTGAGE Baa2/BBB+PORTLAND GENERAL ELEC ENRNQ 736508BK7 5.279 4/1/2013 50,000,000 1ST MORTGAGE Aaa/AAAPORTLAND GENERAL ELEC ENRNQ 73651EAA6 5.625 8/1/2013 50,000,000 1ST MORTGAGE Baa2/BBB+PORTLAND GENERAL ELEC ENRNQ 73651EAB4 6.750 8/1/2023 50,000,000 1ST MORTGAGE Baa2/BBB+PORTLAND GENERAL ELEC ENRNQ 73651EAC2 6.875 8/1/2033 50,000,000 1ST MORTGAGE Baa2/BBB+PORTLAND GENERAL ELEC ENRNQ 73651HBL4 7.150 6/15/2007 50,000,000 1ST MORTGAGE Baa2/BBB+

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PSE: Baa2/BBB (FMB)



2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity


Dividend Payout


Revenue Sources




Residential

89%

Commercial

11%

Industrial

0% Other

0%


Residential

92%

Transport.

0%

Industrial

0%

Commercial

8%

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Electric segment Gas segment Other

Electric

840,000

860,000

880,000

900,000

920,000

940,000

960,000

980,000

1998 1999 2000 2001 2002

Cu

sto

me

rs

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%G

row

th R

ate

Gas

500,000

520,000

540,000

560,000

580,000

600,000

620,000

640,000

1998 1999 2000 2001 2002

Cu

sto

me

rs

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

Gro

wth

Ra

te

Regulated

Utility

96%

InfrastruX

3% Other

1%

Coal

39%

Oil/Gas

44%

Hydro Plants

17%

January 2004


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EBITDA Estimates

Coverage/Leverage



FFO/Total Debt

27.0% 18.1% 20.5% 27.0% 22.5% 20.5%


4.0x 3.3x 3.0x 4.0x 4.0x 3.0x


3.5x 2.0x 2.4x 3.5x 2.6x 2.4x


47.0% 54.6% 55.0% 47.0% 48.9% 55.0%

Ratings Scales


Total Debt/

Total Capital

Pretax Interest

Coverage

FFO Interest

Coverage

FFO/Total Debt


Total Debt/

Total Capital

Pretax Interest

Coverage

FFO Interest

Coverage

FFO/Total Debt

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

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4Q03

E

1Q04

E

2Q04

E

3Q04

E

4Q04

E

EB

ITD

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50.0%

55.0%

60.0%

65.0%

To

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ap

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$0

$200

$400

$600

$800

1Q00

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Puget Energy, Inc. is an energy services holding company. All of its operations are conducted through its subsidiaries,Puget Sound Energy, a utility company and InfrastruX Group, Inc., a construction services company.

Puget Sound Energy is a public utility that furnishes electric and gas service in a territory covering approximately 6,000square miles, principally in the Puget Sound region of Washington State. At September 30, 2003, PSE had approxi-mately 972,000 electric customers, consisting of 857,000 residential, 109,000 commercial, and 3,900 industrialcustomers. At the same period, PSE had approximately 636,000 gas customers consisting of 586,000 residential, 47,500commercial, and 2,700 industrial customers. A small number of wholesale customers are covered by both the electricand gas segments.

InfrastruX is a non-regulated construction services business. InfrastruX is a national leader in providing infrastructureconstruction services to the electric and gas utility industries. InfrastruX has acquired eleven companies primarily inTexas and the north-central and eastern United States that are engaged in contracting services to gas and electricutilities.

Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsPUGET SOUND ENERGY INC PSD 74531EAA0 7.020 12/1/2027 300,000,000 1ST MORTGAGE Baa2/BBBPUGET SOUND ENERGY INC PSD 74531EAG7 7.690 2/1/2011 260,000,000 1ST MORTGAGE Baa2/BBBPUGET SOUND ENERGY INC PSD 74531EAE2 7.960 2/22/2010 225,000,000 1ST MORTGAGE Baa2/BBBPUGET SOUND ENERGY INC PSD 74531EAB8 6.740 6/15/2018 200,000,000 1ST MORTGAGE Baa2/BBBPUGET SOUND ENERGY INC PSD 745332BS4 3.363 6/1/2008 150,000,000 1ST MORTGAGE Baa2/BBBPUGET SOUND ENERGY INC PSD 74531EAD4 6.460 3/9/2009 150,000,000 1ST MORTGAGE Baa2/BBB


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$1,000$1,200$1,400$1,600$1,800

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Expen

se161

184

195

51

49

49

49

199

48

47

45

200

189

-

Cap

ital

Ex

pen

dit

ure

s331

296

247

61

52

56

55

224

67

68

69

221

259

Fre

e C

ash

Flo

w

$107

$216

$138

$38

$40

$1

$78

$157

$76

$11

($0)

$93

$164

Ba

lan

ce S

hee

t S

um

ma

ry

Cas

h$66

$36

$83

$74

$74

$98

$180

$180

$181

$144

$22

$98

$22

Tota

l A

sset

s5,1

46

5,5

57

5,3

18

5,2

54

5,1

65

5,1

88

5,3

39

5,3

39

5,3

35

5,2

84

5,1

83

5,1

88

5,1

83

Short

Ter

m D

ebt

652

397

455

292

195

204

102

102

158

167

120

204

120

Long T

erm

Deb

t1,7

83

2,1

71

2,0

54

2,0

64

2,0

64

2,0

36

2,0

22

2,0

22

1,9

43

2,0

00

2,0

00

2,0

36

2,0

00

Pre

ferr

ed S

tock

226

218

411

403

403

403

403

403

376

376

342

403

342

Tota

l D

ebt

2,6

61

2,7

86

2,9

20

2,7

59

2,6

62

2,6

43

2,5

27

2,5

27

2,4

77

2,5

43

2,4

62

2,6

43

2,4

62

Tota

l N

et D

ebt

2,5

95

2,7

50

2,8

37

2,6

85

2,5

88

2,5

45

2,3

47

2,3

47

2,2

97

2,3

99

2,4

41

2,5

45

2,4

41

Shar

ehold

ers'

Equit

y1,3

79

1,4

27

1,2

68

1,2

90

1,2

96

1,2

83

1,4

26

1,4

26

1,4

56

1,4

58

1,4

44

1,2

83

1,4

44

Tota

l C

apit

al4,0

40

4,2

13

4,1

87

4,0

49

3,9

58

3,9

27

3,9

53

3,9

53

3,9

33

4,0

01

3,9

06

3,9

27

3,9

06

Ma

rgin

An

aly

sis

Op

erat

ing

Mar

gin

37.7

%27.2

%29.0

%31.6

%39.8

%39.0

%41.7

%37.8

%40.6

%36.2

%36.7

%33.6

%39.1

%

EB

ITD

A M

arg

in29.0

%21.1

%21.4

%22.2

%29.5

%28.8

%32.3

%28.0

%31.5

%26.9

%27.1

%24.1

%29.8

%

EB

IT/E

BIT

DA

69.4

%70.8

%62.9

%62.9

%59.2

%45.3

%66.2

%59.9

%67.3

%51.4

%43.4

%55.9

%59.2

%

Cap

ex/R

even

ue

16.0

%9.0

%9.1

%9.0

%10.8

%15.2

%9.8

%10.8

%11.0

%14.6

%16.4

%10.4

%12.6

%

Ret

urn

on

Eq

uit

yN

A13.2

%7.1

%3.3

%4.6

%4.7

%7.5

%7.5

%9.0

%8.3

%8.8

%4.7

%8.8

%

Co

vera

ge/

Lev

era

ge

Tota

l D

ebt/

LT

M E

BIT

DA

4.4

4x

4.0

0x

5.0

3x

5.5

9x

5.2

2x

5.1

4x

4.3

6x

4.3

6x

3.9

9x

4.2

1x

4.0

2x

5.2

2x

4.0

2x

EB

IT/I

nte

rest

2.5

8x

2.6

8x

1.8

8x

1.8

5x

1.7

0x

0.9

8x

2.4

5x

1.7

5x

2.6

6x

1.3

8x

1.1

0x

1.4

4x

1.9

2x

EB

ITD

A/I

nte

rest

3.7

1x

3.7

9x

2.9

8x

2.9

3x

2.8

7x

2.1

6x

3.7

0x

2.9

2x

3.9

6x

2.6

9x

2.5

3x

2.5

7x

3.2

4x

EB

ITD

A-C

AP

EX

/Inte

rest

1.6

6x

2.1

8x

1.7

1x

1.7

4x

1.8

2x

1.0

2x

2.5

8x

1.7

9x

2.5

8x

1.2

3x

1.0

0x

1.4

7x

1.8

7x

Ca

pit

al

Str

uct

ure

Tota

l D

ebt/

Ass

ets

51.7

%50.1

%54.9

%52.5

%51.5

%51.0

%47.3

%47.3

%46.4

%48.1

%47.5

%51.0

%47.5

%

Tota

l D

ebt/

Cap

ital

65.9

%66.1

%69.7

%68.1

%67.3

%67.3

%63.9

%63.9

%63.0

%63.6

%63.0

%67.3

%63.0

%

Pre

ferr

ed S

tock

/Cap

ital

5.6

%5.2

%9.8

%10.0

%10.2

%10.3

%10.2

%10.2

%9.6

%9.4

%8.8

%10.3

%8.8

%

Tota

l D

ebt/

Equit

y193.0

%195.3

%230.3

%213.9

%205.5

%206.0

%177.2

%177.2

%170.2

%174.4

%170.6

%206.0

%170.6

%

ST

Deb

t/T

ota

l D

ebt

24.5

%14.3

%15.6

%10.6

%7.3

%7.7

%4.0

%4.0

%6.4

%6.5

%4.9

%7.7

%4.9

%

Liq

uid

ity

An

aly

sis

Curr

ent

Rat

io:

0.5

2x

0.8

0x

0.7

5x

0.7

6x

0.7

2x

0.7

8x

1.1

1x

1.1

1x

0.9

6x

1.0

5x

0.8

8x

0.7

8x

0.8

8x

Quic

k R

atio

:0.2

8x

0.3

8x

0.4

0x

0.5

1x

0.4

9x

0.4

9x

0.7

5x

0.7

5x

0.6

9x

0.7

2x

0.4

5x

0.4

9x

0.4

5x

Work

ing C

apit

al:

($477)

($202)

($199)

($166)

($159)

($117)

$56

$56

($23)

$23

($46)

(117)

(46)

Sourc

e: C

om

pany

Rep

ort

s, P

iper

Jaff

ray

January 2004


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N O T E S

January 2004


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VUHI: Baa1/A- (Unsecured)

Electric & Gas Credit Trend: Stable


2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity


Dividend Payout


Revenue Sources




Residential

92%

Commercial

8%

Industrial

0%


Residential

87%

Commercial

13%

Industrial

0%

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Gas Utility Electric Utility Energy Services & other

Coal

78%

Oil/Gas-Fired

22%

Electric

118,000120,000122,000124,000126,000128,000130,000132,000134,000136,000

1998 1999 2000 2001 2002

Cu

sto

mers

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%G

row

th R

ate

Gas

880,000

900,000

920,000

940,000

960,000

980,000

1998 1999 2000 2001 2002

Cu

sto

mers

0.00%

0.50%

1.00%

1.50%

2.00%

Gro

wth

Rate

Regulated

99%

Unregulated

1%

January 2004


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Electric & Gas

EBITDA Estimates

Coverage/Leverage



FFO/Total Debt

30.5% 17.2% 24.5% 30.5% 19.5% 24.5%


4.5x 4.0x 3.8x 4.5x 4.4x 3.8x


4.0x 2.7x 3.3x 4.0x 3.1x 3.3x


43.0% 55.3% 49.5% 43.0% 53.4% 49.5%

Ratings Scales


Total Debt/

Total Capital

Pretax Interest

Coverage

FFO Interest

Coverage

FFO/Total Debt


Total Debt/

Total Capital

Pretax Interest

Coverage

FFO Interest

Coverage

FFO/Total Debt

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

7.00x

8.00x

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

E

1Q04

E

2Q04

E

3Q04

E

4Q04

E

EB

ITD

A/In

tere

st

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

To

tal D

eb

t/C

ap

ital


$0

$20

$40

$60

$80

$100

$120

$140

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

E

1Q04

E

2Q04

E

3Q04

E

4Q04

E

EB

ITD

A (

millio

ns)

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

To

tal D

eb

t/E

BIT

DA


AA

A

BBB

BB

B

AA

A

BBB

BB

B

January 2004


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Vectren Corp., is an energy and applied technology holding company headquartered in Evansville, Indiana. TheCompany’s wholly owned subsidiary, Vectren Utility Holdings, Inc. (VUHI), serves as the intermediate holding companyfor its three operating public utilities: Indiana Gas Company, Inc, Southern Indiana Gas and Electric Company(SIGECO), and the Ohio operations. VUHI also has other assets that provide information technology and other servicesto the three utilities.

Indiana Gas provides natural gas distribution and transportation services to a diversified customer base in 49 ofIndiana’s 92 counties. SIGECO provides electric generation, transmission, and distribution services to 8 counties insouthwestern Indiana, including counties surrounding Evansville, and participates in the wholesale power market.SIGECO also provides natural gas distribution and transportation services to 10 counties in southwestern Indiana, in-cluding counties surrounding Evansville. The Ohio operations, owned as a tenancy in common by Vectren Energy De-livery of Ohio, Inc.(VEDO), a wholly owned subsidiary, (53 % ownership) and Indiana Gas (47 % ownership), providenatural gas distribution and transportation services to 17 counties in west central Ohio, including counties surroundingDayton.

The Company is also involved in nonregulated activities in four primary business areas: Energy Marketing and Ser-vices, Coal Mining, Utility Infrastructure Services, and Broadband. Energy Marketing and Services markets natural gasand provides energy management services, including energy performance contracting services. Coal Mining mines andsells coal to the Company’s utility operations and to other parties and generates IRS Code Section 29 investment taxcredits relating to the production of coal-based synthetic fuels. Utility Infrastructure Services provides underground con-struction and repair, facilities locating, and meter reading services. Broadband invests in broadband communication ser-vices such as analog and digital cable television, high-speed Internet and data services, and advanced local and long dis-tance phone services. In addition, the nonregulated group has other businesses that provide utility services, municipalbroadband consulting, and retail products and services and that invest in energy-related opportunities, real estate, andleveraged leases.

Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsVECTREN UTILITY HOLDINGS VVC 92239MAC5 6.625 12/1/2011 250,000,000 SENIOR NOTES Baa1/A-VECTREN UTILITY HOLDINGS VVC 92239MAD3 5.250 8/1/2013 100,000,000 SENIOR NOTES Baa1/A-VECTREN UTILITY HOLDINGS VVC 92239MAE1 5.750 8/1/2018 100,000,000 SENIOR NOTES Baa1/A-SOUTHERN INDIANA GAS & E VVC 843163AX4 6.720 8/1/2029 80,000,000 SENIOR NOTES A3/A-INDIANA GAS COMPANY VVC 454758AM5 7.450 12/16/2030 12/15/2005 50,000,000 SENIOR NOTES Aaa/AAA


$0

$200

$400

$600

$800

$1,000

$1,200

2004 2005 2006 2007 Beyond

(in

mill

ion

s)

0

500

1,000

1,500

2,000

2,500

4Q02 2Q03 4Q03E 2Q04E 4Q04E

Cap

ital

izat

ion

(in

mill

ion

s)



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January 2004


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($ i

n m

illi

ons)

Year

ended D

ecem

ber

31

Inco

me

Sta

tem

ent

Su

mm

ary

1999

2000

2001

1Q

02

2Q

02

3Q

02

4Q

02

2002

1Q

03

2Q

03

3Q

03

LT

M 3

Q02

LT

M 3

Q03

Rev

enues

$1,0

68

$1,6

33

$2,0

82

$630

$380

$304

$490

$1,8

04

$663

$283

$279

$1,7

23

$1,7

14

EB

ITD

A248

279

274

112

54

62

103

331

126

50

51

303

330

EB

IT161

173

150

83

26

32

71

211

95

18

18

186

202

Net

Inco

me

92

72

53

46

13

14

42

114

56

47

92

110

Fre

e C

ash

Flo

w S

um

mary

EB

ITD

A:

$248

$279

$274

$112

$54

$62

$103

$331

$126

$50

$51

$303

$330

-

Inte

rest

Expen

se44

56

83

20

20

20

20

79

19

18

20

79

76

-

Div

iden

ds

57

60

70

18

18

18

19

72

19

19

20

72

76

-

Cap

ital

Exp.

136

164

235

40

53

57

69

219

44

56

51

243

219

Fre

e C

ash F

low

11

(2)

(114)

34

(36)

(32)

(4)

(39)

44

(43)

(40)

(91)

(42)

Bala

nce

Sh

eet

Su

mm

ary

Cas

h &

Short

Ter

m I

nves

t.$18

$15

$25

$20

$21

$19

$25

$25

$29

$16

$12

$19

$12

Tota

l A

sset

s1,9

80

2,9

26

2,8

79

2,7

77

2,7

20

2,7

68

2,9

27

2,9

27

2,8

95

2,8

20

2,9

32

2,7

68

2,9

32

Short

Ter

m D

ebt

262

814

396

273

278

331

466

466

383

391

211

331

211

Long T

erm

Deb

t487

632

1,0

14

1,0

13

1,0

03

1,0

03

954

954

981

981

1,0

92

1,0

03

1,0

92

Pre

ferr

ed S

tock

19

11

11

00

00

00

00

Tota

l D

ebt

768

1,4

47

1,4

11

1,2

87

1,2

83

1,3

35

1,4

20

1,4

20

1,3

64

1,3

72

1,3

03

1,3

35

1,3

03

Tota

l N

et D

ebt

750

1,4

32

1,3

86

1,2

67

1,2

61

1,3

16

1,3

95

1,3

95

1,3

35

1,3

55

1,2

91

1,3

16

1,2

91

Shar

ehold

ers'

Equit

y711

749

841

875

874

867

872

872

918

899

1,0

54

867

1,0

54

Tota

l C

apit

al1,4

79

2,1

96

2,2

51

2,1

62

2,1

57

2,2

02

2,2

92

2,2

92

2,2

82

2,2

71

2,3

57

2,2

02

2,3

57

Marg

in A

naly

sis

Oper

atin

g P

rofi

t M

argin

26.0

%19.4

%15.7

%20.7

%17.0

%23.6

%23.8

%21.2

%22.4

%21.5

%21.6

%20.6

%22.5

%

EB

ITD

A M

argin

23.2

%17.1

%13.2

%17.8

%14.3

%20.3

%21.0

%18.3

%19.0

%17.6

%18.3

%17.6

%19.2

%

EB

IT/E

BIT

DA

64.9

%62.0

%54.7

%74.1

%47.1

%50.9

%69.4

%63.9

%75.1

%35.1

%35.6

%61.5

%61.1

%

Cap

ex/R

even

ue

12.7

%10.1

%11.3

%6.4

%13.9

%18.7

%-1

4.0

%12.1

%6.7

%19.7

%18.2

%14.1

%12.8

%

Ret

urn

on E

quit

yN

/A9.8

7%

6.6

3%

6.0

6%

9.7

5%

10.9

5%

13.3

1%

13.3

1%

13.8

4%

13.0

5%

11.4

0%

10.9

5%

11.4

0%

Cove

rage/

Lev

erage

Tota

l D

ebt/

LT

M E

BIT

DA

3.1

0x

5.2

0x

5.1

5x

4.6

0x

4.3

6x

4.4

1x

4.2

9x

4.2

9x

3.9

5x

4.0

3x

3.9

5x

4.4

1x

3.9

5x

EB

ITD

A/I

nte

rest

5.6

3x

4.9

4x

3.2

9x

5.6

5x

2.7

8x

3.1

7x

5.2

2x

4.2

2x

6.6

7x

2.7

4x

2.6

1x

3.8

5x

4.3

2x

EB

ITD

A-C

AP

EX

/Inte

rest

2.5

4x

2.0

2x

0.4

6x

3.6

2x

0.0

7x

0.2

6x

1.7

4x

1.4

3x

4.3

3x

-0.3

2x

0.0

2x

0.7

5x

1.4

5x

EB

IT/I

nte

rest

3.6

5x

3.0

6x

1.8

0x

4.1

9x

1.3

1x

1.6

2x

3.6

2x

2.6

9x

5.0

1x

0.9

6x

0.9

3x

2.3

6x

2.6

4x

Capit

al

Str

uct

ure

Tota

l D

ebt/

Tota

l C

apit

al50.6

%65.8

%62.6

%59.5

%59.4

%60.6

%62.0

%62.0

%59.8

%60.4

%55.3

%60.6

%55.3

%

Pre

ferr

ed S

tock

/Cap

ital

1.3

%0.1

%0.0

%0.1

%0.1

%0.0

%0.0

%0.0

%0.0

%0.0

%0.0

%0.0

%0.0

%

Tota

l D

ebt/

Equit

y108.1

%193.3

%167.8

%147.1

%146.8

%154.0

%162.9

%162.9

%148.5

%152.5

%123.5

%154.0

%123.5

%

ST

Deb

t/T

ota

l D

ebt

34.1

%56.2

%28.1

%21.2

%21.7

%24.8

%32.8

%32.8

%28.1

%28.5

%16.2

%24.8

%16.2

%

Liq

uid

ity

An

aly

sis

Curr

ent

Rat

io:

0.6

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A3/BBB+ (Unsecured)

Electric & Gas Credit Trend: Declining


2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity


Dividend Payout


Revenue Sources




Residential

91%

Commercial &

Industrial

9%

Other

0%


Residential90%

Commercial & Industrial

10%

Other0%

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Utility energy Non-utility energy Manufacturing Other

Electric

960,000

980,000

1,000,000

1,020,000

1,040,000

1,060,000

1,080,000

1998 1999 2000 2001 2002

Cu

sto

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rs

0.00%

1.00%

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3.00%

4.00%

Gro

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Ra

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Gas

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900,000

920,000

940,000

960,000

980,000

1998 1999 2000 2001 2002

Cu

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0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Gro

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Energy

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January 2004


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EBITDA Estimates

Coverage/Leverage



FFO/Total Debt

27.0% 18.6% 20.5% 27.0% 16.8% 20.5%


4.0x 4.5x 3.0x 4.0x 3.9x 3.0x


3.5x 2.7x 2.4x 3.5x 2.8x 2.4x


47.0% 61.8% 55.0% 47.0% 60.7% 55.0%

Ratings Scales


Total Debt/

Total Capital

FFO/Total Debt

FFO Interest

Coverage

Pretax Interest

Coverage


Total Debt/

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FFO/Total Debt

FFO Interest

Coverage

Pretax Interest

Coverage

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Wisconsin Energy Corporation is a diversified holding company, which conducts it operations primarily in three operat-ing segments: a utility energy segment, a non-utility energy segment and a manufacturing segment.

The utility energy segment consists of: Wisconsin Electric, which serves electric customers in Wisconsin and the UpperPeninsula of Michigan, natural gas customers in Wisconsin and steam customers in metro Milwaukee, Wisconsin;Wisconsin Gas, which serves natural gas customers in Wisconsin and water customers in suburban Milwaukee,Wisconsin; and Edison Sault Electric Company, which serves electric customers in the Upper Peninsula of Michigan.Wisconsin Electric and Wisconsin Gas operate under the trade name “We Energies”.

The non-utility energy segment consists of: W.E. Power, LLC which is designing, constructing and will own the newgenerating capacity included in the Company’s Power the Future strategy; and Wisvest Corp., which ownsapproximately $231 million of non-utility energy assets.

The manufacturing segment consists of WICOR Industries, an intermediary holding company, and its three primary sub-sidiaries, Sta-Rite Industries, Inc., SHURflo Pump Manufacturing Co. and Hypro Corporation, which are manufacturersof pumps, water treatment products and fluid handling equipment with manufacturing, sales and distribution facilities inthe United States and several other countries.

Other non-utility operating subsidiaries of Wisconsin Energy include primarily Minergy Corp., which has approxi-mately $62 million of assets and develops and markets renewable energy and recycling technologies, and Wispark LLC,which has approximately $160 million of assets and develops and invests in real estate.

Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsWISCONSIN ENERGY CORP WEC 976657AB2 5.875 4/1/2006 550,000,000 SENIOR NOTES A3/BBB+WISCONSIN ENERGY CORP WEC 976657AC0 6.500 4/1/2011 450,000,000 SENIOR NOTES A3/BBB+WISCONSIN ELECTRIC POWER WEC 976656BW7 5.625 5/15/2033 335,000,000 SENIOR NOTES A1/A-WISCONSIN ELECTRIC POWER WEC 976656BX5 4.500 5/15/2013 300,000,000 SENIOR NOTES A1/A-WISCONSIN ENERGY CORP WEC 976657AD8 5.500 12/1/2008 300,000,000 SENIOR NOTES A3/BBB+


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Baa3/BBB- (Unsecured)



2002 6M03 9M03 2003E 6M04E 2004E

EBITDA/Interest




Return on Equity

High Margin 11.4% 15.2% 11.0%Expected -38.5% -43.1% -1.2% 9.5% 12.0% 10.1%Low Margin 8.1% 9.6% 9.1%

Dividend Payout

High Margin 54.1% 42.5% 57.6%Expected n/a n/a n/a 65.5% 54.6% 63.6%Low Margin 77.6% 70.1% 73.7%

Revenue Sources


System Generation - 15,246 MW Customer Growth


Residential

85%

Public

Authorities &

Other

3%

Commercial &

Industrial

12%


Residential

91%

Commercial &

Industrial

9%

0%

20%

40%

60%

80%

100%

2001 2002 6M03 3Q03

Electric utility revenue Natural gas revenue

Nonregulated & other revenue Trading margin

Electric

3,050,000

3,100,000

3,150,000

3,200,000

3,250,000

1999 2000 2001 2002

Cu

sto

me

rs

0.00%

0.50%

1.00%

1.50%

2.00%G

row

th R

ate

Gas

1,500,000

1,550,000

1,600,000

1,650,000

1,700,000

1,750,000

1999 2000 2001 2002

Cu

sto

me

rs

2.00%

2.50%

3.00%

3.50%

4.00%

Gro

wth

Ra

teNSP-MN

33%

NSP-WI

9%

PSCo

43%

SPS

15%

Coal

52%

Natural Gas

30%

Nuclear

11%

Hydro & Other

7%

January 2004


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EBITDA Estimates

Coverage/Leverage

Ratings Ranges S&P Corporate Credit Rating: BBB


FFO/Total Debt

24.5% 10.5% 17.5% 24.5% 13.1% 17.5%


3.8x 2.9x 2.7x 3.8x 4.0x 2.7x


3.3x 1.7x 2.2x 3.3x 2.7x 2.2x


49.5% 58.0% 57.0% 49.5% 56.8% 57.0%

Ratings Scales


FFO/Total Debt

Total Debt/

Total Capital

FFO Interest

Coverage

Pretax Interest

Coverage


FFO/Total Debt

Total Debt/

Total Capital

FFO Interest

Coverage

Pretax Interest

Coverage

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

E1Q

04E

2Q04

E

3Q04

E4Q

04E

EB

ITD

A/In

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st

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

To

tal D

eb

t/C

ap

ital


$0

$200

$400

$600

$800

$1,000

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

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1Q03

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3Q03

4Q03

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millio

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AA

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BBB

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January 2004


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Xcel Energy is a public utility holding company for five wholly owned subsidiaries that serve electric and natural gascustomers in 11 states. Their service territories include portions of Colorado, Kansas, Michigan, Minnesota, NewMexico, North Dakota, Oklahoma, South Dakota, Texas, Wisconsin and Wyoming.

Northern States Power Co., Minnesota (NSP-Minnesota) is an operating utility engaged in the generation, transmission,and distribution of electricity and the transportation, storage and distribution of natural gas. NSP-Minnesota performsoperations in Minnesota, North Dakota and South Dakota. NSP-Minnesota provides retail electricity utility service toapproximately 1.3 million customers and gas utility service to approximately 430,000 customers.

Northern States Power Co., Wisconsin (NSP-Wisconsin) is an operating utility engaged in the generation, transmission,and distribution of electricity to approximately 230,000 retail customers in northwestern Wisconsin and in the westernportion of the Upper Peninsula of Michigan. NSP-Wisconsin is also engaged in the distribution and sale of natural gasto approximately 90,000 customers in the same service territory. NSP-Wisconsin also own three direct subsidiaries,Chippewa and Flambeau Improvement Co., which operate hydro reserves; Clearwater Investments Inc., which owns in-terests in affordable housing; and NSP Lands, Inc., which holds real estate.

Public Service Colorado (PSCo) is an operating utility engaged primarily in the generation, purchase, transmission, dis-tribution, and sale of electricity and the purchase, transportation, distribution, and sale of natural gas. PSCo serves ap-proximately 1.3 million electric customers and approximately 1.2 million natural gas customers in Colorado. PSCoalso owns or holds a controlling interest in a number of subsidiaries.

Southwestern Public Service (SPS) is an operating utility engaged primarily in the generation, transmission, distribution,and sale of electricity, which serves approximately 390,000 electric customers in portions of Texas, New Mexico, Okla-homa, and Kansas. Wholesale customers account for approximately 36 percent of the total kilowatt-hour sales.


$0

$2,000

$4,000

$6,000

$8,000

2004 2005 2006 2007 Beyond

(in

mill

ion

s)

0

4,000

8,000

12,000

16,000

4Q02 2Q03 4Q03E 2Q04E 4Q04ECap

ital

izat

ion

(in

mil

lio

ns)



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Issuer Ticker Cusip Coupon Maturity Call Date Amount Issued Collateral RatingsXCEL ENERGY INC XEL 98388MAA5 7.000 12/1/2010 600,000,000 SENIOR NOTES Baa3*+/BBB- *+PUBLIC SERV CO OF COLO XEL 744448BU4 7.875 10/1/2012 600,000,000 COLLATERAL TRUST Baa1*+/BBB+*+SOUTHWESTERN PUB SERVICE XEL 845743BG7 5.125 11/1/2006 500,000,000 SENIOR NOTES Baa1*+/BBB+*+NORTHERN STATE PWR-MINN XEL 665772BW8 8.000 8/28/2012 450,000,000 1ST MORTGAGE A3*+/BBB+*+PUBLIC SERV CO OF COLO XEL 744448BW0 4.375 10/1/2008 300,000,000 COLLATERAL TRUST Baa1*+/BBB+*+

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($ i

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Year

ended D

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31

Inco

me

Sta

tem

ent

Su

mm

ary

1999

2000

2001

1Q

02

2Q

02

3Q

02

4Q

02

2002

1Q

03

2Q

03

3Q

03

LT

M 3

Q02

LT

M 3

Q03

Rev

enue

$2,6

78

$3,0

00

$3,2

48

$735

$657

$752

$739

$2,8

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EB

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748

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157

174

259

166

756

194

145

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424

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72

86

169

74

402

103

45

155

411

378

Net

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159

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33

42

83

42

200

44

20

80

192

186

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$157

$174

$259

$166

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-

Inte

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101

22

21

35

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115

36

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Div

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167

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51

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54

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Cap

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Expen

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113

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($26)

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$39

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$408

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$194

$49

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Tota

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5,3

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5,4

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5,4

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5,4

27

5,8

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5,8

11

5,8

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6,5

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6,4

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6,6

95

5,8

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6,6

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Short

Ter

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676

663

534

528

572

332

227

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119

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Long T

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1,0

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1,0

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1,5

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1,5

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1,5

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1,5

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1,5

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1,7

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Pre

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200

200

200

200

200

200

200

200

200

200

200

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Tota

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1,9

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1,7

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1,7

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1,8

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1,9

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1,9

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1,8

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1,9

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Tota

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1,7

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1,6

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1,7

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1,7

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Tota

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3,5

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3,8

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3,7

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3,7

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3,6

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3,6

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3,7

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Marg

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Oper

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33.7

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EB

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EB

IT/E

BIT

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55.6

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%65.5

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Cap

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13.3

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Ret

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Cove

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Tota

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Str

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Tota

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Tota

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January 2004


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Rep

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January 2004


� � � � � � �

January 2004


Source: Piper Jaffray, Standard & Poor’s

Exhibit 1

��

Exhibit 2

� ��

AVA

MDU

PSD

VVC

WEC

XEL

BKH

EE

GXP

IDA OGE

ENRNQ

3Q03

4Q04

E

AAA AAA-AA+ B+BBBBB-BBB+

B+

BB

BBB-

BBB+

A

AA-

AA+

AAA

Declining Rating

Improving Rating

BB-

BB-

BB+

BB+BBB

BBB

A-

A-A+

A+

AA

AA

Company TickerPiper Jaffray Credit Trend

S&P Corporate Credit Rating

S&P Outlook

Avista AVA Improving BB+ StableBlack Hills BKH Declining BBB- Negative El Paso Electric EE Improving BBB- StableGreat Plains Energy GXP Declining BBB StableIDACORP IDA Stable A- StableMDU Resources MDU Declining A- Negative OGE Energy OGE Stable BBB+ StablePortland General Electric ENRNQ Developing BBB+ DevelopingPuget Energy PSD Improving BBB- PositiveVectren VVC Stable A- Negative Wisconsin Energy WEC Declining BBB+ StableXcel Energy XEL Improving BBB CreditWatch Positive

January 2004


Exhibit 3

��

Source: Piper Jaffray

Exhibit 4

� ��

Source: Company Reports, Piper Jaffray*Coefficient of Variation applied to 2004E EBITDA/Interest Expense. This ratio is a measure of volatility and is calculated as follows: Coefficient of Variation = Standard Deviation / Mean (applied to high, expected, and low 2004E EBITDA/Interest Expense)

Coefficient of Variation*

Dividend Payout

Total Debt

2003E 2004E 2004E 2003E 2004E 2003E 2004E 2004E 3Q03AAvista AVA 2.72x 2.68x 1.95% 4.45x 4.56x 6.49% 6.75% 52.6% $1,132Black Hills BKH 3.95x 3.64x 4.16% 3.68x 3.85x 10.08% 9.72% 64.2% $771El Paso Electric EE 3.96x 4.41x 1.21% 3.43x 3.14x 12.67% 7.02% 0.0% $630Great Plains Energy GXP 6.15x 5.57x 10.54% 2.83x 3.20x 17.60% 14.42% 69.1% $1,355IDACORP IDA 3.00x 3.87x 1.38% 5.65x 4.39x 5.78% 8.67% 138.4% $1,100MDU Resources MDU 9.28x 8.46x 6.30% 2.19x 2.28x 12.77% 12.51% 42.9% $1,012OGE Energy OGE 4.95x 4.66x 14.55% 3.37x 3.53x 11.89% 11.15% 79.1% $1,599Portland Gen Elec ENRNQ 5.04x 5.11x 0.34% 2.64x 2.55x 5.69% 4.11% 0.0% $1,046Puget Energy PSD 3.40x 4.16x 0.83% 3.80x 3.41x 8.28% 9.92% 69.6% $2,623Vectren VVC 4.32x 4.91x 0.08% 4.04x 3.37x 11.24% 11.10% 70.7% $1,303Wisconsin Energy WEC 4.15x 4.45x 1.56% 4.85x 4.56x 11.07% 11.57% 38.1% $4,302Xcel Energy XEL 4.13x 4.44x 1.31% 3.89x 3.70x 9.52% 10.12% 65.5% $7,006Universe Average 4.59x 4.70x 3.74x 3.55x 10.3% 9.8% 57.5% $1,990

EBITDA/Interest Exp Total Debt/EBITDA Return on EquityCompany

Variable Upgrade Downgrade Upgrade Downgrade Upgrade Downgrade

Black Hills Puget Energy Avista Vectren Great Plainsn/a Great Plains MDU Resources Great Plains Portland General IDACORP

El Paso Elec OGEPortland General

Black Hills Puget Energy Avista VectrenInterest Expense n/a Great Plains MDU Resources Great Plains n/a

El Paso Elec OGEPortland General

Portland General Great PlainsTotal Debt n/a n/a n/a n/a El Paso Elec

Pretax Interest Coverage FFO Interest Coverage FFO/Total Debt

Income from Continuing Ops

January 2004


Exhibit 5

��

��

��

Source: Company Reports, Piper Jaffray

TickerFFO/Total

DebtRank


RankPretax Interest

CoverageRank


Rank

AVA 11.7% 11 2.42x 12 1.75x 10 53.9% 5BKH 29.8% 2 5.31x 4 2.83x 3 52.3% 4EE 20.5% 7 3.81x 9 1.94x 8 55.7% 9GXP 25.3% 3 5.31x 3 4.03x 2 49.5% 3IDA 24.8% 4 5.72x 2 1.35x 12 54.6% 7MDU 45.0% 1 9.17x 1 6.57x 1 41.3% 1OGE 24.2% 5 5.19x 5 2.61x 6 57.2% 10ENRNQ 23.9% 6 4.22x 7 1.81x 9 46.9% 2PSD 18.1% 9 3.31x 10 2.02x 7 54.6% 6VVC 17.2% 10 3.97x 8 2.66x 5 55.3% 8WEC 18.6% 8 4.52x 6 2.69x 4 61.8% 12XEL 10.5% 12 2.93x 11 1.71x 11 58.0% 11AVG 22.5% 4.66x 2.66x 53.4%

TickerFFO/Total

DebtRank


RankPretax Interest

CoverageRank


Rank

AVA 13.1% 12 2.39x 12 1.78x 12 52.7% 7BKH 18.4% 7 3.37x 11 2.60x 8 56.4% 9EE 19.8% 5 3.98x 7 2.28x 10 51.8% 5GXP 24.2% 3 4.70x 3 3.72x 2 48.8% 3IDA 15.2% 10 3.63x 10 2.64x 7 58.4% 11MDU 38.0% 1 7.32x 1 5.28x 1 44.1% 1OGE 18.0% 8 4.19x 6 2.98x 4 58.2% 10ENRNQ 26.3% 2 4.73x 2 2.10x 11 44.1% 2PSD 21.6% 4 3.79x 9 2.46x 9 51.2% 4VVC 19.5% 6 4.40x 4 3.10x 3 53.4% 8WEC 16.8% 9 3.86x 8 2.83x 6 60.7% 12XEL 13.6% 11 4.26x 5 2.88x 5 52.6% 6AVG 20.4% 4.22x 2.89x 52.7%

January 2004


Exhibit 6

��

(Millions)

Exhibit 7

��



Company TickerRegulated Generation

Capacity (MW)Avista AVA 1,511Black Hills BKH 435El Paso Electric EE 1,500Great Plains Energy GXP 4,043IDACORP IDA 2,912MDU Resources MDU 393OGE Energy OGE 5,696Portland Gen Elec ENRNQ 1,945Puget Energy PSD 1,801Vectren VVC 1,528Wisconsin Energy WEC 5,825Xcel Energy XEL 15,246

Company Ticker LTM 3Q03 2004EAvista AVA $25 $21Black Hills BKH $6 ($167)El Paso Electric EE $67 $66Great Plains Energy GXP $160 $67IDACORP IDA ($145) ($54)MDU Resources MDU ($87) ($42)OGE Energy OGE $112 $64Portland Gen Elec ENRNQ $111 $36Puget Energy PSD $128 $107Vectren VVC ($42) ($44)Wisconsin Energy WEC ($70) ($32)Xcel Energy XEL $114 ($513)

January 2004


� � � � � � � �

January 2004


��

As discussed in our ratings analysis methodology, our method of forecasting the potential ratingschanges of Standard & Poor’s depends on simulating their methodology. In the interest of making theprocess transparent to investors we feel it will be helpful to give a brief synopsis of Standard & Poor’smethodology as we interpret it.

Standard & Poor’s focuses its ratings of power companies on two components: business profile (qualita-tive analysis of risk) and financial profile (quantitative analysis of risk). The analysis of the businessrisks makes the measurement of the financial metrics more meaningful in comparing credits. For ex-ample, the average regulated utility carries less business risk than the average Independent Power Pro-ducer (IPP). This is due to the more consistent and predictable cash flows inherent in operating a regu-lated utility. Therefore, the margin of financial safety an investor should require for a fully regulatedutility should be less than an investor should require for an IPP with a higher risk profile than the regu-lated utility. Comparing the financial metrics against differing business profiles allows two fundamen-tally different credits to be viewed on the same rating scale.

Standard & Poor’s assessment of business profile risk involves the analysis of:• Regulation• Markets• Operations• Competitiveness• Management

Each company is ranked on a scale of 1 to 10 (1 is low risk, 10 is high risk). The business profile ratingof each company represented in the book is shown below.

Using the business profile rating, each financial metric is measured using the Standard & Poor’s Finan-cial Targets (found in the appendix).

Company TickerBusiness

ProfileAvista Corp AVA 6Black Hills Corp BKH 7El Paso Electric EE 6Great Plains Energy GXP 6IDACORP IDA 4MDU Resources MDU 7OGE Energy OGE 5Portland General Electric ENRNQ 4Puget Energy PSD 5Vectren Corp VVC 4Wisconsin Energy WEC 5Xcel Energy XEL 4

Source: Standard & Poor’s

January 2004


��

��

On December 23, 2003, Standard & Poor’s Ratings Services lowered its corporate creditrating on FirstEnergy Corp to BBB- from BBB. The downgrade did not occur as a result ofweakening coverage or increasing leverage, but followed a revision in S&P’s assessment ofthe Company’s consolidated business risk profile and a change from 5 to 6 on the businessposition scale (1 equals low risk; 10 equals high risk). Standard & Poor’s is concerned theexisting operational and management challenges facing the company will more closelyrepresent a business risk profile of 6, where the rating criteria are more stringent.

As discussed in the “Standard & Poor’s Methodology: Business Profile” section of the ap-pendix, the change in business position adjusts the scale the financial profile is measuredagainst (see “Standard & Poor’s Financial Targets”). Because FirstEnergy has beendeemed by the Standard & Poor’s analyst to be a more risky credit than previouslythought, a healthier financial profile is required to receive the BBB corporate credit ratingFirstEnergy formerly held. A graphical representation of the rating under each profile isshown below.

The revision to the business position and subsequent ratings downgrade of FirstEnergyhighlights a potential change to the financial profile that is not captured in our graphicalrepresentation of the financial profile. Increases in operational or regulatory risk, as seenby FirstEnergy, or decisions by management to grow unregulated businesses are the mosttypical causes of increasing business risk and changing business profile of a company.Though the financial profile graphs do not take changing credit quality of earnings intoaccount, the Piper Jaffray credit trend analysis that appears on the first page of each com-pany report accounts for both the financial performance and changing business risk of eachcompany through our qualitative analysis.

S&P Financial Profile Proxy for FirstEnergy

under changing Business Profiles

FFO/Total Debt




Business Position 5

Business Position 6

Pretax coverage drops from a BBB-

to BB+ as the business position is

revised from 5 to 6.

FFO coverage metric moves from the top

of the BB+ range in business position 5 to

the low end of the BB+ range in business

position 6.

AA

A

BBB

BB

B

Adjusting the business position from 5

to 6 moves the FFO/TD metric from

safely within the B+ range to the low

end of the B+ range.In business position 5 the

TD/TC is rated BB-, however,

the move to business position 6

changes the rating to B+

January 2004


��

FFO / TOTAL DEBT

Business Position AA A BBB BB B

1 20.0 16.5 16.5 12.5 12.5 7.0 < 7.0 - -

2 25.0 21.0 21.0 16.0 16.0 10.5 < 10.5 - -

3 31.5 26.0 26.0 20.0 20.0 14.0 14.0 9.5 9.5 4.0

4 36.5 30.5 30.5 24.5 24.5 17.5 17.5 12.0 12.0 6.0

5 40.0 33.0 33.0 27.0 27.0 20.5 20.5 15.0 15.0 7.5

6 47.0 39.0 39.0 31.0 31.0 22.0 22.0 16.0 16.0 8.5

7 56.0 47.0 47.0 36.5 36.5 24.5 24.5 17.0 17.0 9.5

8 66.0 55.0 55.0 42.5 42.5 27.5 27.5 18.5 18.5 11.0

9 - - 64.5 49.5 49.5 32.0 32.0 22.0 22.0 12.5

10 - - 78.0 60.5 60.5 39.0 39.0 28.0 28.0 17.5

FFO INTEREST COVERAGE


1 3.1 2.6 2.6 1.9 1.9 0.9 < 0.9 - -

2 3.9 3.3 3.3 2.5 2.5 1.5 < 1.5 - -

3 4.5 3.9 3.9 3.1 3.1 2.1 2.1 1.3 1.3 0.5

4 5.1 4.5 4.5 3.8 3.8 2.7 2.7 1.8 1.8 0.9

5 5.4 4.8 4.8 4.0 4.0 3.0 3.0 2.1 2.1 1.1

6 6.6 5.7 5.7 4.5 4.5 3.1 3.1 2.2 2.2 1.2

7 8.4 7.0 7.0 5.1 5.1 3.3 3.3 2.3 2.3 1.3

8 10.2 8.3 8.3 5.9 5.9 3.5 3.5 2.4 2.4 1.5

9 - - 9.5 7.1 7.1 4.3 4.3 2.9 2.9 1.8

10 - - 11.3 8.6 8.6 5.3 5.3 3.6 3.6 2.3

PRETAX INTEREST COVERAGE


1 2.8 2.4 2.4 1.8 1.8 0.8 < 0.8 - -

2 3.4 2.9 2.9 2.3 2.3 1.3 < 1.3 - -

3 4.0 3.4 3.4 2.8 2.8 1.8 1.8 1.1 1.1 0.3

4 4.6 4.0 4.0 3.3 3.3 2.2 2.2 1.3 1.3 0.5

5 5.0 4.3 4.3 3.5 3.5 2.4 2.4 1.5 1.5 0.6

6 6.2 5.2 5.2 4.0 4.0 2.6 2.6 1.6 1.6 0.7

7 8.0 6.5 6.5 4.7 4.7 2.8 2.8 1.8 1.8 0.9

8 9.9 8.0 8.0 5.5 5.5 3.0 3.0 2.0 2.0 1.1

9 - - 9.1 6.6 6.6 3.7 3.7 2.5 2.5 1.4

10 - - 11.1 8.4 8.4 5.0 5.0 3.3 3.3 1.8

TOTAL DEBT / TOTAL CAPITAL


1 50.5 55.0 55.0 60.5 60.5 67.5 > 67.5 - -

2 46.5 51.0 51.0 56.5 56.5 63.5 > 63.5 - -

3 42.0 47.5 47.5 53.0 53.0 61.0 61.0 67.0 67.0 74.0

4 37.5 43.0 43.0 49.5 49.5 57.0 57.0 64.0 64.0 72.5

5 36.0 41.5 41.5 47.0 47.0 55.0 55.0 62.5 62.5 71.0

6 32.5 39.5 39.5 46.0 46.0 53.5 53.5 60.5 60.5 69.0

7 30.5 37.5 37.5 45.0 45.0 52.5 52.5 59.5 59.5 68.0

8 28.0 35.0 35.0 43.0 43.0 51.5 51.5 58.0 58.0 66.0

9 - - 30.0 39.0 39.0 47.5 47.5 54.0 54.0 61.5

10 - - 24.0 33.0 33.0 40.5 40.5 46.0 46.0 53.0

Source: Standard & Poor's

January 2004


��

��

Pretax interest coverage Numerator Net income from continuing operationsAdjusted + Income taxes

+ Income adjustments (pretax)+ Subsidiary pfd & pref dividends+ Interest expense (net)+ Minority interest- AFDC - equity+ Interest on OBS debt

Denominator Interest expense (net)+ AFDC - debt+ Interest on OBS debt

Preferred dividend coverage Numerator Net income (continuing operations)Adjusted + Income taxes

+ Income adjustments+ Subsidiary pfd & pref dividends+ Interest expense (net)+ Minority interest- AFDC - equity+ Interest on OBS debt

Denominator Interest expense (net)+ AFDC - debt+ Preferred & preference stock dividends / (1-.35)+ Interest on OBS debt

ROE (nominal) Numerator Net income from continuing operations- Preferred & preference stock dividends- AFDC - debt- AFDC - equity

Denominator* Common equity+ Minority interest

*Avg. for two years

AFDC / common earnings Numerator AFDC - debt+ AFDC - equity

Denominator Net income (continuing operations)- Preferred & preference dividends

Common dividend payout Numerator Common dividends

Denominator Net income (continuing operations)- Preferred & preference dividends

January 2004


Short-term debt / capital Numerator Notes payable+ Current maturities+ Current capitalized lease obligation

Denominator Notes payable+ Current maturities+ Current capitalized lease obligation+ Long term debt+ Capitalized lease obligations+ Minority interest+ Total preferred & preference stock+ Common equity

Long-term debt / capital Numerator Long term debt+ Capitalized lease obligations


Preferred stock / capital Numerator Total preferred & preference stock

Denominator Notes payable+ Current maturities (LTD & pfd)+ Current capitalized lease obligation+ Long term debt+ Capitalized lease obligations+ Minority interest+ Total preferred & preference stock+ Common equity

Common equity / capital Numerator Common equity+ Minority interest


��

��

January 2004


��

��

Total debt / capital Numerator Notes payableAdjusted + Current maturities

+ Current capitalized lease oblig+ Long term debt+ Capitalized lease obligations+ Total OBS debt

Denominator Notes payable+ Current maturities (LTD & pfd)+ Current capitalized lease oblig+ Long term debt+ Capitalized lease obligations+ Minority interest+ Total preferred & pref stock+ Common equity+ Total OBS debt

Capex / average capital Numerator Capital expenditures (net)

Denominator* Notes payable+ Current maturities (LTD & pfd)+ Current capitalized lease oblig+ Long term debt+ Capitalized lease obligations+ Minority interest+ Total preferred & preference stock+ Common equity

*Avg. for two years

FFO interest coverage Numerator Funds from operations (FFO)Adjusted + Cash interest paid

+ Interest on OBS debt


FFO / average total debt Numerator Funds from operations (FFO)Adjusted + Depreciation Adjustment for Operating Leases

Denominator* Notes payable+ Current maturities+ Current capitalized lease obligation+ Long term debt+ Capitalized lease obligations+ Total OBS debt

*Avg. for two years

January 2004


��

��

NCF / capex Numerator Funds from operations (FFO)- Cash common dividends- Cash preferred & preference dividends

Denominator Capital expenditure (net)

EBITDA interest coverage Numerator Net income (continuing operations)Adjusted + Income taxes

+ Income adjustments (pretax)+ Subsidiary pfd & pref dividends+ Interest expense (net)+ Minority interest- AFDC - equity+ Interest on OBS debt+ Depreciation, depletion & amort+ Depreciation adjustment for operating leases


Operating income / sales Numerator Operating revenues/net sales- Cost of goods sold- Maintenance expenses- Selling, general & admin.- Taxes other than income- Other operating expenses

Denominator Operating revenues/net sales

Average debt / EBITDA Numerator* Notes payableAdjusted + Current maturities

+ Current capitalized lease obligation+ Long term debt+ Capitalized lease obligations+ Total OBS debt

Denominator Net income (continuing operations)+ Income taxes+ Income adjustments (net)+ Subsidiary pfd dividends+ Interest expense (net)+ Minority interest- AFDC - equity+ Interest on OBS debt+ Depreciation, depletion & amort

*Avg. for two years

Depreciation reserve ratio Numerator Accumulated depreciation

Denominator Gross plant (PP&E)

January 2004


N O T E S

January 2004


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January 2004


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�� =�� #�� 8�� 1�� # �� %�� 9�� #�� <�� !��>�� $�� "��

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Market Maker (#)

Beneficial Interest (^)

Underwriter (@)

Investment Banking

Services (>)

Employee/Director (~)

1% Firm Ownership (+)

Avista � � � � � �

Black Hills � � � � � �

El Paso Electric � � � � � �

Great Plains Energy � � � � � �

IDACORP � � � � � �

MDU Resources � � � � � �

OGE Energy � � � � � �

Portland General Electric � � � � � �

Puget Energy � � � � � �

Vectren � � � � � �

Wisconsin Energy � � � � � �

Xcel Energy � � � � � �

January 2004


N O T E S

January 2004


��

��

U.S. Bancorp Center800 Nicollet MallMinneapolis, MN 55402-7020

�� !612 303-2210Head of Fixed Income

"�#�� $��612 303-1259Head of Taxable Originations

Utility Research

��%� �� &�� !612 [email protected]

&��'� "�� 612 [email protected]

(�%�� )�� 612 303-5512Head of Investment Research

&�� *�� 612 303-1145Head of Trading

��+�� $�� (��303 820-5870Head of Sales

Utility Trading

�� *��#��,��866 557-4615

�� -�� .��612 303-6600

Fixed Income Research

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(c)2004 Piper Jaffray Inc., 800 Nicollet Mall, Suite 800, Minneapolis, Minnesota 55402-7020 03-0408

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