prefiled direct testimony of robert b. hevert...1 2 3 q. 4 5 a. 6 7 8 q. 9 a. 10 11 12 13 q. 14 a....

Department of Public Service Regulation Montana Public Service Commission

Docket No. 2012.9.94 Natural Gas General Filing

NorthWestern Energy

PREFILED DIRECT TESTIMONY

OF

ROBERT B. HEVERT

ON BEHALF OF

NORTHWESTERN ENERGY

TABLE OF CONTENTS

EXECUTIVE SUMMARY OF ROBERT B. REVERT ...........................................•... ES-l

I. INTRODUCTION ........................................................................................................ 1

ll. PURPOSE AND OVERVIEW OF TESTIMONY .....•.............................................. 2

III. SUMMARY OF CONCLUSIONS ..•.......................................................................... 5

IV. REGULATORY GUIDELINES AND FINANCIAL CONSIDERATIONS .......... 7

V. PROXY GROUP SELECTION .................................................................................. 8

VI. COST OF EQUITY ESTIMATION ........................................................................ 12

Quarterly Growth DCF Model ...•.............................•................................................. 14

Dividend Yield and Growth Rates for the Quarterly DCF Model.. ........................... 16

Results for the Quarterly Growth DCF Model .......................................................... 21

Constant Growth DCF ModeL ...•................................................................................ 22

Dividend Yield and Growth Ratesfor the Constant Growth DCF Model ................ 22

Results for Constant Growth DCF ModeL. ................................................................ 23

Multi-Stage DCF Model .............•............................................•.................................. 24

Discounted Cash Flow Model Results ........................................................................ 29

CAPM Analysis ........................................................................................................... 32

Bond Yield Plus Risk Premium Approach ................................................................ .42

VIT. BUSINESS RISKS ..................................................................................•.................. 45

Small Size Premium ..................................................•................................................. 45

Revenue Stabilization Mechanisms ............................................................................ 48

Flotation Costs ...•........................................................................................................ 49

VIII. CAPITAL MARKET ENVIRONMENT ................................................................. 51

Incremental Credit Spreads ........................................................................................ 52

Yield Spreads ............................................................................................................... 55

Equity Market Volatility and Return Correlations .................................................... 57

IX. CONCLUSIONS AND RECOMMENDATION ..................................................... 62

Direct Testimony of Robert B. Hevert NorthWestern Energy

Exhibit

Exhibit No. RBH-l

Exhibit No. RBH-2

Exhibit No. RBH-3

Exhibit No. RBH-4

Exhibit No. RBH-5

Exhibit No. RBH-6

Exhibit No. RBH-7

Exhibit No. RBH-8

Exhibit No. RBH-9

Exhibit No. RBH-IO

Exhibit No. RBH-ll

EXHIBITS

Description

Quarterly Growth DCF Results

Constant Growth DCF Results

Retention Growth Estimate

Multi-Stage DCF Results

Market Risk Premium Calculations

Beta Coefficients

CAPM Results

Bond Yield Plus Risk Premium Analysis

Small Size Premium

Review of Proxy Group Revenue Stabilization Mechanisms

Flotation Costs


ES-l

1 EXECUTIVE SUMMARY OF ROBERT B. HEVERT

2 My direct testimony establishes that, for NorthWestern Corporation, which does business

3 as NorthWestern Energy ("NorthWestern" or the "Company"), a Return on Equity

4 ("ROE") of lO.50 percent is reasonable. My recommended 10.50 percent ROE considers

5 a variety of factors that affect the required return to equity investors in the Company. My

6 testimony:

7 • Discusses the multiple analytical approaches that were evaluated to develop the

8 ROE;

9 • Explains how the analysis to determine an appropriate ROE is affected by the

10 various business and operating risks faced by the Company; and

11 • Describes the current capital markets and economic conditions, and the degree to

12 which those conditions affect NorthWestern's ROE.

13 Together with the exhibits attached to my testimony, this evidence demonstrates that a

14 10.50 percent ROE should be approved for NorthWestern in order to provide the

15 Company with an opportunity to create earnings sufficient to provide an appropriate

16 return to its equity investors.


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DIRECT TESTIMONY OF ROBERT B. HEVERT

I. INTRODUCTION

PLEASE STATE YOUR NAME, AFFILIATION AND BUSINESS

ADDRESS.

My name is Robert B. Hevert. I am Managing Partner of Sussex Economic

Advisors, LLC ("Sussex"). My business address is 161 Worcester Road, Suite

503, Framingham, MA 01701.

ON WHOSE BEHALF ARE YOU SUBMITTING THIS TESTIMONY?

I am submitting this direct testimony ("Direct Testimony") before the Montana

Public Service Commission ("Commission") on behalf of NorthWestern

Corporation, which does business as NorthWestern Energy ("NorthWestern" or the

"Company").

PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND.

I hold a Bachelor's degree in Business and Economics from the University of

Delaware, and an MBA with a concentration in Finance from the University of

Massachusetts. I also hold the Chartered Financial Analyst designation.

PLEASE DESCRIBE YOUR EXPERIENCE IN THE ENERGY AND

UTILITY INDUSTRIES.

I have worked in regulated industries for over twenty five years, having served as

an executive and manager with consulting firms, a financial officer of a publicly-

traded natural gas utility (at the time, Bay State Gas Company), and an analyst at

a telecommunications utility. In my role as a consultant, I have advised numerous

energy and utility clients on a wide range of financial and economic issues


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including corporate and asset-based transactions, asset and enterprise valuation,

transaction due diligence, and strategic matters. As an expert witness, I have

provided testimony in over 80 proceedings regarding various financial and

regulatory matters before numerous state utility regulatory agencies and the

Federal Energy Regulatory Commission. A summary of my professional and

educational background, including a list of my testimony in prior proceedings, is

included in Exhibit A to my Direct Testimony.

II. PURPOSE AND OVERVIEW OF TESTIMONY

WHAT IS THE PURPOSE OF YOUR TESTIMONY?

The purpose of my Direct Testimony is to present evidence and provide a

recommendation regarding the Company's return on equity ("ROE").' My

analysis and conclusions are supported by the data presented in Exhibit No. RBB-

1 through Exhibit No. RBB-11, which have been prepared by me or under my

direction.

WHAT ARE YOUR CONCLUSIONS REGARDING THE APPROPRIATE

COST OF EQUITY?

My analyses indicate that the Company's Cost of Equity currently is in the range

of 10.00 percent to 10.75 percent. Based on the quantitative and qualitative

analyses discussed throughout my Direct Testimony, I conclude that an ROE of

10.50 percent is reasonable and appropriate.

Throughout my testimony, I interchangeably use the terms "ROE" and "Cost of Equity".


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PLEASE PROVIDE A BRIEF OVERVIEW OF THE ANALYSES THAT

LED TO YOUR ROE RECOMMENDATION.

As discussed in more detail in Section VI, in light of recent market conditions,

and given the fact that equity analysts and investors tend to use multiple

methodologies in developing their return requirements, it is important to consider

the results of several analytical approaches in determining the Company's ROE.

In order to develop my ROE recommendation, I therefore applied the Quarterly

Growth, Constant Growth, and Multi-Stage forms of the Discounted Cash Flow

("DCF") model, the Capital Asset Pricing Model ("CAPM"), and the Risk

Premium approach. As discussed later in my testimony, it is important to

consider a range of factors, both quantitative and qualitative, in arriving at an

ROE determination.

In addition to the methodologies noted above, my recommendation also

takes into consideration the regulatory and capital environment in which the

Company operates. In particular, I note that credit spreads between A -rated utility

bonds and Baa-rated utility bonds have increased, which suggests that debt

investors have increased their marginal return requirements. During the same

period in which credit spreads increased, the correlation between those spreads

and the 30-year Treasury bond was negative, indicating that required risk

premiums increased as long-tenn Treasury yields decreased. I also note that the

relationship between the 30-year Treasury yield and the proxy group average

dividend yield has become inverted relative to its long-run norm. Finally, natural

gas stocks have been somewhat more volatile than their historical average, and


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their returns have become more correlated with the broader market than they

historically had been. As discussed in greater detail in Section VIII, the

continuing instability in the capital markets indicates that the current historically

low level of the 3D-year Treasury does not necessarily indicate that the Cost of

Equity is at a commensurately low level.

Since estimating the ROE is a market-based exercise, it is important to

understand the risks faced by the Company relative to its peers. As such, I also

took into consideration business risks and costs which affect the Company, such

as: (1) its relatively small size compared to the proxy group; (2) the lack of

revenue stabilization mechanisms employed by the Company relative to the proxy

group; and (3) flotation costs. While I did not make any explicit adjustments to

my ROE estimates for those factors, I did take them into consideration in

determining the appropriate estimate of the Company's Cost of Equity within the

10.00 percent to 10.75 percent range.

HOW DID YOU DETERMINE THE APPROPRIATE RANGE OF

REASONABLENESS FOR THE COMPANY'S COST OF EQUITY?

In order to develop the reasonable range for NorthWestern's Cost of Equity, I

reviewed the results of the three DCF models, as well as the results of the CAPM

analyses, and Bond Yield Plus Risk Premium approach.

Consistent with my prior practice, I did not apply specific weights to those

analyses. As discussed further in Section VI, in my review of the DCF models I

disregarded the mean low results, because the results are not a reasonable

estimation of any company's ROE. As noted above, I also considered the effects


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of current capital market environment, as well as the effect of specific business

risks faced by the Company in determining my ROE range and estimate.

In light of the factors noted above, I have set the low end of my range by

reference to the average of the mean, and mean high results of my DCF models.

The high end of the range generally is estimated by the average mean high results

of my DCF models. That approach suggests a range of 9.96 percent to 10.73

percent. As discussed in Section VI, the CAPM and Bond Yield Plus Risk

Premium analyses corroborate the reasonableness of that range. As such, I

believe an ROE within the range of 10.00 to 10.75 is reasonable. In light of the

considerations discussed throughout the balance of my Direct Testimony

regarding the Company's relative business risks, it is my opinion that within that

range, an ROE of 1 0.50 percent is reasonable and appropriate.

III. SUMMARY OF CONCLUSIONS

WHAT ARE THE KEY FACTORS CONSIDERED IN YOUR ANALYSES

AND UPON WHICH YOU BASE YOUR RECOMMENDED ROE?

My analyses and recommendations considered the following:

• The Hope and Bluefield decisions2 that established the standards for

determining a fair and reasonable allowed return on equity including;

consistency of the allowed return with other businesses having similar

risk; adequacy of the return to provide access to capital and support credit

quality; and that the end result must lead to just and reasonable rates.

Bluefield Waterworks & Improvement Co., v. Public Service Commission of West Virginia, 262 U.S. 679 (1923); Federal Power Commission v. Hope Natural Gas Co .• 320 U.S. 591 (1944).


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• The effect of the current capital market conditions on investors' return

requirements, and in particular, the Company's continuing need to access

the capital markets.

• The Company's business risks relative to the proxy group of comparable

companies and the implications of those risks in arriving at the appropriate

ROE.

WHAT ARE THE RESULTS OF YOUR ANALYSES?

Based on the analytical results presented throughout my Direct Testimony, and in

light of the considerations discussed throughout the balance of my Direct

Testimony, it is my view that a reasonable range of estimates is from 10.00

percent to 10.75 percent, and within that range, an ROE of 10.50 percent is

reasonable and appropriate.

HOW IS THE REMAINDER OF YOUR DIRECT TESTIMONY

ORGANIZED?

The balance of my Direct Testimony is organized as follows:

Section IV - Discusses the regulatory guidelines and financial considerations

pertinent to the development of the cost of capital;

Section V - Explains my selection of the proxy group of natural gas

distribution utilities used to develop my analytical results;

Section VI - Explains my analyses and the analytical bases for my ROE

recommendation;

Section VII - Provides a discussion of specific business risks that have a direct

bearing on the Company's Cost of Equity;


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Section VIII - Discusses current capital market conditions and the effect of those

conditions on the Company's Cost of Equity; and

Section IX - Summarizes my conclusions and recommendations.

REGULATORY GUIDELINES AND FINANCIAL CONSIDERATIONS

PLEASE DESCRIBE THE GUIDING PRINCIPLES TO BE CONSIDERED

IN ESTABLISHING THE COST OF CAPITAL FOR A REGULATED

UTILITY.

The United States Supreme Court's precedent-setting Hope and Bluefield cases

established the standards for determining the fairness or reasonableness of a

utility's allowed ROE. Among the standards established by the Court in those

cases are: (I) consistency with other businesses having similar or comparable

risks; (2) adequacy of the return to support credit quality and access to capital;

and (3) the principle that the specific means of arriving at a fair return are not

important, only that the end result leads to just and reasonable rates.

WHY IS IT IMPORTANT FOR A UTILITY TO BE ALLOWED THE

OPPORTUNITY TO EARN A RETURN ADEQUATE TO ATTRACT

EQUITY CAPITAL AT REASONABLE TERMS?

A return that is adequate to attract capital at reasonable terms enables the utility to

provide service while maintaining its financial integrity. In keeping with the

Hope and Bluefield standards, that return should be commensurate with the

returns expected elsewhere in the market for investments of equivalent risk.

Based on those standards, the Commission's decision in this case should provide

the Company with the opportunity to earn an ROE that is: (I) adequate to attract


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capital at reasonable terms, thereby enabling it to continue to provide safe and

reliable natural gas service; (2) sufficient to ensure its financial integrity; and (3)

commensurate with returns on investments in enterprises having corresponding

risks. The allowed ROE should enable the Company to finance capital

expenditures at reasonable cost rates and maintain its financial flexibility over the

period during which rates are expected to remain in effect. While the "capital

attraction" and "financial integrity" standards are important principles in normal

economic conditions, the practical implications of those standards are even more

pronounced during periods of capital market instability. As discussed in more

detail in Section VIII, for example, sustained increases in the incremental spread

on utility debt (i.e., the difference in debt yields of utilities varying credit ratings)

have intensified the importance of maintaining a strong financial profile.

V. PROXY GROUP SELECTION

AS A PRELIMINARY MATTER, WHY IS IT NECESSARY TO SELECT

A GROUP OF PROXY COMPANIES TO DETERMINE THE COST OF

EQUITY FOR NORTHWESTERN?

First, it is important to bear in mind that the Cost of Equity for a given enterprise

depends on the risks attendant to the business in which the company is engaged.

According to financial theory, the value of a given company is equal to the

aggregate market value of its constituent business units. The value of the

individual business units reflects the risks and opportunities inherent in the

business sectors in which those units operate. In this proceeding, we are focused

on estimating the Cost of Equity for the Company's gas distribution operations in

Direct Testimony of Robert B. Revert NorthWestern Energy

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Montana. Since the ROE is a market-based concept, and given the fact that the

NorthWestern's Montana jurisdictional gas operations do not make up the entirety

of the publicly traded entity, it is necessary to establish a group of companies that

are both publicly traded and comparable to NorthWestern to serve as its "proxy"

for purposes of the ROE estimation process.

Even if NorthWestern's assets did constitute the entirety of the Company's

operations, it is possible that transitory events could bias its market value in one

way or another over a given period of time. A significant benefit of using a proxy

group, therefore, is to moderate the effects of anomalous, temporary events that

may be associated with anyone company.

DOES THE SELECTION OF A PROXY GROUP SUGGEST THAT

ANALYTICAL RESULTS WILL BE TIGHTLY CLUSTERED AROUND

AVERAGE (LE., MEAN) RESULTS?

Not necessarily. Notwithstanding the care taken to ensure risk comparability,

market expectations with respect to future risks and growth opportunities will

vary from company to company. Therefore, even within a group of similarly

situated companies, it is common for analytical results to reflect a seemingly wide

range.

PLEASE NOW PROVIDE A SUMMARY PROFILE OF

NORTHWESTERN.

NorthWestern distributes natural gas to approximately 182,000 customers in

Montana. The Company also serves an additional 31,000 customers through


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contracts with other distributors.3 NorthWestern currently has long-term issuer

credit ratings of BBB from Standard & Poor's and Fitch Ratings, and senior

unsecured ratings of Baal, BBB and BBB+ from Moody's Investors Service,

Standard & Poor's, and Fitch Ratings, respectively.4

HOW DID YOU SELECT THE COMPANIES INCLUDED IN YOUR

PROXY GROUP?

I began with the universe of companies that Value Line classifies as Electric or

Natural Gas Utilities, which includes a group of 59 domestic U.S. utilities, and

applied the following screening criteria:

• I excluded companies that do not consistently pay quarterly cash

dividends;

• I excluded companies not covered by at least two utility industry equity

analysts;

• All of the companies in my proxy group have investment grade senior

bond and/or corporate credit ratings from Standard and Poor's;

• To ensure that my proxy group represents natural gas distribution

operations, I included companies with at least 60.00 percent of

consolidated net operating income derived from regulated natural gas

utility operations; and

• I eliminated companies that are currently known to be party to a merger,

or other significant transaction.

NorthWestern Corporation, SEC Form 10-K for the fiscal year ended December 31,2011, at II.

Sonrce: SNL Financial.


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1 Q. DID YOU INCLUDE NORTHWESTERN IN YOUR ANALYSIS?

2 A. No, in order to avoid the circular logic that otherwise would occur, it has been my

3 consistent practice to exclude the subject company from the proxy group. In any

4 event, the percentage of operating income derived from NorthWestern's regulated

5 gas operations relative to the combined entity would not have met my 60.00

6 percent threshold.

7 Q. WHAT COMPANIES MET THOSE SCREENING CRITERIA?

8 A. The criteria discussed above resulted in a proxy group of the following nine

9 companies:

10 Table 1: Proxy Group Screening Results

Company Ticker

AGL Resources GAS

Atmos Energy ATO

Laclede Group LG

New Jersey Resources NJR

Northwest Natural Gas NWN

Piedmont Natural Gas PNY

South Jersey Industries SIT

Southwest Gas SWX

Washington Gas Light WGL

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12 Q. DO YOU BELIEVE THAT A PROXY GROUP OF NINE COMPANIES IS

13 SUFFICIENTLY LARGE?

14 A. Yes, I do. The analyses performed in estimating the ROE are more likely to be

15 representative of the subject utility's Cost of Equity to the extent that the chosen

16 proxy companies are fundamentally comparable to the subject utility. Because all

17 analysts use some form of screening process to arrive at a proxy group, the group,


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by definition, is not randomly drawn from a larger population. Consequently,

there is no reason to place more reliance on the quantitative results of a larger

proxy group simply by virtue of the resulting larger number of observations.

Moreover, because I am using market-based data, my analytical results

will not necessarily be tightly clustered around a central point. Results that may

be somewhat dispersed, however, do not suggest that the screening approach is

inappropriate or the results less meaningful. In my view, including companies

whose fundamental comparability is tenuous at best simply for the purpose of

expanding the number of observations does not add relevant information to the

analysis.

VI. COST OF EOUITY ESTIMATION

PLEASE BRIEFLY DISCUSS THE ROE IN THE CONTEXT OF THE

REGULATED RATE OF RETURN.

Regulated utilities primarily use common stock and long-term debt to finance

their permanent property, plant, and equipment. The overall rate of return

("ROR") for a regulated utility is based on its weighted average cost of capital, in

which the cost rates of the individual sources of capital are weighted by their

respective book values. While the costs of debt and preferred stock can be

directly observed, the Cost of Equity is market-based and, therefore, must be

estimated based on observable market information.

HOW IS THE REQUIRED ROE DETERMINED?

The required ROE is estimated by using one or more analytical techniques that

rely on market -based data to quantify investor expectations regarding required


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equity returns, adjusted for certain incremental costs and risks. By their very

nature, quantitative models produce a range of results from which the market

required ROE must be selected. As discussed throughout my Direct Testimony,

that selection must be based on a comprehensive review of relevant data and

information, and does not necessarily lend itself to a strict mathematical solution.

Consequently, the key consideration in detennining the Cost of Equity is to

ensure that the methodologies employed reasonably reflect investors' view of the

financial markets in general, and the subject company (in the context of the proxy

group) in particular.

Although we cannot directly observe the Cost of Equity, we can observe

the methods frequently used by analysts to arrive at their return requirements and

expectations. While investors and analysts tend to use multiple approaches in

developing their estimate of return requirements, each methodology requires

certain judgment with respect to the reasonableness of assumptions and the

validity of proxies in its application. In essence, analysts and academics

understand that ROE models are tools to be used in the ROE estimation process

and that strict adherence to any single approach, or the specific results of any

single approach, can lead to flawed and irrelevant conclusions. That position is

consistent with the Hope and Bluefield finding that it is the analytical result, as

opposed to the methodology, that is controlling in arriving at ROE

determinations. A reasonable ROE estimate therefore considers alternative

methodologies, observable market data, and the reasonableness of their individual

and collective results.


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1 In my view, therefore, it is both prudent and appropriate to use multiple

2 methodologies in order to mitigate the effects of assumptions and inputs

3 associated with relying exclusively on any single approach. Such use, however,

4 must be tempered with due caution as to the results generated by each individual

5 approach. As such, I have considered the results of the Constant Growth and

6 Multi-Stage forms of the DCF model, the Capital Asset Pricing Model, and the

7 Risk Premium approach.

8 Quarterly Growth DCF Model

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ARE DCF MODELS WIDELY USED IN REGULATORY

PROCEEDINGS?

Yes, in my experience the DCF model is widely recognized in regulatory

proceedings. Nonetheless, neither the DCF nor any other model should be

applied without considerable judgment in the selection of data and the

interpretation of results

PLEASE DESCRIBE THE DCF APPROACH.

The DCF approach is based on the theory that a stock's current price represents

the present value of all expected future cash flows. In its simplest form, the DCF

model expresses the Cost of Equity as the sum of the expected dividend yield and

long-term growth rate, and is expressed as follows:

p = ~+~+ ... + D", (1+k) (1+k)2 (1+k)'"

Equation [1]

Where P represents the current stock price, Dl ... D", represent expected

future dividends, and k is the discount rate, or required ROE. Equation [1] is a


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standard present value calculation, which can be simplified and rearranged into

the familiar form:

k -_ Do (Hg) + 9 Equati'on [2] p

Equation [2] often is referred to as the "Constant Growth DCF" model, in

which the first term is the expected dividend yield and the second term is the

expected long-term growth rate.

In its simplest form, the DCF model expresses the Cost of Equity as the

sum of the expected dividend yield and long-term growth rate. However, most

dividend or distribution-paying companies, including utilities, pay dividends on a

quarterly, (as opposed to an annual basis). The yield component of the Quarterly

Growth DCF model, therefore, accounts for the quarterly payment of dividends.

Thus, the Quarterly Growth DCF model incorporates investors' expectation of the

quarterly payment of dividends, and the associated quarterly compounding of

those dividends as they are reinvested at investors' required ROE. As noted by

Dr. Roger Morin:

Clearly, given that dividends are paid quarterly and that the observed stock price reflects the quarterly nature of dividend payments, the market-required return must recognize quarterly compounding, for the investor receives dividend checks and reinvests the proceeds on a quarterly schedule ... The annual DCF model inherently understates the investors' true return because it assumes all cash flows received by investors are paid annually. 5

Roger A. Morin, New Regulatory Finance, Public Utility Reports, Inc., 2006 at 344.


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1 Q. HOW IS THE DIVIDEND YIELD COMPONENT OF THE QUARTERLY

2 GROWTH DCF MODEL CALCULATED?

3 A. The dividend yield is calculated such that it incorporates the time value of money

4 associated with quarterly compounding. To do so, D component of the Constant

5 Growth DCF model is replaced with the following equation:

6 Equation [3]

7 where:

8 db d2, d3, d4 = expected quarterly dividends over the coming year

9 k = the required return on equity

10 Due to the fact that the required ROE (Ie) is a variable in the dividend calculation,

11 the Quarterly Growth DCF model is solved in an iterative fashion.

12 Dividend Yield and Growth Rates/or the Quarterly DCF Model

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WHAT MARKET DATA DID YOU USE TO CALCULATE THE

DIVIDEND YIELD IN YOUR QUARTERLY GROWTH DCF MODEL?

To calculate the expected dividends over the coming year for the proxy group

companies (i.e., db d20 d3, and d4), I obtained the last four paid quarterly dividends

for each company, and multiplied them by one plus the growth rate (i.e., 1 +g).

For the Po component of the dividends yield, I obtained the closing stock prices

over the 30,90, and 180-trading days ended August 31, 2012 for each company in

the proxy group.

Direct Testimony of Robert B. Bevert NortbWestern Energy

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1 Q. WHY DID YOU USE THREE AVERAGING PERIODS TO CALCULATE

2 THE AVERAGE STOCK PRICE?

3 A. I did so to ensure that the model's results are not skewed by anomalous events

4 that may affect stock prices on any given trading day. At the same time, the

5 averaging period should be reasonably representative of expected capital market

6 conditions over the long term. In my view, the use of the 30-, 90- and 180-day

7 averaging periods reasonably balances those concerns.

8 Q. IS IT IMPORTANT TO SELECT APPROPRIATE MEASURES OF

9 LONG-TERM GROWTH IN APPLYING THE DCF MODEL?

10 A. Yes. In its Constant Growth form, the DCF model (i.e., as presented in Equation

11 [2J above) assumes a single growth estimate in perpetuity. This same assumption

12 is made in the Quarterly Growth DCF model. Accordingly, in order to reduce the

13 long-term growth rate to a single measure, one must assume a constant payout

14 ratio, and that earnings per share, dividends per share and book value per share all

15 grow at the same constant rate. Over the long term, however, dividend growth

16 can only be sustained by earnings growth. Consequently, it is important to

17 incorporate a variety of measures of long-term earnings growth into the Constant

18 Growth DCF model. That can be accomplished by averaging those measures of

19 long-term growth that tend to be least influenced by capital allocation decisions

20 that companies may make in response to near-term changes in the business

21 environment. Since such decisions may directly affect near-term dividend payout

22 ratios, estimates of earnings growth are more indicative of long-term investor

23 expectations than are dividend growth estimates. Therefore, for the purposes of


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the Quarterly Growth DCF model, growth in earmngs per share ("EPS")

represents the appropriate measure oflong-term growth.

PLEASE SUMMARIZE THE FINDINGS OF ACADEMIC RESEARCH

ON THE APPROPRIATE MEASURE FOR ESTIMATING EQUITY

RETURNS USING THE DCF MODEL.

The relationship between various growth rates and stock valuation metrics has

been the subject of much academic research.6 As noted over 40 years ago by

Charles Phillips in The Economics of Regulation:

For many years, it was thought that investors bought utility stocks largely on the basis of dividends. More recently, however, studies indicate that the market is valuing utility stocks with reference to total per share earnings, so that the earnings-price ratio has assumed increased emphasis in rate cases.7

Philips' conclusion continues to hold true. Subsequent academic research

has clearly and consistently indicated that measures of earnings and cash flow are

strongly related to returns, and that analysts' forecasts of growth are superior to

other measures of growth in predicting stock prices.8 For example, Vander

Weide and Carleton state that, "[our] results ... are consistent with the hypothesis

that investors use analysts' forecasts, rather than historically oriented growth

calculations, in making stock buy-and-sell decisions.,,9 Other research

specifically notes the importance of analysts' growth estimates in determining the

See, for example, Harris, Robert, Using Analysts' Growth Forecasts to Estimate Shareholder Required Rate of Return, Financial Management, Spring 1986. Charles F. Phillips, Jr., The Economics of Regulation, Revised Edition, 1969, Richard D. Irwin, Inc., at 285. See, for example, Christofi, Christofi, Lori and Moliver, Evaluating Common Stocks Using Value Line's Projected Cash Flows and Implied Growth Rate, Journal of Investing (Spring 1999); Harris and Marston, Estimating Shareholder Risk Premia Using Analysts' Growth Forecasts, Financial Management. 21 (Snmmer 1992); and Vander Weide and Carleton, Investor Growth Expectations: Analysts vs. History, The Journal of Portfolio Management, Spring 1988. Vander Weide and Carleton, Investor Growth Expectations: Analysts vs. History, The Journal of Portfolio Management, Spring 1988.


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Cost of Equity, and in the valuation of equity securities. Dr. Robert Harris noted

that "a growing body of knowledge shows that analysts' earnings forecast are

indeed reflected in stock prices." Citing Cragg and Malkiel, Dr. Harris notes that

those authors "found that the evaluations of companies that analysts make are the

sorts of ones on which market valuation is based. ,,10 Similarly, Brigham, Shome

and Vinson noted that "evidence in the current literature indicates that (i)

analysts' forecasts are superior to forecasts based solely on time series data; and

(ii) investors do rely on analysts' forecasts."ll

To that point, the research of Carleton and Vander Weide demonstrates

that earnings growth projections have a statistically significant relationship to

stock valuation levels, while dividend growth projections do not. 12 Those

findings suggest that investors form their investment decisions based on

expectations of growth in earnings, not dividends. Consequently, earnings growth

not dividend growth is the appropriate estimate for the purpose of the Constant

Growth DCF model.

Q. PLEASE DESCRIBE THE RETENTION GROWTH ESTIMATE AS

APPLIED IN YOUR QUARTERLY GROWTH DCF MODEL.

A. The Retention Growth model, which is a generally recognized and widely taught

method of estimating long-term growth, is an alternative approach to the use of

analysts' earnings growth estimates. In essence, the model is premised on the

10 Robert S. Harris, Using Analysts' Growth Forecasts to Estimate Shareholder Required Rate of Return, Financial Management, Spring 1986.

II Eugene F. Brigham, Dilip K. Shome, and Steve R. Vinson, The Risk Premium Approach to Measuring a Utility's Cost of Equity, Financial Management, Spring 1985.

12 Vander Weide and Carleton, Investor Growth Expectations: Analysts vs. History, The Journal of Portfolio Management, Spring 1988.


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1 proposition that a firm's growth is a function of its expected earnings, and the

2 extent to which it retains earnings to invest in the enterprise. In its simplest form,

3 the model represents long-term growth as the product of the retention ratio (i.e.,

4 the percentage of earnings not paid out as dividends, referred to below as (''b'')

5 and the expected return on book equity (referred to below as "r"). Thus, the

6 simple ''b x r" form of the model projects growth as a function of internally

7 generated funds. That form of the model is limiting, however, in that it does not

8 provide for growth funded from external equity.

9 The "br + sv" form of the Retention Growth estimate used in my DCF

10 analysis is meant to reflect growth from both internally generated funds (i.e., the

11 "br" term) and from issuances of equity (i.e., the "sv" term). The first term, which

12 is the product of the retention ratio (i.e., "b", or the portion of net income not paid

13 in dividends) and the expected return on equity (i.e., "r") represents the portion of

14 net income that is "plowed back" into the Company as a means of funding

15 growth. The "sv" term is represented as:

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(: - 1) x Growth rate in Common Shares Equation [4]

where : is the Market-to-Book ratio.

In this form, the "sv" term reflects an element of growth as the product of

(a) the growth in shares outstanding, and (b) that portion of the market-to-book

ratio that exceeds unity. As shown in Exhibit No. RBH-3, all of the components

of the Retention Growth Model can be derived from data provided by Value Line.


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1 Q. HOW DID YOU CALCULATE THE mGH AND LOW DCF RESULTS?

2 A. I calculated the proxy group mean high DCF result using the maximum EPS

3 growth rate as reported by Value Line, Zack's, First Call and the retention growth

4 estimate for each proxy group company in combination with the dividend yield

5 for each of the proxy group companies. The average mean high result then

6 reflects the average maximum DCF result for the proxy group as a whole. I used

7 a similar approach to calculate the proxy group mean low results, using instead

8 the minimum growth rate as reported by Value Line, Zack's, First Call and the

9 retention growth estimate for each proxy group company.

10 Results for the Quarterly Growth DCF Model

11 Q. WHAT ARE THE RESULTS OF YOUR QUARTERLY GROWTH DCF

12 ANALYSIS?

13 A. As shown in Table 2 (below) (see also Exhibit No. RBH-l), the mean Quarterly

14 Growth DCF results for my proxy group are 9.00 percent, 9.11 percent, and 9.09

15 percent for the 30, 90, and l80-trading day periods, respectively. The mean high

16 DCF result for the 30, 90, and 180-day averaging periods are 11.00 percent, 11.11

17 percent, and 11.09 percent, respectively.

18 Table 2: Quarterly Growth DCF Results

30-Day Average

90-Day Average

180-Day Average

Mean Low Mean

7.34% 9.00%

7.44% 9.11%

7.42% 9.09%


Mean Hiah

11.00%

11.11%

11.09%

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1 Constant Growth DCF Model

2 Q. WHAT ASSUMPTIONS ARE REQUIRED FOR THE CONSTANT

3 GROWTH DCF MODEL?

4 A. The Constant Growth DCF model requires the following assumptions: (1) a

5 constant average growth rate for earnings and dividends; (2) a stable dividend

6 payout ratio; (3) a constant price-to-earnings multiple; and (4) a discount rate

7 greater than the expected growth rate.

8 Dividend Yield and Growth Rates for the Constant Growth DCF Model

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WHAT MARKET DATA DID YOU USE TO CALCULATE THE

DIVIDEND YIELD COMPONENT OF YOUR DCF MODEL?

The dividend yield is based on the proxy companies' current annualized dividend,

and average closing stock prices over the 30, 90, and 180-trading days as of

August 31,2012.

DID YOU MAKE ANY ADJUSTMENTS TO THE DIVIDEND YIELD TO

ACCOUNT FOR PERIODIC GROWTH IN DIVIDENDS?

Yes, I did. Since utility companies tend to increase their quarterly dividends at

different times throughout the year, it is reasonable to assume that dividend

increases will be evenly distributed over calendar quarters. Given that

assumption, it is appropriate to calculate the expected dividend yield by applying

one-half of the long-term growth rate to the current dividend yield. 13 That

adjustment ensures that the expected dividend yield is, on average, representative

13 See Exhibit No. RBH-2.


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1 of the coming twelve-month period, and does not overstate the dividends to be

2 paid during that time.

3 Q. WHAT GROWTH RATES DID YOU USE IN YOUR CONSTANT

4 GROWTH DCF MODEL ANALYSIS?

5 A. I used the same projected EPS growth rates as well as the retention growth

6 estimate applied in my Quarterly Growth DCF model analysis.

7 Results for Constant Growth DCF Model

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PLEASE SUMMARIZE YOUR INPUTS TO THE CONSTANT GROWTH

DCFMODEL.

I applied the DCF model to the proxy group companies using the following inputs

for the price and dividend terms:

terms:

1. The average daily closing prices for the 30-trading days, 90-trading

days, and 180-trading days ended August 31, 2012 for the term Po; and

2. The annualized dividend per share as of August 31, 2012 for the term

Do.

r then calculated the DCF results using each of the following growth

1. The Zacks consensus long-term earnings growth estimates;

2. The First Call consensus long-term earnings growth estimates;

3. The Value Line long-term earnings growth estimates; and

4. An estimate of Retention Growth.

WHAT ARE THE RESULTS OF YOUR CONSTANT GROWTH DCF

ANALYSIS?

As shown in Table 3 (below) (see also Exhibit No. RBH-2), the mean Constant

Growth DCF results for my proxy group are 8.82 percent, 8.92 percent, and 8.90


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1 percent for the 30, 90, and ISO-trading day periods, respectively. The mean high

2 DCF result for the 30,90, and ISO-day averaging periods are 10.75 percent, 10.S6

3 percent, and 1 0.S4 percent, respectively.

4 Table 3: Constant Growth DCF Results

Mean Low Mean Mean High

30-Day Average 7.20% 8.82% 10.75%

90-Day Average 7.31% 8.92% 10.86%

180-Day Average 7.28% 8.90% 10.84%

5 Multi-Stage DCF Model

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WHAT OTHER FORMS OF THE DCF MODEL HAVE YOU USED?

In order to address certain limiting assumptions underlying the Constant Growth

fonn of the DCF model, I also considered the results of the Multi-Stage (three-

stage) Discounted Cash Flow Model. The Multi-Stage model, which is an

extension of the Constant Growth fonn, enables the analyst to specify growth

rates over three distinct stages. As with the Constant Growth fonn of the DCF

model, the Multi-Stage fonn defines the Cost of Equity as the discount rate that

sets the current price equal to the discounted value of future cash flows. Unlike

the Constant Growth fonn, however, the Multi-Stage model must be solved in an

iterative fashion.

PLEASE GENERALLY DESCRIBE THE STRUCTURE OF YOUR

MULTI-STAGE MODEL.

As noted above, the model sets the subject company's stock price equal to the

present value of future cash flows received over three "stages". In the first two

stages, "cash flows" are defined as projected dividends. In the third stage, "cash


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flows" equal both dividends and the expected price at which the stock will be sold

at the end of the period (i.e., the "terminal price"). I calculated the terminal price

based on the Gordon model, which defines the price as the expected dividend

divided by the difference between the Cost of Equity (i.e., the discount rate) and

the long-term expected growth rate. In essence, the terminal price is defined by

the present value of the remaining "cash flows" in perpetuity. In each of the three

stages, the dividend is the product of the projected earnings per share and the

expected dividend payout ratio. A summary description of the model is provided

in Table 4 (below).

Table 4: Multi-Stage DCF Structure

Sta~e 0 1 2 3 Cash Flow Initial Stock Expected Expected Expected Component Price Dividend Dividend Dividend +

Terminal Value

Inputs Stock Price Expected EPS Expected EPS Expected EPS Earnings Per Expected DPS Expected DPS Expected DPS Share (EPS) Terminal Dividends Per Value Share (DPS)

Assumptions 30, 90, and EPS Growth Growth Rate Long-term ISO-day Rate Change Growth Rate average stock Payout Ratio Payout Ratio Long-term price Change Payout Ratio

WHAT ARE THE ANALYTICAL BENEFITS OF YOUR THREE-STAGE

MODEL?

The primary benefits relate to the flexibility provided by the model's formulation.

Since the models provide the ability to specify near, intermediate, and long-term

growth rates, for example, it avoids the sometimes limiting assumption that the


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subject company will grow at the same, constant rate in perpetuity. In addition,

by calculating the dividend as the product of earnings and the payout ratio, the

model enables analysts to reflect assumptions regarding the timing and extent- of

changes in the payout ratio to reflect, for example, increases or decreases in

expected capital spending, or transition from current payout levels to long-term

expected levels. In that regard, because the model relies on multiple sources of

earnings growth rate assumptions, it is not limited to a single source, such as

Value Line, for all inputs, and mitigates the potential bias associated with relying

on a single source of growth estimates.14

The model also enables the analyst to assess the reasonableness of the

inputs and results by reference to certain market-based metrics. For example, the

stock price estimate can be divided by the expected earnings per share in the final

year to calculate an average PIE ratio. Similarly, the terminal PIE ratio can be

divided by the terminal growth rate to develop a Price to Earnings Growth

("PEG") ratio. To the extent that either the projected PIE or PEG ratios are

inconsistent with either historical or expected levels, it may indicate incorrect or

inconsistent assumptions within the balance of the model.

Q. PLEASE SUMMARIZE YOUR INPUTS TO THE MULTI-STAGE DCF

MODEL.

A. I applied the Multi-Stage model to the proxy group described earlier in my Direct

Testimony. My assumptions with respect to the various model inputs are

described in Table 5 (below).

14 See, for example, Harris and Marston, Estimating Shareholder Risk Premia Using Analysts' Growth Forecasts, Financial Management, 21 (Summer 1992).


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1 Table 5: Multi-Stage DCF Model Assumptions

Stage Initial First Transition Terminal

Stock Price 30, 90, and 180-day average stock price as of August 31, 2012

Earnings 2011 actual EPS growth as Transition to Long-term Growth EPS escalated average of (1) Long-term GDP growth

by Period I Value Line; (2) GDP growth growth rate Zacks; (3) First

Call; (4) Retention Growth rates

Payout Ratio Value Line Transition to Long-term company- long-term expected specific industry payout payout ratio

ratio Terminal Value Expected

dividend in fmal year divided by solved Cost of Equity less long-term growth rate

2

3 Q. HOW DID YOU CALCULATE THE LONG-TERM GDP GROWTH

4 RATE?

5 A. The long-tenn growth rate of 5.61 percent is based on the real Gross Domestic

6 Product (GDP) growth rate of 3.24 percent from 1929 through 2011,15 and an

7 inflation rate of 2.30 percent. The GDP growth rate is calculated as the

8 compound growth rate in the chain-weighted GDP for the period from 1929

9 through 2011. The rate of inflation of2.30 percent is a compound annual forward

10 rate starting in ten years (i.e., 2022, which is the beginning of the tennina~ period)

15 Bureau of Eeonornie Analysis, August 29, 2012 update.


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and is based on the 30-day average projected inflation based on the spread

between yields on long-tenn nominal Treasury Securities and long-tenn Treasury

Inflation Protected Securities, known as the "TIPS spread".

In essence, my real GDP growth rate projection is based on the

assumption that absent specific knowledge to the contrary, it is reasonable to

assume that over time, real GDP growth will revert to its long-tenn mean.

Furthennore, since estimating the Cost of Equity is a market-based exercise, it is

important to reflect the sentiments and expectations of investors to the extent

possible. In that important respect, the TIPS spread represents the collective

views of investors regarding long-tenn inflation expectations. Equally important,

by using forward yields, we are able to infer the level of long-tenn inflation

expected by investors as of the terminal period of the Multi-Stage model (that is,

ten years in the future).

Q. WHAT WERE YOUR SPECIFIC ASSUMPTIONS WITH RESPECT TO

THE PAYOUT RATIO?

A. As noted in Table 5, for the first two periods I relied on the first year and long-

tenn projected payout ratios reported by Value Linel6 for each of the proxy group

companies. I then assumed that by the end of the second period (i.e., the end of

year 10), the payout ratio will converge to the industry expected ratio of 65.00

percent. 17

I6 As reported in the Value Line Investment Survey as "All Div'ds to Net Prof." 17 Source: Value Line Investment Survey


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1 Discounted Cash Flow Model Results

2 Q. HAVE YOU CONSIDERED THE MEAN LOW RESULTS OF YOUR DCF

3 MODELS IN DETERMINING YOUR RECOMMENDED ROE RANGE?

4 A. No. The mean low results of my DCF models are far below any reasonable

5 estimation of tbe Company's ROE. In fact, of tbe 945 rate cases in which an

6 autborized ROE has been disclosed since 1980, there has been only one instance

7 in which the autborized ROE was below 9.00 percent for a natural gas utility in

8 any jurisdiction. 18 That authorized ROE, 8.83 percent, is still approximately 125

9 to 150 basis points higher than the mean low results of my Quarterly Growth DCF

10 and Constant Growtb DCF models. In fact, from January 2011 (i. e. the

11 beginning of tbe test period) through August 2012 tbe median authorized ROE

12 was 10.00 percent. Chart 1, below, shows tbat tbe most frequently authorized

13 ROE over that period was between 10.25 percent and 10.50 percent.

18 Source: SNL Financial


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Chart 1: Frequency of Natural Gas Authorized ROEs (January 2011- August 2012)

8T-----·------------------------------------------

7+-----------------------------------6 +--.-----------.. ---.. ----------... -----------

5 +------------

4 +-.--------.------.--

3 +--.. ---. ----. --.. ---. -------.----.. --.

2 +----------

O+---~ " 8.76%- 9.01%- 9.26%- 9.51%- 9.76%-1U.01%-10.26%-10.51%- >

8.75% 9.00% 9.25% 9.50% 9.75% 10.00% 10.25% 10.50% 10.75% 10.75%

Moreover, there have been no events suggesting that the Company's Cost

of Equity has fallen by as much as 133 to 299 basis points since the Order on

Remand in the Company's most recent rate case was issued on June 30, 2011. 19

In that regard, Baird Equity Research has also noted that, "Investors view a 10.0%

authorized ROE as an acceptable floor. Authorized ROEs materially below that

level are typically viewed negatively by investors.,,20 As such, I did not consider

the mean low results from the three DCF models when determining the

appropriate ROE for NorthWestern.

Montana Public Service Commission, Docket No. D2009.9.129, Order on Remand Dated June 30, 2011 at para. 93. NorthWestern current authorized ROE is 10.25 percent. The average of the low end results for the Multi-Stage DCF model is approximately 8.92 percent, or 133 basis points below the current authorized ROE, and the average of the mean low results for the Constant Growth DCF model is 7.26 percent, or 299 basis points below the current authorized ROE. Baird Equity Research, 2011, at 3.

Utilities: Initial Publication of Baird's RegulatOlY Toolkit, September 20,


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IF YOU DO NOT BELIEVE THE MEAN LOW RESULTS OF YOUR DCF

MODELS ARE REASONABLE, WHY HAVE YOU PROVIDED THEM

THROUGHOUT YOUR TESTIMONY?

While I do not believe any weight should be given to the mean low DCF results, I

believe it is important to provide transparency in the presentation of analyses. As

such, I have presented the mean low results, which reflect the converse

calculation of the mean high results.

PLEASE SUMMARIZE THE RESULTS OF YOUR DCF ANALYSES.

Table 6 (below), (see also Exhibit No. RBH-l, Exhibit No. RBH-2 and Exhibit

No. RBH-4), presents the results of the Quarterly Growth, Constant Growth and

Multi-Stage DCF analyses. Setting aside the low results, the Quarterly Growth

DCF produces a range of results from 9.00 percent to 11.11 percent.21 The

Constant Growth DCF model produces a range of results from 8.82 percent to

10.86. percent. The Multi-Stage DCF analysis produces a range of results from

9.53 percent to 10.36 percent.

Excludes mean low results.


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Table 6: Summary of Discounted Cash Flow Model Results

Mean Mean Low Mean High

Quarterly Growth DCF Results

30-Day Average 7.34% 9.00% 11.00%

90-Day Average 7.44% 9.11% 11.11%

180-Day Average 7.42% 9.09% 11.09%

Constant Growth DCF Results

30-Day Average 7.20% 8.82% 10.75%

90-Day Average 7.31% 8.92% 10.86%

180-Day Average 7.28% 8.90% 10.84%

Multi-Stage DCF Results

Low Mean High

30-Day Average 8.91% 9.53% 10.24%

90-Day Average 8.95% 9.64% 10.36%

180-Day Average 8.89% 9.62% 10.32%

1 CAPM Analysis

2 Q. DID YOU UNDERTAKE ANY ADDITIONAL ANALYSES IN ADDITION

3 TO YOUR DCF MODEL RESULTS?

4 A. Yes. As noted earlier, I also applied the CAPM in estimating the Company's Cost

5 of Equity.

6 Q. PLEASE BRIEFLY DESCRIBE THE GENERAL FORM OF THE CAPM

7 ANALYSIS.

8 A. The CAPM is a risk premium model that estimates the Cost of Equity as a

9 function of a risk-free return plus a risk premium (to compensate investors for the

10 non-diversifiable or "systematic" risk of that security). As shown in Equation [5],


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the CAPM is defined by four components, each of which theoretically is a

forward-looking estimate:

Equation [5]

where:

k= the required market ROE;

~ = Beta coefficient of an individual security;

rf= the risk free rate ofreturn; and

r m = the required return on the market as a whole.

In Equation [5], the term (rm - rf) represents the Market Risk Premium.

According to the theory underlying the CAPM (and as discussed in Section V),

since unsystematic risk can be diversified away by adding securities to their

investment portfolio, investors should be concerned only with systematic or non-

diversifiable risk. Non-diversifiable risk is measured by the Beta coefficient,

which is defined as:

Equation [6]

where (Jj is the standard deviation of returns for company ''j''; (Jm is the standard

deviation of returns for the broad market (as measured, for example, by the S&P

500 Index), and Pj,m is the correlation of returns in between company j and the

broad market. Thus, the Beta coefficient represents both relative volatility (i.e.,

the standard deviation) of returns, and the correlation in returns between the

subject company and the overall market.


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HAS THE CAPM BEEN AFFECTED BY RECENT ECONOMIC

CONDITIONS?

Yes, it has. First, as noted above, the risk free rate, "r/', in the CAPM formula is

represented by the interest rate on long-term U.S. Treasury securities. As

discussed in Section VIII (below), during periods of increased equity market

volatility investors tend to seek the relative safety low-risk securities such as

Treasury bonds. In addition, since the 2008 Lehman Brothers bankruptcy filing,

Federal policy has focused on maintaining low long-term interest rates. As a

result, the first term in the model (i.e., the risk-free rate) is lower than it would

have been absent such events. As also discussed in Section VIII, the persistently

high level of correlations between natural gas utility stocks and the broad market

has put upward pressure on Beta coefficients.

Finally, as a result of the extraordinary loss in equity values during 2008,

the Market Risk Premium, when measured on a historical basis, actually

decreased from the prior year, even though other measures of risk sentiment, in

particular market volatility, indicated extremely high levels of risk aversion. That

result is, of course, counter-intnitive. While the subsequent market rally resulted

in a somewhat higher historical average Market Risk Premium, it still remains

below its pre-financial crisis level.22

See, Risk Premia Over Time Report, 2012 Ibbotson SBBI Morningstar, Inc., at 9.


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WITH THOSE OBSERVATIONS IN MIND, WHAT ASSUMPTIONS DID

YOU INCLUDE IN YOUR CAPM ANALYSIS?

Since utility assets represent long-term investments, I used two different

specifications of the risk-free rate as my estimate of the risk-free rate: (1) the

current 3D-day average yield on 3D-year Treasury bonds (i.e., 2.71 percent), and

(2) the projected 3D-year Treasury yield (i.e., 3.00 percent).23

WHY HAVE YOU RELIED UPON THE 30-YEAR TREASURY YIELD

FOR YOUR CAPM ANALYSIS?

In determining the security most relevant to the application of the CAPM, it is

important to select the term (or maturity) that best matches the life of the

underlying investment. Natural gas utilities typically are long-duration

investments and as such, the 3D-year Treasury yield is more suitable for the

purpose of calculating the Cost of Equity.

WHAT MARKET RISK PREMIUM DID YOU USE IN YOUR CAPM

MODEL?

For the reasons discussed above, I did not use a historical average; rather, I

developed two forward-looking (ex-ante) estimates of the Market Risk Premium.

PLEASE DESCRIBE YOUR FIRST EX-ANTE APPROACH TO

ESTIMATING THE MARKET RISK PREMIUM.

The first approach is based on the market required return, less the current 3D-year

Treasury bond yield. To estimate the market required return, I calculated the

market capitalization weighted average ROE based on the Constant Growth DCF

Blue Chip Financial Forecast, Vol. 31, No.8, August I, 2012, at 2.


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model. To do so, I relied on data from two sources: (1) Bloomberg; and (2)

Capital IQ. With respect to Bloomberg-derived growth estimates, I calculated the

expected dividend yield (using the same one-half growth rate assumption

described earlier), and combined that amount with the projected earnings growth

rate to arrive at the market capitalization weighted average DCF result. I

performed that calculation for each of the companies for which Bloomberg

provided both dividend yields and consensus growth rates. I then subtracted the

current 30-year Treasury yield from that amount to arrive at the second market

DCF-derived ex-ante MRP estimate. In the case of Capital IQ, I performed the

same calculation, again using all companies for which five-year earnings growth

rates were available. The results of those calculations are provided in Exhibit No.

REB-5.

PLEASE NOW DESCRIBE THE SECOND EX-ANTE APPROACH.

The second approach assumes a constant Sharpe Ratio, which is the ratio of the

risk premium relative to the risk, or standard deviation of a given security or

index of securities. The Sharpe Ratio is relied upon by financial professionals to

assess the incremental return received for holding a risky (i. e., more volatile) asset


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rather than a risk-free (i.e., less volatile) asset?4 The formula for calculating the

Sharpe Ratio is expressed as follows:

-'.(R..:x,--_R.!..f) ... Sx = - Equation [7]

where:

Sx = Sharpe Ratio for security "x";

Rx = the average return of security "x";

Rf= the rate of return of a risk free security; and

CJx= the standard deviation of Rx.

As shown in Exhibit No. RBH-5, the constant Sharpe Ratio is the ratio of

the historical market risk premium of 6.60 percent (the numerator of Equation [7]

above) and the historical market volatility of 20.30 percent (the denominator of

Equation [7]).25 The expected market risk premium is then calculated as the

product of the Sharpe Ratio and the expected market volatility. For the purpose

of that calculation, I used the thirty-day average of the CBOE's three-month

volatility index (i. e., the VXV) and the average of settlement prices over the same

Substantial research has been conducted by both the academic community and government agencies which supports the presence of a relationship between the market risk premium and volatility. (See, e.g., French, Kenneth R., et aI., Expected Stock Returns and Volatility: Pricing the Short-Run and Long-Run, Journal of Financial Economics, Vol. 19, 1987, at 3-29; Campbell, John Y. and Taksler, Glen B., Equity Volatility and CO/porate Bond Yields, The Journal of Finance, Vol. 58, No.6, December 2003, at 2321-2349; Li, Qi, et aI., The relationship between stock returns and volatility in international stock markets, Journal of Empirical Finance, Vol. 12, September 2005, at 650-665; Adrian, Tobias and Rosenberg, Joshua, Pricing the Short-Run and Long-Run Components of Market Risk, Federal Reserve Bank of New York Staff Reports, No. 254, July 2006; revised February 2008; and Chen, Long, et aI., Equity Market Volatility and Expected Risk Premium, Federal Reserve Bank of St. Louis, January 2006).

25 See Risk Premia Over Time Report, 2012 Ibbotson SBBI Morningstar, Inc., at 9. I recognize that the VIX forward settlement prices are liquid for approximately six to eight months; nonetheless, that data represents a market-based measure of expected volatility that should be considered in estimating the ex-ante Market Risk Premium.


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thirty-day period of futures on the CBOE's one-month volatility index (i.e., the

VIX) for February, 2013 tmough April, 2013.

HOW DID YOU APPLY YOUR EXPECTED MARKET RISK PREMIUM

AND RISK FREE RATE ESTIMATES?

I relied on each of the ex-ante Market Risk Premia discussed above, together with

the current and near-term projected 30-year Treasury bond yields as inputs to my

CAPM analyses.

WHAT BETA COEFFICIENT DID YOU USE IN YOUR CAPM MODEL?

With respect to the Beta coefficient, I considered two methods of calculation. My

first approach simply employs the average reported Beta coefficient from

Bloomberg and Value Line for each of the proxy group companies. While both of

those services adjust their calculated (or "raw") Beta coefficients to reflect the

tendency of the Beta coefficient to regress to the market mean of 1.00, Value Line

calculates the Beta coefficient over a five-year period, while Bloomberg'S

calculation is based on two years of data. I also calculated Beta coefficients over

a more recent time period to provide a more current view as to investors'

perspectives with respect to the systematic risk represented by the proxy group

companies.

PLEASE DESCRIBE HOW YOU CALCULATED THE MEAN ADJUSTED

BETA COEFFICIENT FOR YOUR PROXY GROUP.

As shown in Equation [6], the Beta coefficient is calculated as the ratio of the

standard deviation of returns for the subject company and the market,

respectively, multiplied by the correlation ofreturns between the two. I therefore


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calculated the "raw" Beta coefficient for each member of the proxy group, based

on Equation [6], and adjusted those raw Beta coefficients to address the tendency

to regress toward the market Beta coefficient of unity. For the purpose of that

calculation, I used weekly returns, and calculated the standard deviation and

correlations over the twelve month period ended August 31, 20 12. Averaging

those results produces an adjusted Beta coefficient of 0.732.

HOW AND WHY DID YOU ADJUST THE RAW BETA COEFFICIENT?

I adjusted my raw Beta coefficient consistent with the methodology used by

Bloomberg, which multiplies the raw Beta coefficient by 0.67, and adds 0.33 to

that product. The purpose of that adjustment is to reflect the results of substantial

academic research indicating that, over time, raw Beta coefficients tend to regress

to the market mean of 1.00.26

PLEASE EXPLAIN WHY YOU RELIED ON A TWELVE-MONTH

ESTIMATE OF THE PROXY GROUP MEAN ADJUSTED BETA

COEFFICIENT.

As discussed further in Section VIII (below), while volatility in the broad market

and the utility sector recently have begun to moderate, the correlation in returns

remains at historically elevated levels. And, as discussed above, the Market Risk

Premium tends to change over time. In my view, the use of Beta Coefficients

calculated over shorter periods is consistent with the notion that market

conditions, and the risk premium required by investors in response to those

conditions, also may change over shorter periods. In any case, by relying on both

The regression tendency of Beta coefficients to converge to 1.0 over time is well known and widely discussed in financial literature. (See, e.g., Blume, Marshall E., On the Assessment of Risk, The Journal of Finance, Vol. 26, No.1, March 1971, at 1-10).


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Value Line and Bloomberg, my CAPM analysis reflects Beta Coefficients

calculated over longer periods, as well.

IS YOUR CALCULATED BETA COEFFICIENT REASONABLE

RELATIVE TO THOSE CALCULATED BY VALUE LINE AND

BLOOMBERG?

Yes, it is. As shown in Exhibit No. RBH-6, the proxy group average Value Line,

Bloomberg, and Calculated Beta Coefficients are 0.67, 0.73, and 0.73,

respectively. In light of the market dynamics noted earlier, the calculated Beta

Coefficient reasonably reflects current conditions, although it is not materially

different than those provided by Value Line and Bloomberg.

WHAT ARE THE RESULTS OF YOUR CAPM ANALYSES?

As shown in Table 7, (see Exhibit No. RBH-7), the CAPM analyses suggest an

ROE range of 8.19 percent to 10.80 percent.27

Based on average results for respective Market Risk Premium approaches.


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1 Table 7: Summary of CAPM Results

Bloomberg CapitalIQ Sharpe Ratio Derived Derived

Derived Market Market Risk Market Risk Risk Premium Premium Premium

Average Calculated Beta Coefficient

Current 30-Year Treasury (2.71 %) 8.72% 10.50% 10.33%

Near Term Projected 30-Year 9.01% 10.78% 10.62%

Treasury (3.00%)

Average Bloomberg Beta Coefficient


Near Term Projected 30-Year 9.03% 10.80% 10.64% Treasury (3.00%)

Average Value Line Beta Coefficient


Near Term Projected 30-Year 8.48% 10.09% 9.94%

Treasury (3.00%)

2

3 Q. HOW DID YOU INCORPORATE THE CAPM RESULTS IN YOUR ROE

4 RECOMMENDATION?

5 A. As noted earlier in my testimony, current market conditions, which are directly

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reflected in the Beta, Risk Premium, and Risk Free rate terms of the model

indicate that the Cost of Equity is higher than the levels suggested by other

approaches, in particular, the Constant Growth DCF model. While I realize that

certain of the factors that influence the CAPM results, such as the elevated

degree of return correlations, are symptomatic of current market conditions, it

would be inappropriate not to recognize the effect of those conditions in

determining the Company's Cost of Equity. Consequently, I have considered the

CAPM results in arriving at my ROE recommendation.


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1 Bond Yield Plus Risk Premium Approach

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PLEASE GENERALLY DESCRIBE THE BOND YIELD PLUS RISK

PREMIUM APPROACH.

In general terms, this approach is based on the fundamental principle that equity

investors bear the residual risk associated with ownership and therefore require a

premium over the return they would have earned as a bondholder. That is, since

returns to equity holders are more risky than returns to bondholders, equity

investors must be compensated for bearing that risk. Risk premium approaches,

therefore, estimate the Cost of Equity as the sum of the equity risk premium and

the yield on a particular class of bonds. As noted in my discussion of the CAPM,

since the equity risk premium is not directly observable, it typically is estimated

using a variety of approaches, some of which incorporate ex-ante, or forward-

looking estimates of the Cost of Equity, and others that consider historical, or ex-

post, estimates. An alternative approach is to use actual authorized returns for

natural gas utilities to estimate the Equity Risk Premium.

PLEASE NOW EXPLAIN HOW YOU PERFORMED YOUR BOND

YIELD PLUS RISK PREMIUM ANALYSIS.

As suggested above, I first defined the Risk Premium as the difference between

the authorized ROE and the then-prevailing level of long-term (i.e., 30-year)

Treasury yield. I then gathered data for 945 natural gas rate proceedings between

January, 1980 and August 31, 2012. In addition to the authorized ROE, I also

calculated the average period between the filing of the case and the date of the

final order (the "lag period"). In order to reflect the prevailing level of interest

Direct Testimony of Robert B. Hevert NortbWestern Energy

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rates during the pendency of the proceedings, I calculated the average 30-year

Treasury yield over the average lag period (approximately 188 days).

Because the data cover a number of economic cycles,28 the analysis also

may be used to assess the stability of the Equity Risk Premium. Prior research,

for example, has shown that the Equity Risk Premium is inversely related to the

level of interest rates.29 That analysis is particularly relevant given the

historically low level of current Treasury yields.

HOW DID YOU MODEL THE RELATIONSIDP BETWEEN INTEREST

RATES AND THE EQUITY RISK PREMIUM?

The basic method used was regression analysis, in which the observed Equity

Risk Premium is the dependent variable, and the average 30-year Treasury yield

is the independent variable. Because the analytical period includes interest rates

and authorized ROEs that during one period (i.e., the 1980's) are quite high and

another (the post-Lehman bankruptcy period) that are quite low relative to the

long-term historical average, I used the semi-log regression, in which the Equity

Risk Premium is expresses as a function of the natural log of the 30-year Treasury

yield:

RP = a + P(LN(T30)) Equation [8]

As shown on Chart 2 (below), the semi-log form is useful when measuring

an absolute change in the dependent variable (in this case, the Risk Premium)

National Bureau of Economic Research, U.S. Business Cycle Expansion and Contractions.

See, for example, Robert S. Harris and Felicia C. Marston, Estimating Shareholder Risk Premia Using Analysts' Growth Forecasts, Financial Management, Summer 1992, at 63-70; Eugene F. Brigham, Dilip K. Shome, and Steve R. Vinson, The Risk Premium Approach to Measuring a Utility's Cost of Equity, Financial Management, Spring 1985, at 33-45; and Farris M. Maddox, Donna T. Pippert, and Rodney N. Sullivan, An Empirical Study of Ex Ante Risk Premiums for the Electric Utility Industry, Financial Management, Autumn 1995, at 89-95.


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relative to a proportional change III the independent variable (the 30-year

Treasury yield).

10.UG%

B.OO%

5 '1: 6.00% .. ~

"" ... .. 4.00% IE :e-:0

~ 2.00%

0.00%

-200%

Chart 2: Equity Risk Premium

y= -0.0295In(x)-<l.O'24 R:= 0.7185

4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%

• 30-Year Treasury Yield

As Chart 2 demonstrates, over time there has been a statistically

significant, negative relationship between the 30-year Treasury yield and the

Equity Risk Premium. Consequently, simply applying the long-term average

Equity Risk Premium of 4.34 percent (see Exhibit No. RBH-8) would

significantly under-state the Cost of Equity; assuming the current projected 30-

year Treasury yield of 3.00 percent, for example, the simple average Equity Risk

Premium would suggest an ROE of 7.34 percent. As discussed in Section VI

( above), that is well below any reasonable estimate. Based on the regression

coefficients in Chart 2, however, the implied ROE ranges from 10.12 percent to

10.74 percent (see Exhibit No. RBH-8).


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1 Table 8: Summary of Bond Yield Plus Risk Premium Results

Current 30-Year Treasury (2.71 %) 10.13%

Near Tenn Projected 30-Year Treasury (3.00%) 10.12%

Long Tenn Projected 30-Year Treasury (5.30%) 10.74%

2

3 VII. BUSINESS RISKS

4 Q. WITH REGARD TO THE DCF AND CAPM MODELS, DO THE MEAN

5 RESULTS FOR THE PROXY GROUP PROVIDE AN APPROPRIATE

6 ESTIMATE OF THE COST OF EQUITY FOR THE COMPANY?

7 A. Not necessarily. In my view, there are additional factors that must be considered

8 when determining where the Company's Cost of Equity falls within the range of

9 results, in particular the relatively small size of the Company, the lack of revenue

10 stabilization mechanisms employed by the Company relative to the proxy group,

11 and flotation costs.

12 Small Size Premium

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PLEASE EXPLAIN THE RISK ASSOCIATED WITH SMALL SIZE.

Both the financial and academic communities have long accepted the proposition

that the Cost of Equity for small firms is subject to a "size effect.,,30 While

empirical evidence of the size effect often is based on studies of industries beyond

regulated utilities, utility analysts also have noted the risks associated with small

market capitalizations. Specifically, Ibbotson Associates noted: "For small

utilities, investors face additional obstacles, such as a smaller customer base,

limited financial resources, and a lack of diversification across customers, energy

See Mario Levis, The record on smal! companies: A review of the evidence, Journal of Asset Management, March 2002, at 368-397, for a review ofiiterature relating to the size effect.


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sources, and geography. These obstacles imply a higher investor return.,,3! Small

size, therefore, leads to two categories of increased risk for investors: (1)

liquidity risk (i.e., the risk of not being able to sell one's shares in a timely

manner due to the relatively thin market for the securities); and (2) fundamental

business risks.

HOW DOES NORTHWESTERN COMPARE IN SIZE TO THE PROXY

COMPANIES?

NorthWestern's Montana gas utility operations are significantly smaller than the

average for the proxy group companies both in terms of number of customers and

annual revenues. Exhibit No. RBH-9 estimates the implied market capitalization

for NorthWestern (i.e., the implied market capitalization of NorthWestern's

Montana jurisdictional gas operations). That is, because NorthWestern's

Montana jurisdictional gas operations do not comprise the entirety of the

Company, an estimated stand-alone market capitalization for NorthWestern's

Montana jurisdictional gas operations must be calculated. The implied market

capitalization of NorthWestern is calculated by applying the median market-to-

book ratio for the proxy group of 1.57 to the Company's implied total common

equity of $147 million.32 The implied market capitalization based on that

calculation is $231 million, which is only 11.71 percent of the proxy group

median of $1.97 billion.

3! Michael Annin, Equity and the Small-Stock Effect, Public Utilities Fortnightly. October 15,1995.

32 Equity value of NorthWestern is estimated from proposed rate base and recommended capital structure.


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HOW DOES THE COMPARATIVELY SMALL SIZE OF

NORTHWESTERN AFFECT ITS BUSINESS RISKS RELATIVE TO THE

PROXY GROUP OF COMPANIES?

In general, smaller companies are less able to withstand adverse events that affect

their revenues and expenses. Capital expenditures for non-revenue producing

investments such as system maintenance and replacements will put

proportionately greater pressure on customer costs, potentially leading to

customer attrition or demand reduction. These risks affect the return required by

investors for smaller companies.

HAVE YOU CONSIDERED THE COMPARATIVELY SMALL SIZE OF

NORTHWESTERN IN YOUR ESTIMATED RETURN ON COMMON

EQUITY?

Yes. While I have quantified the small size effect, rather than proposing a

specific premium, I have considered the small size of NorthWestern in my

assessment of business risks in order to determine where, within a reasonable

range of returns, NorthWestern's required ROE appropriately falls. In that regard,

NorthWestern's comparatively small size further supports my conclusion that an

ROE above the proxy group mean is reasonable.

HOW DID YOU ESTIMATE THE SIZE PREMIUM FOR

NORTHWESTERN?

In its Risk Premia Over Time Report: 2012, Morningstar Inc. ("Morningstar")

presents its calculation of the size premium for deciles of market capitalizations

relative to the S&P 500 Index. An additional estimate of the size premium


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1 associated with NorthWestern, therefore, is the difference in the Morningstar size

2 risk premiums for the proxy group median market capitalization relative to the

3 implied market capitalization for NorthWestern.

4 As shown on Exhibit No. RBH-9, based on recent market data, the median

5 market capitalization of the proxy group was approximately $1.97 billion, which

6 corresponds to the fifth decile of Morningstar's market capitalization data. Based

7 on the Morningstar analysis, that decile has a size premium of 1.74 percent (or

8 174 basis points). The implied market capitalization for NorthWestern is

9 approximately $231 million, which falls within the ninth decile and corresponds

10 to a size premium of 2.80 percent (or 280 basis points). The difference between

11 those size premiums is 106 basis points (2.80 percent - 1.74 percent).

12 Revenue Stabilization Mechanisms

13 Q. HAVE YOU CONSIDERED THE COMPANY'S CURRENT TARIFF

14 MECHANISMS IN YOUR ASSESSMENT OF THE APPROPRIATE ROE?

15 A. Yes, I have. As shown in Exhibit No. RBH-I0, each of the companies in my

16 proxy group employs a fuel adjustment mechanism similar to that which the

17 Company employs, indicating that the Company is comparable to the proxy group

18 in that regard. In addition, NorthWestern utilizes a Lost Revenue Adjustment

19 Mechanism ("LRAM") that allows for the recovery of lost revenue associated

20 with natural gas energy conservation programs. Again, all of the proxy

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companies employ some form of revenue stabilization mechanism in at least one

of their operating jurisdictions; only one of the proxy companies does not employ

a decoupling mechanism in at least one of its operating jurisdictions. Because the


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1 Company does not have such a structure (beyond the LRAM) in place, nor has it

2 proposed any such mechanism, my recommended ROE reflects the Company's

3 higher risk relative to the proxy group.

4 Flotation Costs

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WHAT ARE FLOTATION COSTS?

Flotation costs are the costs associated with the sale of new issues of common

stock. Such costs include out-of-pocket expenditures for preparation, filing,

underwriting and other issuance costs of common stock.

WHY IS IT IMPORTANT TO RECOGNIZE FLOTATION COSTS IN

THE ALLOWED ROE?

In order to attract and retain new investors, a regulated utility must have the

opportunity to earn a return that is both competitive and compensatory. To the

extent that a company is denied the opportunity to recover prudently incurred

flotation costs, actual returns will fall short of expected (or required) returns,

thereby diminishing its ability to attract adequate capital on reasonable terms.

ARE FLOTATION COSTS PART OF THE UTILITY'S INVESTED

COSTS OR PART OF THE UTILITY'S EXPENSES?

Flotation costs are part of the invested costs of the utility, which are properly

reflected on the balance sheet under "paid in capital." They are not current

expenses, and therefore are not reflected on the income statement. Rather, like

investments in rate base or the issuance costs oflong-term debt, flotation costs are

incurred over time. As a result, the great majority of a utility's flotation cost is

incurred prior to the test year, but remains part of the cost structure that exists


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during the test year and beyond, and as such, should be recognized for ratemaking

purposes. Therefore, recovery of flotation costs is appropriate even if no new

Issuances are planned in the near future because failure to allow such cost

recovery may deny NorthWestern the opportunity to earn its required rate of

return in the future.

DO THE DCF AND CAPM MODELS ALREADY INCORPORATE

INVESTOR EXPECTATIONS OF A RETURN IN ORDER TO

COMPENSATE FOR FLOTATION COSTS?

No. The models used to estimate the appropriate ROE assume no "friction" or

transaction costs, as these costs are not reflected in the market price (in the case of

the DCF model) or risk premium (in the case of the CAPM and the Bond Yield

Plus Risk Premium model). Therefore, it is appropriate to consider flotation costs

when determining where within the range of reasonable results NorthWestern's

return should fall.

IS THE NEED TO CONSIDER FLOTATION COSTS RECOGNIZED BY

THE ACADEMIC AND FINANCIAL COMMUNITIES?

Yes. The need to reimburse investors for equity issuance costs is justified by the

academic and financial communities in the same spirit that investors are

reimbursed for the costs of issuing debt. This treatment is consistent with the

philosophy of a fair rate of return. As explained by Dr. Shannon Pratt:

Flotation costs occur when a company issues new stock. The business usually incurs several kinds of flotation or transaction costs, which reduce the actual proceeds received by the business. Some of these are direct out-of-pocket outlays, such as fees paid to underwriters, legal expenses, and prospectus preparation costs. Because of this reduction in proceeds, the business's required


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returns must be greater to compensate for the additional costs. Flotation costs can be accounted for either by amortizing the cost, thus reducing the net cash flow to discount, or by incorporating the cost into the cost of equity capital. Since flotation costs typically are not applied to operating cash flow, they must be incorporated into the cost of equity capital. 33

HAVE YOU CALCULATED THE EFFECT OF FLOTATION COSTS ON

THE RETURN ON EQUITY?

Yes, I have. I modified the DCF calculation to derive the dividend yield that

would reimburse investors for direct issuance costs. Based on the weighted

average issuance costs shown in Exhibit No. RBH-ll, a reasonable estimate of

flotation costs is approximately 0.15 percent (15 basis points).

VIII. CAPITAL MARKET ENVIRONMENT

DO ECONOMIC CONDITIONS INFLUENCE THE REQUIRED COST OF

CAPITAL AND REQUIRED RETURN ON COMMON EQUITY?

Yes. As discussed in Section VI, the models used to estimate the Cost of Equity

are meant to reflect, and therefore are influenced by, current and expected capital

market conditions.

HAVE YOU REVIEWED ANY SPECIFIC INDICES TO ASSESS THE

RELATIONSHIP BETWEEN CURRENT MARKET CONDITIONS AND

INVESTOR RETURN REQUIREMENTS?

Yes, I considered several measures of capital market risk, including: (1)

incremental credit spreads on investment grade utility debt; (2) the relationship

between natural gas utility dividend yields and long-term Treasury yields; and (3)

equity market volatility and correlations. As discussed below, each of those

Shannon P. Pratt, Roger J. Grabowski, Cost of Capital: Applications and Examples, 4th ed. (John Wiley & Sons, Inc., 2010), at 586.


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1 measures provide information that is relevant to the implementation of models

2 used to estimate the Cost of Equity, and in the interpretation of the model results.

3 Incremental Credit Spreads

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HOW HAVE CREDIT SPREADS BEEN AFFECTED BY CURRENT

MARKET CONDITIONS?

The "credit spread" is the return required by debt investors to take on the default

risk associated with securities of differing credit quality. For a given credit rating,

the credit spread is measured by reference to a Treasury security of similar tenure.

That is, the credit spread on A -rated utility bonds may be measured by reference

to the 30-year Treasury bond yield;34 the same would be true of Baa-rated

securities. Because lower credit ratings reflect higher levels of risk, credit spreads

typically are higher for lower-rated securities. In that regard, the incremental

credit spread (e.g., the difference between the credit spreads associated with A

and Baa-rated securities, respectively) is an indication of incremental return

required by investors to take on additional levels of risk. As Chart 3

demonstrates, since the beginning of 20 I 0, the Moody's Utility Bond Index

Baa! A credit spread has steadily increased, indicating that debt investors have

increased their marginal return requirements.

The minimum maturity for the bonds in this index is 20 years, with an average of 30 years. Moody's Long-Term Corporate Bond Yield Averages are derived from pricing data on a regularly replenished population of nearly 100 seasoned corporate bonds in the U.S. market, each with current outstandings over $100 million. The bonds have maturities as close as possible to 30 years, they are dropped from the list if their remaining life falls below 20 years, if they are susceptible to redemption, or if their ratings change. All yields are yield-to- maturity calculated on a semi-annual basis. Each observation is an unweighted average, with Average Corporate yields representing the unweighted average of the corresponding Average Industrial and Average Public Utility observations. See Bloomberg.com


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Chart 3: Moody's Utility Bond Index Baa-A Credit Spread

1.00%

0.90%

0.80% "~~ ... ' ........ "iII

O.7{)%

0.60% .•...

0.50%

0.40% 1\i:~/'w:(.:jiJI'~.- ............... - ...... '

0.30%

020%

0.10%

O.OO%+--~-~--~-~-~-~--~-~-~-~~

Jan~·IO Apr~10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 oct-11 Jan-12 Apr-12 Jul-12

-- BaaJA Spread - - - - - Linear (BaarA Spread)

It also is interesting to note that the incremental credit spread has

increased as long-term Treasury yields have decreased. In fact, as Chart 4

demonstrates, even since January 2010, changes in the incremental spread are

negatively correlated with changes in the 30-year Treasury yield.

Chart 4: Incremental Credit Spread and 30-Year Treasury Yield

1.00% ,~. __ .... ~.~ .... ~ ......... - .. - .... ~.-..... ~~~ •..... ~ ..•. ~ ............ .

0.90%

::;::~:':"J.\ 0.60%

0.50%

OAO%

0.30%

020%

0.10%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00% 0.00% J.n-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

--BaaiASpread ----- 30 Year' Bond


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WHAT ARE THE IMPLICATIONS OF THOSE FINDINGS IN

ASSESSING THE COMPANY'S COST OF EQUITY?

The implications are twofold. First, the recent decline in long-term Treasury

yields has been accompanied by an increase in the premium required by investors

to accept incremental levels of credit risk. That is, the incremental credit spread

has increased as the level of Treasury yields have decreased. While that inverse

relationship applies to the cost of debt, as noted earlier, prior academic research

has demonstrated that the equity risk premium likewise is inversely related to

interest rates. Consequently, neither the Cost of Equity nor the cost of debt has

decreased in lock step with Treasury yields.

Those results also demonstrate the importance of maintaining a financial

and credit profile that supports the Company's current BBB (Standard & Poor's)

rating. Because incremental credit spreads have steadily increased, the benefit of

maintaining a BBB rating is greater in the current market than it has been, even

over the past two years. That conclusion is consistent with recent findings by

FitchRatings ("Fitch"), which noted that:

While it appears that the credit spread differential between the rating categories has a relatively small impact during times of economic stability, during recent periods of economic stress, a higher credit rating produces a meaningful difference in credit spreads ... and provides more assured access to capital.35

FitchRatings, Fitch's Review of Utility ROE Trends, March 22, 2010, at 3.


of63

1 Yield Spreads

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Q.

A.

Q.

A.

36

PLEASE BRIEFLY DEFINE THE TERM "YIELD SPREAD", AND

EXPLAIN ITS MEANING IN ASSESSING CAPITAL MARKET

CONDITIONS.

In general, the "yield spread" is the difference between the yields on two different

securities. As used in the analyses discussed below, the yield spread represents

the difference in yields on long-term Treasury securities on the one hand, and

dividend yields on the other. Investors often consider yield spreads in their

assessment of security valuation and capital market conditions.

HAVE YOU REVIEWED THE CURRENT AND HISTORICAL YIELD

SPREAD FOR NATURAL GAS UTILITY COMPANIES?

Yes, I have. As shown in Chart 5, for much of the period from January 1, 2000

through August 31, 2012, the 30-year Treasury yield has exceeded the proxy

group average dividend yield. In fact, over that time, the yield spread averaged

approximately 48 basis pOints.36 That period, however, includes the 2002 - 2003

credit contraction, during which the Treasury yields and utility dividend yields

were essentially equal, and the post-Lelnnan Brothers bankruptcy period, during

which the yields inverted, such that the proxy company average dividend yield

exceeded the 30-year Treasury yield. Excluding those two periods, the average

yield spread was 87 basis points (that is, on average, the 30-year Treasury yield

exceeded the dividend yield by 87 basis pOints).37

That is to say that on average, the 3D-year Treasury yield exceeded the proxy gronp average dividend yield by 48 basis points.

37 Calculation excludes yield spreads from July 2002 to June 2003, and after September 15,2008.


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Page 56 of63

Chart 5: TreasurylDividend Yield Spread38

8.00% .- .... _._ .. _._. __ .... _ ... - ...... _._ .. _-_ ... - .. .

2002 -200S Credn Contraction Post-Lehman Bankruptc), 7.00%

6.00%

5.00%

4.00%

3.00% 1-----1

2.00% _ ..................................................................................................................... .

1.00% +-__ -~.L..-~L,_-,-~-_-~-1~-_-_-_-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

--Prol<YGmup Average DiWlendYieid - - - -- 30-Year U.s. Treasury Bond

As Chart 5 also demonstrates, the yield spread inverted shortly after the

September 15, 2008 Lehman Brothers bankruptcy, and has been quite unstable

since that time. In fact, since August 2011, the yields have remained inverted,

such that the proxy group average dividend yield exceeded the 30-year Treasury

yield by 79 basis points. The continuing instability in the yield spread also has

been observed by The Wall Street J oumal. which noted that historically,

"dividend yields have tended to track the yield on 10-year Treasurys closely.,,39

The article went on to note that:

Regulated utilities' dividend yields decoupled from Treasury yields in December 2007, as the U.S. recession began. After the initial flight to quality cut yields on Treasurys, particularly after Lehman Brothers collapsed in September 2008, the Federal Reserve's policy of buying up government debt has helped keep them low.

38 Source: SNL Financial. 39 Denning, Liam, A Short Circuit in the Stock Market, The Wan Street Journal, October 23, 2009, at

ClO. I note that while this article referred to ten-year Treasury yields, the fundamental conclusion, that the utility yield spread has deviated from its long-term relationship, remains.


of63

1 Q. HOW DOES SUCH DATA ENTER INTO YOUR ASSESSMENT OF THE

2 COMPANY'S COST OF EQUITY?

3 A. First, as noted above, investors often look to the relationships among financial

4 metrics to assess current and expected levels of market stability. As also noted

5 above, to the extent that current relationships among such indices materially

6 deviate from long-term norms, it may be an indication of continuing or expected

7 market instability. Moreover, such data provide market-based methods by which

8 to assess the implications of the currently low Treasury yields for the Company's

9 Cost of Equity. If, for example, the currently low level Treasury yields indicated

10 a correspondingly low Cost of Equity, the average dividend yield would be

11 approximately 2.23 percent, or lower.4o As shown on Exhibit No. RBH-2,

12 however, the current (proxy group) 30-day average dividend yield is 3.66 percent.

13 Again, low Treasury yields are not necessarily indicative of correspondingly low

14 equity return requirements.

15 Equity Market Volatility and Return Correlations

16 Q.

17

18

19 A.

20

21

22

40

PLEASE BRIEFLY DEFINE THE TERM "VOLATILITY" AND

EXPLAIN ITS RELEVANCE TO DETERMINING THE COST OF

EQUITY.

In finance, volatility is a statistical measure of the dispersion of returns for a given

security or market index. Securities for which returns are more broadly dispersed

(that is, they have a higher degree of deviation from the mean) are thought to be

less certain and, therefore, more risky than securities whose returns historically

2.23 percent equals 2.71 percent, less the long-term average yield spread of 48 basis points.


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Page 58 of63

have been less dispersed. The most common measure of such dispersion is the

standard deviation,41 which (as discussed in Section VI) is an important variable

in certain Cost of Equity estimation models.

Q. PLEASE NOW DEFINE THE TERM "CORRELATION" AND EXPLAIN

ITS RELEVANCE TO DETERMINING THE COST OF EQUITY.

A. Correlation is a measure of the extent to which two variables tend to move in

relation to each other. By definition, correlation (as measured by correlation

coefficients) range from -1.00 to 1.00; a negative correlation indicates that the

returns on two securities move in opposite directions, while a positive correlation

suggests that they move together. The closer the correlation coefficient is to -1.00

or 1.00, the stronger that relationship. Because securities with low or negative

correlations are less likely to move in tandem, investors consider such

investments to offer certain diversification benefits; highly correlated securities

do not. As discussed in Section VI, under portfolio-based Cost of Equity

techniques such as the Capital Asset Pricing Model, stocks with high correlations

to the broad market tend to represent greater risk (and therefore require higher

returns) than stocks with lower market correlations.42

41 , See, for example, Ross, Westerfield, Jaffe and Jordon, Comorate Finance: Core Principals &

42 Applications, 2"d Ed., McGraw-Hill Irwin, 2009, at 313. As discussed in Section VI, the Beta coefficient factor of the Capital Asset Pricing Model reflects both the degree of correlation between the subj ect company and the overall market, and measures of volatility.


of63

1 Q. HAVE YOU REVIEWED THE RECENT AND HISTORICAL DEGREES

2 OF VOLATILITY AND CORRELATION FOR NATURAL GAS UTILITY

3 STOCKS?

4 A. Yes, I have. For the purpose of my review, I calculated the standard deviation of

5

6

7

8

9

10

11

12

daily returns for the S&P 500, and the proxy group average, respectively, for the

period January 1, 2000 through August 31,2012 (see Chart 6, below). As Chart 6

demonstrates, the volatility of returns (for both indices) increased significantly

during the 2002 - 2003 credit contraction, the 2008 - 2009 recent financial crisis

and, most recently, during the latter part of 2011. Although volatility recently has

begun to decrease, market estimates of future volatility still remain somewhat

above the long-term average.43

Chart 6: Daily Return Volatility 44

0.045 , .................................................. _ .................... _ .. - .... _ ..................................... .

0.040 + ............ ..

0.035

0.030 + ............... -.............. - ........................................... .. .. \ .......................... -I

0.025 +-... ----... -~ .. - .... ---.. ~.-... -.---...... --... -.--.--.~-. ------.... -..... 0.020 + ....... ---..... - .. "',.-----... --.. - .. --..... ----..... -I.. ................ .. .. .

I 0.015

0.000 -i-i -~-~-~-~-~-~-~-~-~~~~-__....-2000 2001 2002 2003 2004 2005 2000 2007 2008 2009 2010 2011 2012

- - -NWE PraxyGroup --S&P 500

43 See Exhibit No. RBH·5, at 1. 44 Represents standard deviation of daily returns over 90-day period. Source: SNL Finaocial.


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45

Page 60 of63

TURNING NOW TO RETURN CORRELATIONS, HOW HAVE THE

PROXY GROUP COMPANY RETURNS MOVED RELATIVE TO THE

S&P500?

Since 2000, correlations between proxy group returns and the S&P 500 returns

have been trending upward, as shown by the linear trend in Chart 7, below.

Despite correlations moderating in the near term, the prevailing long-term trend

remains toward increased correlation between the two indices.

Chart 7: Daily Return Correlations45

1.00

0.90 +~ ........................ ~-.-........ -~ ....... ~~ ... ~.~-.~.~-~~ ... ~.;-.~-~-~ .. -.. -- .••.. ~ .(''\_ ... . 0.80

0.70

0.60

0.50

0.40

0.:10

0.20

0.10

0.00 +--~~-~-~-~-_-~-_~-_-_-~-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-- SPlOPr0lo/ - - - - - Unesr (SPXlFroxy)

HAS THE INCREASED CORRELATION OF RETURNS BEEN NOTED

BY THE FINANCIAL COMMUNITY?

Yes, it has. A January 4, 2012 article in The Wall Street Journal, for example,

noted that "[a J fact of life for investors in recent years, especially in the stock

Represents the rolling 90-day average of the standard deviation of daily returns. Sonrce: SNL Financial.


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Page 61 of63

market, has been the dramatic rise in correlations. One surprise of 2011 was the

degree to which correlations within and across financial markets returned with a

vengeance.,,46 Citing a study by BCA Research, the article concluded by noting

that:

.. .in order for correlations to decline dramatically to pre-Lehman levels, investors will likely need some sense that the headwinds facing the U.S. economy have largely dissipated, and that the expansion has successfully transitioned to a sustainable, selfreinforcing phase (i.e. the recovery will not fall apart in the absence of continual shots of monetary or fiscal stimulus). It may be years before such a realization occurs, suggesting that the "high vollhiqh correlation" world is likely to persist, even if we have seen the worst for this cycle.47

My findings, that natural gas utility stocks remain somewhat more volatile

than their historical average, but are far more correlated with the broad market

than they historically have been, are consistent with the observations noted by

The Wall Street Journal.

WHAT CONCLUSIONS DO YOU DRAW FROM THOSE ANALYSES?

First, it is important to recognize the relationships among financial measures

relied upon by investors, and to reflect those relationships in Cost of Equity

estimates. Simply observing, for example, that long-tenn Treasury rates are at

historically low levels is not a sufficient level of analysis to conclude that the Cost

of Equity is at a commensurately low level. As noted above, for example, if

investors believed that the current level of long-tenn Treasury yields is indicative

of the Cost of Equity, natural gas utility dividend yields would be about 143 basis

points below their current level. Similarly, both sector and market-wide volatility

46 High Stock Correlations Could Be Here to Stay, The Wall Street Journal, January 4, 2012. 47 Ibid.


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Page 62 of63

should not be viewed in isolation; rather, they should be considered together with

the correlation of returns. Doing so provides a more complete perspective, and

enables a more reasoned determination ofthe Cost of Equity.

IX. CONCLUSIONS AND RECOMMENDATION

WHAT IS YOUR CONCLUSION REGARDING THE COMPANY'S COST

OF EQUITY?

As discussed in Section II, the low end of the range of reasonableness is

calculated by averaging the mean and mean high results of my DCF models; the

high end of the range is calculated by averaging the mean high results of my DCF

models. Those results suggest a range of 9.96 percent to 10.73 percent. That

range is corroborated by the results of my CAPM and Bond Yield Plus Risk

Premium analyses. As shown in Table 7, a majority of the results of the CAPM

model fall within or just outside of that range. In addition, as shown in Table 8,

all of the Bond Yield Plus Risk Premium results fall within that range. As such, I

believe that a rate of return on common equity in the range of 10.00 percent to

10.75 percent represents the range of equity investors' required rate of return for

investment in natural gas utilities of comparable risk to NorthWestern.

The Company faces business risks associated with: (1) its relatively small

sIze compared to the proxy group; (2) the lack of revenue stabilization

mechanisms employed by it relative to the proxy group; and (3) flotation costs.

Based on those factors, as well as taking into consideration the current state of the

capital markets, I recommend an ROE of 10.50 percent, which is somewhat above

the midpoint of my range.


1 Q.

2 A.

DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?

Yes, it does.

Direct Testimony of Robert B. Revert N ortb Western Energy

Page 63 of63

Quarterly Discounted Cash Flow Model 30 Day Average Siock Price

(11 121 [3[ [4J 15J 16J [7] 18] 191 [10J [11J 112J [131 [141

ComEan:,: Ticker

AGl Resources Inc. GAS Almos Energy Corporation ATO laclede Group. Inc. (The) LG New Jersey Resources Corporation NJR Northwest Natural Gas Company NWN Piedmont Natural Gas Company, Inc. PNY South Jersey Industries, Inc. SJI Southwest Gas Corporation SWX WGl Holdings. Inc. WGL

Mean

Notes: [lJ Soun:;e: Bloomberg PrOfessional Service [2J Soun:;e: Bloomberg Professional Service [3] Source: Bloomberg Professional Service [4] Source: Bloomberg Professional Service [5] Equals Col. [1] x (1 + Col. [14]) [6] Equals Col. [2] x (1 + Col. (14]) [7] Equals Col. [3] x (1 + Cot [14]) [6] Equals Col. [4] x (1 + Col. (14])

Exp!;l;led Expected Expected Expected Dividend Dividend Dividend Dividend Dividend Dividend Dividend Dividend

1 2 3 4 1 2 3 4

$0.45 $0.48 $0.46 $0.46 $0.47 $0.48 $0.48 $0.48 $0.35 $0.35 $0.35 $0.35 $0.36 $0.36 $0.36 $0.36 $0.42 $0.42 $0.42 $0.42 $0.43 $0.43 $0.43 $0.43 $0.38 $0.38 $0.38 $0.38 $0.40 $0.40 $0.40 $0.40 $0.45 $0.45 $0.45 $0.45 $0.47 $0.47 $0.47 $0.47 $0.29 $0.29 $0.30 $0.30 $0.30 $0.30 $0.31 $0.31 $0.40 $0.40 $0.40 $0.40 $0.44 $0.44 $0.44 $0.44 $0.27 $0.27 $0.30 $0.30 $0.28 $0.28 $0.31 $0.31 SO.39 SO.39 $0.40 $0.40 $0.40 $0.40 $0.42 $0.42

[9] Source: Bloomberg Professional Service, equals indicated number of Irading day average as of August 31, 2012 [10] Source: Zacks [11] Source: Yahool Finance [12] Source: Value Une [13] Exhibit No. RBH-3 [14] Equals Average (Cols. [10], (11J. [12J. [13]) [15] Implied low DCF [16] Implied Mean DCF [17] Implied High DCF

Zacks First Call Value line Sustainable Average Earnings Earnings Earnings Growth Earnings

Stock Price Growth Growth Growth Rate Growth

$40.10 4.28% NA 5.50% 5.96% 5.25% $35.97 5.83% 5.500/0 4.00% 4.01% 4.84% $42.07 3.00% 5.30% 2.00% 5.57% 3.97% $45.53 3.35% 1.85% 5.50% 7.20% 4.47% $49.03 4.17% 4.50% 4.00% 7.34% 5.00% $31.63 4.70% 4.70% 2.50% 2.19% 3.52% $51.95 6.00% 6.00% 9.00% 11.58% 8.15% $43.74 4.37% 4.05% 9.00% 6.60% 6.01% $40.29 5.37% 5.60% 3.00% 3.78% 4.44%

4.56% 4.69% 4.94% 6.02% 5.07%

[151

Low ROE

9.20% 8.11% 6.12% 5.32% 7.69% 8.09% 9.40% 6.78% 7.13%

7.34%

Exhibit No. RBH-1 Page 1 of 3

[161 [171

Mean High ROE ROE

10.23% 10.98% 6.99% 10.04% 8.19% 9.89% 8.07% 10.92% 8.94% 11.40% 7.49% 8.73% 11.64% 15.23% 8.81% 11.91% 8.65% 9.88%

9.00% 11.00%

Quarterly Discounted Cash Flow Model 90 Day Average Stock Price

[1] [2] [3] [4] [5] [6] [7] [8] [9] {10] [11] 112] [13] [14]

ComE!an:r: Ticker

AGL Resources Inc. GAS Atmos Energy Corporalion ATO Laclede GrouP. Inc. (The) LG New Jersey Resources Corporation NJR Northwest Natural Gas Company NWN Piedmont Natural Gas Company, Inc. PNY South Jersey Industries. Inc. SJ! Soulhwesl Gas Corporation SWX WGL Holdings, Inc. WGL

Mean

Noles: [1] Source: Bloomberg Professional SeNice [2] Source: Bloomberg Professional Service [3] Source: Bloomberg Professional Service [4] Source: Bloomberg Professional Service [5] Equals Col. [1] x (1 + Col. (14]) [6] Equals Col. [2] x (1 + Col. [14]) [7] Equals Col. [3J x (1 + Col. 114J) [8] Equals Col. [4J x (1 + Co1.114]l

Expe<:ted Expected Expected Expected Dividend Dividend Dividend Dividend Dividend Dividend Dividend Dividend

1 2 3 4 1 2 3 4

$0,45 $0.48 $0,46 $0,46 $0,47 $0.48 $0.48 $0,48 $0.35 $0.35 $0.35 $0.35 $0.36 $0.36 $0.36 $0.36 SO.42 $0.42 $0.42 $0.42 $0,43 $0.43 $0.43 $0.43 $0.38 $0.38 $0.36 $0.38 $0,40 $0040 $0040 $0040 $0,45 $0,45 $0,45 $0045 $0047 $0.47 $0047 $0047 $0.29 $0.29 SO.30 $0.30 $0.30 $0.30 SO.31 SO.31 $0.40 $0040 $0.40 $0.40 $0.44 $0.44 $0.44 $0.44 $0.27 $0.27 $0.30 $0.30 SO.28 $0.28 $0.31 $0.31 SO.39 SO.39 $0,40 $0.40 $0.40 $0.40 $0.42 $0.42

[9] Source: Bloomberg Professional SeNice, equals Indicated number of trading day average as of August 31. 2012 [10] Source: Zacks [11J Source: Yahool Finance [12] Source: Value Une [13] Exhibit No. RBH-3 [14] Equals Average (Cols. [10J, [11J. [12]. [13}) [15] Imp~ed Low DCF [16]lmp~ed Mean DCF [17] Impned High DCF

Zacks First Call Value Line Sustainable Average Earnings Earnings Earnings Growth Earnings

Stock Price Growth Grnwth Growth Rale Growth

$38.92 4.28% NA 5.50% 5.96% 5.25% $34.85 5.83% 5.50% 4.00% 4.01% 4.84% $40.12 3.00% 5.30% 2.00% 5.57% 3.97% $44.15 3.35% 1.85% 5.50% 7.20% 4,47% $47.53 4.17% 4.50% 4.00% 7.34% 5.00% $31.27 4.70% 4.70% 2.50% 2.19% 3.52% $50.56 6.00% 6.00% 9.00% 11.58% 8.15% $43.43 4.37% 4.05% 9.000/0 6.60% 6.01% S39.82 5.37% 5.60% 3.00% 3.78% 4.44%

4.56% 4.69% 4.94% 6.02% 5.07%

[151

Low ROE

9.35% 8.27% 6.32% 5.43% 8.01% 8.13% 9.49% 6.80% 7.18%

7.44%

Exhibit No. RBH-1 Page 2 of3

(161 [17]

Mean High ROE ROE

10.38% 11.14% 9.15% 10.20% 8.40% 10.10% 8.18% 11.03% 9.07% 11.53% 7.54% 6.76% 11.74% 15.33% 6.63% 11.93% 8.70% 9.93%

9.11% 11.11%

Quarterly Discounted Cash Flow Model 180 Day Average Siock Price

[11 [2] [3] [4] [5] [6] m [8] [9] [10] [111 [12] [131 [141

ComE!an:t Ticker

AGL Resources Inc. GAS Atmos Energy Corporallon ATO Laclede Group. Inc. (The) LG New Jersey Resources Corporation NJR Northwest Natural Gas Company NWN Piedmont Natural Gas Company. Inc. PNY South Jersey Industries. Inc. SJI Southwest Gas Corporation SWX WGL Holdings. Inc. WGL

Mean

Noles: [1] Source: Bloomberg Professional Service [2] Source: Bloomberg Professional Service [3] Source: Bloomberg Professional Service [4] Source: Bloomberg Professional Service [5] Equals Col. [1] x (1 + Col. [14]) [6] Equals Col. [2] x (1 + Col. 114]) [7] Equals Col. [3] x (1 + Col. [14]) [5] Equals Col. [4] x (1 + Col. 114])

Expected Expected Expected Expected Dividend Dividend Dividend Dividend Dividend Dividend Dividend Dividend

1 , 3 4 1 , 3 4

$0.45 $0.46 $0.46 $0.46 $0.47 $0.45 $0.48 $0.48 SO.35 $0.35 $0.35 $0.35 $0.36 $0.36 $0.36 $0.36 $0.42 $0.42 $0.42 $0.42 $0.43 $0.43 $0.43 $0.43 $0.38 $0.38 $0.38 $0.38 $0.40 $0.40 $0.40 $0.40 $0.45 SO.45 $0.45 $0.45 $0.47 $0.47 $0.47 $0.47 $0.29 SO.29 $0.30 SO.30 $0.30 $0.30 $0.31 $0.31 $0.40 $0.40 $0.40 $0.40 $0.44 $0.44 $0.44 $0.44 $0.27 $0.27 SO.30 SO.30 $0.28 $0.28 SO.31 $0.31 $0.39 $0.39 $0.40 $0.40 $0.40 $0.40 $0.42 $0.42

[9] Source: Bloomberg ProfessIonal Service, equals indicated number of trading day average es of August 31. 2012 [10] Source: Zacks [11] Source: Yahool Finance [12] Source: Value Une [13] Exhibit No. RBH-3 [14] Equals Average (Cols. [10], [11]. [12]. [13]) [15]lmpned Low DCF [15]lmpned Mean DCF [17] Impned High DCF

Zacks First Call Value Une Sustainable Average Eamings Earnings Eamings Grnwth Earnings

Stock Price Growth Growth Growth Rate Growth

S39.62 4.28% NA 5.50% 5.96% 5.25% $33.26 5.53% 5.50% 4.00% 4.01% 4.84% $40.29 3.00% 5.30% 2.00% 5.57% 3.97% $45.32 3.35% 1.85% 5.50% 7.20% 4.47% $47.09 4.17% 4.50% 4.00% 7.34% 5.00% $31.81 4.70% 4.70% 2.50% 219% 3.52% $51.74 8.00% 6.00% 9.00% 11.55% 8.15% $42.81 4.37% 4.05% 9.00% 6.60% 6.01% $40.76 5.37% 5.60% 3.00% 3.78% 4.44%

4.56% 4.69% 4.94% 6.02% 5.07%

[15)

L~

ROE

9.26% 8.45% 6.30% 5.33% 8.05% 6.07% 9.41% 6.84% 7.08%

7.42%


(16) [17]

Mean High ROE ROE

10.29% 11,05% 9.33% 10,39% 8.38% 10.08% 8.08% 10.93% 9.10% 11.57% 7.47% 6.71% 11.65% 15.25% 8.87% 11.97% 8.60% 9.83%

9.09% 11.09%

Constant Growth Discounted Cash Flow Model 30 Day Average Stock Price

11) [2) [3) 14) IS) Average Expected Zacks

Annualized Stock Dividend Dividend Earnings Company Ticker Dividend Price Yield Yield Growth

AGL Resources Inc. GAS $1.84 $40.10 4.59% 4.71% 4.28% Atmas Energy Corporation ATO $1.38 $35.97 3.84% 3.93% 5.83% Laclede Group, Inc. LG $1.66 $42.07 3.95% 4.02% 3,00% New Jersey Resources Corporation NJR $1.52 $45.53 3.34% 3.41% 3.35% NorthlNest Natural Gas Company NWN $1.78 $49.03 3.63% 3.72% 4.17% Piedmont Natural Gas Company, Inc. PNY $1.20 $31.63 3.79% 3.86% 4.70% South Jersey Industries, Inc. SJI $1.61 $51.95 3.10% 3.23% 6.00% Southwest Gas Corporation SWX $1.18 $43.74 2.70% 2.78% 4.37% WGL Holdings, Inc. WGL $1.60 $40.29 3.97% 4.06% 5.37%

Mean 3.66% 3.75% 4.56%

Notes: [1] Source: Bloomberg Professional Service [2] Source: Bloomberg Professional Service, equals indicated number of trading day average as of August 31, 2012 [3J Equals [1J f [2J [4J Equals [3J x [1 + 0.5 x [9]) [5] Source: Zacks [6] Source: Yahool Finance [7] Source: Value Line [8] Exhibit No. RBH-3 [9J Equals Average([5]. [6J. [7J. [8]) [10J Equals [3J x (1 + 0.5 x Minimum([5J. [6J. [7J. [8])) + Minimum([5J. [6J. [7J. [8]) [11 J Equals [4J + [9J [12J Equals [3J x (1 + 0.5 x Maximum([5]. [6]. [7]. [8])) + Maximum([5J, [6J, [7J, [8])

16) First Call Earnings Growth

NA 5.50% 5.30% 1.85% 4.50% 4.70% 6.00% 4.05% 5.60%

4.69%

EI 18) 19) Value Line Sustainable Average Earnings Growth Earnings Growth Estimate Growth

5.50% 5.96% 5.25% 4.00% 4.01% 4.84% 2.00% 5.57% 3.97% 5.50% 7.20% 4.47% 4.00% 7.34% 5.00% 2.50% 2.19% 3.52% 9.00% 11.58% 8.15% 9.00% 6.60% 6.01% 3.00% 3.78% 4.44%

4.94% 6.02% 5.07%

{10)

Low ROE

8.97% 7.91% 5.99% 5.22% 7.70% 6.03% 9.19% 6.80% 7.03%

7.20%


111) 112)

Mean High ROE ROE

9.95% 10.68% 8.77% 9.78% 7.99% 9.62% 7.89% 10.65% 8.72% 11.10% 7.38% 8.58% 11.37% 14.86% 8.78% 11.82% 8.50% 9.68%

8.82% 10.75%


[1] [2] [3] [4] [51 Average Expected Zacks

Annualized Stock Dividend Dividend Earnings Company Ticker Dividend Price Yield Yield Growth

AGL Resources Inc. GAS $1.84 $38.92 4.73% 4.85% 4.28% Atmas Energy Corporation ATO $1.38 $34.65 3.98% 4.08% 5.83% Laclede Group, Inc. LG $1.66 $40.12 4.14% 4.22% 3.00% New Jersey Resources Corporation NJR $1.52 $44.15 3.44% 3.52% 3.35% Northwest Natural Gas Company NWN $1.78 $47.53 3.75% 3.84% 4.17% Piedmont Natural Gas Company, Inc. PNY $1.20 $31.27 3.84% 3.91% 4.70% South Jersey Industries, Inc. SJI $1.61 $50.56 3.18% 3.31% 6.00% South~st Gas Corporation SWX $1.18 $43.43 2.72% 2.80% 4.37% WGL Holdings, Inc. WGL $1.60 $39.82 4.02% 4.11% 5.37%

Mean 3.75% 3.85% 4.56%

Notes: [1J Source: Bloomberg Professional Service [2] Source: Bloomberg Professional Service, equals indicated number of trading day average as of August 31, 2012 [3[ Equals [1J I [2[ [4] Equals [3] x (1 + 0.5 x [9]) (51 Source: Zacks [6] Source: Yahool Finance [7J Source: Value Line (8J Exhibil No. RBH-3 [9[ Equals Average([5J, [6[, [7[. [8]) (10[ Equals [3J x (1 + 0.5 x Minimum([5[. [6J. [7J, [8])) + Minimum[(5J. [6J. [7J, (8]) [11[ Equals [4J + [9[ [12[ Equals [3J x (1 + 0.5 x Maximum([5J, [6J, [7[. [8])) + Maximum([5[. [6J. [7[. [81)

[6] First Call Earnings Growth

NA 5.50% 5.30% 1.85% 4.50% 4.70% 6.00% 4.05% 5.60%

4.69%

F] [81 [9] Value Line Sustainable Average Earnings Growth Earnings Growth Estimate Growth

5.50% 5.96% 5.25% 4.00% 4.01% 4.84% 2.00% 5.57% 3.97% 5,50010 7.20% 4.47% 4.00% 7.34% 5.00% 2.50% 2.19% 3.52% 9.00% 11.58% 8.15% 9.00% 6.60% 6.01% 3.00% 3.78% 4.44%

4.94% 6.02% 5.07%

[10]

Low ROE

9.11% 8.06% 6.18% 5,32% 7.82% 6.07% 9.28% 6.82% 7.08%

7.31%


[11] [12]

Mean High ROE ROE

10.10% 10.82% 8.92% 9,93% 8.19% 9.82% 7.99% 10.76% 8.84% 11.22% 7.43% 8.63% 11.46% 14.95% 8.80% 11.84% 8.54% 9.73%

8.92% 10.86%


11] [2] 13] 141 [5] Average Expected Zacks

Annualized Stock Dividend Djvidend Earnings Com!?:anx Ticker Dividend Price Yield Yield Growth

AGL Resources Inc. GAS $1.84 $39.62 4.64% 4.77% 4.28% Atmas Energy Corporation ATO $1.38 $33.26 4.15% 4.25% 5.83% laclede Group, Inc. LG $l.BB $40.29 4.12% 4.20% 3.00% New Jersey Resources Corporation NJR $1.52 $45.32 3.35% 3.43% 3.35% Northwest Natural Gas Company NWN $1.78 $47.09 3.78% 3.87% 4.17% Piedmont Natural Gas Company, Inc. PNY $1.20 $31.81 3.77% 3.84% 4.70% South Jersey Industries, Inc. SJI $1.Bl $51.74 3.11% 3.24% 6.00% Southv.oest Gas Corporation SWX $1.1B $42.81 2.76% 2.84% 4.37% WGL Holdings, Inc. WGL $1.BO $40.7B 3.93% 4.01% 5.37%

Mean 3.73% 3.83% 4.56%

Notes: [1] Source: Bloomberg Professional Service [2] Source: Bloomberg Professional Service, equals indicated number of trading day average as of August 31, 2012 [3) Equals [1) 1[2) [4J Equals [3J x (1 + 0.5 x [9)) [5] Source: Zacks [6] Source: Yahoo! Finance [7] Source: Value Line [8] Exhibit No. RBH-3 [9) Equals Average([5), [B), [7), [8)) [10) Equals [3) x (1 + 0.5 x Minimum([5). [B). [7), [8))) + Minimum([5), [B), [7), [8)) [11) Equals [4) + [9) [12) Equals [3) x (1 + 0.5 x Maximum([5), [B), [7).[8))) + Maximum([5). [B). [7). [8))

IB] First Call Earnings Grov.1h

NA 5.50% 5.30% 1.85% 4.50% 4.70% 6.00% 4.05% 5.60%

4.69%

17] [8] [9] Value Line Sustainable Average Earnings Growtl1 Earnings Growth Estimate Growth

5.50% 5.96% 5.25% 4.00% 4.01% 4.84% 2.00% 5.57% 3.97% 5.50% 7.20% 4.47% 4.00% 7.34% 5.00% 2.50% 2.19% 3.52% 9.00% 11.58% 8.15% 9.00% 6.60% 6.01% 3.00% 3.78% 4.44%

4.94% 6.02% 5.07%

[10[

Low ROE

9.02% 8.23% 6.16% 5.23% 7.86% 6.00% 9.20% 6.86% 6.98%

7.28%


[11[ [12)

Mean High ROE ROE

10.01% 10.74% 9.09% 10.10% 8.17% 9.80% 7.90% 10.67% 8.88% 11.26% 7.36% 8.56% 11.38% 14.87% 8.84% 11.88"/" 8.45% 9.64%

8.90% 10.84%

Company Name Ticker

AGl Resources Inc. GAS Atmos Energy Corporallon ATO Laclede Group, Inc. LG New JOl'5ey Resources Corporation NJR Northwost Natural Gas Company NWN Piedmont Natural Gas Company, Inc. PNY South Jel'5ey Industries, Inc. SJI Southwest Gas Corporation SWX WGL Holdings. Inc. WGL

Notes: [I] Source: Value Une [21 Source: Value Une [3] Equals 1. (21 I [I] [4] Source: Value line [5] Equals [1]1 [4] [61 Equals [31 x [51 [7] SOurCll: Value lIno [8] Source: Value line [91 Equals ([81 I [7J) h 0.33·1 [10] Source: Value Une [11J Source:Value Une [12] Equals Average ([10), Ill/) [131 Source:Value LIne [14J Equals [12)1[13] [15] Equals [9J x [14J [16J Equals I • (11 [14]) [171 Equals (15) x 11Sj [181 Equals 161 + 1171

Retention Gl(lwth Estimate


[t] [2] [3] [41 lSI 161 J7J [8] [91 1101 [II] 1121 [13\ [14\ 1151 [161 [17] 1181

Projected Earnings per share 2015-17

4.10 2.70 3.00 >AS 3.40 1.85 4.50 3.75

2."

Projected Projected Projected Oivldend Projected Common Common Oeclared Book Value Return on Shares Shares per share Retention per Share 2015-17 Re~o (8) 21)15-17

2.01) 51.22% 36.35 1.48 45.19% 34.65 1.81 39.67% 27.00 1.68 51.30% 24.60 1.94 42.94% 29.10 1.35 27.03% 14.65 225 50.00% 28.55 1.60 57.33% 37.25 1.75 37.50% 28.65

BookValue (R)

11.28% 7.79%

11.11% 14.02% 11.68% 12.63% 15.76% 10.07%

9.77%

B,R

5.78% 3.52% 4.41% 7.20% 5.02% 3.41% 7.88% 5.77% 3.66%

Outstanding Outstanding 2013 2015-17

119.00 121.00 91.00 103.00 23.50 25.00 40.00 40.00 28.00 31.00 70.00 68.00 32.00 35.00 48.00 51.00 51.75 52.00

Common Shares Gmwth

Rete

0.55% 4.17% 2.06% 0.00'10 3.42%

.0.95% 3.00% 2.02% 0.16%

21112 High 2012 Low 2012 price Price Price midpoint

", 36.6 $ 39.75 33.9 30.4 $ 32.15 43.0 37.8 $ 40.40 50.3 41.5 $ 45.90 49.5 43.9 $ 48.70 "., 28.9 $ 31.75 58.0 46.5 $ 52.25 43.6 40.5 $ 42.05 45.0 37.9 $ 41.45

Projected BookValue per Share

2012

30.05 28.75 25.85 18.20 27.80 13.90 23.40 29.80 24.50

Markell Book RaUo 'S' ..,. S,V BR+SV

1.32 0.73% 24.40% 0.18% 5.96% 1.12 4.67% 10.58% 0.49% 4.01% 1.56 3.22% 36.01% 1.16% 5.57% 2.52 0.00% 60.35'10 0.00% 7.20'10 1.'" 5.74% 40.47% 2.32% 7.34% 2.28 ·2.17% 56.22% ·1.22% 2.19% 2.23 6.70% 55.22% 3.70% 11.58% 1.41 2.85% 29.13% 0.83% 6.60% 1.69 0.27% 40.89% 0.11% 3.78%


Multistage Growth Dtscount9d Cash Flow Model 30 Dey AWl/age stock Pli::&

InpUts [I! BI " "' [5) ~ '" !~ '" [10] rIll [11] [131 [14] .~, EPS Growt~ Rate EsIlmatas Long-Term Ps)'Ot/lRatio tteratr;B Solution Term"",[ Terminal

SUstainable Company TICker Price ""~ Fi'sI Can Val .... LIM ,- A\'6f8Si!& ,.." "" 2616 "" ,=, '" PIE RBlio PEG Ratio AGL Resoorces G" $40.113 426% "' 5.60% 5.96% 5.25% 5.61% 49.00% 49.00% 65.DO% ~. 9.25% 17.85 3.18 AImosEnergy Am 535.91 5.63% 5.50% 4.60% 4.61% 4.84% 5.61% 69.00% 54.00% 65.00% ~. 9.97% 14.91 2.66 Laclede Group 'G $42.67 3.00% 5.3Dr. .. '" 5.57% 3.97% 5.61% 65.00% 613.00% "00' (SO,OQI 16.12% 14.41 2.57 New Jersey Resources ""' ."." 3.35% 1.85% "'" 7.20% 4.47% 5.61% 53.00% "'00% "00% (SO.DOI ,.m; 17.49 3.12 Ncrttmesl Net Gas "w" $49.133 4.17% '''"' '00% 7.34% 5.00% 5.61% 71.00% ".00% 65.00% $0.00 9.135% 19.88 3.37 Piedmont Natura' Gas '" $31.63 4.10% 4.70% Z""' Z'". 3.52% 5.61% 77.00% nOO% "'0% ~.OO 6.91% 19.71 3.52 South Jersey 1000s. ." $51.95 0.0'" 0.0'" 9.00% 11.58% 8.15% 5,81% 54.00% 51.00% 65.00% ($0.00) 10.24% 14.03 2.50 Scutlme51 Gas Corp. 'WX $43.74 4.37% 4.05% '.00% 6.60% 6.01% 5,81% 43.00% 'Z"", "",. ($0.00) 9.53% 16.58 ,." WGL Hok!~s I"". WO, "'20 5.37% 5.60"':' ,""' m% 4.44% 5.61% 54.00% 6200% 65.00% '"00 ",. 17.02 3.03

M8V< ''''' "'" 10.24% MW &91%

Projected Anrual Eamlms ~ Shara [15] [16] [In [lS] [1~ ~O] ~1] "" [23] ~4] [25] [26] [2n ~8] ~9] @O] [31]

Coml!!!~ n:kar 2011 2012 2013 "" 2015 2016 2017 201S 2019 2020 2021 "" "" 2024 2025 'I'" "" AGL Resoorcos "" .,." $223 'Z" $247 .ZOO $274 m' $3.04 .a." .,,' 53.57 S3.n 53.98 .... m ... '" .... M .... 0;

Almos Energy Am .,." 'Z,., .Z"'" .,.oo .zn "" .,,'" $3.16 '''' "" 53.69 '"''' $4.12 .... " $4.59 ... " ''"' Lecleda Groop '0 .Z" 'Z"' .,,' $3.21 .,,' $3.47 "" $3.78 ""' $4.17 ...... ...... .... 00 $.5.17 "" $5,n ,0.0, New Jersey Resources ""' "-" 52.70 'Z" '''' $3.07 $3.21 .,," ''"' 53.70 ,,,. $4.11 "'"' "" ..... $.5.11 $5.39 .,,' Norttwa51 Nal Gas "W" .,." $251 'Z .. .m $29t $3.05 $3.21 ",., ''"' $3.74 "" $4.17 $4.41 .... " $4.91 $5.19 ""'" Piedmont Natural Gas '" $1.57 51.63 $1.88 $1.74 $1.80 $1.87 $1.94 "-"' S211 .Z" 52.33 ""'" .,. .. $275 .ZOO $3.07 "" South Jersey Ind5- '"' '20' $3.13 .,,' .,,' .,,' $4.28 $4.61 ...... $5.28 $5.62 55.00 "'" sa .. $1.02 51.41 $7.83 sa27 Scuttme51 Gas Corp. 'WX .Z", 'Z" 5273 .,." $3.07 ,a., .,., "" "'" ..... $4.31 ... " $4.81 ".M ",., $5.67 ""' WGL Holdi!l!sl.-.::. woe .Z" 'Z$ 'Z" 'ZOO .Z"' .,," .Z"' .,,' "" .,,' $3.51 S3.n .,,' $4.21 ".M $4.69 .... " Projected AMJaI Oivaend P8~ Ratio "" [33] ~ Ill' Il!I P:!! Il!I "" !40j (411 (42) (43) IMI "" (46)

Coml!!!!!l n:ke, "''' 2013 2014 2015 "" "" "" 2019 '"" "''' 'I'" '1m "" 2025 'I'" AGL Rescuces '''' 49.00% "00% 49.00% 49.00% 49.00% 51.67% 54.33% 57.00% 59.67% 6233% 65.00% 65.00% "00% 65.00% 65.00% A!mcs Energy AW 69.00% 65.25% 61.60% 57.75% ".00% 55.83% 57.67% 59.50% 61.33% 63.17% 65,00% 65,00% O£OO% 65.00% 55.00% Lacleda Gr<IIJp '" 65.00% 63.75% 6250% 61.25% 6Cloo% 60.83% 61.67% • Z""' .", . 64.17% 65.00% 65.00% "",. 65.00% 65.00% New Jersey Resources '" 53.00% 51.75% 50.50% 49.25% 48.00% 50.83% 53.67% ... ""' 59.33% 6217% 65.00% 65.00% 65.00% 65.00% 65.00% NorttTNest Nat Gas wm 71.00% 67.50% 54.00% ,,"'% 57.00% oa= 59.67% 61.00% 6233% 63.67% 65.00% 65.00% 65.00% 65.00% 65,00% Piedmont Natural Ges '" n.00% 75.75% 74.50% 73.25% 7200% 70.63% 59.67% 68.50% 67.33% 66.17% 65.00% 55.00% 65.00% 65.00% 65,00% South Jersey Ind5- '"' 54.00% 53.25% ..,"'. 51.75% 51.00% .,"" 55.61% 58.00% 60,33% 'Z07% 65.00% 65.00% 65.00% 65.00% 65,00% Scutlmest Gas Corp. 'WX 43.00% 4275% 4250% 4225% 4200% 45.83% 49.67% 53.50% 57.33% 61.17% 65.00% 65.00% 65.00% 65.00% 65.00% WGL Holdi!l!slnc W,,' 64.00% 63.50% 6:HI0% .ZOO% 6200% 62.50% 63.00% 63.50% 64.00% 64.50% 65.00% "00% 55.00% 65.00% 65.00%

Projected AmJI!l Cash Flows "" (4~ (49) (50) (51) 152j (53) (54j [;;!5J [:!6J !5Zl !56] ~9) ~O] 161 ] (62]

Tarminal Coml!!!!!l Tocker "" 2013 2014 "" "" 2017 2018 2019 2020 "" '''' 2023 2024 2025 ,,,. Vel"" AGL Resocn:es '" $1.09 $1.15 $1.21 $1.27 $1.34 $1.49 $1.65 $1.83 "'"' 'Z" "" "-" ",n "''' ,M. .,.~

AlmosEnergy Am $1.63 $1.62 $1.60 $1.58 $1.55 $1.88 $1.82 $1.98 $2.15 52.33 '''' .Z" .zro .z"' $3.15 $75.37 Laclede Groop CG $1.93 $1.97 "''' 'ZOO .,,' .Z'" .Z" 'Z"'" 'Z"' 'Z" $3.01 53.16 "" "" $3,75 $87.n New Jersey Resourcas '"' $1.43 $1.46 $1049 $1.51 $1.54 $1,11 $1.B9 'ZOO $231 "' .. "''' .Z" '''' .,,' $3,51 $99.64 NorttTNest Nat Gas wm $1.78 $1.78 $l.n $1.76 $1.74 $1.87 "-" $217 'Z" $2.52 $271 .Z'" .,," $3.19 $3.37 $103.47 Piedmont Natural Gas '" $1.25 $1.27 $1.30 51.3.2 $1.34 $1.37 $1.41 $1.45 51.49 $1,54 $1.60 51.69 51.79 51.89 $1.99 ."." South Jersey Ind5- '"' $1.69 $1.80 $1.92 'ZOO $218 "'"'" 5275 $3.06 $3.39 $3.74 .... oo .... " ...... .... " """ $116.00 Southwest Gas Cof]> ""X 51.11 $1.17 51,23 51.30 $1.37 $1,58 $1.81 $207 'Z'"' .Z"' "''' "" '"'' $3.49 $3.88 $99.23 WOL HoIdi!l!slnc. woe $1.50 $1.56 51.61 51.67 51.73 51.83 51.93 52.04 52.17 52.30 $2.45 52.59 $2.73 52.89 $3.05 584.31

Projected Anruat OeLo tnvestor Cash Flows !6~ !64j ~5j !66j !6D !58] !6~ !r0j !rlj ~j !r3j !r4j !l:5j Il!I I!lI !rS! !rSj

Inrtial Com",,!!!: Ti:ker Oob 8/31112 12131112 6/30113 """" 6130115 """" 6130117 6130115 """'" """'" """" 6130122 .,''''' ""'" """" """. AGL Resources ". ($40.1() $0.00 $0.37 51.12 $1,21 51.27 51,34 $1.49 $1,65 51.83 $202 .Z" 'Z" 'z" ,zn .z" $91.33 Almos Ener9Y Am (5:>5.97) 50.00 50,55 51,67 $1.60 $1.58 $1.55 $1.68 $1,82 $1.98 $215 "'"' 'ZOO 'z"' ,a, "'" 579.52 Laclede Groop CG ($4207) $0.00 $0.65 $1.97 $201 .Z'" 52.08 "-'" .Z"' S248 ""' "''' 'M' 53.18 '"'' .,,' $91.52 New Jersey Resources '"' ($45.53) $0.00 $0.48 $1.46 $1.49 $1.51 $1.54 51.71 $1.89 .Z,," .,." .Z" 'Z" 'ZOO 53.14 53.32 5103.14 NorttTNast Nal Gas "W" ($49.03) $0.00 .... 51.83 $l.n $1.76 $1,14 51.67 $201 5217 .Z", "'$2 $271 'Z"" 53.02 $3,19 $108.84 Piedmont Nawral Gas '" (531.63) 50.00 $M2 51.27 $1.30 $1.32 $1.34 $1.37 $1.41 51.45 $1.49 $1.54 $1.60 51.69 $1.79 51.89 $65.81 South Jersey Ind5- '"' ($51.95) $0.00 50.56 $1.75 $1.92 .Z'" $218 $2.46 $2.75 "'" $3.39 53.74 .... W $4.32 .... " .... " $121.09 Scutlme51 Gas Corp. 'WX ($43.74) $0.00 ... " $1.14 $1.23 $1.30 51.37 51.58 $1.81 $207 .,." 'Z", 'Z", $3.13 "'" $3.49 $102.91 WGL Holdi~&lnc woe ($40.29) $0.00 "'" $1,54 $1.61 $1.67 $1.73 51.83 $1.93 'ZM $217 "'" 'Z" $259 5273 $289 587,36


Multistage Growth Diseount&d Cash Flow Model 90 Day Average SIoc;k Pres

'""" [1] ~l "' '" !~ I!!J I!J IS] ~ (1°1 1111 [12] [13[ [14] ,~< EPS GI'OVIIIh Rate EsllITIIIle.

SU'Sii,mblil Lo ...... Term PayoutRati> Itflfllwa Solution Terminal TlII'minlll

Cam~ny Ticker Pres z..~ Frs! carr Value Line Gro'lVth Average 0_ 2012 '''' 2023 ~oo, 'RR PIE R.!tio PEG Ratio AGL Resources 0" $36.92 4.28% "' ~.50% '''' 5.25% 5.51% 49.00% 49.00% 65.00% so,oo 9.36% 17.34 aoo Almos Enargy Am 534.65 5.83% 5,50% 4.00% 4.01% 4.84% 5.61% 69.00% ".00% 65.00% '"00 10.13% ,." ,." Laclede Group LO $40.12 3.00% ,.". 2.00% '''' 3.97% 5.61% 65,00% 60.00% 65.00% (SO,OO) 10.34% "" ,." NewJarseyR~$S "R $44.15 a35% 1.85% 5.50% 7'- 4.47% 5.61% 53.00% "00% 65.00% [s'.DO) 9.44% ,." a" Norttwest Nat Gas "w" $47.53 4.17% ,.". '.00% 1.34% "''' 5.61% 71.00% 57.00% 65.00% ISo,OO) 9.16% ,." ,." Piedmont NsllJral GSS '"' $31.27 4.70% 4.70% 2.60% "" 3.52% 5.61% 77.00% 72.00% 65.00% •• 6,95% ,." 3.41 South Jersey IOOs. '" $50.56 '.00% 0.0" 9.00% 11.58% B.15% 5.61% 54.00% 5UO% 65.00% ($D.DD) 10.36% "" ,.'" Souttwesl Gas eorp. 'WX $43.43 4.37% 4.05% '.00% '00% 6.01% 5.61% 43.00% 42.00% 85.00% (SO.DD) 9.55% 16.47 '.M WGLHoIdI'9slnc. woe $39.82 5.37",(, 5.60% 3.00% ,,'" 4.44% 5.61% 64.00% ~OO% 65.00% •• 9.47% 16.61 '.00

M8W 9.64% MAX 10.36% MW 6.~%

Projecled AMJaI Eflmirgs per Sham 115) 116) 1171 118) (19) [2QJ [21J "" !231 !241 "" [261 !!?J [281 [291 89J !311

Comf!!~ TO::ker 2011 2012 2013 2014 2015 2016 2017 "" 2019 2020 "" '''' "" "" "" 2026 "" AGLRe~s G" $2.12 $2.23 "''' $2.47 "" $2.74 ,,"' >a", "" "M $3.67 ,an '''' "." "" $4.68 "" Almos EnefgY ATD '27' $2.37 .," $2.60 "''' '''' "00 $3.16 "~ $3.50 $3.69 'aoo $4.12 "" ... W "" $.5.12 lBclede Grcup LO .,,' 52.87 .,,' $3.21 sa" '''7 "" . ." $3.97 $4.17 $4.39 .... " .... so $5.17 $5.40 "n , ... , New Jersey Resources "R .,,' $2.70 "" "" $3.07 $3.21 .,,' "" $3.70 ,a" $4.11 ... " .. " .. " $.5.11 $.5.39 $.5.70 NorttrNGstNatGas "W" .,,' $2.51 "" ,m S2.81 53.05 $3.21 ,a" "" 53.74 '''' $4.17 $4.41 .... " $4.91 $.5.19 "" Piedmont Natural Gas '"' $1.57 SI.63 51.68 $1.74 $1.80 51.67 $1.114 "" $2.11 "" "" '''' "SO .,,' $7.00 $3.07 $3.24 South Jersey lnels. '" "" 53.13 .aM "" sa", $4.28 $4.61 .... S< $5.28 55.62 '''' sa" ,<0, $7.02 $7.41 $7.83 sa" SoIOt!Jwest Gas Corp. 'WX "" '''' '''' 52.89 $3.07 .a7S .". ''"' S3.00 .... OS $4.31 .... " $4.81 $5.08 "" $.5.67 .,,' WGL HOldirgs I", woe $225 "OS 52.45 $2.56 "" "SO "" 'a" $3.22 ,a" "" 'an "" $4.21 ...... $4.69 ... " ProJecled AM.Iel Dividend Pa;<lul Ralio [321 "" '''' "" "" [On "" "" (40) (41) (42) [43! ''''' "" [46)

Comoo~ Ticker 2012 2013 2014 "" 2018 2017 2016 '''' 2020 '''' '''' "" '''' ,,,a '''' AGL Rasources OAO 49.00% 49.00% 49.00% 49.00% 49.00% 51.67% 54.33% 57.00% 59.67% 62.33% 65.00% 65.00% 65.00% 65.00% 65.00% AtmosEnergy A7D 69.00% 65.25% 61.50% 57.75% 54.00% 55.83% 57.67% 59.50% 61.33% 63.17% 65.00% 65.00% 65.00% 65.00% 65.00% lBcleda Group LO 65.00% 63.75% 62.50% 61.25% 60.00% 60.83% 61.67% 62.50% 63.33% 64.17% 65.00% 65.00% 65.00% 65.00% 65.00% New Jersey Resources "" 53.00% 51.75% SO.50% 49.25% "'00% 50.83% 53.67% 56.50% 59.33% 62.17% 65.00% 65.00% 55.00% 65.00% 65.00% NorlMesI Nat Gas "W" 71.00% 67.50% 64.00% 60.50% 51.00% 58.33% 59.67% 5U)Q% 62.33% 63.67% 65.00% 65.00% 65.000/, 65.00% 65.00% Piedmont Nauel Gss '"' 77.00% 75.75% 14.SO% 7:1.25% 1200% 10.83% 69.67% 68.500/, 67.33% 66.17% 65.00% 65.00% 65.00% ".00% 65.00% So<JthJerseylrds. '" 54.00% 53.250/, 52.50% 51.75% 51.00% 53.33% 55.67% 58.00% 60.33% 62.67% 65.00% 65.00% 65.00% 65.00% 65.00% Southwest Gas Corp. 'WX 43.00% 42.75% 42.50% 42.25% 42.00% 45.83% 49.67% 53.50% 67.33% 61.17% 65.00% 65.00% 55.00% 65.00% '"'' WGL Holdirgs I", woe 64.00% 63.50% "00' 62.50% 62.00% '"'' 63.00% 63.50% 64.00"'<' 64.50% 65.00% 65.00% 65.00% 65.00% 65.00%

P,ojecled Anrual cash Flows t<" [48! [49J 1501 ~11 [52) "" ,~, [55) "" ,~ [S!!! (59) [GO) [511 [621

TermlOal Ccme!!~ Ticker 2012 2013 2014 2015 2016 "" "" 2019 2020 "" "" "" 2024 ,~; ,tt" Val"" AGL Rasources ax; $1.09 $1.15 51.21 $1.27 $1.34 $1.49 $1.65 51.83 $2.02 "" "''' "" 52.7:1 $2.88 ""' $85.76 AtmosEnergy A7D $1.63 SI.62 51.60 $1.68 $1.55 $1.68 $1.82 51.96 $2.15 "" .,,' "" ''"' .,,' $3.16 57:1.55 LaclOOeGroup LO $1.93 $1.97 $2.01 52.05 5208 "" "" "" " .. "" 53.01 $3.18 '''' $3.55 .a" 583.62 New Jersey ResoLftos ",R $1.43 $1.46 51.49 51.51 $1.54 $1.71 $1.89 ''"' $2.31 '''' ,,51 '''' $3.14 $3.32 $3.51 $96.69 NOrlMest NaL Gas """ $1.78 $1.78 SI.n $1.76 51.74 $1.87 $2.01 $2.17 52.33 $2.52 $271 "" $3.02 $3.19 $3.37 $100.26 Piedmont Natural Gas '"' $1.25 $1.27 SI.3O $1.32 $1.34 $1.37 $1.41 $1.<15 $1.49 $1.54 $1.60 $1.69 $1.711 $1.e9 $1.99 583.05 Soulh Jersey Irds. '" $1.69 $1.80 51.92 "" $2.18 '''' $2.75 $3.00 ,a" $3.74 ... " ... " ... " ... " "" $113.02 Southwest Gas Cotp. 'WX $1.11 $1.17 $1.23 $1.30 $1.37 $1.58 $1.81 "" S2.34 .,,' '''' $3.13 $3.30 $3.49 "''' $98.57 WGLHoldi~sl'" woe $1.50 SI.56 SI.61 $1.67 51.73 $1.63 51.93 ''"' 52.17 "" 52.45 $2.59 "" .,,' .". $83.31

PfQjacted AmJal Data Investor cash F\oWs [63! [54! 165! [OO! ~:a 16el ~91 ~O! ~11 !r2] !r3] !r41 irS! ~6! I!ll ~6! Ire!

Initial Come!!~ Ticker """" 6131112 12/31112 6'-10113 .",n' """" """" 6130111 MOI18 6130119 """" 6f30121 ~~, "'~, 6f3[Y.!4 """" ~"" AGLResources 0" (536.92) 50.00 $[)'37 51.12 $1.21 51.27 $1.34 $1.49 $1.65 51.83 "" "" "" $258 $273 ""' $ee.80 A1mosEnorgy Am ($34.65) $0.00 $0.55 51.67 $1.60 $1.58 $1.55 51.68 $1.82 SI.98 $2.15 "" .,,' '2" .,,' '''' $76.70 l8clede Group CO ($40.12) "" $0.65 $1.97 $2.01 52.05 "OS '''' "" "" $2.64 "51 53.01 $3.18 53.36 .". $87.37 New Jersey Resources "R ($44.15) .. " 50" 51.46 $1.49 51.51 $1.54 $1.11 $1.119 '''' $2.31 "" "51 .,,' $3.14 "" $100.20 Nortl"1Nesl Nat Gas "W" ($47.53) $0.00 $0.60 $U13 $l.n 51.16 $1.74 $1.97 $2.01 52.17 "" '''' $2.71 $2" $3.02 $3.1Q $103.63 Piedmont Natural Gas '"' [$31.27) $0.00 $0.42 $1.27 $1.30 $1.32 $1.34 $1.37 $1.41 S1.45 $1.49 $1.54 $1.60 $1.69 $1.79 $1.e9 .,. .... SouthJerseylrds. '" ($50.56) $0.00 "" $1.76 $1.92 ,,,a "" "" $2.75 53.08 $3.39 $3.74 "" .... 77 "" .... " $118.11 Southwest Gas Corp 'WX ($43.43) $0.00 $0.37 $1.14 $1.23 $1.30 $1.37 $1.58 $1.81 $2.07 .,,, ,." ""' $3.13 "'" $3.49 5102.25 WGL Holdi[!is I",. WOL ($39. 1121 $0.00 '''' $1.54 $1.61 51.67 51.73 51.83 $1.93 S2.04 52.17 "" "" $2.59 $273 $2.89 $66.36


Multistage Growth Discouried Cash Flow Model 160 Day AWlra(lEt Stock Prlca

In~ [I] ~l "' '" [5] !!!] '" [8] ~l [10] 1111 [12] [13] [14] &oc' EPS Growth Rete Estimates Long-Term Pa~Rato;l lteratNeSolutioll Termnal Term .... 1

SUStI!,nallla Company Ti::ker Price '"'" Frs! CaB Value Lire G_ Avera!!! Gro .. 2012 "''' '"" ~oo, '" PIE Ratio PEG Ratio AGL Resources GA' $39.62 4.28% NA 5,50% '.00% 5.25% 5.61% 49,00% 49.00% 61>.00% "00 9.29% 17.64 3.15 Almas Energy Am $33.26 ,."" 5,50% 4.00% 4.01% 4.84% 5.61% 69.00% 54,00% "'."" "00 10.32% 13.78 '" Laclede Group CG $40,29 3.00% 5.30% " .. 5.57% 3.97% 5.61% 65.00% 80.00% "'.00% $0,00 10.32% '"" ,." New Jersey Reso~ N~' $45.32 3.35% 1.85% '", .. ,.'" 4.47% 5.61% 53.00% 48.00% "'.00% ($0.00) .". 17.41 3.11 Neil_Natali. NWN $47.09 4.17% 4.50% 4.00% 7.34% ,- S.Bl% 11.00% 57.00% ''"'''' •• 9.19% 18.12 ." Piedmont Natural Gas eN' $31.81 4.70% 4.70% "" 2.19",4 3.52"", 5.61% n.OO% 72.00% 65.00% •• ..... 19.83 ,." South Jersey Inds. ." $51.74 6.00% 6.00% 9.00% 11.58% 6.15% 5,61% ".00% 51.00% 65.00% ($0.00) 10.26% 13.97 2.49 Souttmest Gas Corp ,,"X $4281 4.37% 4.05% 9.00% 6.60% 6.01% 5.61% 43.00% 4200% 65.00% ($0.00) 9.61% 16.25 '.00 WGL HoIdI!3i!s loc. WGC $40.16 5.37% , .... .0" 3.18% 4.44% 5.61% "."" 62.00% 65.00% . .• ''''' 11.22 3.01

"eAN 9.62% MAX 10.:32%

"'N 8.89%

Projected Anrual EIImi!!!sl!!!,Shllre [15[ [16] [111 [18] [19] ~[ @1[ ~] @3] ~41 @5] [26] @1I @8] @9] ~[ [31]

Comoan~ n:ker "''' '''' 2013 "''' "''' 2016 2017 "''' 2019 2020 "" ,~,

"" "" "" '"'" "" AGLResouro:es GAO $212 ,,~ .,,' $247 "'" $274 "" "'~ '"'" ."', $3.57 $3.n .", $4.20 $4.43 '"'." '"'-.. AtmosEnergy "0 "'" "" ,,~ " .. "" "" ,"00 $3.16 .,," "''' $3.69 $3.90 $4.12 "." 54.59 "." $5.12 Laclede Group CO "" $2.97 .. '" $3.21 .. " $3.47 ,a;, 53.78 53.97 $4.17 $4.39 "." ".00 55.17 ,,~ 55.n '<0, New Jersey RasoL6C6S N" "" 5270 "" .,., 53.07 53.21 'a" ,a;, 53.70 .,," $4.11 "." "." " ... 55.11 '"'' $5.70 Nortlmest NaL Gas NWN '''' "" "" .W 5291 53.05 53.21 ,a" '"" $3.14 .", $4.17 $4.41 " .. $4.91 $5.19 "" Piedmont Naturel Gas PN' $1.57 51.63 51.68 51.74 $1.80 $1.87 51.94 "'" 5211 .,,' .,,,

"" """ $275 ''"'' sa", $3.24 SouthJerseylrds. '" "" 53.13 .. " "' .. sa .. $4.28 $4.61 "." 55.28 55.62 ... .. . .,,, "."' $7.02 57.41 57.63 $8.27 SoottmeSi Gas CoI"p. 'WX '''' '''' .,,' $289 53.07 53.25 ,a" sa", 'a .. ..." $4.31 "" "" 55.08 55.37 $5.67 .. " WGL Holdi!:lls 10::: WGC .,,' .,,' "" "" 52.68 .,," 52.92 sa", 53.22 ."', 53.57 53.n "''' $4.21 "" $4.69 ".'" Projecled Anrual Dividerd Pa)<llJl Ratio [32) ,,,,

"'I 135) "" P" ~I [29) (40) (41! (42) [43! [441 [4:!j "" ComE!:!!~ Tooke, 2012 2013 2014 2015 "''' "" 2018 "''' '"" 2021 ''''' 2023 "''' 2025 "" AGLResourc:es GAO 49.00% 49.00% 49.00% 49.00% 49.00% 51.67% 54.33% 57.00% 59.67% 62.33% 65.00% 65.00% 65.00% 65.00% ;;'00% Airnos Energy AW """ 65.25% 61.50% 57.75% 54.00% "'."" 57.67% 59.50% 61.33% 63.17% 65.00% 65.00% 65.00% 65.00% 65.00% Laclede Group CO 65.00% 63.75% 6250% 61.25% 60.00% S0.83% 61.1>7% 62.50% S3.33% 64.17% 65.00% ",00' ",00% S5.00% "''''' New Jersey Resouroes N" 'aOO% 51.15% 50.50% 49.25% 49.00% 50.83% """ 56.50% 59.33% 6217% 65.00% "'00% 65.00% "'00' 65.00% NortnNeslNBl GBS NWN 71.00% 67.50% 64.00% 60.50% ".00% 58.33% 59.67% 61.00% 6233% 63.67% 65.00% ;;'00% 65.00% 65.00% "'.00% Piedmont NBtu",1 Gas PN' nOO% 75.75% 74.50% m$% """ 70.83% ,."" 68.50% 67.33% 66.17% 65.00% 65.00% 65.00% 65.00% "'."" South Jersey Irds. '" "."" 53.25% 5250% 51.75% 51.00% 53.33% 55.67% 58.00% 60.33% 62.67% 65.00% "'."" 65.00% 65.00% 65.00% SoLJthw9st Gas Corp. 'WX 43.00% 42.75% ,,, .. 4225% """ 45.83% 49.67% 53.50% 57.33% 61.11% 65.00% "''''' "'."" ",00% 65.00% WGLHoldi!"llsloc. woe 64.00% 63.50% 0>"" 62.50% 62.00% 62.50% 0>"" 63.50% 64.00% 64.50% 65.00% "''''' 65.00".4 65.00% 65.00%

Projecled Anrual Cash Flows ." (48) (49) 150) (51) 152) (53) '''' [551 156) (Sri {581 (59) .'" 1611 (621

Terminal ComE!:!!~ Ticker 2012 2013 2014 2015 "''' 2017 "''' 2019 2020 "'" "" "'"

,~,

"'" ,= Velue AGLReSOl.ttes GAO $1.09 $1.15 51.21 $1.27 51.34 $1.49 51.65 $1.63 $202 .", ,,~ "" $Z7' "" "'~ $87.26 AtrnosEnergy ATO 51.63 51.62 $1.60 51.58 $1.55 51.68 51.82 51.98 $215 .,,, .,,' "" .,,' .", $3.15 $70.58 Laclede GrClUp CO $1.93 51.97 $201 52.05 "" "'" '''' 52.48 "" .,,' $3.01 53.16 $3.38 ... , 53.75 $63.98 New Jersey Resourtes W, $1.43 51.48 51.49 51.51 51.54 51.71 51.89 "'" $231 "" "" '''' $3.14 .,,' 53.51 $99.20 NOrlhNest Nat Gas NWN $1.78 51.78 51.n 51.76 51.14 51.87 $2.01 52.17 "" .,,' 52.11 '''' 53.02 53.19 '"'' 599.32 Piedmont Nntuml Ga. PN' $1.25 51.27 51.30 51.32 $1.34 $1.37 $1.41 51.45 $1.49 $1.54 $1.60 51.89 $1.79 $1.89 51.99 564.19 South Jersey Irds. '" n69 51.80 51.92 "'" "" "" 5275 53.06 '''' "" ".w "." "'" "" 55.09 $115.57 SoLJthw9s1 Gas Corp. 'WX 51.11 $1.17 $1.23 51.30 51.37 51.58 $1.81 52.07 "" '2" .". $3.13 ."" 53.49 ,a;. $97.23 WGLHotdl!!lslo::: woe 51.50 51.56 $1.61 51.67 51.13 51.83 51.93 $2.04 S2.17 ."" "" S2.59 $273 $289 .. '" 585.30

Projected Anr<lBl Dais IrweslorCssllFIows [!!3) (641 I!!I I'" 16r1 16~ !6~ !J:°I !J:1! I?lI ~! !J:4! I!!I !r6! I?lI !J:~ !rS!

Iniloll Com!!!!!:!:!: n:ker ,,",ow 8r.l1112 12131112 """" """" 6130115 """" 6/30117 """" """" .,,"" """'" """'" .,"'" 6/30/24 """'" .""" AGL Resources GM ($39.62) 50.00 50.37 51.12 Sl.21 $1.27 51.34 51.49 $1.65 51.63 5202 .,,' '''' .,,' $273 '''' 590.30 AlmosEnergy ATO ($33.26) 50.00 $0.55 $1.67 51.60 51.58 51.55 $1.68 51.82 51.98 52.15 "" 52.53 '''' "" "" 573.74 lI!elede Groop CO ($40.29) 50.00 $0.65 51.97 5201 "'" "'" "'" "" "" " .. "" $3.01 53.18 '"''' .. " $87.13 New Jersey Resouroas N" ($45.32) $0.00 $0.48 $1.46 $1.49 $1.51 51.54 51.71 51.69 "W 5231 ""' .,,' "" $3.14 .. " 5102.70 Nortl>NestNsl Gn NWN ($47.09) 50.00 50.60 $1.63 51.n 51.76 51.74 51.87 5201 5217 "" .,,' 5271 "" ""' 53.19 5102.69 Piedmont Natural Gas 'N' (531.61) 50.00 $0.42 51.27 51.30 51.32 51.34 $1.37 $1.41 $1.45 51.49 51.54 $1.60 51.69 $1.79 51.89 $66.19 South Jersey Irds. SJ' ($51.14) 50.00 $0.56 51.76 $1.92 "'" $218 $2.46 $2.75 "'" '''' "'" .... W "" "" $4.82 5120.66 Sol.lthwesl Gas Corp. 'WX ($4281) 50.00 $0.37 $1.14 51.23 $1.30 51.37 $1.58 51.61 5207 "" " .. " .. $3.13 ,a" 53.49 $100.91 WGLHoldi!!!sloc woe ($40.76) 50.00 $0.50 $1.54 51.61 $1.67 51.73 $1.83 51.93 ,,~ $217 "" ,,~ $259 .m "" 588.35

Multi-Stage DCF Notes: [1] Source: Bloomberg; based on 30, 90, and 180-dayhistorical average [2] Source: Zacks [3] Source: Yahoo! Finance [4] Source: Value Line [5] Source: Exhibit No. RBH-3 [6] Equals average [2], [3], [4], [5] [7J Source: Federal Reserve, Bureau of Economic Analysis [8] Source: Value Line [9] Source: Value Line

[10] Source: Value Line [11] Equals Column [1] + Column [63] [12] Equals result of Excel Solver function; goal: Column [11J equals $0.00 [13] Equals Column [62]/ Column [31] [14] Equals Column [13]/ (Column [7] x 100) [15] Source: Value Line [16] Equals Column [15] x (1 + Column [6]) [17] Equals Column [16] x (1 + Column [6]) [18] Equals Column [17] x (1 + Column [6]) [19] Equals Column [18] x (1 + Column [6]) [20] Equals Column [19] x (1 + Column [6]) [21] Equals (1 + (Column [61 + «(Column 171- Column 16]) / (2021 - 2016 + 1» x (2017 - 2016»» x Column [201 [22] Equals (1 + (Column [6] + «(Column [7]- Column 16]) / (2021 - 2016 + 1» x (2018 - 2016)))) x Column [21] (23] Equals (1 + (Column [6] + ({(Column [71- Column 16]) / (2021 - 2016 + 1» x (2019 - 2016»))) x Column [221 [24] Equals (1 + (Column [6] + «(Column [71- Column 16]) / (2021 - 2016 + 1» x (2020 - 2016»))) x Column [23J [25] Equals (1 + (Column [6] + «(Column [71- Column (6]) / (2021 - 2016 + 1» x (2021 - 2016»))) x Column [24] [26] Equals Column [25] x (1 + Column [7]) [27] Equals Column [26J x (1 + Column [7}) [28] Equals Column [27] x (1 + Column [7]) [29] Equals Column [28] x (1 + Column [7J) [30] Equals Column [29] x (1 + Column [7J) [31] Equals Column [30] x (1 + Column [7]) [321 Equals Column [8] [331 Equals Column 1321 + «Column [36]- Column [32]) /4) [34] Equals Column (33J + «Column [36]- Column [32]) /4) [35] Equals Column [34J + «Column 136]- Column [321) /4) [36] Equals Column (9) [37] Equals Column [36J + «Column (42)- Column [36]) /6) [38] Equals Column (37) + «Column (42J - Column [36]) /6) [39] Equals Column [38) + «Column (42J - Column [36]) /6) [40] Equals Column [39) + «Column [42J - Column [36]) /6) [41] Equals Column [40) + «Column [42J - Column (36]) /6) [42J Equals Column [10] [43J Equals Column [10] [44] Equals Column [10] [45J Equals Column [10] [46J Equals Column [10] [47] Equals Column [16] x Column [32] [48J Equals Column [17] x Column [33] [49J Equals Column [18] x Column [34] [50] Equals Column [19] x Column [35] [51] Equals Column [20] x Column [36] [52] Equals Column [21] x Column [37] [53] Equals Column [22] x Column [38] [54) Equals Column [23] x Column [39] [55] Equals Column [24] x Column [40] [56] Equals Column [25] x Column [41] [57] Equals Column [26) x Column [42] [58] Equals Column [27] x Column [43] [59] Equals Column [28] x Column [44] [60] Equals Column 129] x Column [45] [61] Equals Column [30] x Column [46] [62] Equals (Column (61] x (1 + Column [7])) I (Column 112)- Column 171) [63] Equals negative net present value; discount rate equals Column [12], cash flows equal Column [64] through Column [79] (64) Equals $0.00 [65) Equals (12131/2012 - 813112012)x Column [47] (661 Equals [47] x (1 + (0.5 x (6]» [671 Equals Column [49] [68] Equals Column [50] [69] Equals Column [51] [70] Equals Column [52] [71] Equals Column [53] [721 Equals Column [54] (73) Equals Column [55] (74) Equals Column [56] [75] Equals Column [57] [76] Equals Column [58] [77] Equals Column [591 (78) Equals Column [601 [79) Equals Column [61] + [621


Sharpe Ratio Derived Ex-Ante Market Risk Premium

[1] [2] [3] [4] [5] Historical Sharpe

RPh Volh VOL, Ratio RP,

6.60% 20.30% 25.26% 32.52% 8.21%

[6] m [8] [9] Feb 13 VIX Mar 13 VIX Apr 13 VIX

Date VXV Futures Futures Futures

8/31/2012 20.62 26.65 27.65 28.25 8/30/2012 20.92 27.05 28.05 28.65 8/29/2012 20.46 26.95 27.95 28.50 8/28/2012 19.82 26.80 27.80 28.35 8/27/2012 19.92 26.75 27.75 28.35 8/24/2012 19.24 27.05 27.90 28.40 8/23/2012 20.09 27.10 27.90 28.40 8/22/2012 19.42 26.90 27.65 28.10 8/21/2012 18.80 26.90 27.55 27.90 8/20/2012 18.59 26.45 27.10 27.50 8/17/2012 18.35 26.05 26.70 27.15 8/16/2012 18.55 26.10 26.75 27.20 8/15/2012 18.86 26.15 26.80 27.30 8/14/2012 18.51 26.20 26.85 27.40 8/13/2012 18.07 25.80 26.45 26.95 8/10/2012 18.14 25.85 26.45 26.95 8/9/2012 18.23 26.05 26.65 27.10 8/8/2012 18.58 26.05 26.65 27.40 81712012 18.81 26.35 26.95 27.40 8/6/2012 18.74 26.10 26.65 27.05 8/3/2012 18.68 26.25 26.70 27.35 8/2/2012 20.23 26.95 27.40 27.80 8/1/2012 20.67 27.00 27.35 27.80

7/31/2012 20.78 26.80 27.25 27.70 7/30/2012 20.13 26.50 27.00 27.50 7/27/2012 19.66 26.25 26.70 27.15 7/26/2012 20.24 26.15 26.70 27.30 7/25/2012 21.88 27.15 27.65 28.10 7/24/2012 22.26 27.40 27.85 28.25 7/23/2012 21.18 27.10 27.55 26.10

Average: 25.26

Notes: [1] Source: Morningstar, Inc.

RP h :;;; historical arithmetic average Risk Premium [2] Source: Morningstar, Inc.

Vol h :;;; historical market volatility

[3J Vol, = expected market volatility (average of Cols. [6J to [9])

[4J Equals [1J 1 [2J [5J RP, = expected Risk Premium ([3J x [4])

[6J Source: Bloomberg Professional [n Source: Bloomberg Professional [81 Source: Bloomberg Professional [9} Source: Bloomberg Professional


Company

AGILENT TECHNOLOGIES INC ALCOA INC APPLE INC AMERISOURCEBERGEN CORP ABBOTT LABORATORIES ACE LTD ACCENTURE PLC·CL A ADOBE SYSTEMS INC ANALOG DEVICES INC ARCHER·DANIELS·MIDLAND CO AUTOMATIC DATA PROCESSING AUTODESK INC AMEREN CORPORATION AMERICAN ELECTRIC POWER AES CORP AETNA INC AFLACINC ALLERGAN INC AMERICAN INTERNATIONAL GROUP APARTMENT INVT & MGMT CO-A ASSURANT INC AKAMAI TECHNOLOGIES INC ALLSTATE CORP ALTERACORP ALEXION PHARMACEUTICALS INC APPLIED MATERIALS INC ADVANCED MICRO DEVICES AMGENINC AMERIPRISE FINANCIAL INC AMERICAN TOWER CORP AMAZON.COM INC AUTONATION INC ABERCROMBIE & FITCH CO-CL A ALPHA NATURAL RESOURCES INC AON PLC APACHE CORP ANADARKD PETROLEUM CORP AIR PRODUCTS & CHEMICALS INC AMPHENOL CORP-CL A APOLLO GROUP INC-CL A AIRGAS INC ALLEGHENY TECHNOLOGIES INC AVALONBAY COMMUNITIES INC AVON PRODUCTS INC AVERY DENNISON CORP AMERICAN EXPRESS CO AUTOZONE INC BOEING COfTHE BANK OF AMERICA CORP BAXTER INTERNATIONAL INC BED BATH & BEYOND INC BB&TCORP BEST BUY CO INC CR BARD INC BECTON DICKINSON AND CO BEAM INC FRANKLIN RESOURCES INC BROWN-FORMAN CORP-CLASS B BAKER HUGHES INC BIG LOTS INC BIOGEN IDEC INC BANK OF NEW YORK MELLON CORP BLACK ROCK INC BALL CORP BMC SOFTWARE INC BEMIS COMPANY BRISTOL-MYERS SQUIBB CO BROADCOM CORP-CL A

TIcker

A AA

AAPL ABC ABT ACE ACN

ADBE ADI

ADM AOP

ADSK AEE AEP AES AET AFL AGN AIG AIV AIZ

AKAM ALL

ALTR ALXN AMAT AMO

AMGN AMP AMT

AMZN AN

ANF ANR AON APA APC APO APH

APOL ARG ATI AVB AVP AVY AXP AZO

BA BAC BAX

BBBY BBT BBY BCR BOX

BEAM BEN SF/B BHI BIG SIIB BK

BLK BLL BMC BMS BMY

SRCM

Ex·Ante Market Risk Premium Market DCF Method Based - Bloomberg

(1)

S&P500 Est. Required Market Return

13.35%

(2J Current 30·Year Treasury (30-day

average) 2.71%

(4) (5)

Market Capitalization Weight in Index

12,874.g1 0.10% 8,983.23 0.07%

632,346.00 4.91% 9,758.48 0,08%

102,728.59 0,80% 25,292.90 0.20% 42,583.25 0.33% 15,456.10 0.12% 11,764.92 0.09% 17,703.56 0.14% 28,406.06 0.22% 7,218.02 0.06% 7,939.01 0.06%

20,918.70 0.16% 8,444.88 0.07%

12,749.73 0.10% 21,774.63 0.17% 25,997.61 0.20% 56,336.91 0.44%

3,884.57 0.03% 2,859.04 0.02% 6,679.14 0.05%

18,136.25 0.14% 11,853.03 0.09% 20,927.65 0.16% 14,528.19 0.11% 2,575.50 0.02%

64,998.94 0.50% 11,507.89 0.09% 27,969.28 0.22%

112,057.94 0.87% 4,967.92 0.04% 2,885.23 0.02% 1,218.56 0.01%

16,694.21 0.13% 33,006.84 0.26% 34,542.81 0.27% 17,251.96 0.13% 9,878.16 0.08% 3,121.21 0.02% 6,336.72 0.05% 3,080.18 0.02%

13,813.51 0.11% 6,563.11 0.05% 3,003.33 0.02%

66,443.16 0.52% 13,411.80 0.10% 53,279.90 0.41 % 86,215.60 0.67% 32,231.92 0.25% 15,549.63 0.12% 22,176.35 0.17% 6,125.06 0.05% 8,221.13 0.06%

15,281.92 0.12% 9,365.91 0.07%

24,999.98 0.19% 13,637.25 0.11% 19,630.66 0.15%

1,947.44 0.02% 34,759.55 0.27% 26,638.27 0.21 % 30,581.30 0.24% 6,464.65 0.05% 6,697.49 0.05% 3,114.94 0.02%

55,642.79 0.43% 19,755.06 0.15%

[3J

Implied Market Risk Premium

10.64%

(a) m Estimated Long.Term Growth

Dividend Yield Est.

0.74% 10.87% 1.43% 10.00% 0.39% 21.75% 1.28% 12.00% 3.12% 9.96% 2.46% 7.56% 2.11% 13.25% 0.00% 11,17% 2.93% 12.33% 2.65% 10.00% 2.83% 10.20% 0.00% 15.40% 4.88% -4.00% 4.40% 4.33% 0.68% 8.50% 1.80% 10.60% 2.86% 13.33% 0.23% 14.50% 0.00% 12.33% 2.87% 9.26% 2.30% 10.33% 0.00% 14.25% 2,35% 9.00% 0.91% 12.29% 0.00% 40.38% 2.84% 8.67% 0.00% 8.75% 1.78% 10.26% 2.37% 10.55% 1.25% 20.86% 0.00% 29.34% 0.00% 20.66% 2.02% 18.29% 0.00% 5.00% 1.20% 8.33% 0.81% 7.83% 0.53% 9.92% 3.07% 9.99% 0.65% 15.00% 0.00% 9.78% 1.81% 12.89% 2.51 % 15.00% 2.73% 10.14% 5.98% .().06% 3.63% 7.00% 1.35% 10.23% 0.00% 16.57% 2.47% 11.83% 0.53% 13.45% 2.38% 8.80% 0.00% 14.67% 2.47% 10.56% 3.27% 7.72% 0.81% 9.75% 2.30% 8.00% 1.38% 12.81% 2.62% 9.00% 1.44% 13.00% 1.34% 23.00% 0.00% 11.63% 0.00% 14.70% 2.31% 17.63% 3.39% 12.50% 0.96% 10.00% 0.00% 10.20% 3.37% 6.00% 4.13% 7.57% 1.13% 15.00%


(8)

DCF Result

11.65% 11.50% 22.19% 13.36% 13.24% 10.12% 15.50% 11.17% 15.44% 12.78% 13.17% 15.40% 0.79% 8.83% 9.21% 12.49% 16.38% 14.75% 12.33% 12.26% 12.75% 14.25% 11.46% 13.25% 40.38% 11.63% 8.75% 12.13% 13.04% 22.24% 29.34% 20.66% 20.50% 5.00% 9.59% 8.67% 10.47% 13.21% 15.70% 9.78% 14.82% 17.69% 13.01% 5.92% 10.76% 11.65% 16.57% 14.45% 14.01% 11.29% 14.67% 13.15% 11.12% 10.59% 10.39% 14.28% 11.74% 14.53% 24.50% 11.63% 14.70% 20.15% 16.10% 11.00% 10.20% 9.47% 11.85% 16.22%

(9)

Weighted DCF Result

0.0116% 0.0080% 1.0894% 0.0101% 0.1056% 0.0199% 0.0512% 0.0134% 0.0141% 0.0176% 0.0291% 0.0086% 0.0005% 0.0143% 0.0060% 0.0124% 0.0277% 0.0298% 0.0540% 0.0037% 0.0028% 0.0074% 0.0161% 0.0122% 0.0656% 0.0131% 0.0017% 0.0612% 0.0117% 0.0483% 0.2553% 0.0080% 0.0046% 0.0005% 0.0124% 0.0222% 0.0281% 0.0177% 0.0120% 0.0024% 0.0073% 0.0042% 0.0139% 0.0030% 0.0025% 0.0601% 0.0173% 0.0598% 0.0938% 0.0282% 0.0177% 0.0226% 0.0053% 0.0068% 0.0123% 0.0104% 0.0228% 0.0154% 0.0373% 0.0018% 0.0397% 0.0417% 0.0382% 0.0055% 0.0053% 0.0023% 0.0512% 0.0249%

Company

BERKSHIRE HATHAWAY INC-CL B BOSTON SCIENTIFIC CORP PEABODY ENERGY CORP BORGWARNER INC BOSTON PROPERTIES INC CITIGROUP INC CAINC CONAGRA FOODS INC CARDINAL HEALTH INC CAMERON INTERNATIONAL CORP CATERPILLAR INC CHUBB CORP COOPER INDUSTRIES PLC CBRE GROUP INC - A CBS CORP-CLASS B NON VOTING COCA-COLA ENTERPRISES CROWN CASTLE INTL CORP CARNIVAL CORP CELGENE CORP CERNERCORP CF INDUSTRIES HOLDINGS INC CARE FUSION CORP CHESAPEAKE ENERGY CORP C.H. ROBINSON WORLDWIDE INC CIGNACORP CINCINNATI FINANCIAL CORP COLGATE-PALMOLIVE CO CLIFFS NATURAL RESOURCES INC CLDRDX COMPANY COMERICA INC COMCAST CORP-CLASS A CME GROUP INC CHIPOTLE MEXICAN GRILL INC CUMMINS INC CMS ENERGY CORP CENTERPOINT ENERGY INC CONSOL ENERGY INC CAPITAL ONE FINANCIAL CORP CABOT OIL & GAS CORP COACH INC ROCKWELL COLLINS INC CONOCOPHILUPS COSTCD WHOLESALE CORP COVIDIEN PLC CAMPBELL SOUP CO SALESFORCE.COM INC COMPUTER SCIENCES CORP CISCO SYSTEMS INC CSX CORP CINTAS CORP CENTURYLINK INC COGNIZANT TECH SOLUTIONS-A CITRIX SYSTEMS INC CABLEVISION SYSTEMS-NY GRP·A COVENTRY HEALTH CARE INC CVS CARE MARK CORP CHEVRON CORP DOMINION RESOURCES INCNA DU PONT (E.!.) DE NEMOURS DEERE & CO DELL INC DEAN FOODS CO DISCOVER FINANCIAL SERVICES QUEST DIAGNOSTICS INC DR HORTON INC DANAHER CORP WALT DISNEY COfTHE DISCOVERY COMMUNICATIONS·A DOLLAR TREE INC DUN & BRADSTREET CORP DENBURY RESOURCES INC DIAMOND OFFSHORE DRILLING DOVER CORP DOW CHEMICAL COfTHE DR PEPPER SNAPPLE GROUP INC DARDEN RESTAURANTS INC DTE ENERGY COMPANY DIRECTV DUKE ENERGY CORP

Ticker

BRKlB BSX BTU BWA BXP

C CA

CAG CAH CAM CAT CB

CBE CBG CBS CCE CCI CCl

CELG CERN

CF CFN CHK

CHRW CI

CINF Cl ClF CLX CMA

CMCSA CME CMG CMI CMS CNP CNX COF COG COH COL COP

COST COY CPB CRM CSC

CSCO CSX

CTAS CTl

CTSH CTXS CVC CVH CVS CVX o

DO DE

DELL OF

DFS DGX DHI OHR DIS

DlSCA DLTR ONS DNR DO

DOV DOW DPS DRI DTE DTV DUK

[41 Market

Capitalizatlon

208,695.30 7,676.69 5.608.15 7,700.74

17,000.03 87,094.76 12,256.03 10.457.09 13,537.62 13,500.94 53,999.19 19,686.12 11,577.81 5,651.94

23,015.68 8,947.04

18,522.90 28,006.29 31,092.73 12,581.58 13,439.36 5,865.24

12,769.13 9,144.30

13,120.54 6,307.46

50,840.47 4,799.15 9,460.50 5,944.18

90,128.85 18,380.36 9,061.11

18,144.18 6,160.94 8,816.98 6,562.54

32,812.27 8,714.53

16,389.64 6,917.10

68,269.82 42,438.97 27,010.24 11,114.48 20,092.42 4,960.25

101,834.27 22,580.90 5,095.36

26,605.82 19,167.88 14,583.30 4,014.99 5,545.76

58,433.79 218,229.22 30,106.73 45,430.12 29,030.37 18,300.07 3,094.22

20,033.75 9,652.06 6,223.07

36,777.35 89,103.68 20,158.91 11,099.38 3,644.45 6,028.34 9,237.14

10,569.89 34,313.79 9,460.23 6,678.44

10,205.67 32,836.74 45,622.03

[5]

Weight In Index

N/A 0.06% 0.04% 0.06% 0.13% 0.68% 0.10% 0.08% 0.11% 0.10% 0.42% 0.15% 0.09% 0.04% 0.18% 0.07% 0.14% 0.22% 0.24% 0.10% 0.10% 0.05% 0.10% 0.07% 0.10% 0.05% 0.39% 0.04% 0.07% 0.05% 0.70% 0.14% 0.07% 0.14% 0.05% 0.07% 0.05% 0.25%

N/A 0.13% 0.05%

N/A 0.33% 0.21% 0.09% 0.16% 0.04% 0.79% 0.18% 0.04% 0.21% 0.15% 0.11% 0.03% 0.04% 0.45% 1.69% 0.23% 0.35% 0.23% 0.14% 0.02% 0.16% 0.07% 0.05% 0.29% 0.69% 0.16% 0.09% 0.03%

N/A 0.07% 0.08% 0.27% 0.07% 0.05% 0.08% 0.25% 0.35%

[61 Estimated

Dividend Yield

0.00% 0.00% 1.63% 0.13% 1.96% 0.16% 3.87% 3.90% 2.03% 0.00% 2.34% 2.24% 1.69% 0.00% 1.21% 2.15% 0.00% 2.87% 0.00% 0.00% 0.78% 0.00% 1.43% 2.36% 0.07% 4.17% 2.27% 6.57% 3.59% 1.81% 1.85% 4.53% 0.00% 1.78% 4.10% 3.92% 1.74% 0.35% 0.21% 2.01% 2.19% 4.76% 1.04% 1.54% 3.55% 0.00% 2.50% 2.80% 2.49% 1.47% 6.79% 0.00% 0.00% 4.06% 1.01% 1.39% 3.15% 3.99% 3.44% 2.33% 1.52% 0.00% 1.08% 1.07% 0.70% 0.19% 1.20% 0.00% 0.00% 1.87% 0.00% 5.35% 2.24% 4.18% 3.01% 3.86% 4.11% 0.00% 4.70%

m Long-Term Growth

Est.

N/A 9.25% 12.00% 20.05% 5.41% 8.33% 10.00% 6.50% 10.50% 17.00% 13.33% 7.44% 12.40% 13.33% 10.96% 6.12% 38.93% 16.77% 23.89% 19.14% 6.54%

10.42% 8.89% 14.80% 10.56% 5.00% 8.64% 11.00% 8.42% 12.20% 16.81% 12.67% 22.00% 12.25% 6.00% 5.67%

12.00% 10.15%

N/A 13.57% 8.64%

N/A 13.49% 10.80% 6.33%

26.08% 8.00% 9.56% 15.00% 11.17% 3.14% 18.67% 15.66% 6.80% 12.33% 13.50% -1.11% 4.85% 7.10% 14.67% 7.33% 5.75% 10.67% 11.38% 4.00%

15.00% 11.94% 20.75% 17.54% 10.00%

N/A 17.33% 14.33% 5.33% 7.30% 12.74% 5.00% 18.19% 4.25%


[81

DCF Result

N/A 9.25% 13.72% 20.19% 7.42% 8.50% 14.06% 10.53% 12.64% 17.00% 15.83% 9.77% 14.20% 13.33% 12.24% 8.33% 38.93% 19.89% 23.89% 19.14% 7.35% 10.42% 10.38% 17.33% 10.64% 9.27% 11.01% 17.94% 12.16% 14.12% 18.82% 17.48% 22.00% 14.14% 10.22% 9.70% 13.84% 10.52%

N/A 15.71% 10.92%

N/A 14.59% 12.43% 10.00% 26.08% 10.60% 12.49% 17.68% 12.72% 10.03% 18.67% 15.66% 11.00% 13.41% 14.99% 2.02% 8.93% 10.67% 17.17% 8.91% 5.75%

11.80% 12.51% 4.71%

15.20% 13.21% 20.75% 17.54% 11.97%

N/A 23.15% 16.73% 9.62% 10.42% 16.84% 9.21% 18.19% 9.05%

(9)

Weighted DCF Result

N/A 0.0055% 0.0060% 0.0121% 0.0098% 0.0575% 0.0134% 0.0085% 0.0133% 0.0178% 0.0664% 0.0149% 0.0128% 0.0059% 0.0219% 0.0058% 0.0560% 0.0433% 0.0577% 0.0187% 0.0077% 0.0047% 0.0103% 0.0123% 0.0108% 0.0045% 0.0434% 0.0067% 0.0089% 0.0065% 0.1317% 0.0249% 0.0155% 0.0199% 0.0049% 0.0066% 0.0071% 0.0268%

NlA 0.0200% 0.0059%

N/A 0.0481% 0.0261% 0.0086% 0.0407% 0.0041% 0.0988% 0.0310% 0.0050% 0.0207% 0.0278% 0.0177% 0.0034% 0.0058% 0.0680% 0.0343% 0.0209% 0.0376% 0.0387% 0.0127% 0.0014% 0.Q184% 0.0094% 0.0023% 0.0434% 0.0914% 0.0325% 0.0151% 0.0034%

N/A 0.Q166% 0.0137% 0.0256% 0.0077% 0.0087% 0.0073% 0.0464% 0.0321%

DEVRYINC DAVITAINC

Company

DEVON ENERGY CORPORATION ELECTRONIC ARTS INC EBAY INC ECOLAB INC CONSOLIDATED EDISON INC EQUIFAX INC EDISON INTERNATIONAL ESTEE LAUDER COMPANIES-CL A EMCCORP/MA EASTMAN CHEMICAL CO EMERSON ELECTRIC CO EOG RESOURCES INC EQUITY RESIDENTIAL EaT CORP EXPRESS SCRIPTS HOLDING CO ENSCO PLC-CL A E"TRADE FINANCIAL CORP EATON CORP ENTERGY CORP EDWARDS lIFESCIENCES CORP EXELON CORP EXPEDITORS INTL WASH INC EXPEDIA INC FORD MOTOR CO FASTENAL CO FREEPORT-MCMORAN COPPER FAMILY DOLLAR STORES FEDEXCORP FIRSTENERGY CORP F5 NETWORKS INC FIRST HORIZON NATIONAL CORP FEDERATED INVESTORS INC-CL B FIDELITY NATIONAL INFORMATIO FISERV INC FIFTH THIRD BANCORP FliR SYSTEMS INC FLUOR CORP FLOWSERVE CORP FMC CORP FOSSIL INC FOREST LABORATORIES INC FIRST SOLAR INC FMC TECHNOLOGIES INC FRONTIER COMMUNICATIONS CORP AGL RESOURCES INC GANNETT CO GENERAL DYNAMICS CORP GENERAL ELECTRIC CO GILEAD SCIENCES INC GENERAL MILLS INC CORNING INC GAMESTOP CORP-CLASS A GENWORTH FINANCIAL INC-CL A GOOGLE INC-Cl A GENUINE PARTS CO GAP INCfTHE GOLDMAN SACHS GROUP INC GOODYEAR TIRE & RUBBER CO WW GRAINGER INC HALLIBURTON CO HARMAN INTERNATIONAL HASBROINC HUNTINGTON BANCSHARES INC HUDSON CITY BANCORP INC HEALTH CARE REIT INC HCP INC HOME DEPOT INC HESS CORP HARTFORD FINANCIAL SVCS GRP HJ HEINZ CO HARLEY-DAVIDSON INC HONEYWELL INTERNATIONAL INC STARWOOD HOTELS & RESORTS HELMERICH & PAYNE HEWLETT-PACKARD CO H&R BLOCK INC HaRMEL FOODS CORP

Ticker

DV DVA DVN EA

EBAY ECl ED EFX EIX El

EMC EMN EMR EOG EaR EaT

ESRX ESV

ETFC ETN ETR EW EXC

EXPD EXPE

F FAST FCX FDO FDX FE

FFIV FHN FII FIS

FISV FITS FLIR FlR FlS FMC FOSL FRX

FSLR FTI FTR GAS GCI GD GE

GILD GIS

GlW GME GNW

GOOG GPC GPS GS GT

GWW HAL HAR HAS

HBAN HCBK HCN HCP HD

HES HIG HNZ HOG HON HOT HP

HPO HRB HRl

[4J Market

Capitalization

1,231.17 9,236.74

23,238.53 4,148.67

61,005.64 18,565.76 17,831.29

5.534.12 14,325.92 23,249.55 55,301.27

7,539.19 36,249.82 29,518.97 18,241.49 7,976.38

51,109.68 13,267.55

2,454.51 14,880.03 12,167.65 12,062.00 30,822.53 7,678.49 7,057.17

35,889.61 12,844.20 33,812.21 7,361.12

27,715.14 18,188.23

7,465.73 2,236.80 2,205.28 9,303.82 9,696.31

13,838.83 2,990.82 8,665.66 6,514.96 7,373.97 5,113.73 9,315.23 1,645.47

11,235.06 4.643.14 4,745.30 3.631.00

22,807.12 217,309.84

43,873.41 25,508.97 17,734.21 2,541.04 2,581.06

223,393.59 9,613.15

17,222.29 52,654.40

2,966.11 14,583.32 29,827.17

3,053.96 4,844.53 5,631.11 3,823.68

13,478.67 19,886.94 85,607.62 16,956.09

7,713.92 17,920.26 9,498.88

44,818.47 10,821.56 4,679.02

33,501.43 4,527.74 7,616.31

(5J

Weight in Index

0.01% 0.07% 0.18% 0.03% 0.47% 0.14% 0.14% 0.04% 0.11% 0.18% 0.43% 0.06% 0.28% 0.23% 0.14% 0.06% 0.40% 0.10% 0.02% 0.12% 0.09% 0.09% 0.24% 0.06% 0.05% 0.28% 0.10%

NfA 0.06% 0.22% 0.14% 0.06% 0.02% 0.02% 0.07% 0.08% 0.11% 0.02% 0.07%

NfA 0.06% 0.04% 0.07% 0.01% 0.09% 0.04% 0.04% 0.03% 0.18% 1.69% 0.34% 0.20% 0.14% 0.02% 0.02% 1.73% 0.07% 0.13% 0.41% 0.02% 0.11% 0.23% 0.02% 0.04% 0.04% 0.03% 0.10% 0.15% 0.66% 0.13% 0.06% 0.14% 0.07% 0.35% 0.08% 0.04% 0.26% 0.04% 0.06%

[6)

Estimated Dividend Yield

1.64% 0.00% 1.36% 0.00% 0.00% 1.26% 3.98% 1.52% 2.97% 1.21% 0.00% 1.88% 3.21% 0.62% 2.90% 1.65% 0.00% 2.66% 0.00% 3.44% 4.86% 0.00% 5.82% 1.52% 0.79% 2.13% 1.62% 3.46% 1.29% 0.64% 5.06% 0.00% 0.58% 4.62% 1.90% 0.00% 2.36% 1.41% 1.07% 1.12% 0.74% 0.00% 0.00% 0.00% 0.00% 8.60% 4.53% 4.72% 3.08% 3.29% 0.00% 3.34% 2.52% 1.98% 0.00% 0.00% 3.19% 1.35% 1.64% 0.10% 1.47% 1.13% 1.10% 3.78% 2.45% 4.42% 5.03% 4.33% 2.15% 0.82% 2.31% 3.69% 1.49% 2.63% 1.03% 0.63% 2.98% 4.81% 2.31%

rn Long-Term Growth

Est.

9.48% 12.57% 6.20% 16.55% 13.11% 13.60% 3.26% 11.00% -0.37% 14.07% 15.00% 7.50% 12.33% 10.55% 7.78%

30.00% 16.88% 16.67% 26.00% 10.00% 3.50%

20.17% -1.85% 9.33% 12.01% 8.62% 19.10%

NfA 13.90% 13.14% 0.33% 18.67% 8.33% 8.00% 12.40% 12.43% 5.00% 10.00% 13.30%

NfA 10.45% 18.45% 10.64% -1.00% 13.00% -9.05% 4.00% 6.00% 6.60% 11.50% 17.59% 7.50% 9.50% 8.45% 5.00% 16.23% 8.23% 11.26% 11.03% 46.30% 14.03% 20.50% 20.00% 9.00% 5.33% 0.50% 6.09% 5.23% 15.75% 5.13% 9.50% 7.33% 13.00% 15.00% 20.34% 8.00% 10.00% 11.00% 8.50%


[8J

DCF Result

11.19% 12.57% 7.60% 16.55% 13.11% 14.95% 7.30% 12.61% 2.60% 15.37% 15.00% 9.45% 15.74% 11.20% 10.79% 31.90% 16.88% 19.55% 26.00% 13.62% 8.45%

20.17% 3.91% 10.93% 12.86% 10.84% 20.88%

NfA 15.28% 13.82% 5.40% 18.67% 8.94% 12.81% 14.42% 12.43% 7.42% 11.48% 14.44%

NfA 11.22% 18.45% 10.64% -1.00% 13.00% -0.84% 8.62% 10.86% 9.79% 14.98% 17.59% 10.96% 12.14% 10.52% 5.00% 16.23% 11.55% 12.69% 12.76% 46.42% 15.59% 21.75% 21.21% 12.96% 7.85% 4.93% 11.28% 9.67% 18.07% 5.97% 11.91% 11.16% 14.58% 17.82% 21.48% 8.66% 13.13% 16.07% 10.91%

[9]

Weighted DCF Result

0.0011% 0.0090% 0.0137% 0.0053% 0.0621% 0.0215% 0.0101% 0.0054% 0.0029% 0.0277% 0.0644% 0.0055% 0.0443% 0.0257% 0.0153% 0.0198% 0.0670% 0.0201% 0.0050% 0.0157% 0.0080% 0.0189% 0.0094% 0.0065% 0.0070% 0.0302% 0.0208%

NfA 0.0087% 0.0297% 0.0076% 0.D108% 0.0016% 0.0022% 0.0104% 0.0094% 0.0080% 0.0027% 0.0097%

NfA 0.0064% 0.0073% 0.0077% -0.0001% 0.0113% -0.0003% 0.0032% 0.0031% 0.0173% 0.2528% 0.0599% 0.0217% 0.0167% 0.0021% 0.0010% 0.2815% 0.0086% 0.0170% 0.0522% 0.0107% 0.0177% 0.0504% 0.0050% 0.0049% 0.0034% 0.0015% 0.0118% 0.0149% 0.1201% 0.0079% 0.0071% 0.0155% 0.0108% 0.0620% 0.0181% 0.0031% 0.0341% 0.0056% 0.0065%

HARRIS CORP HOSPIRA INC

Company

HOST HOTELS & RESORTS INC HERSHEY COfTHE HUMANA INC INTL BUSINESS MACHINES CORP INTERCONTINENTALEXCHANGE INC INTL FLAVORS & FRAGRANCES INTL GAME TECHNOLOGY INTEL CORP INTUIT INC INTERNATIONAL PAPER CO INTERPUBLIC GROUP OF COS INC INGERSOLL-RAND PLC IRON MOUNTAIN INC INTUITIVE SURGICAL INC ILLINOIS TOOL WORKS INVESCO LTD JABIL CIRCUIT INC JOHNSON CONTROLS INC J.C. PENNEY CO INC JDS UNIPHASE CORP JACOBS ENGINEERING GROUP INC JOHNSON & JOHNSON JUNIPER NElWORKS INC JOY GLOBAL INC JPMORGAN CHASE & CO NORDSTROM INC KELLOGG CO KEYCORP KRAFT FOODS INC-CLASS A KIMCO REALTY CORP KLA-TENCOR CORPORATION KIMBERLY-CLARK CORP KINDER MORGAN INC CARMAXINC COCA-COLA COrrHE KROGER CO KOHLS CORP LOEWSCORP LEGGETT & PLATT INC LENNAR CORP-A LABORATORY CRP OF AMER HLDGS LIFE TECHNOLOGIES CORP L-3 COMMUNICATIONS HOLDINGS LINEAR TECHNOLOGY CORP ELI LILLY & CO LEGG MASON INC LOCKHEED MARTIN CORP LINCOLN NATIONAL CORP LORILLARD INC LOWE'S COS INC LAM RESEARCH CORP LSI CORP LIMITED BRANDS INC LEUCADIA NATIONAL CORP SOUTHWEST AIRLINES CO LEXMARK INTERNATIONAL INC-A MACY'S INC MASTERCARD INC-CLASS A MARRIOTT INTERNATIONAL-CLA MASCOCORP MATTEL INC MCDONALD'S CORP MICROCHIP TECHNOLOGY INC MCKESSON CORP MOODY'S CORP MEDTRONIC INC METLIFE INC MCGRAW-HILL COMPANIES INC MEAD JOHNSON NUTRITION CO MCCORMICK & CO-NON VTG SHRS MARSH & MCLENNAN COS 3MCO MONSTER BEVERAGE CORP AL TRIA GROUP INC MOLEX INC MONSANTO CO MOSAIC COfTHE

Ticker

HRS HSP HST HSV HUM IBM ICE IFF IGT

INTC INTU

IP IPG IR

IRM ISRG ITW IVZ JBL JCI JCP

JDSU JEC JNJ

JNPR JOV JPM JWN

K KEV KFT KIM

KLAC KMB KMI KMX KO KR

KSS L

LEG LEN LH

LIFE LLL

LLTC LLV LM

LMT LNC LO

LOW LRCX

LSI LTD LUK LUV LXK

M MA

MAR MAS MAT MCD

MCHP MCK MCO MDT MET MHP MJN MKC MMC MMM MNST

MO MOLX MON MOS

[4) [5)

Market Capitalization Weight in Index

5,299.62 0.04% 5,612.17 0.04%

11,026.65 0.09% 16,414.29 0.13% 11,274.59 0.09%

222,315.36 1.73% 9,937.80 0.08% 4,890.20 0.04% 3,237.25 0.03%

122,023.16 0.95% 17,194.32 0.13% 14,948.08 0.12% 4,681.63 0.04%

14,133.37 0.11% 5,588.57 0.04%

19,611.25 0.15% 27,622.74 0.21% 10,676.61 0.08%

4,409.64 0.03% 18,362.96 0.14% 5,677.52 0.04% 2,639.08 0.02% 5,122.18 0.04%

185,438.59 1.44% 9,315.34 0.07% 5,466.84 0.04%

140,591.86 1.09% 11,591.45 0.09% 18,119.29 0.14%

7,925.09 0.06% 74,251.30 0.58% 8,338.50 0.06% 8,724.47 0.07%

33,064.23 0.26% 40,417.46 0.31%

6,998.93 0.05% 167,831.70 1.30%

12,168.16 0.09% 12,192.05 0.09% 16,136.38 N/A

3,372.87 0.03% 6,003.42 0.05% 8,464.13 0.07% 8,450.99 0.07% 6,668.02 0.05% 7,529.82 0.06%

52,555.67 0.41% 3,342.66 0.03%

29,369.40 0.23% 6,507.54 0.05%

16,533.15 0.13% 32,751.36 0.25%

6,130.96 0.05% 4,332.26 0.03%

14,107.61 0.11% 5,163.14 N/A 6,576.17 0.05% 1,503.80 0.01 %

16,260.95 0.13% 52,961.91 0.41% 12,145.89 0.09%

5,017.25 0.04% 11,922.29 0.09% 89,800.81 0.70% 6,668.83 0.05%

20,579.97 0.16% 8,829.76 0.07%

42,242.09 0.33% 36,116.52 0.28% 14,311.44 0.11% 14.995.04 0.12% 8,268.57 0.06%

18,562.51 0.14% 63,380.17 0.49% 10,091.74 0.08% 69,998.63 0.54% 4,321.64 0.03%

46,164.14 0.36% 24,146.00 0.19%

[6) m Estimated Long-Term Growth

Dividend Yield Est.

2.93% 4.00% 0.00% 3.35% 1.74% 13.30% 2.06% 7.86% 1.47% 9.80% 1.67% 9.67% 0.00% 14.00% 2.14% 3.00% 1.98% 13.00% 3.55% 10.76% 0.69% 14.50% 3.07% 5.00% 2.32% 9.33% 1.36% 11.00% 3.30% 13.67% 0.00% 21.17% 2.50% 7.65% 2.85% 12.00% 1.46% 12.00% 2.54% 16.95% 1.51 % 21.93% 0.00% 14.00% 0.00% 13.23% 3.54% 6.37% 0.00% 15.00% 1.36% 16.80% 3.22% 7.33% 1.77% 12.59% 3.43% 7.97% 2.15% 7.01% 2.79% 7.50% 3.72% 15.15% 2.89% 9.67% 3.52% 8.44% 3.93% 7.00% 0.00% 13.16% 2.94% 7.71% 2.16% 8.60% 2.46% 13.00% 0.61% N/A 4.67% 15.00% 0.48% 4.50% 0.00% 12.25% 0.00% 8.73% 2.82% 1.67% 3.11% 10.00% 4.33% -1.23% 1.81% 11.00% 4.53% 6.88% 1.41% 5.40% 4.81% 9.14% 2.19% 16.60% 0.00% 10.00% 0.00% 15.25% 4.14% 12.54% 0.00% N/A 0.25% 18.12% 5.44% -9.00% 1.99% 10.27% 0.23% 19.16% 1.18% 19.01% 2.14% 10.00% 3.55% 9.00% 3.21% 9.96% 4.10% 10.00% 0.74% 14.33% 1.63% 12.00% 2.53% 6.51% 3.05% 9.50% 1.94% 9.50% 1.63% 11.40% 1.98% 8.00% 2.64% 8.08% 2.38% 12.00% 0.00% 17.50% 4.96% 7.64% 3.30% 11.67% 1.42% 9.65% 1.76% 5.51%


[8)

DCF Result

6.99% 3.35% 15.15% 10.00% 11.34% 11.42% 14.00% 5.17% 15.11% 14.50% 15.24% 8.15% 11.76% 12.44% 17.19% 21.17% 10.25% 15.02% 13.55% 19.71% 23.61% 14.00% 13.23% 10.02% 15.00% 18.27% 10.67% 14.46% 11.53% 9.24% 10.40% 19.16% 12.69% 12.11% 11.07% 13.16% 10.76% 10.85% 15.62%

N/A 20.02% 4.99% 12.25% 8.73% 4.52% 13.27% 3.07% 12.91% 11.56% 6.85% 14.17% 18.98% 10.00% 15.25% 16.94%

N/A 18.39% -3.80% 12.36% 19.40% 20.30% 12.25% 12.71% 13.33% 14.30% 15.13% 13.73% 9.12% 12.69% 11.53% 13.12% 10.06% 10.82% 14.53% 17.50% 12.79% 15.16% 11.14% 7.32%

[91 Weighted

DCF Result

0.0029% 0.0015% 0.0130% 0.0127% 0.0099% 0.1972% 0.0108% 0.0020% 0.0038% 0.1374% 0.0203% 0.0095% 0.0043% 0.0136% 0.0075% 0.0322% 0.0220% 0.0125% 0.0046% 0.0281% 0.0104% 0.0029% 0.0053% 0.1443% 0.0108% 0.0078% 0.1164% 0.0130% 0.0162% 0.0057% 0.0600% 0.0124% 0.0086% 0.0311% 0.0348% 0.0071% 0.1403% 0.0103% 0.0148%

N/A 0.0052% 0.0023% 0.0081% 0.0057% 0.0023% 0.0078% 0.0125% 0.0033% 0.0264% 0.0035% 0.0182% 0.0483% 0.0048% 0.0051% 0.0186%

N/A 0.0094% -0.0004% 0.0156% 0.0798% 0.0191% 0.0048% 0.0118% 0.0929% 0.0074% 0.0242% 0.0094% 0.0299% 0.0356% 0.0128% 0.0153% 0.0065% 0.0156% 0.0715% 0.0137% 0.0695% 0.0051% 0.0399% 0.0137%

Company

MARATHON PETROLEUM CORP MERCK & CO. INC. MARATHON OIL CORP MORGAN STANLEY MICROSOFT CORP MOTOROLA SOLUTIONS INC M & T BANK CORP MICRON TECHNOLOGY INC MURPHY OIL CORP MEADWESTVACO CORP MYLAN INC NOBLE ENERGY INC NABORS INDUSTRIES LTD NASDAQ OMX GROUPfTHE NOBLE CORP NEXTERA ENERGY INC NEWMONT MINING CORP NETFLIX INC NEWFIELD EXPLORATION CO NISOURCE INC NIKE INC -CL B NORTHROP GRUMMAN CORP NATIONAL OILWELL VARCO INC NRG ENERGY INC NORFOLK SOUTHERN CORP NETAPP INC NORTHERN TRUST CORP NORTHEAST UTILITIES NUCOR CORP NVIDIA CORP NEWELL RUBBERMAID INC NEWS CORP-CL A NYSE EURONEXT OWENS-ILLINOIS INC ONEOK INC OMNICOM GROUP ORACLE CORP O'REILLY AUTOMOTIVE INC OCCIDENTAL PETROLEUM CORP PAYCHEXINC PEOPLE'S UNITED FINANCIAL PITNEY BOWES INC PACCARINC PG&ECORP PLUM CREEK TIMBER CO PRICELlNE.COM INC PRECISION CASTPARTS CORP METROPCS COMMUNICATIONS INC PATTERSON COS INC PUBLIC SERVICE ENTERPRISE GP PEPSICO INC PFIZER INC PRINCIPAL FINANCIAL GROUP PROCTER & GAMBLE COfTHE PROGRESSIVE CORP PARKER HANNIFIN CORP PUL TEGROUP INC PERKINELMER INC PROLOGIS INC PALL CORP PHILIP MORRIS INTERNATIONAL PNC FINANCIAL SERVICES GROUP PINNACLE WEST CAPITAL PEPCO HOLDINGS INC PPG INDUSTRIES INC PPL CORPORATION PERRIGO CO PRUDENTIAL FINANCIAL INC PUBLIC STORAGE PHILLIPS 66 QUANTA SERVICES INC PRAXAIR INC PIONEER NATURAL RESOURCES CO QUALCOMM INC QEP RESOURCES INC RYDER SYSTEM INC REYNOLDS AMERICAN INC ROWAN COMPANIES PLC-A REGIONS FINANCIAL CORP

Ticker

MPC MRK MRO MS

MSFT MSI MTB MU

MUR MWV MYl NBl NBR

NOAa NE

NEE NEM NFLX NFX

NI NKE NOC NOV NRG NSC NTAP NTRS

NU NUE

NVDA NWl

NWSA NYX 01

OKE OMC ORCL ORLY OXY PAYX PBCT

PBI PCAR PCG PCl

PCLN PCP PCS

PDCO PEG PEP PFE PFG PG

PGR PH

PHM PKI Pla Pll PM

PNC PNW paM PPG PPl

PRGO PRU PSA PSX PWR

PX pxa

QCOM QEP

R RAI ROC RF

[4J Market

Capitalization

17,182.11 131,723.59

19,364.12 30,640.12

254,603.77 13,633.91 11,077.49 6,196.78 9,951.77 4,984.36 9,591.12

15,423.00 4,233.83 3,878.55 9,417.08

28,405.10 24,628.59 3,106.03 4,453.10 7,037.17

44,580.87 16,501.29 33,290.79

4,905.51 22,704.86 12,581.60 11.244.17 11,927.71 11.780.88 8,223.55 5.182.55

55,823.22 6,258.24 2,817.74 9,227.53

13,713.86 154.165.13

9.917.76 67,314.73 12,141.54 4,201.07 2,646.42

13.839.73 18,525.54

6,638.60 29,740.27 23.321.11

3,590.63 3,737.44

16,028.03 112,798.79 177.624.33

8,068.57 185,845.70

11,823.77 11,956.99

5,276.63 3,143.80

15,874.96 6,478.29

151,091.28 33.003.14

5,718.19 4,449.54

16,516.27 17,195.60 10.350.03 25,457.58 26,386.72 26,587.79 5,046.21

31,078.42 11.966.46

103.580.66 5,098.42 2.045.44

26,270.76 4,360.52 9,907.54

[5J

Weight in Index

0.13% 1.02% 0.15% 0.24% 1.98%

NJA 0.09% 0.05% 0.08% 0.04% 0.07% 0.12% 0.03% 0.03% 0.07% 0.22% 0.19% 0.02% 0.03%

NIA 0.35% 0.13% 0.26% 0.04% 0.18% 0.10% 0.09% 0.09% 0.09% 0.06% 0.04% 0.43% 0.05% 0.02% 0.07% 0.11% 1.20% 0.08% 0.52% 0.09% 0.03%

NJA 0.11% 0.14% 0.05% 0.23% 0.18% 0.03% 0.03% 0.12% 0.88% 1.38% 0.06% 1.44% 0.09% 0.09% 0.04% 0.02% 0.12% 0.05% 1.17% 0.26% 0.04% 0.03% 0.13% 0.13% 0.08% 0.20% 0.20% 0.21% 0.04% 0.24%

NIA 0.80% 0.04% 0.02% 0.20% 0.03% 0.08%

[6J Estimated

Dividend Yield

2.45% 3.86% 2.47% 1.29% 2.75% 2.20% 3.20% 0.00% 2.29% 3.48% 0.00% 1.00% 0.00% 1.79% 1.54% 3.55% 3.04% 0.00% 0.00% 3.82% 1.57% 3.19% 0.59% 0.59% 2.69% 0.00% 2.63% 3.44% 3.93% 0.00% 2.07% 0.80% 4.72% 0.00% 2.88% 2.31% 0.74% 0.00% 2.53% 3.86% 5.34% 11.32% 3.58% 4.20% 4.09% 0.00% 0.08% 0.000/0 1.25% 4.48% 2.93% 3.65% 2.74% 3.40% 1.69% 2.12% 0.00% 1.02% 3.38% 1.38% 3.63% 2.49% 4.08% 5.56% 2.15% 4.85% 0.26% 3.01% 3.00% 0.94% 0.00% 2.11% 0.10% 1.49% 0.26% 3.14% 5.02% 0.00% 0.57%

[7] Long-Term Growth

Est.

11.00% 4.50% -0.42% 11.00% 9.96%

NJA 15.58% 11.28% 10.00% 10.00% 10.05% 7.00% 8.00% 9.00% 13.00% 5.13% -3.00% 10.44% 11.50%

NIA 13.83% 3.75% 18.00% -6.84% 14.67% 14.25% 8.74% 6.79% 8.50% 14.33% 9.01% 16.43% 8.50% 8.67% 16.00% 8.00% 13.31% 18.25% -1.92% 10.33% 7.67%

NJA 10.75% 2.85% 5.00% 20.96% 12.63% 14.76% 12.33% 0.30% 8.81% 3.48% 11.50% 7.52% 7.75% 6.00% 5.00% 10.96% 3.08% 12.05% 10.33% 3.86% 5.00% 5.33% 7.00% ..a.00% 11.63% 11.00% 5.25% 10.00% 16.83% 11.66%

NJA 15.50% 15.00% 8.93% 7.68% 18.33% 8.00%


{8]

DCF Result

13.58% 8.44% 2.04% 12.36% 12.84%

NJA 19.03% 11.28% 12.41% 13.66% 10.05% 8.04% 8.00% 10.87% 14.64% 8.77% 0.00% 10.44% 11.50%

NJA 15.51% 7.00% 18.64% -6.27% 17.55% 14.25% 11.49% 10.34% 12.60% 14.33% 11.18% 17.30% 13.42% 8.67% 19.12% 10.41% 14.10% 18.25% 0.58% 14.40% 13.21%

NJA 14.52% 7.11% 9.19% 20.96% 12.71% 14.76% 13.66% 4.79% 11.88% 7.20% 14.39% 11.04% 9.51% 8.18% 5.00% 12.03% 6.51%

13.52% 14.15% 6.40% 9.19% 11.04% 9.23% -3.34% 11.90% 14.17% 8.33% 10.99% 16.83% 13.89%

NIA 17.11% 15.28% 12.21% 12.88% 18.33% 8.59%

[9J Weighted

DCF Result

0.0181% 0.0864% 0.0031% 0.0294% 0.2539%

NJA 0.0164% 0.0054% 0.0096% 0.0053% 0.0075% 0.0096% 0.0026% 0.0033% 0.0107% 0.0194% 0.0000% 0.0025% 0.0040%

NJA 0.0537% 0.0090% 0.0482% -0.0024% 0.0309% 0.0139% 0.0100% 0.0096% 0.0115% 0.0092% 0.0045% 0.0750% 0.0065% 0.0019% 0.0137% 0.0111% 0.1688% 0.0141% 0.0030% 0.Q136% 0.0043%

NJA 0.0156% 0.0102% 0.0047% 0.0484% 0.0230% 0.0041% 0.0040% 0.0060% 0.1040% 0.0993% 0.0090% 0.1594% 0.0087% 0.0076% 0.0020% 0.0029% 0.0080% 0.0068% 0.1660% 0.0164% 0.0041% 0.0038% 0.0118% -0.0045% 0.0096% 0.0280% 0.0171% 0.0227% 0.0066% 0.0335%

NJA 0.1376% 0.0061% 0.0019% 0.0263% 0.0062% 0.0066%

Company

ROBERT HALF INTL INC RED HAT INC RALPH LAUREN CORP ROCKWELL AUTOMATJON INC ROPER INDUSTRIES INC ROSS STORES INC RANGE RESOURCES CORP RR DONN ELLEY & SONS CO REPUBLIC SERVICES INC RAYTHEON COMPANY SPRINT NEXTEL CORP SAIC INC STARBUCKS CORP SCANACORP SCHWAB (CHARLES) CORP SPECTRA ENERGY CORP SEALED AIR CORP SEARS HOLDINGS CORP SHERWIN·WILLIAMS COfTHE SIGMA·ALDRICH JM SMUCKER COfTHE SCHLUMBERGER LTD SLM CORP SNAP-ON INC SANDISK CORP SCRIPPS NETWORKS INTER·CL A SOUTHERN COfTHE SIMON PROPERTY GROUP INC STAPLES INC STERICYCLE INC SEMPRA ENERGY SUNTRUST BANKS INC ST JUDE MEDICAL INC STATE STREET CORP SEAGATE TECHNOLOGY CONSTELLATION BRANDS INC·A SUNOCOINC STANLEY BLACK & DECKER INC SOUTHWESTERN ENERGY CO SAFEWAYINC STRYKER CORP SYMANTEC CORP SYSCO CORP AT&T INC MOLSON COORS BREWING CO ·B TERADATA CORP TECO ENERGY INC INTEGRYS ENERGY GROUP INC TE CONNECTIVITY LTD TERADYNEINC TARGET CORP TENET HEAL THCARE CORP TITANIUM METALS CORP TIFFANY & CO T JX COMPANIES INC TORCH MARK CORP THERMO FISHER SCIENTIFIC INC TRIPADVISOR INC T ROWE PRICE GROUP INC TRAVELERS COS INCfTHE TYSON FOODS INC-CL A TESORO CORP TOTAL SYSTEM SERVICES INC TIME WARNER CABLE TIME WARNER INC TEXAS INSTRUMENTS INC TEXTRON INC lyCO INTERNATIONAL LTD UNITEDHEALTH GROUP INC UNUM GROUP UNION PACIFIC CORP UNITED PARCEL SERVICE·CL 8 URBAN OUTFITTERS INC US BANCORP UNITED TECHNOLOGIES CORP VISA INC-CLASS A SHARES VARIAN MEDICAL SYSTEMS INC VF CORP VJACOM INC·CLASS B

Ticker

RHI RHT RL

ROK Rap

ROST RRC RRD RSG RTN

S SAl

SBUX SCG

SCHW SE

SEE SHLD SHW SIAL SJM SLB SLM SNA

SNDK SNI so

SPG SPLS SRCL SRE STI STJ sn STX STZ SUN SWK SWN SWY SYK

SYMC SYY

T TAP TOC TE

TEG TEL TER TGT THC TIE TIF TJX TMK TMO TRIP

TROW TRV TSN TSO TSS TWC TWX TXN TXT TYC UNH UNM UNP UPS

URBN USB UTX

V VAR VFC VIAB

(4J Market

Capitalization

3,682.63 11,008.29 14,312.97 10,099.16 10,024.43 15,670.91 10,628.17

1,990.51 10,041.46 18.742.47 14,401.82 4,136.16

37,627.60 6,289.24

16,983.84 18,587.22 2,741.54 5,657.01

14,690.79 8,512.41 9,502.03

94,776.35 7,411.86 4,072.39 9,876.76 8.990.22

39,777.02 48,751.55

7,410.59 7,837.99

15,983.59 13,790.58 12,062.73 19,988.28 12,871.49

5,882.97 4,999.97

11,086.60 10,910.14 3,788.89

20,475.51 12,568.75 17,768.26

212,356.89 8,060.90

13,053.01 3,788.04 4,254.17

14,973.33 2,922.69

41,807.88 2,212.90 2,098.99 7,660.31

33,978.40 4,913.99

20,949.79 4,931.81

15.740.17 24,909.55 5.751.22 5,495.36 4.385.78

27,107.21 39,238.00 32,744.67

7,419.66 25,789.80 56.344.43

5,460.00 57,903.28 70,924.76

5,517.23 62,772.30 71,438.53 86,063.70

6,607.49 16,623.25 25,431.26

[51

Weight in Index

0.03% 0.09% 0.11% 0.08% 0.08% 0.12% 0.08% 0.02% 0.08% 0.15% 0.11% 0.03% 0.29% 0.05% 0.13% 0.14% 0.02%

N/A 0.11% 0.07% 0.07% 0.74%

N/A 0.03% 0.08% 0.07% 0.31% 0.38% 0.06% 0.06% 0.12% 0.11% 0.09% 0.16% 0.10% 0.05% 0.04% 0.09%

N/A 0.03% 0.16% 0.10% 0.14% 1.65% 0.06% 0.10% 0.03% 0.03% 0.12% 0.02% 0.32% 0.02% 0.02% 0.06% 0.26% 0.04% 0.16% 0.04% 0.12% 0.19% 0.04% 0.04% 0.03% 0.21% 0.30% 0.25% 0.06% 0.20% 0.44% 0.04% 0.45% 0.55% 0.04% 0.49% 0.55% 0.67% 0.05% 0.13% 0.20%

[61 Estimated

Dividend Yield

2.29% 0.00% 0.83% 2.42% 0.51% 0.80% 0.25% 9.42% 3.27% 3.48% 0.00% 3.51% 1.40% 4.13% 1.78% 4.00% 3.61% 0.00% 1.08% 1.13% 2.37% 1.51% 3.17% 0.00% 0.00% 0.78% 4.29% 2.60% 3.96% 0.00% 3.36% 0.80% 2.27% 2.22% 3.72% 0.00% 1.65% 2.72% 0.00% 4.10% 1.29% 0.00% 3.72% 4.81% 3.06% 0.00% 5.03% 5.01% 2.23% 0.00% 1.98% 0.00% 2.21% 2.06% 0.98% 1.11% 0.79% 0.00% 2.19% 2.81% 1.04% 0.65% 1.67% 2.53% 2.50% 2.36% 0.30% 1.85% 1.38% 2.37% 1.99% 3.08% 0.00% 2.34% 2.55% 0.68% 0.00% 1.93% 2.11%

m Long.Term Growth

Est.

12.67% 17.00% 12.33% 15.00% 14.00% 13.29% 10.00% 5.00% 6.60% 7.75% 5.00% 3.87% 18.08% 4.34% 16.00% 5.00% 7.00%

N/A 18.97% 6.78% 7.33% 18.00%

N/A 10.00% 13.43% 15.64% 5.50% 5.23% 8.23% 16.00% 7.00% 7.67% 10.00% 7.40% 7.77% 10.82% -2.09% 13.00%

N/A 8.75% 10.33% 7.67% 10.00% 6.71% 3.34% 14.40% 3.67% 4.30% 15.00% 11.40% 12.58% 11,20% 15.00% 13.73% 11.89% 9.00% 10.84% 16.80% 13.33% 7.75% 7.33%

29.10% 9.71% 11.61% 13.35% 9.50% 31.29% 13.00% 11.00% 9.50%

13.00% 9.10% 18.31% 14.14% 1D.88% 18.71% 12.67% 13.00% 14.75%


[8)

DCF Result

15.10% 17.00% 13.21% 17.60% 14.55% 14.13% 10.26% 14.66% 9.98% 11.37% 5.00% 7.45%

19.60% 8.56% 17.92% 9.10% 10.74%

N/A 20.15% 7.95% 9.79% 19.65%

N/A 10.00% 13.43% 16.48% 9.91% 7.90% 12.36% 16.00% 10.48% 8.50% 12.39% 9.70% 11.64% 10.82% -0.46% 15.90%

N/A 13.03% 11.69% 7.67% 13.91% 11.68% 6.45% 14.40% 8.79% 9.41% 17.39% 11.40% 14.68% 11.20% 17.38% 15.93% 12.93% 10.16% 11.66% 16.80% 15.67% 10.67% 8.42%

29.84% 11.46% 14.28% 16.02% 11.97% 31.64% 14.97% 12.46% 11.98% 15.12% 12.32% 18.31% 16.65% 13.57% 19.46% 12.67% 15.06% 17.01%

[9]

Weighted DCF Result

0.0043% 0.0145% 0.0147% 0.0138% 0.0113% 0.0172% 0.0085% 0.0023% 0.0078% 0.0165% 0.0056% 0.0024% 0.0573% 0.0042% 0.0236% 0.0131% 0.0023%

N/A 0.0230% 0.0053% 0.0072% 0.1446%

N/A 0.0032% 0.0103% 0.0115% 0.0306% 0.0299% 0.0071% 0.0097% 0.0130% 0.0091% 0.0116% 0.0151% 0.0116% 0.0049% -0.0002% 0.0137%

N/A 0.0038% 0.0186% 0.0075% 0.0192% 0.1925% 0.0040% 0.0146% 0.0026% 0.0031% 0.0202% 0.0026% 0.0477% 0.0019% 0.0028% 0.0095% 0.0341% 0.0039% 0.0190% 0.0064% 0.0192% 0.0206% 0.0038% 0.0127% 0.0039% 0.0301% 0.0488% 0.0304% 0.0182% 0.0300% 0.0545% 0.0051% 0.0680% 0.0679% 0.0078% 0.0811% 0.0753% 0.1300% 0.0065% 0.0194% 0.0336%


(4] [5] [6] m [8] [9] Markel Estimated Long-Term Growth Weighted

Comeanl Ticker Caeitalization Welsh! in Index Dividend Yield Est. DCF Result DCF Result

VALERO ENERGY CORP VLO 17,110.82 0.13% 2.04% 6.13% 8.23% 0.0109% VULCAN MATERIALS CO VMe 4,877.98 0.04% 0.11% 9.67% 9.78% 0.0037% VORNADO REALlY TRUST VNO 15,116.03 0.12% 3.43% -3.44% -0.07% -0.0001% VERISIGN INC VRSN 7,522.57 0.06% 0.00% 14.17% 14.17% 0.0083% VENTAS INC VTR 19,592.23 0.15% 3.74% 5.21% 9.05% 0.0138% VERIZON COMMUNICATIONS INC VZ 124,501.30 0.97% 4.62% 6.35% 11.12% 0.1075% WALGREEN CO WAG 33,624.32 0.26% 2.59% 13.20% 15.96% 0.0417% WATERS CORP WAT 7,002.85 0.05% 0.00% 10.02% 10.02% 0.0054% WESTERN DIGITAL CORP WDe 10,464.13 0.08% 0.00% 2.72% 2.72% 0.0022% WISCONSIN ENERGY CORP WEe 8,844.86 0.07% 3.13% 4.75% 7.95% 0.0055% WELLS FARGO & CO WFe 178,537.88 1.39% 2.51% 25.38% 28.21% 0.3911% WHOLE FOODS MARKET INC WFM 17.844.41 0.14% 0.58% 19.08% 19.71% 0.0273% WHIRLPOOL CORP WHR 5,896.56 NfA 2.63% NfA NfA NfA WINDSTREAM CORP WIN 5,862.31 0.05% 10.03% -3.21% 6.66% 0.0030% WELLPOINT INC WLP 19.312.83 0.15% 1.91% 10.80% 12.82% 0.0192% WASTE MANAGEMENT INC WM 16,113.27 0.13% 4.09% 4.00% 8.17% 0.0102% WILLIAMS COS INC WMB 20,278.75 0.16% 3.81% 12.00% 16.04% 0.0253% WAL-MART STORES INC WMT 248,724.09 1.93% 2.19% 9.78% 12.08% 0.2333% WATSON PHARMACEUTICALS INC WPI 10,602.23 0.08% 0.00% 11.40% 11.40% 0.0094% WASHINGTON POST-CLASS B WPO 2,645.43 NfA 0.00% NfA NfA NfA WPX ENERGY INC WPX 3,154.73 NfA 0.00% NfA NfA NfA WESTERN UNJON CO WU 10,638.25 0.08% 2.27% 11.10% 13.49% 0.0111% WEYERHAEUSER CO WY 13,471.08 0.10% 2.39% 5.00% 7.45% 0.0078% WYNDHAM WORLDWIDE CORP WYN 7,315.56 0.06% 1.79% 20.00% 21.97% 0.0125% WYNN RESORTS LTD WYNN 10,124.59 0.08% 1.97% 9.00% 11.05% 0.0087% UNITED STATES STEEL CORP X 2,709.55 0.02% 1.06% 6.50% 7.60% 0.0016% XCEL ENERGY INC XEL 13,690.51 0.11% 3.80% 4.65% 8.54% 0.0091% XL GROUP PLC XL 7,104.60 0.06% 1.93% 8.33% 10.35% 0.0057% XllINX INC XLNX 8,858.72 0.07% 2.60% 14.00% 16.78% 0.0115% EXXON MOBIL CORP XOM 402,140.66 3.12% 2.49% 3.44% 5.97% 0.1865% DENTSPL Y INTERNATIONAL INC XRAY 5,152.47 0.04% 0.58% 11.50% 12.11% 0.0048% XEROX CORP XRX 9,490.29 NfA 2.34% NfA NfA NfA XYLEM INC XVL 4,454.25 0.03% 1.69% 15.00% 16.81% 0.0058% YAHOO! INC YHOO 17,638.96 0.14% 0.00% 11.14% 11.14% 0.0153% YUMI BRANDS INC YUM 28,709.44 0.22% 1.89% 11.50% 13.49% 0.0301% ZIONS BANCORPORATJON ZION 3,559.58 0.03% 0.21% 7.75% 7.97% 0.0022% ZIMMER HOLDINGS INC ZMH 11,005.77 0.09% 0.44% 10.25% 10.71% 0.0092%

Total Market Capitalization: 12,878,362.57 13.35% Notes: [1] Equals sum of Col. [9] [2] Source: Bloomberg Professional [3] Equals [1]- [2] [4] Source: Bloomberg Professional [5] Equals weight In S&P 500 based on market capitalization [6] Source: Bloomberg ProfessIonal (7) Source: Bloomberg Professional [8] Equals {[6] x (1 + (0.5 x (7)))) + [7] [9] Equals Col. [5] x Col. [81

Company mcker)

3M Co. (NYSE:MMM) Abbott laboratories (NYSE:ABT) Abercrombie & Fitch Co. (NYSE:ANF) Accenture pic (NYSE:ACN) ACE limited (NYSE:ACE) Adobe Systems Inc. (NasdaqGS:ADBE) Advanced Micro Devices, Inc. (NYSE:AMD) Aetna Inc. (NYSE:AET) AFLAC Inc. (NYSE:AFl) Agilent Technologies Inc. (NYSE:A) AGL Resources Inc. (NYSE:GAS) Air Products & Chemicals Inc. (NYSE:APD) Airgas. Inc. (NYSE:ARG) Akamai Technologies, Inc. (NasdaqGS:AKAM) Alcoa, Inc. (NYSE:AA) Alexion Pharmaceuticals. Inc. (NasdaqGS:ALXN) Allegheny Technologies Inc. (NYSE:ATI) AIIergan Inc. (NYSE:AGN) Alpha Natural Resources, Inc. (NYSE:ANR) Altera Corp. (NasdaqGS:AL TR) Allria Group Inc. (NYSE:MO) Amazon.com Inc. (NasdaqGS:AMZN) Ameren Corporation (NYSE:AEE) American Electric Power Co., Inc. (NYSE:AEP) American Express Company (NYSE:AXP) American International Group, Inc. (NYSE:AIG) American Tower Corporation (NYSE:AMT) Ameriprise Financial Inc. (NYSE:AMP) AmerisourceBergen Corporation (NYSE:ABC) Amgen Inc. (NasdaqGS:AMGN) Amphenol Corporation (NYSE:APH) Anadarko Petroleum Corporation (NYSE:APC) Analog Devices, Inc. (NasdaqGS:ADI) Aon Corporation (NYSE:AON) Apache Corp. (NYSE:APA) Apartment Investment & Management Co. (NYSE:AIV) Apollo Group Inc. (NasdaqGS:APOL) Apple Inc. (NasdaqGS:AAPl) Applied Materials Inc. (NasdaqGS:AMAT) Archer Daniels Midland Company (NYSE:ADM) Assurant Inc. (NYSE:AIZ) AT&T, Inc. (NYSE:T) Autodesk, Inc. (NasdaqGS:ADSK) Automatic Data Processing, Inc. (NasdaqGS:ADP) AutoNation Inc. (NYSE:AN) AutoZone Inc. (NYSE:AZO) Avalonbay Communities Inc. (NYSE:AVB) Avery Dennison Corporation (NYSE:AVY) Avon Products Inc. (NYSE:AVP) Baker Hughes Incorporated (NYSE:BHI) Ball Corporation (NYSE:BLLj Bank of America Corporation (NYSE:BAC) Baxter International Inc. (NYSE:BAX) BB&T Corporation (NYSE:BBT) Beam, Inc. (NYSE:BEAM) Becton, Dickinson and Company (NYSE:BDX) Bed Bath & Beyond Inc. (NasdaqGS:BBBY) Bemis Company, Inc. (NYSE:BMS) BerkshIre Hathaway Inc. (NYSE:BRK.A) Best Buy Co. Inc. (NYSE:BBY) Big Lots Inc. (NYSE:BIG) Biogen Idec Inc. (NasdaqGS:BIIB) BlackRock, Inc. (NYSE:BlK) BMC Software Inc. (NasdaqGS:BMC) BorgWarner Inc. (NYSE:BWA) Boston Properties Inc. (NYSE:BXP) Boston Scientific Corporation (NYSE:BSX) Bristol-Myers Squibb Company (NYSE:BMY)

Ex-Ante Market Risk Premium Market DCF Method Based - CapitallQ

[lJ S&P500

Est. Required Market Return

13.13%

[4)

Market Capitalization

63.380.10 102,728.60

2,885.70 38,760.90 25,292.90 15,458.60

2,575.50 12,752.50 21,774.60 12,874.90 4.745.30

17,252.00 6,336.70 6,679.10 8.983.20

20,927.60 3.080.20

26,564.90 1.212.50

11,854.60 70,038.70

112,057.90 7,939.00

20,918.70 66,443.20 56,336.90 27,969.30 11,507.90 9,758.50

64,998.90 9,878.20

34,542.80 11,764.90 16,694.20 33,006.80 3,884.60 3,121.20

632,720.90 14,528.20 17,703.60 2,859.00

212,356.90 7,120.60

28,149.70 4.967.90

13,411.90 13,813.60

3,003.30 6,563.10

19,630.70 6,464.70

86,215.60 32,231.90 22,176.30

9,365.90 15.281.90 15,270.30

3,115.00 208,695.30

6,125.10 1,947.40

34,759.60 30,591.40 6.697.50 7,700.70

17,000.00 7.676.70

55,642.80

[2J Current 30-Year

Treasury (30-day average) 2.71%

[5)

Weight in Index

0.48% 0.77% 0.02% 0.29% 0.19% 0.12% 0.02% 0.10% 0.16% 0.10% 0.04% 0.13% 0.05% 0.05% 0.07% 0.16% 0.02% 0.20% 0.01% 0.09% 0.53% 0.84% 0.06% 0.16% 0.50% 0.42% 0.21% 0.09% 0.07% 0.49% 0.07% 0.26% 0.09% 0.13% 0.25% 0.03% 0.02% 4.76% 0.11% 0.13% 0.02% 1.60% 0.05% 0.21% 0.04% 0.10% 0.10% 0.02% 0.05% 0.15% 0.05% 0.65% 0.24% 0.17% 0.07% 0.12% 0.11% 0.02% 1.57% 0.05% 0.01% 0.26% 0.23% 0.05% 0.06% 0.13% 0.06% 0.42%

[3]

Implied Market Risk Premium

10.42%

[6)


2.55% 3.11% 1.94% 2.19% 2.66% 0.00% 0.00% 1.82% 2.86% 1.08% 4.64% 3.10% 1.93% 0.00% 1.40% 0.00% 2.43% 0.23% 0.00% 1.07% 4.83% 0.00% 4.89% 4.37% 1.37% 0.00% 1.25% 2.55% 1.35% 1.72% 0.69% 0.52% 3.02% 1.21% 0.79% 3.02% 0.00% 1.59% 3.08% 2.62% 2.38% 4.80% 0.00% 2.72% 0.00% 0.00% 2.74% 3.46% 5.95% 1.32% 0.95% 0.50% 3.07% 2.54% 1.41% 2.37% 0.00% 3.30% 0.00% 3.61% 0.00% 0.00% 3.40% 0.00% 0.00% 1.96% 0.00% 4.12%

m Long-Term Growth Est.

10.90% 8.73% 18.70% 11.60% 7.54% 10.00% 10.60% 11.10% 9.92% 12.10% 4.37% 10.60% 14.00% 14.20% 7.10%

31.90% 15.00% 13.00% 5.00%

14.70% 8.03%

37.50% -4.05% 3.11% 11.80% 18.50% 18.70% 13.40% 11.80% 10.40% 14.30% 3.03% 13.00% 9.18% 3.79% 7.72% 12.80% 23.40% 8.67% 10.00% 8.50% 6.80% 15.30% 9.74% 16.50% 15.80% 11.60% 9.25% -5.10% 20.90% 11.40% 7.50% 8.69% 10.50% 12.60% 8.53% 14.20% 7.15% 8.60% 7.47% 11.20% 15.20% 12.40% 9.53% 19.70% 6.74% 7.07% 4.63%


[8)

DCF Result

13.59% 11.98% 20.82% 13.92% 10.30% 10.00% 10.60% 13.02% 12.92% 13.25% 9.11% 13.86% 16.07% 14.20% 8.55% 31.90% 17.61% 13.25% 5.00% 15.85% 13.05% 37.50% 0.74% 7.55% 13.25% 18.50% 20.07% 16.12% 13.23% 12.21% 15.04% 3.56% 16.22% 10.45% 4.60% 10.86% 12.80% 25.18% 11.88% 12.75% 10.98% 11.76% 15.30% 12.59% 16.50% 15.80% 14.50% 12.87% 0.70%

22.36% 12.40% 8.02% 11.89% 13.17% 14.10% 11.00% 14.20% 10.57% 8.60% 11.21% 11.20% 15.20% 16.01% 9.53% 19.70% 8.77% 7.07% 8.85%

[91 Weighted

DCF Result

0.06% 0.09% 0.00% 0.04% 0.02% 0.01% 0.00% 0.01% 0.02% 0.01% 0.00% 0.02% 0.01% 0.01% 0.01% 0.05% 0.00% 0.03% 0.00% 0.01% 0.07% 0.32% 0.00% 0.01% 0.07% 0.08% 0.04% 0.01% 0.01% 0.06% 0.01% 0.01% 0.01% 0.01% 0.01% 0.00% 0.00% 1.20% 0.01% 0.02% 0.00% 0.19% 0.01% 0.03% 0.01% 0.02% 0.02% 0.00% 0.00% 0.03% 0.01% 0.05% 0.03% 0.02% 0.01% 0.01% 0.02% 0.00% 0.14% 0.01% 0.00% 0.04% 0.04% 0.00% 0.01% 0.01% 0.00% 0.04%

Company (TIcker)

Broadcom Corp. (NasdaqGS:BRCM) Brown-Forman Corporation (NYSE:BF.B) CA Technologies (NasdaqGS:CA) Cablevision Systems Corporation (NYSE:CVCj Cabot Oil & Gas Corporation (NYSE:COG) Cameron IntemaUonal Corporation (NYSE:CAM) Campbell Soup Co. (NYSE:CPB) Capital One Financial Corp. (NYSE:COF) Cardinal Health, Inc. (NYSE:CAH) Care Fusion Corporation (NYSE:CFNj CarMax Inc. (NYSE:KMX) Carnival Corporation (NYSE:CCL) Caterpillar Inc. (NYSE:CAT) CBRE Group, Inc (NYSE:CBG) CBS Corporation (NYSE:CBS) Celgene Corporation (NasdaqGS:CELG) CenterPoint Energy, Inc. (NYSE:CNP) CenturyLink, Inc. (NYSE:CTL) Cerner Corporation (NasdaqGS:CERN) CF Industries Holdings, Inc. (NYSE:CF) CH Robinson Worldwide Inc. (NasdaqGS:CHRW) Chesapeake Energy Corporation (NYSE:CHK) Chevron Corporation (NYSE:CVX) ChlpoUe Mexican GriU, Inc. (NYSE:CMG) Cigna Corp. (NYSE:CI) Cincinnati Financial Corp. (NasdaqGS:CINF) Cintas Corporation (NasdaqGS:CTAS) Cisco Systems, Inc. (NasdaqGS:CSCO) Cltlgroup, Inc. (NYSE:C) Citrix Systems, Inc. (NasdaqGS:CTXS) Cliffs Natural Resources Inc. (NYSE:ClF) CME Group Inc. (NasdaqGS:CME) CMS Energy Corp. (NYSE:CMS) Coach, Inc. (NYSE:COH) Coca-Cola Enterprises Inc. (NYSE:CCE) Cognizant Technology Solutions Corporation (NasdaqGS:CTSH) Colgate-Palmolive Co. (NYSE:CL) Com cast Corporation (NasdaqGS:CMCS.A) Comerica Incorporated (NYSE:CMA) Computer Sciences Corporation (NYSE:CSC) ConAgra Foods, Inc. (NYSE:CAG) ConocoPhillips (NYSE:COP) CONSOl Energy Inc. (NYSE:CNX) Consolidated Edison Inc. (NYSE:ED) Constellation Brands Inc. (NYSE:STZ) Cooper Industries pic (NYSE:CBE) Coming Inc. (NYSE:GlW) Costce Wholesale Corporation (NasdaqGS:COST) Coventry Health Care Inc. (NYSE:CVH) Covidien pic (NYSE:COV) CR Bard Inc. (NYSE:BCR) Crown Castle International Corp. (NYSE:CCI) CSX Corp. (NYSE:CSX) Cummins Inc. (NYSE:CMI) CVS Caremark Corporation (NYSE:CVS) Danaher Corp. (NYSE;DHR) Darden Restaurants, Inc. (NYSE:DRI) DaVila Inc. (NYSE:DVA) Dean Foods Company {NYSE:DF} Deere & Company (NYSE:DE) Dell Inc. (NasdaqGS:DEll) Denbury Resources Inc. (NYSE:DNR) DENTSPlY International Inc. (NasdaqGS:XRAY) Devon Energy Corporation (NYSE:DVN) DeVry, Inc. (NYSE:DV) Diamond Offshore Drilling, Inc. (NYSE:DO) DlRECTV (NasdaqGS:DTV) Discover Financial Services (NYSE:DFS) Discovery CommunIcations, Inc. (NasdaqGS:DlSCA) Dollar Tree, Inc. (NasdaqGS:Ol TR) Dominion Resources, Inc. (NYSE:D) Dover Corporation (NYSE:DOV) DR Horton Inc. (NYSE:DHI) Dr Pepper Snapple Group, Inc. (NYSE:DPS) DTE Energy Co. (NYSE:DTE) Duke Energy Corporation (NYSE:DUK) Dun & Bradstreet Corp. (NYSE:DNB) E"TRADE Financial Corporation (NasdaqGS:ETFC) E. I. du Pont de Nemours and Company (NYSE:DD)

[4]


19,755.10 13,637.30 12,256.00 3,945.40 8,714.50

13,501.00 11,097.90 25,713.40 13,537.60 5,865.20 6,998.90

27,086.10 53,999.20 5,647.10

23,015.70 31,092.70 8,817.00

26,605.80 12,581.60 12,837.20 9,144.30

12,324.30 218,229.20

9,061.10 13,120.50

6,302.60 5,095.40

101,753.90 87,094.70 14,583.30 4,799.20

18,391.40 6,130.80

16,389.60 8,782.00

19,175.30 50,840.50 89,296.20

5,944.20 4,964.40

10,415.70 68.269.80 6,562.50

17,831.30 5,883.40

11,629.20 17,734.20 42,434.70 5.545.40

27,010.30 8.221.10

18,373.40 22,599.00 18,144.20 58,433.80 36,777.30 6,637.10 9.236.70 3,094.20

29,030.40 18,317.40 5,945.90 5,152.50

23,238.50 1.231.20 9,237.20

33,043.90 19,952.80 20,415.80 11,099.40 30,106.70 10,569.90 6,223.10 9,460.20

10,205.70 45,634.30

3,644.40 2,450.80

45,430.10

[5]

Weight in Index

0.15% 0.10% 0.09% 0.03% 0.07% 0.10% 0.08% 0.19% 0.10% 0.04% 0.05% 0.20% 0.41% 0.04% 0.17% 0.23% 0.07% 0.20% 0.09% 0.10% 0.07% 0.09% 1.64% 0.07% 0.10% 0.05% 0.04% 0.77% 0.66% 0.11% 0.04% 0.14% 0.05% 0.12% 0.07% 0.14% 0.38% 0.67% 0.04% 0.04% 0.08% 0.51% 0.05% 0.13% 0.04% 0.09% 0.13% 0.32% 0.04% 0.20% 0.06% 0.14% 0.17% 0.14% 0.44% 0.28% 0.05% 0.07% 0.02% 0.22% 0.14% 0.04% 0.04% 0.17% 0.01% 0.07% 0.25% 0.15% 0.15% 0.08% 0.23% 0.08% 0.05% 0.07% 0.08% 0.34% 0.03% 0.02% 0.34%

f61 Estimated

Dividend Yield

1.13% 0.97% 3.84% 4.01% 0.19% 0.00% 3.30% 0.35% 2.40% 0.00% 0.00% 2.88% 2.44% 0.00% 1.10% 0.00% 3.97% 6.86% 0.00% 0.77% 2.33% 1.81% 3.21% 0.00% 0.09% 4.16% 1.34% 1.68% 0.14% 0.00% 6.98% 3.25% 4.16% 2.06% 2.17% 0.00% 2.33% 1.94% 1.95% 2.48% 3.82% 4.65% 1.66% 3.99% 0.00% 1.70% 2.50% 1.12% 1.20% 1.61% 0.82% 0.00% 2.49% 2.06% 1.43% 0.19% 3.85% 0.00% 0.00% 2.45% 0.00% 0.00% 0.61% 1.38% 1.55% 5.22% 0.00% 1.03% 0.00% 0.00% 4.02% 2.18% 0.79% 3.04% 4.25% 4.72% 1.88% 0.00% 3.46%

[?] long-Term Growth Est.

15.10% 12.70% 9.67% 11.90% 35.00% 18.60% 4.20% 9.95% 10.90% 10.60% 13.30% 12.50% 16.30% 13.20% 12.80% 22.20% 5.42% 5.21% 19.20% 12.30% 14.60% 3.02% -5.80% 22.20% 10.40% 7.50% 10.70% 10.10% 8.64% 17.60% 8.33% 10.00% 6.02%

14.70% 8.00% 19.00% 8.56% 15.60% 9.60% 0.18% 7.00% -5.49% 12.00% 3.29% 10.30% 13.00% 7.88%

12.80% 9.88% 9.74% 9.03% 31.30% 13.30% 13.00% 12.00% 15.10% 12.30% 12.20% 17.90% 10.70% 8.00%

30.30% 12.80% -1.63% 12.00% 13.50% 18.30% 6.13%

20.10% 17.80% 5.18%

13.60% 38.60% 8.58% 4.93% 4.00% 9.95% 16.60% 8.00%


(8)

DCF Result

16.32% 13.73% 13.70% 16.15% 35.23% 18.60% 7.57% 10.32% 13.43% 10.60% 13.30% 15.56% 18.94% 13.20% 13.97% 22.20% 9.50% 12.25% 19.20% 13.12% 17.10% 4.86% -2.68% 22.20% 10.49% 11.82% 12.11% 11.86% 8.78% 17.60% 15.60% 13.41% 10.31% 16.91% 10.26% 19.00% 10.99% 17.69% 11.64% 2.66% 10.95% -0.97% 13.76% 7.35% 10.30% 14.81% 10.48% 13.99% 11.14% 11.43% 9.88% 31.30% 15.96% 15.19% 13.52% 15.30% 16.39% 12.20% 17.90% 13.28% 8.00% 30.30% 13.45% ..0.26% 13.64% 19.07% 18.30% 7.19% 20.10% 17.80% 9.30% 15.93% 39.54% 11.75% 9.28% 8.81% 11.92% 16.60% 11.60%

(9)

Weighted DCF Result

0.02% 0.01% 0.01% 0.00% 0.02% 0.02% 0.01% 0.02% 0.01% 0.00% 0.01% 0.03% 0.08% 0.01% 0.02% 0.05% 0.01% 0.02% 0.02% 0.01% 0.01% 0.00% -0.04% 0.02% 0.01% 0.01% 0.00% 0.09% 0.06% 0.02% 0.01% 0.Q2% 0.00% 0.02% 0.01% 0.03% 0.04% 0.12% 0.01% 0.00% 0.01% 0.00% 0.01% 0.01% 0.00% 0.01% 0.01% 0.04% 0.00% 0.02% 0.01% 0.04% 0.03% 0.02% 0.06% 0.04% 0.01% 0.01% 0.00% 0.03% 0.01% 0.01% 0.01% 0.00% 0.00% 0.01% 0.05% 0.01% 0.03% 0.01% 0.02% 0.01% 0.02% 0.01% 0.01% 0.03% 0.00% 0.00% 0.04%

Company (TIcker)

Eastman Chemical Co. (NYSE:EMN) Eaton Corporation (NYSE:ETN) eBay Inc. (NasdaqGS:EBAY) Ecolab Inc. (NYSE:ECL) Edison International (NYSE:EIX) Edwards Ufesciences Corp. (NYSE:EW) Electronic Arts Inc. (NasdaqGS:EA) Ell Lilly & Co. (NYSE:LLY) EMC Corporation (NYSE:EMC) Emerson Electric Co. (NYSE:EMR) Ensco pic (NYSE:ESV) Entergy Corporation (NYSE:ETR) EOG Resources, Inc. (NYSE:EOG) EQT Corporation (NYSE:EQT) Equlfax Inc. (NYSE:EFX) Equity Residential (NYSE:EQR) Exelon Corporation (NYSE:EXC) Expedia Inc. (NasdaqGS:EXPE) Expeditors International of Washington Inc. (NasdaqGS:EXPD) Express Scripts Holding Company (NasdaqGS:ESRX) Exxon Mobil Corporation (NYSE:XOM) F5 Networks, Inc. (NasdaqGS:FFIV) Family Dollar Stores Inc. (NYSE:FDO) Fastenal Company (NasdaqGS:FAST) Federated Investors, Inc. (NYSE:FIl) FedEx Corporation (NYSE:FDX) Fidelity National Information Services, Inc. (NYSE:FIS) Fifth Third Bancorp (NasdaqGS:FITB) First Horizon National Corporation (NYSE:FHN) First Solar, Inc. (NasdaqGS:FSLR) FirstEnergy Corp. (NYSE:FE) Fiserv, Inc. (NasdaqGS:FISV) FUR Systems, Inc. (NasdaqGS:FLlR) Flowserve Corp. (NYSE:FLS) Fluor Corporation (NYSE:FLR) FMC Corp. (NYSE:FMC) FMC Technologies, Inc. (NYSE:FTI) Ford Motor Co. (NYSE:F) Forest Laboratories Inc. (NYSE:FRX) Fossil, Inc. (NasdaqGS:FOSL) Franklin Resources Inc. (NYSE:BEN) Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) Frontier Communications Corporation (NasdaqGS:FTR) GameStop Corp. (NYSE:GME) Gannett Co., Inc. (NYSE:GCI) Gap Inc. (NYSE:GPS) General Dynamics Corp. (NYSE:GD) Genera! Electric Company (NYSE:GE) General Mills, Inc. (NYSE:GIS) Genuine Parts Company (NYSE:GPCj Genworth Financial Inc. (NYSE:GNW) Gilead Sciences Inc. (NasdaqGS:GILD) Goodyear Tire & Rubber Co. (NYSE:GT) Google Inc. (NasdaqGS:GOOG) H&R Block, Inc. (NYSE:HRB) H. J. Heinz Company (NYSE:HNZ) Halliburton Company (NYSE:HAL) Harley-Davidson, Inc. (NYSE:HOG) Harman International Industries, Incorporated (NYSE:HAR) Harris Corp. (NYSE:HRS) Hasbro Inc. (NasdaqGS:HAS) HCP, Inc. (NYSE:HCP) Health Care REIT, Inc. (NYSE:HCN) Helmerich & Payne Inc. (NYSE:HP) Hess Corporation (NYSE:HES) Hewlett-Packard Company {NYSE:HPQ} Honeywell International Inc. (NYSE:HON) Hormel Foods Corp. (NYSE:HRL) Hospira Inc. (NYSE:HSP) Host Hotels & Resorts Inc. (NYSE:HST) Hudson City Bancorp, Inc. (NasdaqGS:HCBK) Humana Inc. (NYSE:HUM) Huntington Bancshares Incorporated (NasdaqGS:HBAN) illinois Tool Works Inc. (NYSE:ITW) Ingersoll-Rand Pic (NYSE:IR) Integrys Energy Group, Inc. (NYSE:TEG) Intel Corporation (NasdaqGS:INTC) Intercontinenta!Exchange, Inc. (NYSE:ICE) International Business Machines Corporation (NYSE:IBM)

[41 Market

Capitalization

8,340.10 14,928.70 61,025.00 18,565.70 14,325.90 12,062.00 4,148.70

50,171.90 55,301.30 36,249.80 13,270.40 12,167.60 29,519.00 7,976.40 5,534.10

18,241.50 30,822.50 7,057.20 7,678.50

51,121.80 402,140.60

7,465.80 7,361.10

12,844.20 2,205.30

27,491.80 9,303.80

13,829.60 2,236.80 1,645.50

18,188.20 9,696.30 2,990.80 6,515.00 8,665.60 7,374.00

11,235.10 35,889.60 9,315.20 5,113.80

25,000.00 33,812.20 4,653.10 2,541.00 3,631.00

17,222.30 22,807.10

216,561.90 25,497.00 9,613.20 2,581.10

43,888.60 2,966.10

222,722.80 4,472.90

17,920.20 29,827.20 9,526.30 3,053.90 5,299.60 4,844.50

19,887.00 13,372.50 4,679.00

16,758.30 33,501.40 44,898.30 7,616.30 5,612.20

11,026.60 3,599.90

11,274.60 5,635.40

27,622.80 14,134.40

4,233.70 122,148.20

9,937.80 222,315.40

[51

Weight in Index

0.06% 0.11% 0.46% 0.14% 0.11% 0.09% 0.03% 0.38% 0.42% 0.27% 0.10% 0.09% 0.22% 0.06% 0.04% 0.14% 0.23% 0.05% 0.06% 0.38% 3.03% 0.06% 0.06% 0.10% 0.02% 0.21% 0.07% 0.10% 0.02% 0.01% 0.14% 0.07% 0.02% 0.05% 0.07% 0.06% 0.08% 0.27% 0.07% 0.04% 0.19% 0.25% 0.04% 0.02% 0.03% 0.13% 0.17% 1.63% 0.19% 0.07% 0.02% 0.33% 0.02% 1.68% 0.03% 0.13% 0.22% 0.07% 0.02% 0.04% 0.04% 0.15% 0.10% 0.04% 0.13% 0.25% 0.34% 0.06% 0.04% 0.08% 0.03% 0.08% 0.04% 0.21% 0.11% 0.03% 0.92% 0.07% 1.67%

[61 Estimated

Dividend Yield

1.88% 3.40% 0.00% 1.25% 2.97% 0.00% 0.00% 4.36% 0.00% 3.15% 2.61% 4.88% 0.63% 1.63% 1.57% 2.24% 5.76% 1.01% 1.53% 0.00% 2.61% 0.00% 1.32% 1.76% 4.52% 0.64% 2.54% 2.11% 0.45% 0.00% 5.03% 0.00% 1.41% 1.13% 1.24% 0.66% 0.00% 2.14% 0.00% 0.00% 0.92% 3.46% 8.66% 5.24% 5.24% 1.40% 3.11% 3.28% 3.36% 3.13% 0.00% 0.00% 0.00% 0.00% 4.83% 3.70% 1.10% 1.48% 1.30% 2.81% 3.84% 4.36% 5.07% 0.61% 0.79% 3.13% 2.55% 2.09% 0.00% 1.83% 4.45% 1.48% 2.43% 2.43% 1.37% 5.04% 3.62% 0.00% 1.74%


m [81 Long-Term Growth Est. DCF Result

7.67% 9.62% 12.70% 16.32% 14.00% 14.00% 15.20% 16.55% 1.73% 4.73%

22.40% 22.40% 16.90% 16.90% -6.33% -2.11 % 15.40% 15.40% 12.20% 15.54% 14.30% 17.10% 4.50% 9.49% 16.00% 16.68% 19.70% 21.49% 11.60% 13.26% 8.61% 10.95% 1.72% 7.53%

13.30% 14.38% 11.30% 12.92% 17.40% 17.40% 4.41% 7.08% 20.80% 20.80% 14.40% 15.82% 16.60% 18.51% 8.07% 12.77% 13.50% 14.18% 11.60% 14.29% 7.24% 9.43%

11.60% 12.07% -3.00% -3.00% 0.78% 5.83% 11.80% 11.80% 9.44% 10.92% 10.30% 11.49% 15.30% 16.63% 10.70% 11.40% 20,60% 20.60% 5.84% 8.04% 8.94% 8.94%

20.30% 20.30% 10.70% 11.67% 3.85% 7.38% 4.45% 13.30% 9.40% 14.89% 7.23% 12.66%

10.80% 12.28% 6.72% 9.93%

12.70% 16.19% 7.22% 10.70% 8.23% 11.49% 5.00% 5.00%

18.40% 18.40% 46.30% 46.30% 16.80% 16.80% 10.40% 15.48% 7.15% 10.98%

20.40% 21.61 % 13.50% 15.08% 20.00% 21.43% 3.30% 6.16% 8.87% 12.88% 5.49% 9.97% 6.40% 11.63% 10.40% 11.04% 4.21% 5.02% 2.38% 5.55% 12.90% 15.61% 11.00% 13.20% 8.71% 8.71% 14.50% 16.46% -2.43% 1.97% 9.61% 11.16% 6.08% 8.58% 9.72% 12.27% 12.40% 13.85% 4.67% 9.83% 10.10% 13.90% 12.20% 12.20% 11.10% 12.94%

[91 Weighted

DCF Result

0.01% 0.02% 0.06% 0.02% 0.01% 0.02% 0.01% -0.01% 0.06% 0.04% 0.02% 0.01% 0.04% 0.01% 0.01% 0.02% 0.02% 0.01% 0.01% 0.07% 0.21% 0.01% 0.01% 0.02% 0.00% 0.03% 0.01% 0.01% 0.00% 0.00% 0.01% 0.01% 0.00% 0.01% 0.01% 0.01% 0.02% 0.02% 0.01% 0.01% 0.02% 0.02% 0.00% 0.00% 0.00% 0.02% 0.02% 0.26% 0.02% 0.01% 0.00% 0.06% 0.01% 0.28% 0.01% 0.01% 0.05% 0.01% 0.00% 0.00% 0.00% 0.01% 0.01% 0.00% 0.01% 0.01% 0.05% 0.01% 0.00% 0.01% 0.00% 0.01% 0.00% 0.03% 0.01% 0.00% 0.13% 0.01% 0.22%

Company (Ticker)

International Flavors & Fragrances Inc. (NYSE:IFF) International Game Technology {NYSE:IGTJ International Paper Company (NYSE:IP) Intuit Inc. {NasdaqGS:INTUJ Intuitive Surgical, Inc. (NasdaqGS:ISRG) Invesco Ltd. (NYSE:IVZ) Iron Mountain Inc. (NYSE:IRM) J. C. Penney Company, Inc. (NYSE:JCP) Jabil Circuillnc. (NYSE:JBL) Jacobs Engineering Group Inc. (NYSE:JEC) JDS Uniphase Corporation (NasdaqGS:JDSU) Johnson & Johnson (NYSE:JNJ) Johnson Controls Inc. (NYSE:JCI) Joy Global, Inc. (NYSE:JOY) JPMorgan Chase & Co. (NYSE:JPM) Juniper Networks, Inc. (NYSE:JNPR) Kellogg Company (NYSE:K) KeyCorp (NYSE:KEY) Kimberly·Clark Corporation (NYSE:KMB) Kimco Realty Corporation (NYSE:KIM) Kinder Morgan, Inc. (NYSE:KMI) KLA·Tencor Corporation (NasdaqGS:KLAC) Kohl's Corp. (NYSE:KSS) Kraft Foods Inc. (NasdaqGS:KFT) L·3 Communications Holdings Inc. (NYSE:LLL) Laboratory Corp. of America Holdings (NYSE:LH) Lam Research Corporation (NasdaqGS:LRCX) Legg Mason Inc. (NYSE:LM) Leggett & Platt, Incorporated (NYSE:LEG) Lennar Corp. (NYSE:LEN) Leucadia National Corp. (NYSE:LUK) Lexmark International Inc. (NYSE:LXK) Ufe Technologies Corporation (NasdaqGS:LIFE) Limited Brands,lnc. (NYSE:LTD) Lincoln National Corporation (NYSE:LNC) Linear Technology Corp. (NasdaqGS:LL TC) Lockheed Martin Corporation (NYSE:LMT) Loews Corporation (NYSE:L) Lorillard, Inc. (NYSE:LO) Lowe's Companies Inc. (NYSE:LOW) LSI Corporation (NYSE:LSI) M&T Bank Corporation (NYSE:MTB) Macy's, Inc. (NYSE:M) Marathon Oil Corporation (NYSE:MRO) Marathon Petroleum Corporation (NYSE:MPC) Marriott International, Inc. (NYSE:MAR) Marsh & McLennan Companies, Inc. (NYSE:MMC) Masco Corporation (NYSE:MAS) Mastercard Incorporated (NYSE:MA) Mattei, Inc. (NasdaqGS:MAT) McCormick & Company, Incorporated (NYSE:MKC) McDonald's Corp. (NYSE:MCD) McKesson Corporation (NYSE:MCK) Mead Johnson Nutrition Company (NYSE:MJN) MeadWestvaco Corporation (NYSE:MWV) Medtronic, Inc. (NYSE:MDT) Merck & Co. Inc. (NYSE:MRK) MetUfe, Inc. (NYSE:MET) MetroPCS Communications, Inc. (NYSE:PCS) Microchip Technology Inc. (NasdaqGS:MCHP) Micron Technology Inc. (NasdaqGS:MU) Microsoft Corporation (NasdaqGS:MSFT) Molex Incorporated (NasdaqGS:MOLX) Molson Coors Brewing Company (NYSE:TAP) Monsanto Co. (NYSE:MON) Monster Beverage Corporation (NasdaqGS:MNST) Moody's Corp. (NYSE:MCO) Morgan Stanley (NYSE:MS) Motorola Solutions, Inc. (NYSE:MSI) Murphy Oil Corporation (NYSE:MUR) Mylan, Inc. (NasdaqGS:MYL) Nabors Industries Ltd. (NYSE:NBR) Nasdaq OMX Group Inc. (NasdaqGS:NDAQ) National Oilwell Varco, Inc. (NYSE:NOV) NetApp, Inc. (NasdaqGS:NTAP) Netflix, Inc. (NasdaqGS:NFLX) Newell Rubbermaid Inc. (NYSE:NWL) Newfield Exploration Co. (NYSE:NFX) Newmont Mining Corp. (NYSE:NEM)

(4)


4,890.20 3,237.30

14,948.10 17,194.30 19,611.20 10,605.30

5,588.60 5,674.50 4,409.60 5,122.20 2,595.00

185,438.60 18,363.00

5,468.60 140,591.90

9,315.30 18,119.30

7,925.10 33,064.20

8,338.50 36,995.80

8,678.80 12,192.10 74,242.40

6,668.00 8,464.10 6,131.00 3,342.70 3,372.90 6,003.40 5,163.10 1,450.70 8,451.00

13,928.10 6,507.50 7,529.80

29,188.30 16,136.40 16,533.10 33,454.20 4,332.30

11,077.50 16,616.90 19,352.30 17,182.10 12,145.90 18,562.50

5,017.30 52,961.90 11,922.30

8,264.00 89,800.80 20,580.00 14,995.00 4,984.30

42,241.90 131,723.60

36,116.50 3.590.60 6,666.90 6,196.80

254,729.50 4,321.80 8,053.80

46,164.10 10,100.60 8,829.80

30,640.10 13,633.90

9,951.80 9,595.20 4,233.80 3,880.20

33,290.80 12,578.00

3,106.00 5,189.70 4,363.80

24,545.20

(5)

Weight in Index

0.04% 0.02% 0.11% 0.13% 0.15% 0.08% 0.04% 0.04% 0.03% 0.04% 0.02% 1.40% 0.14% 0.04% 1.06% 0.07% 0.14% 0.06% 0.25% 0.06% 0.28% 0.07% 0.09% 0.56% 0.05% 0.06% 0.05% 0.03% 0.03% 0.05% 0.04% 0.01% 0.06% 0.10% 0.05% 0.06% 0.22% 0.12% 0.12% 0.25% 0.03% 0.08% 0.13% 0.15% 0.13% 0.09% 0.14% 0.04% 0.40% 0.09% 0.06% 0.68% 0.15% 0.11% 0.04% 0.32% 0.99% 0.27% 0.03% 0.05% 0.05% 1.92% 0.03% 0.06% 0.35% 0.08% 0.07% 0.23% 0.10% 0.07% 0.07% 0.03% 0.03% 0.25% 0.09% 0.02% 0.04% 0.03% 0.18%

(6)


2.25% 1.95% 3.04% 1.16% 0.00% 2.91% 3.29% 0.00% 1.40% 0.00% 0.00% 3.62% 2.65% 1.31% 3.23% 0.00% 3.47% 2.37% 3.54% 3.74% 3.91% 3.12% 2.45% 2.79% 2.85% 0.00% 0.00% 1.79% 4.72% 0.49% 1.17% 5.53% 0.00% 8.23% 1.38% 3.03% 4.39% 0.62% 4.94% 2.25% 0.00% 3.22% 1.98% 2.44% 2.71% 1.38% 2.69% 2.12% 0.28% 3.53% 2.02% 3.13% 0.92% 1.64% 3.48% 2.56% 3.90% 2.17% 0.00% 4.04% 0.00% 2.60% 3.31% 2.87% 1.38% 0.00% 1.62% 1.33% 2.18% 2.44% 0.00% 0.00% 2.27% 0.61% 0.00% 0.00% 2.23% 0.00% 2.76%


rn (8)

Long.Term Growth Est. DCF Resu!t

7.33% 9.66% 12.10% 14.17% 6.00% 9.13% 13.60% 14.84% 20.40% 20.40% 10.70% 13.77% 14.20% 17.72% 31.40% 31.40% 13.50% 14.99% 14.70% 14.70% 12.00% 12.00% 6.71% 10.45% 16.50% 19.37% 15.20% 16.61% 5.70% 9.02% 16.10% 16.10% 7.45% 11.05% 5.49% 7.93% 8.44% 12.13% 4.00% 7.81% 15.60% 19.81% 10.00% 13.28% 13.40% 16.01% 9.30% 12.22% 1.88% 4.76%

11.80% 11.80% 10.00% 10.00% 14.70% 16.62% 15.00% 20.07% 8.00% 8.51% 0.00% 1.17% -9.45% 4.18% 9.44% 9.44% 12.40% 21.14% 8.55% 9.99% 11.00% 14.20% 5.90% 10.42% 0.00% 0.62% 8.59% 13.74% 15.00% 17.42% 16.00% 16.00% 10.20% 13.58% 12.50% 14.60% -3.61% -1.21% 12.30% 15.18% 19.40% 20.91% 11.10% 13.94% 10.00% 12.23% 18.30% 18.61% 8.60% 12.28% 9.08% 11.19% 9.74% 13.02% 13.60% 14.58% 11.70% 13.44% 10.00% 13.65% 6.32% 8.96% 4.66% 8.65% 12.60% 14.91% 12.60% 12.60% 9.00% 13.22%

11.70% 11.70% 9.13% 11.85%

11.50% 15.00% 3.34% 6.26% 15.10% 16.58% 19.70% 19.70% 14.40% 16.14% 12.10% 13.51% 18.90% 21.29% 8.20% 10.74% 10.90% 10.90% 11.30% 11.30% 8.86% 11.23% 18.60% 19.27% 13.00% 13.00% 19.40% 19.40% 8.16% 10.48% 6.35% 6.35% -3.00% -0.28%

(9)

Weighted DCF Result

0.00% 0.00% 0.01% 0.02% 0.03% 0.01% 0.01% 0.01% 0.00% 0.01% 0.00% 0.15% 0.03% 0.01% 0.10% 0.01% 0.02% 0.00% 0.03% 0.00% 0.06% 0.01% 0.01% 0.07% 0.00% 0.01% 0.00% 0.00% 0.01% 0.00% 0.00% 0.00% 0.01% 0.02% 0.00% 0.01% 0.02% 0.00% 0.02% 0.04% 0.01% 0.01% 0.02% 0.00% 0.02% 0.02% 0.02% 0.00% 0.07% 0.01% 0.01% 0.09% 0.02% 0.02% 0.01% 0.03% 0.09% 0.04% 0.00% 0.01% 0.01% 0.23% 0.00% 0.00% 0.06% 0.01% 0.01% 0.03% 0.02% 0.01% 0.01% 0.00% 0.00% 0.05% 0.01% 0.00% 0.00% 0.00% 0.00%

Company (Ticker)

News Corp. (NasdaqGS:NWSA) NextEra Energy, Inc. (NYSE:NEE) Nike Inc. (NYSE:NKE) NiSource Inc. (NYSE:NI) Noble Corp. (NYSE:NE) Noble Energy, Inc. (NYSE:NBLj Nordstrom Inc. (NYSE:JWN) Norfolk Southem Corp. (NYSE:NSC) Northeast Utilities (NYSE:NU) Northern Trust Corporation (NasdaqGS:NTRS) Northrop Grumman Corporation (NYSE:NOC) NRG Energy, Inc. (NYSE:NRG) Nucor Corporation (NYSE:NUE) NVIDIA Corporation (NasdaqGS:NVDA) NYSE Euronext, Inc. (NYSE:NYX) O'Reilly Automotive Inc. (NasdaqGS:ORL y) Occidental Petroleum Corporation (NYSE:OXY) Omnicom Group Inc. (NYSE:OMC) ONEOK Inc. (NYSE:OKE) Oracle Corporation (NasdaqGS:ORCL) Owens-Illinois, Inc. (NYSE:OI) PACCAR Inc. (NasdaqGS:PCAR) Pall Corp. (NYSE:PLL) Parker Hannifin Corporation (NYSE:PH) Patterson Companies, Inc. (NasdaqGS:PDCO) Paychex, Inc. (NasdaqGS:PAYX) Peabody Energy Corp. (NYSE:BTU) People's United Rnanciallnc. (NasdaqGS:PBCT) Pepco Holdings, Inc. (NYSE:POM) Pepsico, Inc. (NYSE:PEP) PerklnElmer Inc. (NYSE:PKI) Perrigo Co. (NasdaqGS:PRGO) Pfizer Inc. (NYSE:PFE) PG&E Corp. (NYSE:PCG) Philip Morris International, Inc. (NYSE:PM) Phillips 66 (NYSE:PSX) Pinnacle West Capital Corporation (NYSE:PNW) Pioneer Natural Resources Co. (NYSE:PXD) Pitney Bowes Inc. (NYSE:PBI) Plum Creek Timber Co. Inc. (NYSE:PCL) PNC Financial Services Group Inc. (NYSE:PNC) PPG Industries Inc. (NYSE:PPG) PPL Corporation (NYSE:PPL) Praxair Inc. (NYSE:PX) Precision Castparts Corp. (NYSE:PCP) priceline.com Incorporated (NasdaqGS:PCLN) Principal Financial Group Inc. (NYSE:PFG) Procter & Gamble Co. (NYSE:PG) Progressive Corp. (NYSE:PGR) Prolog is, Inc. (NYSE:PLD) Prudential Financial, Inc. (NYSE:PRU) Public Service Enterprise Group Inc. (NYSE:PEG) Public Storage (NYSE:PSA) PulteGroup, Inc. (NYSE:PHM) OEP Resources, Inc. (NYSE:OEP) QUALCOMM Incorporated (NasdaqGS:OCOM) Quanta Services, Inc. (NYSE:PWR) Quest Diagnostics Inc. (NYSE:DGX) R.R. Donnelley & Sons Company (NasdaqGS:RRD) Ralph Lauren Corporation (NYSE:RLj Range Resources Corporation (NYSE:RRC) Raytheon Co. (NYSE:RTN) Red Hat, Inc. (NYSE:RHT) Regions Financial Corp. (NYSE:RF) Republic Services, Inc. (NYSE:RSG) Reynolds American Inc. (NYSE:RAI) Robert Half International Inc. (NYSE:RHI) Rockwell Automation Inc. (NYSE:ROK) Rockwell Collins Inc. (NYSE:COLj Roper Industries Inc. (NYSE:ROP) Ross Stores Inc. (NasdaqGS:ROST) Rowan Companies pic (NYSE:RDC) Ryder System, Inc. (NYSE:R) Safeway Inc. (NYSE:SWY) SAIC, Inc. (NYSE:SAI) salesforce.com, Inc (NYSE:CRM) SanDisk Corp. (NasdaqGS:SNDK) SCANA Corp. (NYSE:SCG) Schtumberger Limited (NYSE:SLB)

[4)


55,688.00 28,405.10 44,143.90

7,037.20 9,417.10

15,346.10 11,591.40 22,704.90 11,927.70 11,244.20 16,501.30 4,905.50

11,780.90 8,223.50 6,258.20 9,917.70

67,314.70 13,713.90 9,227.50

154,140.70 2,817.70

13,839.70 6,478.30

11,957.00 3,688.20

12,137.90 5,608.20 4,072.00 4,449.50

112,798.80 3,143.80

10,345.40 177,587.00 17,901.50

151,091.30 26,587.80 5,718.20

11,966.50 2,646.40 6,638.60

33,003.20 16,516.30 17,195.60 31,078.50 23,321.10 29,740.00 8,068.60

185,845.70 11,823.80 15,875.00 25,457.60 16,026.80 25,158.30 5,276.60 5,098.40

103,580.70 5,129.90 9,652.10 1,990.10

14,313.00 10,380.70 18,742.50 11,008.30 9,907.50

10,041.50 26,270.80 3,682.60

10,099.20 6,917.10

10,024.40 15,670.90 4,360.50 2,045.40 3,788.90 4,136.20

20,132.80 9,876.80 6,289.20

94,776.30

[5)

Weight in Index

0.42% 0.21% 0.33% 0.05% 0.07% 0.12% 0.09% 0.17% 0.09% 0.08% 0.12% 0.04% 0.09% 0.06% 0.05% 0.07% 0.51% 0.10% 0.07% 1.16% 0.02% 0.10% 0.05% 0.09% 0.03% 0.09% 0.04% 0.03% 0.03% 0.85% 0.02% 0.08% 1.34% 0.13% 1.14% 0.20% 0.04% 0.09% 0.02% 0.05% 0.25% 0.12% 0.13% 0.23% 0.18% 0.22% 0.06% 1.40% 0.09% 0.12% 0.19% 0.12% 0.19% 0.04% 0.04% 0.78% 0.04% 0.07% 0.01% 0.11% 0.08% 0.14% 0.08% 0.07% 0.08% 0.20% 0.03% 0.08% 0.05% 0.08% 0.12% 0.03% 0.02% 0.03% 0.03% 0.15% 0.07% 0.05% 0.71%

[5}


0.73% 3.57% 1.48% 3.94% 1.43% 1.00% 1.87% 2.76% 3.64% 2.58% 3.29% 1.69% 3.88% 0.00% 4.79% 0.00% 2.54% 2.34% 2.96% 0.76% 0.00% 3.76% 1.51% 2.05% 1.65% 3.85% 1.57% 5.35% 5.59% 2.97% 1.03% 0.29% 3.69% 4.19% 3.45% 1.90% 4.09% 0.08% 11.20% 4.10% 2.57% 2.15% 4.91% 2.09% 0.07% 0.00% 3.06% 3.35% 2.08% 3.28% 2.66% 4.49% 3.02% 0.00% 0.28% 1.63% 0.00% 1.12% 9.47% 1.01% 0.25% 3.54% 0.00% 0.58% 3.40% 5.12% 2.28% 2.61% 2.46% 0.54% 0.81% 0.00% 3.10% 4.47% 3.93% 0.00% 0.00% 4.18% 1.52%


17.00% 5.65%

13.60% 8.00% 10.10% 7.70% 12.20% 14.10% 6.08% 12.70% 1.25%

20.60% 6.35% 12.60% 7.83% 16.60% -5.76% 9.97% 14.40% 12.50% 10.30% 16.90% 12.50% 5.00% 10.60% 10.10% 11.50% 10.30% 5.30% 5.43% 11.80% 12.70% 2.79% 6.68% 10.50% 7.85% 6.35% 17.30% 0.00% 5.00% 5.40% 8.16% -0.34% 11.50% 14.20% 20.70% 14.10% 6.93% 6.74% 9.26% 12.00% 2.24% 6.07%

28.40% 19.50% 13.80% 15.20% 11.20% 5.20% 14.00% -2.45% 7.42% 19.00% 7.60% 8.40% 7.34% 17.40% 13.00% 8.82% 14.00% 13.70% 19.90% 11.20% 9.67% 6.00%

26.50% 12.50% 4.48% 20.50%

Exhibit No. RBH-5 Page 130115

[8J

DCF Result

17.79% 9.32% 15.18% 12.10% 11.60% 8.74% 14.18% 17.05% 9.83% 15.44% 4.56%

22.46% 10.35% 12.60% 12.81% 16.60% -3.29% 12.43% 17.57% 13.31% 10.30% 20.98% 14.10% 7.10% 12.34% 14.14% 13.16% 15.93% 11.04% 8.48% 12.89% 13.01% 6.53% 11.01% 14.13% 9.82% 10.57% 17.39% 11.20% 9.20% 8.04% 10.40% 4.56% 13.71% 14.28% 20.70% 17.38% 10.40% 8.89% 12.69% 14.82% 6.78% 9.18%

28.40% 19.81% 15.54% 15.20% 12.38% 14.92% 15.08% -2.21% 11.09% 19.00% 8.20% 11.94% 12.65% 19.88% 15.78% 11.39% 14.57% 14.56% 19.90% 14.47% 14.36% 10.05% 26.50% 12.50% 8.75%

22.18%

[91 Weighted

DCF Result

0.07% 0.02% 0.05% 0.01% 0.01% 0.01% 0.01% 0.03% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% -0.02% 0.01% 0.01% 0.15% 0.00% 0.02% 0.01% 0.01% 0.00% 0.01% 0.01% 0.00% 0.00% 0.07% 0.00% 0.01% 0.09% 0.01% 0.16% 0.02% 0.00% 0.02% 0.00% 0.00% 0.02% 0.01% 0.01% 0.03% 0.03% 0.05% 0.01% 0.15% 0.01% 0.02% 0.03% 0.01% 0.02% 0.01% 0.01% 0.12% 0.01% 0.Q1% 0.00% 0.02% 0.00% 0.02% 0.02% 0.01% 0.01% 0.03% 0.01% 0.01% 0.01% 0.01% 0.02% 0.01% 0.00% 0.00% 0.00% 0.04% 0.01% 0.00% 0.16%

Company (TIcker)

Scripps Networks Interactive, Inc. (NYSE:SNI) Seagate Technology Publlc limited Company (NasdaqGS:STX) Sealed Air Corporation (NYSE:SEE) Sears Holdings Corporation (NasdaqGS:SHLD) Sempra Energy (NYSE:SRE) Sigma-AldriCh Corporation (NasdaqGS:SIAL) Simon Property Group Inc. (NYSE:SPG) SLM Corporation (NasdaqGS:SLM) Snap-on Inc. (NYSE:SNA) Southern Company (NYSE:SO) Southwest Airlines Co. (NYSE:LUV) Southwestern Energy Co. (NYSE:SWN) Spectra Energy Corp. (NYSE:SE) Sprint NeJdel Corp. (NYSE:S) SI. Jude Medical Inc. (NYSE:STJ) Stanley Black & Decker, Inc. (NYSE:SWK) Staples, Inc. (NasdaqGS:SPLS) Starbucks Corporation (NasdaqGS:SBUX) Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT) State Street Corporation (NYSE:STT) Stericycle, Inc. (NasdaqGS:SRCL) Stryker Corporation (NYSE:SYK) Sunoco, Inc. (NYSE:SUN) SunTrust Banks, Inc. (NYSE:STI) Symantec Corporation (NasdaqGS:SYMC) Sysco Corp. (NYSE:SYV) T. Rowe Price Group, Inc. (NasdaqGS:TROW) Target Corp. (NYSE:TGT) TE Connectivity Ltd. (NYSE:TEL) TECO Energy, Jnc. (NYSE:TE) Tenet Healthcare Corp. (NYSE:THC) Teradata Corporation (NYSE:TDC) Teradyne Inc. (NYSE:TER) Tesoro Corporation (NYSE:TSO) Texas Instruments Inc. (NasdaqGS:TXN) Textron inc. (NYSE:TXT) The AES Corporation (NYSE:AES) The Allstate Corporation (NYSE:ALL) The Bank of New York Mellon Corporation (NYSE:BK) The Boeing Company (NYSE:BA) The Charles Schwab Corporation (NYSE:SCHW) The Chubb Corporation (NYSE:CB) The Clorox Company (NYSE:CLX) The Coca-Cola Company (NYSE:KO) The Dow Chemical Company (NYSE:DOW) The Estee Lauder Companies Inc. (NYSE:EL) The Goldman Sachs Group, Inc. (NYSE:GS) The Hartford Financial Services Group, Inc. (NYSE:HIG) The Hershey Company (NYSE:HSY) The Home Depot, Inc. (NYSE:HD) The Interpublic Group of Companies. Inc. (NYSE:IPG) The J. M. Smucker Company (NYSE:SJM) The Kroger Co. (NYSE:KR) The McGraw-HIli Companies, Inc. (NYSE:MHP) The Mosaic Company (NYSE:MOS) The Sherwin-Williams Company (NYSE:SHW) The T JX Companies, Inc. (NYSE:T JX) The Travelers Companies, Inc. (NYSE:TRV) The Washington Post Company (NYSE:WPO) The Western Union Company (NYSE:WUj Thermo Fisher Scientific, Inc. (NYSE:TMO) Tiffany & Co. (NYSE:TJF) Time Warner Cable Inc. (NYSE:TWC) Time Warner Inc. (NYSE:lWX) Titanium Metals Corporation (NYSE:TIE) Torchmark Corp. (NYSE:TMK) Total System Services, Inc. (NYSE:TSS) TripAdvisor Inc. (NasdaqGS:TRIPj Tyco International Ltd. (NYSE:TYC) Tyson Foods Inc. (NYSE:TSN) U.S. Bancorp (NYSE:USBj Union Pacific Corporation (NYSE:UNP) United Parcel Service, Inc. (NYSE:UPSj United States Steel Corp. (NYSE:X) United Technologies Corp. (NYSE:UTX) Unitedhealth Group, Inc. (NYSE:UNH) Unum Group (NYSE:UNM) Urban Outfitters Inc. (NasdaqGS:URBN) V.F. Corporation (NYSE:VFC)

[4)


8,990.20 12,871.50 2,741.50

NIA 15,865.30 8,512040

48,153.60 7,423.60 4,072.40

39,777.00 6,576.20

10,880.40 18,587.20 14,401.80 12,062.70 11,086.60

7,410.60 37,627.60 10,821.60 19,988.30

7,838.00 20,475.50

5,000040 13,633040 12,550.80 17,768.30 15,736.40 41,807.90 14,973.40 3,788.00 2,212.90

13,053.00 2,922.70 5,464.60

32,750.40 7,419.70 8,444.90

18,136.30 26,638.30 53,279.90 16,983.80 19,686.10 9,460.50

167,831.70 34,313.80 23,146.90 52,821.90

7,713.90 16,414.30 85,607.60

4,681.60 9,502.00

12,168.20 14,424.70 24,146.00 14,690.70 33,978.40 24,909.50 2,641.90

10,638.20 20,949.80 7,660.30

27,107.20 39,238.00

2,099.00 4,914.00 4,385.80 4,931.80

25,789.80 5,751.20

62,772.30 57,903.30 70,637.10

2,709.50 71,438.50 56,344040 5,462.70 5,519.50

16,623.30

(5)

Weight in Index

0.07% 0.10% 0.02%

NIA 0.12% 0.06% 0.36% 0.06% 0.03% 0.30% 0.05% 0.08% 0.14% 0.11% 0.09% 0.08% 0.06% 0.28% 0.08% 0.15% 0.06% 0.15% 0.04% 0.10% 0.09% 0.13% 0.12% 0.31% 0.11% 0.03% 0.02% 0.10% 0.02% 0.04% 0.25% 0.06% 0.06% 0.14% 0.20% 0.40% 0.13% 0.15% 0.07% 1.26% 0.26% 0.17% 0.40% 0.06% 0.12% 0.64% 0.04% 0.07% 0.09% 0.11% 0.18% 0.11% 0.26% 0.19% 0.02% 0.08% 0.16% 0.06% 0.20% 0.30% 0.02% 0.04% 0.03% 0.04% 0.19% 0.04% 0.47% 0.44% 0.53% 0.02% 0.54% 0.42% 0.04% 0.04% 0.13%

(6]


0.81% 4.00% 3.64% 0.00% 3.63% 1.13% 2.65% 3.17% 1.96% 4.32% 0.45% 0.00% 3.96% 0.00% 2.44% 2.98% 4.03% 1.37% 0.91% 2.31% 0.00% 1.60% 1.70% 0.80% 0.00% 3.56% 2.21% 2.25% 2.39% 5.07% 0.00% 0.00% 0.00% 1.21% 2.34% 0.30% 1040% 2.36% 2.31% 2.46% 1.78% 2.22% 3.52% 2.73% 4.37% 0.88% 1.74% 2.23% 2.12% 2.04% 2.26% 2.45% 2.06% 1.99% 1.73% 1.09% 1.00% 2.84% 2.78% 2.27% 0.91% 2.07% 2.52% 2.50% 2045% 1.17% 1.73% 0.00% 0.89% 1.02% 2.33% 1.98% 3.09% 1.03% 2.68% 1.57% 2.67% 0.00% 1.89%


13.20% 21.20% 8043% 0.00% 5.20% 8.21% 7.29% 5.30% 10.00% 5.52%

38.60% -3.07% 5.20%

-98.70% 9.55% 9.95% 7.65% 18.60% 20.80% 10.70% 16.60% 10.40% -2.09% 16.50% 8.51% 8.63% 13.00% 12.40% 13.00% 2.96% 11.20% 15.80% 11.90% 20.70% 9.66%

29.90% 8.20% 9.17% 9.70% 10.20% 11.60% 9.07% 7.29% 8.86% 8.88% 14.70% 18.90% 13.50% 9.38% 15.10% 16.40% 8.14% 8.38% 11.30% 11.60% 11.80% 12.80% 10.60% 0.00% 11.00% 11.80% 14.40% 17.20% 12.30% 15.00% 9.40% 10.50% 15.90% 16.70% 7.33% 8.67% 15.60% 11.30% 5.33% 10.90% 12.50% 9040% 17.90% 12.50%


[8]

DCF Result

14.07% 25.62% 12.22% 0.00% 8.92% 9.39% 10.04% 8.55% 12.06% 9.96%

39.13% -3.07% 9.26%

-98.70% 12.11% 13.08% 11.83% 20.10% 21.80% 13.13% 16.60% 12.08% -0.41% 17.36% 8.51% 12.34% 15.35% 14.79% 15.55% 8.11% 11.20% 15.80% 11.90% 22.04% 12.11% 30.24% 9.66% 11.64% 12.12% 12.79% 13.48% 11.39% 10.94% 11.71% 13.44% 15.64% 20.80% 15.88% 11.60% 17.29% 18.85% 10.69% 10.53% 13.40% 13.43% 12.95% 13.86% 13.59% 2.78% 13.39% 12.76% 16.62% 19.94"10 14.95% 17.63% 10.62% 12.32% 15.90% 17.66% 8.39% 11.10% 17.73% 14.56% 6.39% 13.73% 14.17% 12.20% 17.90% 14.51%

[9]

Weighted DCF Result

0.01% 0.02% 0.00%

NIA 0.01% 0.01% 0.04% 0.00% 0.00% 0.03% 0.02% 0.00% 0.01% ..Q.11% 0.01% 0.01% 0.01% 0.06% 0.02% 0.02% 0.01% 0.02% 0.00% 0.02% 0.01% 0.02% 0.02% 0.05% 0.02% 0.00% 0.00% 0.02% 0.00% 0.01% 0.03% 0.02% 0.01% 0.02% 0.02% 0.05% 0.02% 0.02% 0.01% 0.15% 0.03% 0.03% 0.08% 0.01% 0.01% 0.11% 0.01% 0.01% 0.01% 0.01% 0.02% 0.01% 0.04% 0.03% 0.00% 0.01% 0.02% 0.01% 0.04% 0.04% 0.00% 0.00% 0.00% 0.01% 0.03% 0.00% 0.05% 0.08% 0.08% 0.00% 0.07% 0.06% 0.01% 0.01% 0.02%

Company (Ticker)

Valero Energy Corporation (NYSE:VLO) Varian Medical Systems Inc. (NYSE:VAR) Ventas, Inc. (NYSE:VTR) VeriSign, Inc. (NasdaqGS:VRSN) Verizon Communications Inc. (NYSE:VZ) Viacom, Inc. (NasdaqGS:VIAB) Visa, Inc. (NYSE:V) Vomado Realty Trust (NYSE:VNO) Vulcan Materials Company (NYSE:VMC) W.W. Grainger. Inc. (NYSE:GWW) Wal-Mart Stores Inc. (NYSE:WMT) Walgreen Co. (NYSE:WAG) Walt Disney Co. (NYSE:DIS) Waste Management, Inc. (NYSE:WM) Waters Corp. (NYSE:WAT) Watson Pharmaceuticals, Inc. (NYSE:WPI) Well Point Inc. (NYSE:WLP) Wells Fargo & Company (NYSE:WFC) Western Digital Corporation (NasdaqGS:WDC) Weyerhaeuser Co. (NYSE:WY) Whirlpool Corp. (NYSE:WHR) Whole Foods Market. Inc. (NasdaqGS:WFM) Wmiams Companies. Inc. (NYSE:WMB) Windstream Corporation (NasdaqGS:WIN) Wisconsin Energy Corp. (NYSE:WEC) WPX Energy, Inc. (NYSE:WPX) Wyndham Worldwide Corporation (NYSE:WYN) Wynn Resorts Ltd. (NasdaqGS:WYNN) Xcel Energy Inc. (NYSE:XEL) Xerox Corp. (NYSE:XRX) Xilinx Inc. (NasdaqGS:XLNX) XL Group ptc (NYSE:XL) Xylem Inc. (NYSE:XYL) Yahool Inc. (NasdaqGS:YHOO) Yuml Brands, Inc. (NYSE:YUM) Zimmer Holdings, Inc. (NYSE:ZMH) Zions Bancom. (NasdagGS:ZION)

Notes: [1] Equals sum of Col. [9] [2] Source: Bloomberg Professional [3] Equals [1]- [2] [4] Source: Capital 10 [5] Equals weight In S&P 500 based on market capitalization [6] Source: Capital 10 [7) Source: Capital IQ [8] Equals {[6] x {1 + (0.5 x [7)))) + [7) [9] Equals Col. [5] x Col. [8]

[4) [5) Market

Capitalization Weight in Index

17,110.80 0.13% 6,607.50 0.05%

19,592.20 0.15% 7,522.60 0.06%

124,495.90 0.94% 25,431.30 0.19% 85,969.00 0.65% 15,116.10 0.11% 4,878.10 0.04%

14,583.30 0.11% 248,724.10 1.87% 33,624.30 0.25% 89,103.70 0.67% 16,113.30 0.12% 7.002.80 0.05%

10,602.20 0.08% 19,312.90 0.15%

178,537.90 1.34% 10,464.10 0.08% 13.393.90 0.10% 5,896.60 0.04%

17.844.40 0.13% 20,278.70 0.15% 5,865.30 0.04% 8,844.60 0.07%

NfA NfA 7,315.60 0.06%

12,518.10 0.09% 13,690.50 0.10% 9,413.30 0.07% 8,858.70 0.07% 7,104.60 0.05% 4,454.30 0.03%

17,639.00 0.13% 28,709.40 0.22% 11,005.80 0.08% 3.559.60 0.03%

13,281.501.60


[6) m (8) [91 Estimated Long-Term Weighted

Dividend Yield Growth Est. DCF Result DCF Result

2.24% 7.56% 9.88% 0.01% 0.00% 12.10% 12.10% 0.01% 3.79% 5.48% 9.37% 0.01% 5.77% 15.00% 21.20% 0.01% 4.66% 8.15% 13.00% 0.12% 2.20% 15.50% 17.87% 0.03% 0.69% 19.00% 19.75% 0.13% 3.40% -4-.85% -1.53% 0.00% 0.10% 9.75% 9.86% 0.00% 1.55% 14.40% 16.06% 0.02% 2.19% 9.52% 11.81% 0.22% 3.08% 11.70% 14.96% 0.04% 1.21% 12.40% 13.69% 0.09% 4.11% 5.95% 10.18% 0.01% 0.00% 9.99% 9.99% 0.01% 0.00% 13.60% 13.60% 0.01% 1.92% 10.00% 12.02% 0.02% 2.88% 10.40% 13.43% 0.18% 0.00% 5.03% 5.03% 0.00% 2.41% 5.00% 7.47% 0.01% 2.65% 0.00% 2.65% 0.00% 0.58% 20.10% 20.74% 0.03% 3.72% 13.00% 16.96% 0.03% 10.10% -1.46% 8.57% 0.00% 3.16% 5.44% 8.69% 0.01% 0.00% 0.00% 0.00% NfA 1.76% 20.20% 22.14% 0.01% 6.78% 25.10% 32.73% 0.03% 3.87% 5.31% 9.28% 0.01% 2.31% 5.40% 7.77% 0.01% 2.60% 12.70% 15.47% 0.01% 1.90% 8.75% 10.73% 0.01% 1.67% 11.00% 12.76% 0.00% 0.00% 13.80% 13.80% 0.02% 1.79% 13.00% 14.91% 0.03% 1.17% 9.61% 10.84% 0.01% 0.21% 7.33% 7.55% 0.00%

13.13%

Bloomberg, Value Line, and Calculated Beta Coefficients

Company

AGL Resources Inc. Atmos Energy Corporation Laclede Group, Inc. (The) New Jersey Resources Corporation Northwest Natural Gas Company Piedmont Natural Gas Company, Inc. South Jersey Industries, Inc. Southwest Gas Corporation WGL Holdings, Inc.

Mean

Notes: [1J Source: Bloomberg Professional Service [2J Source: Value Line

[1) [2) Ticker Bloomberg Value Line

GAS 0.750 0.75 ATO 0.694 0.70 LG 0.661 0.55

NJR 0.725 0.65 NWN 0.661 0.60 PNY 0.792 0.70 SJI 0.783 0.65

SWX 0.780 0.75 WGL 0.757 0.65

0.734 0.67


[3) Calculated

0.752 0.710 0.655 0.795 0.594 0.761 0.787 0.730 0.798

0.732

[3J Source: Bloomberg Professional Service; Beta coefficients calculated over 12-months based on weekly returns

Capital Asset Pricing Model Results Sharpe Ratio, Bloomberg, and CapitallQ Derived Market Risk Premium

Natural Gas Proxy Group

PROXY GROUP 12-MONTH BETA COEFFICIENT Current 30-Year Treasury (30-day average) [9] Near-Term Pro'ected 30-Year TreasulV [101 -Mean

r11

Risk-Free Rate

2.71% 3.00%

Risk-Free Rate

PROXY GROUP BLOOMBERG BETA COEFFICIENT Current 30-YearTreasury (30-day average) [9] 2.71% Near-Term Pro·ected 30-Year Treasurv f"10·1· 3.00% Mean

[21

Average Beta

Coefficient

0.732 0.732

Average Beta

Coefficient

0.734 0.734

Average Risk-Free Beta

PROXY GROUP VALUE LINE AVERAGE BETA COEFFICIENT Current 30-YearTreasury (30-day average) [9]

Notes: [1] See Notes [9] and [10} [2] Source: Exhibit No. RBH-6 [3] Source: Exhibit No. RBH-5 [4] Source: Exhibit No. RBH-5 [5] Source: Exhibit No. RBH-5 [6] Equals Col. [1] + (Col. [2] x Col. [3]) [7] Equals Col. [1] + (Col. [21 x Col. [4]) [8] Equals Col. [1] + (Col. [2] x Col. [5]) [9) Source: Bloomberg Professional

2.71% 0.667

[31 [41 [51 Ex-Ante Market Risk Premium

Sharpe Ratio

Derived

8.21% 8.21%

Bloomberg Market DCF

Derived

10.64% 10.64%

Capital [0 Market DCF

Derived

10.42% 10.42%

Ex-Ante Market Risk Premium Sharpe Bloomberg CapitallQ Ratio Market DCF Market DCF

Derived Derived Derived

8.21% 10.64% 10.42% 8.21% 10.64% 10.42%

Sharpe Bloomberg Ratio Market DCF

8.21% 10.64% 10.42%

[10] Source: Blue Chip Financial Forecasts, Vol. 31, No.8, August 1, 2012, at2

[61


m [81 CAPMResult

Sharpe Bloomberg CapitallQ Ratio Market DCF Market DCF

Derived

8.72% 9.01% 8.87%

Sharpe Ratio

Derived

8.74% 9.03% 8.88%

8.19%

Derived

10.50% 10.78% 10.64%

CAPMResult Bloomberg Market DCF

Derived

10.52% 10.80% 10.66%

9.81%

Derived

10.33% 10.62% 10.48%

CapitallQ Market DCF

Derived

10.36% 10.64% 10.50%

9.66%

Bond Yield Plus Risk Premium

[1] [2] f3] 3O-Year Treasury

Constant Sio e Yield -3.24% -2.95%

Current 2.71% Near Term Projected 3.00% Long Term Pro!ected 5.30%

Notes: [1] Constant of regression equation [2] Slope of regression equation

[4]

Risk Premium

7.41% 7.12% 5.44%

[3] Source: Current = Bloomberg Professional,

[5]

Retumon E ui

10.13% 10.12% 10.74%

Near Term Projected = Blue Chip Financial Forecasts, Vol. 31, No.8, August 1, 2012, at 2, Long Term Projected = Blue Chip Financial Forecasts, Vol. 31, No.6, June 1, 2012, at 14

[4) Equals (1) + In([3]) x [2] [5] Equals [3] + (4) [6] Source: SNL Financial [7] Source: SNL Financial [8] Source: Bloomberg Professional, equals 188-trading day average (Le. lag period) as of August 31, 2012 [9) Equals [7] - [8]

10.00%

'.00% • Y = ·o.o295In(lt)· 0.0324

E R'mO.7185

~ 6.00% , • " ., • 4.00%

. ~ ~ 2.00%

4.00% '.00% '.00% 16.00%

-2.00% • 3(1.YeBr Tre""ury Ylald



[6] [~ [8] [9] Date of 3O-Year

Natural Gas Retumon Treasury ""k Rate Case E9uit~ Yield Premium

1/311980 12.55% 9.39% 3.16% 1/4/1980 13.75% 9.40% 4.35%

1114/1980 13.20% 9.44% 3.76% 111811980 14.00% 9.47% 4.53% 113111980 12.61% 9.56% 3.05% 2/811980 14.50% 9.63% 4.87%

211411980 13.00% 9.67% 3.33% 211511980 13.00% 9.69% 3.31% 2129/1980 14.00% 9.85% 4.15%

315/1980 14.00% 9.90% 4.10% 317/1980 13.50% 9.94% 3.56%

3/14/1980 14.00% 10.03% 3.97% 3/27/1980 12.69% 10.19% 2.50%

4/1/1980 14.75% 10.25% 4.50% 4f29/1980 12.50% 10.50% 2.00%

517/1980 14.27% 10.55% 3.72% 5/811980 13.75% 10.55% 3.20%

5/19/1980 15.50% 10.61% 4.89% 5127/1980 14.60% 10.64% 3.96% 5129/1980 16.00% 10.66% 5.34% 6/10/1980 13.78% 10.70% 3.08% 6/25/1980 14.25% 10.73% 3.52%

7/911980 14.51% 10.77% 3.74% 7117/1980 12.90% 10.78% 2.12% 7/18/1980 13.80% 10.79% 3.01% 712211980 14.10% 10.79% 3.31% 7/23/1980 14.19% 10.79% 3.40% 811/1980 12.50% 10.80% 1.70%

8111/1980 14.85% 10.81% 4.04% 8/2111980 13.03% 10.84% 2.19% 8/28/1980 13.61% 10.87% 2.74% 8/28/1980 14.00% 10.87% 3.13% 9/4/1980 14.00% 10.89% 3.11%

9/24/1980 15.00% 10.98% 4.02% 10/9/1980 14.50% 11.05% 3.45% 10/9/1980 14.50% 11.05% 3.45%

10/24/1980 14.00% 11.09% 2.91% 10/27/1980 15.20% 11.10% 4.10% 10/27/1980 15.20% 11.10% 4.10% 10/28/1980 12.00% 11.10% 0.90% 10/2811980 13.00% 11.10% 1.90% 10/31/1980 14.50% 11.12% 3.38%

11/411980 15.00% 11.13% 3.87% 11/6/1980 14.35% 11.13% 3.22%

11/10/1980 13.25% 11.14% 2.11% 11/17/1980 15.50% 11.15% 4.35% 11/19/1980 13.50% 11.15% 2.35"10

121511980 14.60% 11.14% 3.46% 121811980 16.40% 11.14% 5.26%

1211211980 15.45% 11.15% 4.30% 1211711980 14.20% 11.16% 3.04% 1211711980 14.40% 11.16% 3.24% 1211811980 14.00% 11.17% 2.83% 1212211980 13.45% 11.16% 2.29% 12126/1980 14.00% 11.15% 2.85% 12130/1980 14.50% 11.15% 3.35% 12131/1980 14.56% 11.15% 3.41%

in/1981 14.30% 11.14% 3.16% 1/1211981 14.95% 11.14% 3.81% 1/2611981 15.25% 11.20% 4.05% 1/30/1981 13.25% 11.23% 2.02% 2111/1981 14.50% 11.33% 3.17% 2120/1981 14.50% 11.39% 3.11% 3/1211981 15.65% 11.59% 4.06% 3/2511981 15.30% 11.73% 3.57% 4/1/1981 15.30% 11.81% 3.49% 4/9/1981 15.00% 11.90% 3.10%

4/29/1981 13.50% 12.11% 1.39% 4/29/1981 14.25% 12.11% 2.14% 4130/1981 13.60% 12.13% 1.47% 4/30/1981 15.00% 12.13% 2.87% 5/21/1981 14.00% 12.37% 1.63%

613/1981 14.67% 12.45% 2.22% 6/2211981 16.00% 12.57% 3.43% 6/2511981 14.75% 12.59% 2.16%

7/211981 14.00% 12.64% 1.36% 711011981 16.00% 12.68% 3.32% 7/14/1981 16.90% 12.71% 4.19% 7/21/1981 15.78% 12.77% 3.01% 7/27/1981 13.77% 12.82% 0.95% 7/27/1981 15.50% 12.82% 2.68%


Date of 3D-Year Natural Gas Return on Treasury Risk Rate Case Eguit}! Yield Premium

7/31/1981 13.50% 12.86% 0.64% 7/31/1981 14.20% 12.86% 1.34% 8/12/1981 13.72% 12.93% 0.79% 8/1211981 13.72% 12.93% 0.79% 8/12/1981 14.41% 12.93% 1.48% 8/2511981 15.45% 13.01% 2.44% 812711981 14.43% 13.04% 1.39% 8/2811981 15.00% 13.05% 1.95% 9/23/1981 14.34% 13.23% 1.11% 9/24/1981 16.25% 13.25% 3.00% 9/29/1981 14.50% 13.30% 1.20% 9/30/1981 15.94% 13.32% 2.62% 10{211981 14.80% 13.35% 1.45%

10/1211981 16.25% 13.42% iS3% 10/20/1981 15.25% 13.49% 1.76% 10/20/1981 16.50% 13.49% 3.01% 10/2011981 17.00% 13.49% 3.51% 10/2311981 15.50% 13.53% 1.97% 10126f1981 13.50% 13.55% -0.05% 10129f1981 16.50% 13.59% 2.91%

1114J1981 15.33% 13.62% 1.71% 111611981 15.17% 13.63% 1.54%

1111211981 15.00% 13.64% 1.36% 11/2511981 15.25% 13.66% 1.59% 11/2511981 16.10% 13.66% 2.44% 11/2511981 16.10% 13.66% 2.44% 11/30/1981 16.75% 13.65% 3.10%

1211/1981 15.70% 13.65% 2.05% 1211/1981 16.00% 13.65% 2.35%

1211511981 15.81% 13.68% 2.13% 12/17/1981 14.75% 13.70% 1.05% 1212211981 15.70% 13.71% 1.99% 12/2211981 16.00% 13.71% 2.29% 12130/1981 16.00% 13.74% 2.26% 12130/1981 16.25% 13.74% 2.51%

1/4/1982 15.50% 13.74% 1.76% 1/14/1982 11.95% 13.80% -1.85% 1/25/1982 16.25% 13.64% 2.41% 1/27/1982 16.84% 13.85% 2.99% 1/31/1982 14.00% 13.85% 0.15% .

21211982 16.24% 13.86% 2.38% 21811982 15.50% 13.87% 1.63% 219f1982 14.95% 13.88% 1.07% 219/1982 15.75% 13.88% 1.87%

2f11/1982 16.00% 13.89% 2.11% 311/1982 15.96% 13.91% 2.05% 3{811982 17.10% 13.91% 3.19%

3/26/1982 16.00% 13.96% 2.04% 3131/1982 16.25% 13.97% 2.28%

41111982 16.50% 13.98% 2.52% 4/6/1982 15.00% 13.98% 1.02% 4/9/1982 16.50% 13.99% 2.51%

4/1211982 15.10% 13.98% 1.12% 4J12f1982 16.70% 13.98% 2.72% 4/18/1982 14.70% 13.98% 0.72% 4/27/1982 15.00% 13.97% 1.03% 5/10/1982 14.57% 13.94% 0.63% 5/14/1982 15.80% 13.92% 1.88% 5/20/1982 15.82% 13.91% 1.91% 5121/1982 15.50% 13.90% 1.60% 5/2511982 16.25% 13.90% 2.35% 6f2f1982 14.50% 13.87% 0.63% 61711982 16.00% 13.86% 2.14%

612311982 15.50% 13.81% 1.69% 612511982 16.50% 13.81% 2.69%

7/1/1982 15.55% 13.80% 1.75% 711/1982 16.00% 13.80% 2.20% 7/2f1982 15.10% 13.79% 1.31%

7/1311982 16.80% 13.76% 3.04% 7/2211982 14.50% 13.72% 0.78% 7/2811982 16.10% 13.69% 2.41% 7/30/1982 14.82% 13.67% 1.15%

8/4/1982 15.58% 13.65% 1.93% 81611982 16.50% 13.63% 2.87%

8/11/1982 17.11% 13.62% 3.49% 812511982 16.00% 13.58% 2.42% 8130/1982 16.25% 13.58% 2.67%

913/1982 15.50% 13.56% 1.94% 9/9/1982 16.04% 13.55% 2.49%

9/1511982 16.04% 13.52% 2.52% 9117/1982 15.25% 13.51% 1.74% 9129/1982 14.50% 13.43% 1.07%


Date of 3D-Year Natural Gas Retum on Treasury Risk Rate case Egui~ Yield PremIum

9/30/1982 14.74% 13.42% 1.32% 9/30/1982 15.50% 13.42% 2.08% 9130/1982 16.50% 13.42% 3.08% 913011982 16.70% 13.42% 3.28% 10/1/1982 16.50% 13.41% 3.09% 10/811982 15.00% 13.34% 1.66%

10/15/1982 15.90% 13.26% 2.64% 10119/1982 15.90% 13.23% 2.67% 10/27/1982 17.00% 13.13% 3.87% 10/28/1982 14.75% 13.11% 1.64% 11/211982 16.25% 13.08% 3.17% 11/4/1982 15.75% 13.04% 2.71% 11/511982 14.73% 13.02% 1.71%

11/1711982 16.00% 12.87% 3.13% 11/2311982 15.50% 12.79% 2.71% 11/2411982 14.50% 12.78% 1.72% 11/2411982 16.02% 12.78% 3.24% 1113011982 12.98% 12.73% 0.25% 1113011982 15.50% 12.73% 2.77% 1113Of1982 15.50% 12.73% 2.77% 11/30f1982 15.65% 12.73% 2.92% 11/30f1982 16.00% 12.73% 3.27% 11/30f1982 16.10% 12.73% 3.37%

12f3f1982 15.33% 12.68% 2.65% 1218f1982 15.75% 12.64% 3.11%

1211311982 16.00% 12.59% 3.41% 12114f1982 16.40% 12.57% 3.83% 12f17f1982 16.25% 12.53% 3.72% 12120f1982 15.00% 12.51% 2.49% 12121/1982 15.70% 12.S0% 3.20% 1212811982 15.2S% 12.43% 2.82% 1212811982 15.25% 12.43% 2.82% 1212911982 16.25% 12.41% 3.84% 1212911982 16.25% 12.41% 3.84% 1/11/1983 15.90% 12.26% 3.64% 1/1211983 15.50% 12.25% 3.25% 1/18/1983 15.00% 12.19% 2.81% 1/24/1983 15.50% 12.14% 3.36% 1/24/1983 16.00% 12.14% 3.86% 1/28/1983 14.90% 12.09% 2.81% 1/31/1983 15.00% 12.07% 2.93% 211011983 15.00% 11.98% 3.02% 2125/1983 15.70% 11.85% 3.85% 3f2/1983 15.25% 11.80% 3.45%

3/16f1983 16.00% 11.64% 4.36% 3121f1983 14.96% 11.58% 3.38% 312311983 15.40% 11.54% 3.86% 312311983 16.10% 11.54% 4.56% 312411983 1S.00% 11.S3% 3.47% 4/1211983 13.25% 11.31% 1.94%

4/29'1983 15.05% 11.11% 3.94% 5/311983 15.40% 11.08% 4.32% 5/911983 15.50% 11.01% 4.49%

5/19'1983 14.85% 10.90% 3.95% 5/31/1983 14.00% 10.85% 3.15% 6f2l1983 14.S0% 10.83% 3.67% 6f7f1983 14.50% 10.81% 3.69% 61911983 14.85% 10.80% 4.05%

6/2011983 14.15% 10.74% 3.41% 6/20/1983 16.50% 10.74% 5.76'% 6127/1983 14.50% 10.72% 3.78% 6/30/1983 14.80% 10.71% 4.09% 6/30/1983 15.90% 10.71% 5.19%

7/1/1983 14.80% 10.70% 4.10% 7/S/1983 15.00% 10.70% 4.30% 7/8/1983 15.50% 10.69% 4.81%

7/19/1983 15.00% 10.71% 4.29% 7/19/1983 15.10% 10.71% 4.39%

8'1811983 15.30% 10.81% 4.49% 8'1911983 15.79% 10.82% 4.97% 812911983 16.00% 10.85% 5.15% 8/3111983 14.7S% 10.86% 3.89% 8/31/1983 15.25% 10.86% 4.39% SlBf1983 14.75% 10.89% 3.86%

9/16'1983 15.51% 10.93% 4.58% 9/2611983 14.50% 10.96% 3.54% 9/2811983 14.25% 10.97% 3.28% 9/30/1983 16.15% 10.98% 5.17% 9/3011983 16.25% 10.98% 5.27%

10'111983 16.25% 10.98% 5.27% 10/13/1983 15.52% 11.02% 4.50% 10/19/1983 15.20% 11.04% 4.16%


Date of 3O·Year Natural Gas Return on Treasury Risk RaleCase Eguit}!: Yield Premium 10/26{1983 14.75% 11.06% 3.69% 10/27/1983 14.88% 11.07% 3.81% 10/27/1983 15.33% 11.07% 4.26% 11/911983 14.82% 11.10% 3.72% 11{9/1983 16.51% 11.10% 5.41%

111911983 16.51% 11.10% 5.41%

12/1/1983 14.50% 11.17% 3.33% 12/811983 15.90% 11.20% 4.70% 12/9/1983 15.30% 11.21% 4.09%

12/12/1983 14.50% 11.21% 3.29% 12/12/1983 15.50% 11.21% 4.29% 12120/1983 15.40% 11.26% 4.14% 12}20/1983 16.00% 11.26% 4.74% 1212211983 15.75% 11.27% 4.48% 12/29/1983 15.00% 11.29% 3.71% 12130/1983 15.00% 11.30% 3.70%

1/10/1984 15.90% 11.34% 4.56% 111311984 15.50% 11.36% 4.14% 1/1811984 15.53% 11.38% 4.15% 1/2611984 15.90% 11.41% 4.49% 211411984 14.25% 11.50% 2.75% 2128/1984 14.50% 11.58% 2.92% 3/20/1984 16.00% 11.69% 4.31% 3/23/1984 15.50% 11.72% 3.78% 419/1984 15.20% 11.81% 3.39%

4/18{1984 16.20% 11.85% 4.35% 4/27/1984 15.85% 11.90% 3.95% 511511984 13.35% 11.99% 1.36% 5116/1984 15.00% 12.00% 3.00% 512211984 14.40% 12.03% 2.37% 6/1311984 15.50% 12.18% 3.32% 7/10/1984 16.00% 12.36% 3.64% 81711984 16.69% 12.50% 4.19% 8/9/1984 15.33% 12.51% 2.82%

8117/1984 14.82% 12.53% 2.29% 8/21/1984 14.64% 12.54% 2.10% 8/27/1984 14.52% 12.56% 1.96% 8/28/1984 14.75% 12.56% 2.19% 8/30/1984 15.60% 12.57% 3.03% 9/1211984 15.60% 12.60% 3.00% 9/1211984 15.90% 12.60% 3.30% 9/2511984 16.25% 12.61% 3.64% 10f211984 14.80% 12.62% 2.18% 10/911984 14.75% 12.63% 2.12%

10/1011984 15.50% 12.63% 2.87% 10/18/1984 15.00% 12.64% 2.36% 10/24{1984 15.50% 12.64% 2.86%

11/7/1984 15.00% 12.64% 2.36% 11/20/1984 15.92% 12.62% 3.30% 11/30/1984 15.50% 12.60% 2.90% 1211811984 15.00% 12.55% 2.45% 12120/1984 15.00% 12.53% 2.47% 12128/1984 15.75% 12.51% 3.24% 1212811984 16.25% 12.51% 3.74%

1/211985 16.00% 12.50% 3.50% 1/31/1985 14.75% 12.37% 2.38% 217/1985 14.85% 12.33% 2.52%

211511985 15.00% 12.28% 2.72% 2120/1985 14.50% 12.26% 2.24% 212211985 14.86% 12.26% 2.60% 311411985 15.50% 12.17% 3.33% 312811985 14.80% 12.09% 2.71% 4/9/1985 15.50% 12.03% 3.47%

4/1611985 15.70% 11.97% 3.73% 6/10/1985 15.75% 11.59% 4.16% 6/2611985 14.82% 11.47% 3.35% 7f9/1985 15.00% 11.39% 3.61%

7/2611985 14.50% 11.27% 3.23% 8129/1985 14.50% 11.12% 3.38% 8/3011985 14.38% 11.11% 3.27% 9/1211985 15.25% 11.07% 4.18% 9/2311985 15.30% 11.04% 4.26% 9/2511985 14.50% 11.03% 3.47% 9/26/1985 13.80% 11.02% 2.78% 9/2611985 14.50% 11.02% 3.48%

10/2511985 15.25% 10.92% 4.33% 11/8/1985 12.94% 10.86% 2.08%

11/20/1985 14.90% 10.81% 4.09% 11/2511985 13.30% 10.79% 2.51% 1216/1985 12.00% 10.72% 1.28%

12111/1985 14.90% 10.69% 4.21% 12/20/1985 14.88% 10.60% 4.28%


Date of 3O-Year Natural Gas Retumon Treasury Risk Rate Case Eguity Yield Premium 12120/1985 15.00% 10.60% 4.40% 12120/1985 15.00% 10.60% 4.40% 12130/1985 15.75% 10.53% 5.22% 12/31/1985 14.00% 10.52% 3.48% 12/31/1985 14.50% 10.52% 3.98% 1/17/1986 14.50% 10.38% 4.12% 2/11/1986 12.50% 10.21% 2.29% 2/12/1986 15.20% 10.20% 5.00% 3/11/1986 14.00% 9.98% 4.02% 4/211986 12.90% 9.77% 3.13%

4/28/1986 13.01% 9.47% 3.54% 5/21/1986 13.25% 9.19% 4.06% 5/28/1986 14.00% 9.12% 4.88% 5/2911986 13.90% 9.11% 4.79%

61211986 13.00% 9.08% 3.92% 6{11{1986 14.00% 8.98% 5.02% 6f1311986 13.55% 8.95% 4.60% S127/19BS 11.88% 8.78% 3.10% 7/14f1986 12.60% 8.60% 4.00% 7J30f1986 13.30% 8.39% 4.91% 8(14/1986 13.50% 8.23% 5.27% 9/5/1986 13.30% 8.03% 5.27%

9123/1986 12.75% 7.91% 4.84% 10{30/1986 13.00% 7.68% 5.32% 10/31/1986 13.75% 7.67% 6.08% 11/10/1986 14.00% 7.62% 6.38% 11/1911986 13.75% 7.57% 6.18% 11/2511986 13.15% 7.54% 5.61% 1212211986 13.80% 7.48% 6.32% 12130/1986 13.90% 7.47% 6.43% 1/20/1987 12.75% 7.47% 5.28% 1/2311987 13.55% 7.47% 6.08% 1/27/1987 12.16% 7.47% 4.69% 211311987 12.60% 7.47% 5.13% 212411987 12.00% 7.47% 4.53% 3130/1987 12.20% 7.46% 4.74% 3131/1987 13.00% 7.46% 5.54% 5/511987 12.85% 7.60% 5.25%

5/28/1987 13.50% 7.72% 5.78% 6/15/1987 13.20% 7.80% 5.40% 6/30/1987 12.60% 7.85% 4.75% 7/10/1987 12.90% 7.88% 5.02% 7/27/1987 13.50% 7.93% 5.57% 8125/1987 11.40% 8.08% 3.32% 9/18/1987 13.00% 8.27% 4.73%

10/20/1987 12.60% 8.54% 4.06% 10/20/1987 12.98% 8.54% 4.44% 11/1211987 12.75% 8.67% 4.08% 11113/1987 12.75% 8.68% 4.07% 11124/1987 12.50% 8.73% 3.77%

121811987 12.50% 8.81% 3.69% 1212211987 12.00% 8.90% 3.10% 12131/1987 12.85% 8.93% 3.92% 12131/1987 13.25% 8.93% 4.32% 1/15/1988 13.15% 8.98% 4.17% 1/20/1988 12.75% 8.99% 3.76% 1/29/1988 13.20% 8.99% 4.21% 214/1988 12.60% 8.99% 3.61%

3/23/1988 13.00% 8.94% 4.06% 5f27/1988 13.18% 9.02% 4.16% 611411988 13.50% 9.00% 4.50% 6/17/1988 11.72% 8.99% 2.73% 6124{1988 11.50% 8.97% 2.53% 7/1/1988 12.75% 8.95% 3.80% 718t1988 12.00% 8.94% 3.06%

7/18f1988 12.00% 8.91% 3.09% 7/2011988 13.40% 8.90% 4.50% 8f8t1988 12.74% 8.90% 3.84%

9/2011988 12.90% 8.93% 3.97% 9/26/1988 12.40% 8.93% 3.47% 9/27/1988 13.65% 8.93% 4.72% 9/3011988 13.25% 8.94% 4.31%

10/1311988 13.10% 8.93% 4.17% 10/21/1988 12.80% 8.93% 3.87% 10/25/1988 13.25% 8.94% 4.31% 10/26/1988 13.50% 8.94% 4.56% 10/27/1988 12.95% 8.94% 4.01% 10/28/1988 13.00% 8.94% 4.06% 11/15/1988 12.00% 8.97% 3.03% 11/29/1988 12.75% 9.01% 3.74% 1211911988 13.00% 9.05% 3.95% 12121/1988 12.90% 9.05% 3.85%


Dale of 30·Year Natural Gas Retumon Treasury Risk Rate Case E!3ujt~ Yield Premium 1212211988 13.50% 9.05% 4.45% 1/26/1989 12.60% 9.06% 3.54% 1/27/1989 13.00% 9.06% 3.94% 218/1989 13.37% 9.05% 4.32% 3I8f1989 13.00% 9.04% 3.96% 5/4f1989 13.00% 9.04% 3.96% 61811989 13.50% 8.96% 4.54%

7/19f1989 11.80% 8.84% 2.96% 7/2511989 12.80% 8.82% 3.98% 7/31/1989 13.00% 8.80% 4.20% 8/14/1989 12.50% 8.76% 3.74% 8/2211989 12.80% 8.73% 4.07% 8/23/1989 12.90% 8.73% 4.17% 9/21/1989 12.10% 8.63% 3.47% 10/611989 13.00% 8.58% 4.42%

10/1711989 12.41% 8.54% 3.87% 10/18/1989 13.25% 8.54% 4.71% 10/2011989 12.90% 8.53% 4.37% 10/31/1989 13.60% 8.50% 5.10% 11/3/1989 12.93% 8.48% 4.45% 11/511989 13.20% 8.48% 4.72% ll/S/1SSS 12.60% 8.46% 4.14% 11/9/1989 13.00% 8.46% 4.54%

11/28f1989 12.75% 8.37% 4.38% 1217/1989 13.25% 8.33% 4.92%

1211511989 13.00% 8.28% 4.72% 1212011989 12.90% 8.26% 4.64% 12/21/1989 12.80% 8.26% 4.54% 12121/1989 12.90% 8.26% 4.64% 12127/1989 12.50% 8.24% 4.26%

119/1990 13.00% 8.19% 4.81% 1/18/1990 12.50% 8.17% 4.33% 1/26/1990 12.10% 8.15% 3.95% 3121/1990 12.80% 8.15% 4.65% 3128/1990 13.00% 8.16% 4.84%

4/5/1990 12.20% 8.17<'k 4.03% 4/12/1990 13.25% 8.19% 5.06% 4130f1990 12.45% 8.24% 4.21% 5131/1990 12.40% 8.31% 4.09% 6/15/1990 13.20% 8.33% 4.87% 6/27/1990 12.90% 8.34% 4.56% 6/29/1990 13.25% 8.34% 4.91% 7/6/1990 12.10% 8.35% 3.75%

7/19/1990 11.70% 8.38% 3.32% 8131/1990 12.50% 8.52% 3.98% 8131/1990 12.50% 8.52% 3.98% 9/1311990 12.50% 8.58% 3.92% 9118/1990 12.75% 8.60% 4.15% 9/20/1990 12.50% 8.61% 3.89% 10/211990 13.00% 8.65% 4.35%

10/17/1990 11.90% 8.68% 3.22% 10/31/1990 12.95% 8.70% 4.25% 11/9/1990 13.25% 8.70% 4.55%

11/19/1990 13.00% 8.70% 4.30% 11/21/1990 12.10% 8.70% 3.40% 11/21/1990 12.50% 8.70% 3.80% 11/28/1990 12.75% 8.70% 4.05% 11/29/1990 12.75% 8.70% 4.05% 1211811990 13.10% 8.S8% 4.42% 12120/1990 12.50% 8.67% 3.83% 12121/1990 12.50% 8.67% 3.83% 12121/1990 13.00% 8.S7% 4.33% 12121/1990 13.60% 8.67% 4.93%

113f1991 13.02% 8.66% 4.36% 1/1Sf1991 13.25% 8.64% 4.61% 1/2511991 11.70% 8.61% 3.09% 2/1511991 12.70% 8.56% 4.14% 211511991 12.80% 8.56% 4.24% 413/1991 13.00% 8.51% 4.49%

4/30/1991 12.45% 8.48% 3.97% 4/30/1991 13.00% 8.48% 4.52% 6/2511991 11.70% 8.35% 3.35% 6/28/1991 12.50% 8.34% 4.16%

711/1991 11.70% 8.34% 3.36% 7/19/1991 12.10% 8.31% 3.79% 7/19/1991 12.30% 8.31% 3.99% 712211991 12.90% 8.31% 4.59% 811511991 12.25% 8.28% 3.97% 8129/1991 13.30% 8.26% 5.04% 9/27/1991 12.50% 8.23% 4.27% 9/30/1991 12.40% 8.23% 4.17% 101311991 11.30% 8.22% 3.08%


Datecf 3O-Year Natural Gas Return on Treasury Risk

RaleGase Eguit~ Yield Premium 1019/1991 11.70% 8.21% 3.49%

10{1511991 13.40% 8.20% 5.20% 11/1/1991 12.90% 8.20% 4.70% 1118/1991 12.75% 8.20% 4.55%

11/2611991 11.60% 8.18% 3.42% 11/26/1991 12.00% 8.18% 3.82% 11/27/1991 12.70% 8.18% 4.52%

1216/1991 12.70% 8.16% 4.54% 1211011991 11.75% 8.16% 3.59% 12119/1991 12.60% 8.14% 4.46%

1211911991 12.80% 8.14% 4.66% 1213Of1991 12.10% 8.11% 3.99%

1/2211992 12.84% 8.05% 4.79% 1/31/1992 12.00% 8.03% 3.97% 2/20/1992 13.00% 8.00% 5.00% 2/2711992 11.75% 7.99% 3.76% 3118/1992 12.50% 7.95% 4.55% 511511992 12.75% 7.87% 4.88%

6124/1992 12.20% 7.85% 4.35% 6f29/1992 11.00% 7.85% 3.15% 7/14/1992 12.00% 7.83% 4.17% 7/2211992 11.20% 7.82% 3.38% 8{10/1992 12.10% 7.79% 4.31% 8f26{1992 12.43% 7.75% 4.68% 9/30{1992 11.60% 7.72% 3.88% 10{6{1992 12.25% 7.72% 4.53%

10{1311992 12.75% 7.71% 5.04% 10/2311992 11.65% 7.71% 3.94% 10{28{1992 12.25% 7.71% 4.54% 10{29f1992 12.75% 7.71% 5.04% 10{30f1992 11.40% 7.70% 3.70%

11{9/1992 10.60% 7.70% 2.90% 11/25/1992 11.00% 7.68% 3.32% 11/2511992 12.00% 7.68% 4.32%

121311992 11.85% 7.67% 4.18% 12116/1992 11.90% 7.64% 4.26% 12/2211992 12.30% 7.63% 4.67% 1212211992 12.40% 7.63% 4.77% 12130/1992 12.00% 7.61% 4.39% 12131/1992 12.00% 7.61% 4.39% 1/1211993 12.00% 7.59% 4.41% 1/1211993 12.00% 7.59% 4.41% 21211993 11.40% 7.53% 3.87%

212211993 11.60% 7.48% 4.12% 412311993 11.75% 7.27% 4.48%

513/1993 11.50% 7.25% 4.25% 513/1993 11.75% 7.25% 4.50% S/3/1993 12.00% 7.20% 4.80% Snl1993 11.50% 7.20% 4.30%

6f2211993 11.75% 7.16% 4.59% 7/21/1993 11.78% 7.07% 4.71% 7/21/1993 11.90% 7.07% 4.83% 7/2311993 11.50% 7.06% 4.44% 7/29/1993 11.50% 7.03% 4.47% 8{1211993 10.75% 6.98% 3.77% 8124/1993 11.50% 6.92% 4.58% 8/31/1993 11.90% 6.88% 5.02% 9/1/1993 11.25% 6.88% 4.37% 9/1/1993 11.47% 6.88% 4.59%

9/27/1993 10.50% 6.74% 3.76% 9/29/1993 11.00% S.73% 4.27% 9/30/1993 11.60% 6.72% 4.88% 10/8/1993 11.50% 6.68% 4.82%

10/14/1993 11.20% 6.65% 4.55% 10/1511993 11.75% 6.65% 5.10% 10/2511993 11.55% 6.60% 4.95% 10/2811993 11.50% 6.58% 4.92% 10/29/1993 10.10% 6.58% 3.52% 10/29/1993 10.20% 6.58% 3.62% 10/29/1993 11.25% 6.58% 4.67% 11/211993 10.80% 6.56% 4.24%

11/1211993 11.80% 6.53% 5.27% 11/2311993 12.50% 6.51% 5.99% 11/26/1993 11.00% 6.50% 4.50% 1211/1993 11.45% 6.49% 4.96%

1211611993 10.60% 6.46% 4.14% 12116/1993 11.20% 6.46% 4.74% 12/21/1993 11.30% 6.45% 4.85% 12/2211993 11.00% 6.44% 4.56% 12/2311993 10.10% 6.44% 3.66%

1/5/1994 11.50% 6.41% 5.09% 1110/1994 11.00% 6.40% 4.60%


Date of 30-Year Natural Gas Retumon Treasury Risk Rate Gase Eguit~ Yield Premium

1/2511994 12.00% 6.37% 5.63% 2/211994 10.40% 6.35% 4.05% 219/1994 10.70% 6.34% 4.36% 4/6/1994 11.24% 6.35% 4.89%

412511994 11.00% 6.39% 4.61% 6f16/1994 10.50% 6.63% 3.87% 6f2311994 10.60% 6.67% 3.93% 7/19/1994 10.70% 6.83% 3.87% 9/29/1994 10.90% 7.20% 3.70% 9/2911994 11.00% 7.20% 3.80% 10f711994 11.87% 7.25% 4.62%

10{,8/1994 11.50% 7.31% 4.19% 10/18/1994 11.50% 7.31% 4.19% 10/2411994 11.00% 7.35% 3.65% 11/2211994 12.12% 7.52% 4.60% 11/2911994 11.30% 7.55% 3.75% 1211/1994 11.00% 7.56% 3.44% 1218/1994 11.50% 7.59% 3.91% 12/8{1994 11.70% 7.59% 4.11%

12/1211994 11.82% 7.60% 4.22% 12/14{1994 11.50% 7.61% 3.89% 12{19f1994 11.50% 7.62% 3.88%

4/19/1995 11.00% 7.71% 3.29% 9/11/1995 11.30% 7.16% 4.14% 9/15/1995 10.40% 7.13% 3.27% 9/29/1995 11.50% 7.06% 4.44%

10/13/1995 10.76% 6.99% 3.77% 111711995 12.50% 6.87% 5.63% 11/811995 11.10% 6.86% 4.24% 11/8/1995 11.30% 6.86% 4.44%

1111711995 10.90% 6.81% 4.09% 1112011995 11.40% 6.80% 4.60% 11127/1995 13.60% 6.77% 6.83% 12114/1995 11.30% 6.68% 4.62% 12120/1995 11.60% 6.65% 4.95%

1/31/1996 11.30% 6.46% 4.84% 3/11/1996 11.60% 6.40% 5.20% 4/311996 11.13% 6.41% 4.72%

4/1511996 10.50% 6.41% 4.09% 4117/1996 10.77% 6.41% 4.36% 4126/1996 10.60% 6.40% 4.20% 5/10/1996 11.00% 6.41% 4.59% 5113/1996 11.25% 6.41% 4.84% 713f1996 11.25% 6.49% 4.76%

7/2211996 11.25% 6.54% 4.71% 1013/1996 10.00% 6.77% 3.23%

10f29/1996 11.30% 6.84% 4.46% 11/26/1996 11.30% 6.86% 4.44% 11/27/1996 11.30% 6.86% 4.44% 11/29f1996 11.00% 6.85% 4.15% 1211211996 11.96% 6.85% 5.11% 12117/1996 11.50% 6.85% 4.65% 1/2211997 11.30% 6.83% 4.47% 1/27/1997 11.25% 6.83% 4.42% 1/31/1997 11.25% 6.83% 4.42% 2113/1997 11.00% 6.82% 4.18% 2113/1997 11.80% 6.82% 4.98% 2120/1997 11.80% 6.81% 4.99% 3/27/1997 10.75% 6.79% 3.96% 4129/1997 11.70% 6.80% 4.90% 7f17l1997 12.00% 6.77% 5.23%

10/29/1997 10.75% 6.70% 4.05% 10/3111997 11.25% 6.70% 4.55% 12124/1997 10.75% 6.53% 4.22% 4f28/1998 10.90% 6.11% 4.79% 4/30/1998 12.20% 6.10% 6.10% 6f30f1998 11.00% 5.94% 5.06% 8f26/1998 10.93% 5.82% 5.11% 9f3f1998 11.40% 5.80% 5.60%

9/15/1998 11.90% 5.77% 6.13% 101711998 11.06% 5.70% 5.36%

10/30/1998 11.40% 5.63% 5.77% 12110/1998 12.20% 5.52% 6.68% 12117/1998 12.10% 5.49% 6.61% 2119/1999 11.15% 5.32% 5.83%

3/1/1999 10.65% 5.31% 5.34% 3/1/1999 10.65% 5.31% 5.34% 6/8/1999 11.25% 5.35% 5.90%

11/1211999 10.25% 5.92% 4.33% 12114/1999 10.50% 5.99% 4.51%

1/28/2000 10.71% 6.16% 4.55% 2117/2000 10.60% 6.20% 4.40%


Date of 3D-Year Natural Gas Return on Treasury Risk Rate Gase Egui~ Yield Premium

5125/2000 10.80% 6.19% 4.61% 611912000 11.05% 6.18% 4.87% 612212000 11.25% 6.18% 5.07% 7117/2000 11.06% 6.15% 4.91% 7120/2000 12.20% 6.14% 6.06% 8f1112000 11.00% 6.11% 4.89% 912712000 11.25% 6.01% 5.24% 9129f2000 11.16% 6.00% 5.16% 101512000 11.30% 5.98% 5.32%

11/28/2000 12.90% 5.87% 7.03% 11/30/2000 12.10% 5.87% 6.23%

2/512001 11.50% 5.7,6% 5.74% 311512001 11.25% 5.67% 5.58% 5/8/2001 10.75% 5.61% 5.14%

10/2412001 10.30% 5.54% 4.76% 10/2412001 11.00% 5.54% 5.46%

119{2002 10.00% 5.50% 4.50% 1/30f2002 11.00% 5.47% 5.53% 1/3112002 11.00% 5.47% 5.53% 4/17/2002 11.50% 5.44% 6.06% 4129f2002 11.00% 5.45% 5.55% 6111/2002 11.77% 5.48% 6.29% 6/20/2002 12.30% 5.47% 6.83% 8/2812002 11.00% 5.49% 5.51% 9/11/2002 11.20% 5.45% 5.75% 9/12/2002 12.30% 5.45% 6.85%

10/28/2002 11.30% 5.35% 5.95% 10/30/2002 10.60% 5.34% 5.26%

111112002 12.60% 5.34% 7.26% 111712002 11.40% 5.33% 6.07% 111812002 10.75% 5.33% 5.42%

11120f2002 10.00% 5.30% 4.70% 11120f2002 10.50% 5.30% 5.20%

1214/2002 10.75% 5.27% 5.48% 12f3012002 11.20% 5.19% 6.01%

1/6/2003 11.25"10 5.17% 6.08% 212812003 12.30% 5.01% 7.29% 317/2003 9.96% 4.99% 4.97%

311212003 11.40% 4.97% 6.43% 312012003 12.00% 4.95% 7.05%

41312003 12.00% 4.93% 7.07% 512/2003 11.40% 4.88% 6.52%

511512003 11.05% 4.87% 6.18% 612612003 11.00% 4.80% 6.20%

71112003 11.00% 4.80% 6.20% 7/29f2003 11.71% 4.78% 6.93% 8122/2003 10.20% 4.82% 5.38% 9117/2003 9.90% 4.84% 5.06% 9/2512003 10.25% 4.85% 5.40%

1011712003 10.54% 4.87% 5.67% 1012212003 10.46% 4.87% 5.59% 10/22/2003 10.71% 4.87% 5.84% 10/3012003 11.00% 4.88% 6.12% 10/31/2003 10.20% 4.88% 5.32% 10131/2003 10.75% 4.88% 5.87% 11/10/2003 10.60% 4.89% 5.71% 1219/2003 10.50% 4.93% 5.57%

1211812003 10.50% 4.94% 5.56% 12119/2003 12.00% 4.94% 7.06% 12119/2003 12.00% 4.94% 7.06%

111312004 10.25% 4.95% 5.30% 1/1312004 12.00% 4.95% 7.05% 219/2004 11.25% 4.98% 6.27%

3116/2004 10.90% 5.05% 5.85% 3116/2004 10.90% 5.05% 5.85% 512512004 10.00% 5.06% 4.94%

£/212004 11.22% 5.07% 6.15% 6/30/2004 10.50% 5.10% 5.40% 7/8/2004 10.00% 5.10% 4.90%

7/22/2004 10.25% 5.10% 5.15% 812612004 10.50% 5.10% 5.40% 812612004 10.50% 5.10% 5.40%

9/912004 10.40% 5.10% 5.30% 9/21/2004 10.50% 5.09% 5.41% 9/27/2004 10.30% 5.09% 5.21% 9/27/2004 10.50% 5.09% 5.41%

10/20/2004 10.20% 5.08% 5.12% 11/30/2004 10.60% 5.08% 5.52% 1218/2004 9.90% 5.09% 4.81%

12/21/2004 11.50% 5.09% 6.41% 12/22/2004 11.50% 5.09% 6.41% 12/28/2004 10.25% 5.09% 5.16%


Date of 30-Year Natural Gas Retum on Treasury Risk

I

3/2912005 11.00% 4.86% 6.14% 4/1312005 10.60% 4.84% 5.76% 4/2812005 11.00% 4.80% 6.20% 511712005 10.00% 4.77% 5.23% 6/8/2005 10.18% 4.71% 5.47%

6/10/2005 10.90% 4.71% 6.19% 7/612005 10.50% 4.65% 5.85%

7/19/2005 11.50% 4.63% 6.87%

8{11/2005 10.40% 4.60% 5.80% 911912005 9.45% 4.53% 4.92% 9/3012005 10.51% 4.52% 5.99% 10(4/2005 9.90% 4.52% 5.38% 10/4/2005 10.75% 4.52% 6.23%

10/1412005 10.40% 4.52% 5.88% 10/31/2005 10.25% 4.53% 5.72%

11/212005 9.70% 4.53% 5.17% 11/3012005 10.00% 4.54% 5.46%

121912005 9.70% 4.53% 5.17% 12/12/2005 11.00% 4.53% 6.47% 12/2012005 10.13% 4.53% 5.60%

12/21/2005 10.40% 4.53% 5.87% 12/21/2005 11.00% 4.53% 6.47% 12/22/2005 10.20% 4.53% 5.67% 12/2212005 11.00% 4.53% 6.47% 12/28/2005 10.00% 4.52% 5.48%

1/5/2006 11.00% 4.52% 6.48% 1/2512006 11.20% 4.52% 6.6S% 1/2512006 11.20% 4.52% 6.6S% 213/2006 10.50% 4.52% 5.9S%

211512006 9.50% 4.53% 4.97% 4126/2006 10.60% 4.65% 5.95% 712412006 9.60% 4.86% 4.74% 712412006 10.00% 4.86% 5.14% 9/20/2006 11.00% 4.93% 6.07% 9/26/2006 10.75% 4.93% 5.82%

10/20/2006 9.S0% 4.96% 4.S4% 111212006 9.71% 4.96% 4.75% 11/9/2006 10.00% 4.97% 5.03%

11/2112006 11.00% 4.98% 6.02% 121512006 10.20% 4.97% 5.23%

1/5/2007 10.40% 4.95% 5.45% 1/9/2007 11.00% 4.94% 6.06%

1/11/2007 10.90% 4.94% 5.96% 1/19/2007 10.80% 4.93% 5.S7% 1126/2007 10.00% 4.92% 5.08% 218/2007 10.40% 4.91% 5.49%

3114/2007 10.10% 4.86% 524% 3120/2007 10.25% 4.85% 5.40% 3121/2007 11.35% 4.84% 6.51% 312212007 10.50% 4.84% 5.66% 3129/2007 10.00% 4.83% 5.17% 6/1312007 10.75% 4.81% 5.94% 6/29/2007 9.53% 4.S4% 4.69% 6/29/2007 10.10% 4.S4% 5.26%

71312007 10.25% 4.S5% 5.40% 7/1312007 9.50% 4.S6% 4.64% 7/24/2007 10.40% 4.S7% 5.53%

811/2007 10.15% 4.S8% 5.27% 8/29/2007 10.50% 4.91% 5.59% 9/10/2007 9.71% 4.91% 4.80% 9/19/2007 10.00% 4.91% 5.09% 912512007 9.70% 4.91% 4.79% 10/S/2007 10.48% 4.92% 5.56%

10/1912007 10.50% 4.91% 5.59% 10/2512007 9.65% 4.91% 4.74% 11/1512007 10.00% 4.89% 5.11% 11/20/2007 9.90% 4.89% 5.01% 11/27/2007 10.00% 4.SS% 5.12% 11/29/2007 10.90% 4.88% 6.02% 12114/2007 10.80% 4.87% 5.93% 12118/2007 10.40% 4.86% 5.54% 12/19/2007 9.S0% 4.S6% 4.94% 12/19/2007 9.S0% 4.S6% 4.94% 12/19/2007 10.20% 4.S6% 5.34% 12/21/2007 9.10% 4.S6% 4.24%

1/S/2008 10.75% 4.S3% 5.92% 1/1712008 10.75% 4.S1% 5.94% 1/1712008 10.75% 4.S1% 5.94% 2/5/2008 9.99% 4.7S% 5.21% 215/2008 10.19% 4.7S% 5.41%

2113/2008 10.20% 4.76% 5.44%


Datecf 3O-Year Natural Gas Return on Treasury Risk Rate case Eguil:i Yield Premium

3131/2008 10.00% 4.63% 5.37% 5/2812008 10.50% 4.53% 5.97% 6/24/2008 10.00% 4.52% 5.48% 6/27/2008 10.00% 4.52% 5.48% 7/31/2008 10.70% 4.50% 6.20% 7/31/2008 10.82% 4.50% 6.32% 8/27/2008 10.25% 4.50% 5.75%

9f212Q08 10.25% 4.50% 5.75% 9/19f2008 10.70% 4.48% 6.22% 9/24/2008 10.68% 4.48% 6.20% 9/24/2008 10.68% 4.48% 6.20% 9/24/2008 10.68% 4.48% 6.20% 9/30/2008 10.20% 4.48% 5.72% 10/312008 10.30% 4.47% 5.83% 101812008 10.15% 4.47% 5.68%

10120/2008 10.06% 4.47% 5.59% 10/24/2008 10.60% 4.46% 6.14% 10/24/2008 10.BO% 4.46% 6.14% 1112112008 10.50% 4.42% 6.08% 11/2112008 10.50% 4.42% 6.08% 1112112008 10.50% 4.42% 6.08% 11/2412008 10.50% 4.42% 6.08%

121312008 10.39% 4.37% 6.02% 1212412008 10.00% 4.26% 5.74% 12126/2008 10.10% 4.24% 5.86% 12129/2008 10.20% 4.23% 5.97%

1/1312009 10.45% 4.14% 6.31% 21212009 10.05% 4.04% 6.01% 319/2009 10.30% 3.90% 6.40%

3/25/2009 10.17% 3.84% 6.33% 41212009 10.75% 3.81% 6.94% 5/5/2009 10.75% 3.71% 7.04%

5/15/2009 10.20% 3.70% 6.50% 5129/2009 9.54% 3.70% 5.84%

6/3/2009 10.10% 3.71% 6.39% 6/2212009 10.00"k 3.73% 6.27% 6/29/2009 10.21% 3.74% 6.47% 6/30/2009 9.31% 3.74% 5.57% 7/17/2009 9.26% 3.75% 5.51% 7/17/2009 10.50% 3.75% 6.75%

10/1612009 10.40% 4.09% 6.31% 10/26/2009 10.10% 4.11% 5.99% 10/2812009 10.15% 4.11% 6.04% 10/2812009 10.15% 4.11% 6.04% 10/3012009 9.95% 4.12% 5.83% 11/2012009 9.45% 4.18% 5.27% 12114/2009 10.50% 4.24% 6.26% 12116/2009 10.75% 4.25% 6.50% 1211712009 10.30% 4.25% 6.05% 12/1812009 10.40% 4.26% 6.14% 12/18/2009 10.40% 4.26% 6.14% 12118/2009 10.50% 4.26% 6.24% 1212212009 10.20% 4.27% 5.93% 1212212009 10.40% 4.27% 6.13% 12128/2009 10.85% 4.29% 6.56% 12129/2009 10.38% 4.29% 6.09% 1/11/2010 10.24% 4.34% 5.90% 1/21/2010 10.23% 4.37% 5.86% 1/21/2010 10.33% 4.37% 5.96% 1/26/2010 10040% 4.37% 6.03% 2110/2010 10.00% 4.39% 5.61% 212312010 10.50% 4.40% 6.10%

319/2010 9.60% 4.40% 5.20% 3/24/2010 10.13% 4.42% 5.71% 3/31/2010 10.70% 4.43% 6.27% 4/1/2010 9.50% 4.43% 5.07% 41212010 10.10% 4.44% 5.66% 4/8/2010 10.35% 4.44% 5.91%

4/29/2010 9.19% 4.46% 4.73% 4/29/2010 9.40% 4.46% 4.94% 4/29/2010 9.40% 4.46% 4.94% 5/17/2010 10.55% 4.46% 6.09% 5124/2010 10.05% 4.46% 5.59%

613/2010 11.00% 4.46% 6.54% 6/16/2010 10.00% 4.45% 5.55% 6/18/2010 10.30% 4.45% 5.85%

819/2010 12.55% 4.41% 8.14% 8117/2010 10.10% 4.40% 5.70% 9/16/2010 9.60% 4.31% 5.29% 911612010 10.00% 4.31% 5.69% 9/1612010 10.00% 4.31% 5.69% 9/1612010 10.30% 4.31% 5.99%


Date of 3D-Year Natural Gas Retumon Treasury Risk Rate Case Eguit}! Yield Premium 10{2l/20l0 10.40% 4.20% 6.20% 11/212010 9.75% 4.18% 5.57% 11/2J2010 9.75% 4.18% 5.57% 11/3/2010 10.75% 4.17% 6.58%

11/19/2010 10.20% 4.15% 6.05% 12/112010 10.00% 4.13% 5.87% 1216/2010 9.56% 4.12% 5.44% 12/612010 10.09% 4.12% 5.97%

12/9f2010 10.25% 4.12% 6.13% 12/14/2010 10.33% 4.12% 6.21% 12/17/2010 10.10% 4.11% 5.99% 12/20/2010 10.10% 4.11% 5.99% 12123/2010 9.92% 4.11% 5.81%

1/6/2011 10.35% 4.09% 6.26% 1/12/2011 10.30% 4.09% 6.21% 111312011 10.30% 4.09% 6.21% 3/10/2011 10.10% 4.16% 5.94% 313112011 9.45% 4.20% 5.25%

4118{2Q11 10.05% 4.23% 5.82% 4/21/2011 10.00% 4.24% 5.76% 5/13/2011 11.35% 4.28% 7.07% 512612011 10.50% 4.31% 6.19% 6/21/2011 10.00% 4.36% 5.64% 6/29/2011 8.83% 4.37% 4.46% 8/1/2011 9.20% 4.41% 4.79% 9/1/2011 10.10% 4.33% 5.77%

11/14/2011 9.60% 3.93% 5.67% 1211312011 9.50% 3.76% 5.74% 12120/2011 10.00% 3.72% 6.28% 1212212011 10.40% 3.70% 6.70%

1/10/2012 9.06% 3.60% 5.46% 1/10/2012 9.45% 3.60% 5.85% 1110/2012 9.45% 3.60% 5.85% 1/2312012 10.20% 3.53% 6.67% 1/3112012 10.00% 3.49% 6.51% 4/24/2012 9.50% 3.16% 6.34% 4/24/2012 9.75% 3.16% 6.59% 517/2012 9.80% 3.13% 6.67%

512212012 9.60% 3.10% 6.50% 5124/2012 9.70% 3.09% 6.61%

6f712012 10.30% 3.06% 7.22% 6/1512012 10.40% 3.05% 7.32% 6/18/2012 9.60% 3.05% 6.52%

71212012 9.75% 3.04% 6.67%

Average 4.34% Count 945

NorthWestern Energy Equity Median Market to Book for Camp Group NorthWestern Energy Implied Market Cap

Company Name AGL Resources Inc. Atmas Energy Corporation Laclede Group, Inc. New Jersey Resources Corporation Northwest Natural Gas Company Piedmont Natural Gas Company, Inc. South Jersey Industries, Inc. Southwest Gas Corporation WGL Holdings, Inc. Median Mean

Notes: [1]2011 SEC Fonn 10-K [2] Data provided by Company [3] Source: SNL Financial [4] Source: SNL Financial as of 8/31/2012

[5] Source: SNL Financial as of 8/31/2012

Small Size Premium

[1[ [2]

Customers (Mil) ($BiI)

0.182 $ 0.147

1.57 $ 0.231

[3] [4] Market Cap

Ticker Customers (Mil) ($BiI)

GAS 2.5 $ 4.66

ATO 3.2 $ 3.15

LG 0.6 $ 0.95

NJR 0.5 $ 1.86

NWN 0.7 $ 1.32

PNY 1.0 $ 2.24

SJI 0.3 $ 1.53

SWX 1.8 $ 1.97

WGL 1.1 $ 2.01

1.0 $ 1.97

1.3 $ 2.19

Market Capitalization ($Mil)

Decile Low High

2 $ 6,927.557 $ 15,408.314 3 $ 3,596.535 $ 6,896.389 4 $ 2,366.464 $ 3,577.774 5 $ 1,621.096 $ 2,362.532 6 $ 1,090.652 $ 1,620.860 7 $ 683.059 $ 1,090.515 8 $ 422.999 $ 682.750 9 $ 206.802 $ 422.811 10 $ 1.028 $ 206.795

Proxy Group Median $ 1,971 9th Decile Size Premium Difference from Proxy Group Median


[5] Market to

Book Ratio 1.37 1.34 1.56 2.23 1.79 2.11 2.29 1.54 1.57

1.57 1.75

[6) Size Premium

0.78%

0.94%

1.17% 1.74% 1.75%

1.77% 2.51% 2.80%

6.10%

1.74% 2.80%

1.06% 1[7]

[6] Source: Ibbotson Associates, 2012 Valuation Yearbook, "Key Variables in Estimating Cost of Capital. n

[7] Equals 2.80% ~ 1.74%

Revenue Stabilization Mechanisms

Company Ticker Infrastructure Oecoupling

AGL Resources GAS v v Atlanta Gas Light Co. ./ [1], [2J

Northern Illinois Gas Co.

Virginia Natural Gas ./ [1], (2)

Elizabethtown Gas ./ [1], [2] ./ [1], [2]

Florida City Gas

Chattanooga Gas ./ [1], [2]

Atmos Energy ATO v v Atmos Energy (Colorado)

Atmos Energy (Georgia) ./ [2J ./ [1], [2J

Atmos Energy (Iowa) Almas Energy (Illinois) Atmos Energy (Kansas) ./ (1J. [2] ./ [1], [2]

Atmos Energy (Kentucky) ./ (1], (2] ./ [1], (2]

Atmos Energy (Louisiana) ./ [1], [2]

Atmos Energy (Mississippi) ./ [1]. [2]

Atmos Energy (Missouri) ./ [1), [2]

Atmos Energy (Tennessee) ./ [1), [2]

Atmos Energy (Texas) ./ [1J, [2] ./ [1), [2J

Atmos Energy (Virginia) ./ [2]

Laclede Group LG v Laclede Gas Co. ./ (1J. [2]

New Jersey Resources NJR v v New Jersey Natural Gas ./ [1], [2] ./ 11], [2]

Northwest Natural Gas NWN v v Northwest Natural Gas (Oregon) ./ [1], (2J ./ [1]. [2]

Northwest Natural Gas (Washington) Piedmont Natural Gas PNY v

Piedmont Natural Gas (North Carolina) ./ [1J, [2]

Piedmont Natural Gas (South Carolina) ./ [1], [2J

Piedmont Natural Gas (Tennessee) ./ [1], (2J

South Jersey Industries 5JI v v SJG ./ [1J. [2J ./ [1], [2J

Southwest Gas Corporation 5WX v Southwest Gas Corporation (Arizona) ./ [1J, [2)

Southwest Gas Corporation (California) ./ [1J, [2J

Southwest Gas Corporation (Nevada) ./ [1J, (2)

Washington Gas Light WGL v v Washington Gas - DC Washington Gas - MD ./ [1]. [2]

Washington Gas - VA V l'l.l-' -/'

[1] RRAAdJustment Clauses and Rate Riders, March 21, 20120 [2] Innovative Rates, Non-Volumetric Rates, and Tracking Mechanisms: Current List, March 2012 [3]2011 SEC Form 10-K

Expense

v ./ [1]

./ [11, [2]

./ [1], [2]

./ [1]

./ (1], [2]

v ./ [2]

./ [2]

./ [1],[2]

./ [2J

./ [2]

./ [2J

./ 11J. [2J

./ [2J

./ [2]

v ./ [lJ,(2)

v ./ [2J

./ [2]

./ [2]

v ./ [3J

v

./ [1J, [2J

v ./ [2J

./ [2J

-/ l'l


Revenue StabilizatiO!1 Mechanisms

,II

t are recovered from customers. Costs are primarily recovered through deferred dollar-for-dollar re<:overy. The ERC rate rider for Atlanta Gas Light only allows for recovery

period. ERC associated 'Nith the investigation and remediation of Nlcor Gas and EI"',b".t~' I states of illinois and New Jersey are recovered under remediatlO!1 adjustment clauses

unrecovered expendttures. (pg 77)

i iI t t

" 1 II

", Income and Statements of

62)

customer conserve energy. UWitygfOSS margin variations are recovered In

1

t'

are recovered, 'Nith interest, over seven year roll[ng periods, through a future liability'Nili be requested vmen actual expenditures are Incurred. (pg 80)

II

"

I commercial customers' conservatioll efforts. The I I between utility earnings and the quantity of

by the utility to discourage customers' efforts to conserve

to refund

on bills rendered during

objectives of margin decoupling for residential and commercial customers 'Nith a designs stabnJzed PNY's gas utinty margin by providing fixed recoveryof70% of its utility

Ii, charges to our customers and fixed-rate contracts; semIthe rate stabilization mechanism in South Carolina and WNA In South

i renegotiation of 12% of its utility margins. (pgs. 23-24)

Exhibit No, RBH-10 Page 2 of4

Com " Ticker South Jersey Industries SJI

Southwest Gas Corp. SWX

Revenue Stabilization /lAechanlsms

Disclosed in SEC Form 1().K Filin

SJG was pennitted to recover regulatory assets contained In its petition and defer certain federally mandated pipeline Integrity management program costs for recovery in its next base rate case. In addition, annual depreciation expense will be reduced by SI.2 million as a resullofthe amortization of excess cost of removal recoveries. The BPU also authorized a Phase II of the base rate proceeding to review the costs ofCIRT projects not rolled into rate base In the September2010 seWement (pg 119)

The BGSS price structure was approved by the BPU in January 2003, and allows SJG to recover all prudently Incurred gas costs. BGSS cha es 10 customers can be either monthlvor enodic annuall. too 1191 Conservation Incentive Program (CIP) - The primary purpose of the CIP is 10 promote conservation effons, without negatiVely Impacting financial stability and to base SJG's profit margin on the number of customers rather than the amount of natural gas distributed to customers. In October20D6, the BPU approved SJG's CIP as a three year pilot program. In January2010, the BPU approved an extension of this program through September 2013. Each CIP year begins October 1 and ends September 30 of the subsequent year. On a monthly basis during the CIP year, SJG records adjustments to earnings based on weather and customer usage factors, as incurred. Subsequent to each year, SJG will make filings with the BPU to review and app~(:~~funts recorded under the CIP. BPU approved cash Inflows or outflows generally will not begin until the next CIPyear. 66 CapJtallnvestment RecoveryTracker (CIRD -In January 2009, SJG made a filing with the BPU requesting approval for an accelerated Infrastructure Investment program. The purpose of the CIRTwas to accelerate $103.0 million of capital expenditures from five years to \'M:I years. The petition requested that the Company be allowed to earn a return of, and a return on, its investment Under the CIRT, 2009 spending was projected to be $70.5 mlllion and 2010 spending was projected to be $32.5 million. On a monthly basis during the CIRTyear, SJG records adjUstments to earnings based on actual CIRT program expenditures, as incurred. Annually, SJG makes a filing to the BPU for review and approval of exoenditures recorded under the CIRT. (00 661 Energy EfficlencyTracker (EET) -In January 2009, SJG filed a petitlOri with the BPU requestirlg approval of an energy efficlency program for residential, commercial and Industrial customers. Under this program, SJG can lnvest$17.0 mill10n overtwo years In energy efficiency measures to be Installed In customer homes and businesses. SJG can recover incremental operating and maintenance expenses and earn a return of, and return on, program Investments. (pg 67)

Societal Benefits Clause (SBC) - The SSC allows SJG to recover costs related to several BPU-mandated programs. Within the SSC are a Remediation Adjustment Clause (RAG), a New Jersey Clean Energy Program (NJCEP). a UnIversal Service Fund USF ram and a Consumer Education Pram CEP I. (~ 68 Remediation Adjustment Clause (RAC) - The RAC recovers environmental remediation costs of 12 former gas manufacturing plants (See Note 15). The BPU allows SJG to recover such costs over seven year amortization periods. The net between the amounts actually spent and amounts recovered from customers Is recorded as a regulatory asset. Environmental Remediation Cost Expended - Net Note that RAC activity affects revenue and cash flows but does not directly affect earnings because of the cost recovery over seven year amortization periods. As of December 31,2011 and 2010, SJG reflected the unamortized remediation costs of$45.8 millIon and $39.1 million, respectively, on the consolIdated balance sheets under Regulatory Assets {See N.O/~\I~\Slnce implementing the RAC In 1992, SJG has recovered $58.6 million throuah rates as of December 31. 2011. 68 New JerseyClean Energy Program (NJCEP) - This mechaniSm recovers costs associated with SJG's energy efficiency and renewable energy programs. In August2008, the BPU approved the statewide funding of the NJCEP of$l.2 billion forthe years 2009 through 2012. Of this amount SJG will be responsible for approximately $41.5 million over the four-year period. NJCEP adjustments affect revenue and cash ;~~:I~\t do notdirecUy affect earnings as related costs are deferred and recovered throuoh rates on an on-ooino basis. 68 Universal Service Fund (USF)· The USF Is a statewide program through which funds for the USF and Lifeline Credit and Tenants Assistance Programs are collected from customers of all New Jersey electric and gas utilities. USF adjustments affect cash flows but do not directly affect revenue oreamings as related costs are deferred and recovered through rates on an on-oolno basis. (00 66) Unbundling - Effective January 10, 2000, the BPU approved full unbundling ofSJG's s~tem. This allows all natural gas consumers 10 select their natural gas commodity supplier. As of December 31, 2011, 35,880 ofSJG's residential customers were purchasing Ihelrgas commodity from someone other than SJG. Customers choosing 10 purchase natural gas from providers other than the utility are charged forthe cost of gas by the marketer. The resulting decrease In utility revenues Is offset by a corresponding decrease In gas costs. While customer choice can reduce utility revenues, itdoes not negatively affectSJG's net income or financial condition. The BPU continues to allow for full recovery of prudenUy incurred natural gas costs through the BGSS.;~:ul~:;ing did not change the fact that SJG still recovers cost of service, including certain deferred costs through base rates. 69 Pipeline Integrity- In October 2005, SJG filed a petition with the BPU to Implement a Pipeline Integrity Management Tracker (Tracker). The purpose ofttlis Trackerwas to recover incremental costs to be Incurred by SJG as a result of newfederal regulaUons, whIch are aimed at enhanCing public safety and reliability. The regulations require that utilities use a comprehensive anal~is to assess, evaluate, repair and validate the integrity of certain transmission lines In the event of a leak or failure. As part of SJG's September 201 0 base rate Increase, SJG was pennitled to recover previously deferred plpel1ne Integrity costs Incurred through September 2010. In addition, SJG is authorized to defer future program costs, and related carrying costs, for recovery in the next base rate proceeding, subject to review by the BPU. Accordingly, SJG withdrew its petition for the Pipeline Integrity ManagementTracker. As of December 31, 2011 and 2010, deferred pipeline integrity costs totaled $1.2 million and $1.7 million, respectiVely, and are Included in other regulatory assets. (pg 69)

Rate design is the primary mechanism avaJlable to Southwest to mitigate weather risk. As of January 2012, all of Southwesfs service territories have decoupled rate structures whIch mitigate weather risk. 1(1 California, CPUC regulations allow Southwest to decouple operating margin from usage and offset weather risk. In Nevada, a decoupled rate structure applies to most customer classes providing stablITty In annual operating margIn by insulating the Company from the effects of lower usage (including volumes associated with unusual weather). In Arizona, the ACC recenUy approved a fully decoupled rate structure with a monthly weather normalization provision effective January 2012. (pg (2)

There are approximately 100,000 customers in Arizona whose natural gas meters are set-off away from the customer's home (e.g., near a backyard property line), as opposed to a more traditional configuration In which the meter is adjacent to the home. To address the cost nonnally bome by the customer to repair or replace the COYL, the Company received approval to Implement a new program (as part of its recent Arizona rate case decision) under which the Company will replace the customer's facllifies at no Immedfate direct costto the customer, and relocate the customer's meter adjacent to the home. In addition, the program provides for the Company to endeavor to leak survey all such COYLs over a 3-year period; anticipated costs for the survey are reflected in current rates. The costs of the replacement portion of thiS program Will be capitalized by the Company. SubJect to an annual reporting requirement, a surcharge will be added to all bills to recover an amount approximately equal to the amount that the Company would have earned If the additional pipe replacement costs had been included in the rate base amount filed in the recenUy concluded Arizona rate case. Recovery of the surcharge will cease as of the next Arizona general rate case (as the expenditures will then be Included In rate base). (pg 27)


Revenue Stabilization Mechanisms

Com an Ticker Disclosed In SEC Form 10-K Filin Washington Gas Light WOL

[Regarding the recovery of HHC related costs, the 2009 Stipulation 'Nith the DC OPC] provides for the costofthe program to be fetovered throu9h an annual sl.lrcharge based on actl.lal expenditures for coupling replacement and encapsula~on that 'Nill become effective at the end of the existing base ratefreeze (October 1,2011). The cost v.illinciude both a return of and return o~ :: ~~t of coupling replacement and encapsulation, computed In accordance v.ith the terms of the rates currenUy In effect. 76 [In the April 2011 new rate base request] Washington Gas has also included a request for approval of a rate adjustment me<:hanlsm to recover costs associated 'Nith the accelerated replacement of transmission and distributJon pipe designed to enhance safety and system rellabllity. [The PSC of Maryland's November2011 order] authorized Washington Gas to imp/ementthe In~al5-year phase of the accelerated pipe replacement plan. (pgs 7S.79)

Changes In customer usage by existing customers that occur subsequent to rate case proceedings In the Maryland Jurisdiction generallyv.ill not change revenues because the RNA [Revenue Normalization Adjustment] mechanism stabilizes the level of delive cha e revenues received from customers. 34\ On March 26, 2010 the SCC of VA Issued an order approving a decoupling rate mechanism for residential customers and siX residential energy efficiency programs and the cost recovery me<:hanlsm for those programs. Washington Gas filed compliance tariffs 'Nith the staff on April 19, 2010 to implement the CARE plan on May 1, 2010. Washington Gas began applying the decoupling mechanism in Virginia in its July billings for residential customers conSistent with the SCC of VA's a roval.ln 79 On August 4, 2010 Washington Gas filed an application (and supplemental testimony on October 25,2010) 'Nith the SCC of VA for approval of a SAVE Plan which Included four gas utility Infrastructure replacement programs and a SAVE rider to recover certain costs associated 'Nith the replacement programs. On April 21, 2011, the SCC of VA Issued an order approving Washington Gas' proposed five year SAVE Plan encompassing a total of$1 16.5 million in expenditures for the four replacement programs for the period from June 2010 to December 31, 2014. The SCC of VA also approved a SAVE rider to recover the costs of the replacement programs, effective for bills rendered on or after May I, 2011. The SCC of VA also established a schedule for Washington Gas' SAVE rider filings forthe approved SAVE Plan.

On September I, 2011, Washington Gas filed an application 'Nith the SCC of VA for approval to implement its 2012 SAVE rider, effective from January " 2012 up to December 31, 2012. The estimated amount, $29.8 mlllion, 'Nil! be allocated among the Company's four approved SAVE plan projects as follOY<S: (I) bare andfor unprotected steel service replacement program-$10.3 million: (II) bare and unprotected steel main replacement program-S2.1 million; (iii) mechanically coupled pipe replacement program-S17.1 million and (Iv) enhancement ofOptimaln decision support computer prograrn-$0.3 million. A public hearing was held on November 1, 2011. A commission decision is pending. (pg 79)

On January 31, 2011, Washington Gas filed a request 'Nith the SCC of VA for a 529.6 million annual increase In revenues. The filing was made pursuant to the setUement agreement reached by the parties and approved by the SCC of VA in Washington Gas' last base rate case, which resulted in a Perionnance-Based Rate (PBR) plan. The filing made In January 2011 did not request either renewal or modification of the PBR plan; rather, the filing was based on traditional cost of service regulation. The $29.6 million revenue increase requested In this application InCluded a proposed overall rate of retum of 8.58% and a return on common equity of 10.5%, as compared to a return on common equity of 10.0% In Washington Gas' last base rate proceeding. On May 12, 2011, Washington Gas filed a revised base rate increase request lowering the requested revenue increase from $29.6 mlllion to $28.5 million as a result of new proposed depreciation rates.

Washington Gas proposes to continue the WNA, which was previously approved by the SCC of VA. Washington Gas also proposes a new sharing arrangement associated with Its asset optimization program, and seeks to Increase Its research and development funding throlJ9h programs sponsored by the Gas Technology Institute. (pg 80)

Storage Carrying Costs-Each Jurisdiction provides for the recovery of carrying costs based on the cost of capital in each jurisdIction, multiplied by the monthly average balance of storage gas Inventory. The year over year comparisons reflect lower average storage gas Inventory Investment balances primarily due to lower weighted average cost ofgas In Inventory. (pg 49)

GAG-Represents a regulatory mechanism In all jurisdictions that provides for recovery of uncollecllble accounts expense related to changes in gas costs. Higherllower recoveries refle<:t GAC rate changes In Maryland, Virginia and the District of Columbia. The related uncollectible accounts expense is Included In operation and maintenance expenses. (pg 46)

Source: Most recent company SEC Fonn 10-K filing as of May 18, 2012.


Two most recent open market common stock Issuances per company, if available

Flotation Cost Adjuslment

N,I


Shares Offering Underwriting Offering Proceeds Per Total Flotation Gross Equity Issue Flotation Cost Company Date Issued Price Discount _Expense Share ____ Costs Before Cos!~_ Net Proceeds Percentage

NorthWestern Corp. 101212002 11,500,000 $8.75 $0.4375 51,025,000 $8.22 $6,056,250 $100,625,000 594,568,750 6.019% NorthWestern Corp. 10/1612001 3.680,000 521.25 $0.8500 $100,000 520.37 $3,228,000 578,200,000 574,972,000 4.128%

AGL Resources Inc. 1111912004 11,040,000 531,01 50.9300 $400,000 $30.04 510,667,200 5342,350.400 $331,683,200 3,116% AGL Resources Inc. 2/1112003 6,440,000 $22.00 $0.7700 $250,000 $21,19 $5,208,800 $141,680,000 $136,471,200 3.676% Almos Energy Corporation 121712006 6,325,000 531.50 $1.1025 $400,000 530.33 $7,373,313 5199.237,500 $191,864,188 3.701% Almos Energy Corporation 1012112004 16.100,000 $24.75 $0.9900 $400.000 $23.74 516,339,000 $398,475,000 5382,136,000 4.100% Laclede Group, Inc. 512512004 1,725,000 526.80 $0.8710 $100,000 525.87 $1,602,475 $46,230,000 $44,627,525 3.466% Northwest Natura! Gas Company 3/3012004 1,290,000 $31.00 $1.0100 $175,000 $29.85 $1,477,900 $39,990,000 $38,512,100 3.696% P"ledmont Natural Gas Company, Inc. 112012004 4.887,500 $42.50 $1.4900 $350.000 $40.94 $7,632,375 $207,718,750 5200,086,375 3.674"A> WGL Holdings, Inc. 612012001 2,058,500 526.73 $0.8950 $56,218 $25.81 $1,898,576 $55,023,705 553,125,130 3,450"A>

Mean $6,148,389 5160.953,036 WEIGHTED AVERAGE FLOTATION COSTS: 3.820%

Constant Growth Discounted Cash Flow Model Adjusted for Flotation Costs· 30 Day Average Stock Price [11 [2] [3] r4] 15] (6) [71 r8) [9] (10) [11] [12]

Average Expected t;>ividend Yjeld Zacks First Call Value Line Average Flotation Annualized Stock DIvidend Adjusted for Earnings Earnings Earnings Sustainable Earnings Adjusted

Company Ticker Dividend Price Yield Current Flol Costs Growth Growth Growth Growth Growth OCF k(e) DCF k(e)

AGL Resources Inc, GAS $1.84 $40,10 4,59% 4.71% 4.90% 4.28% Atmos Energy Corporation ATO 51.38 $35,97 3.84% 3.93% 4.09% 5.83% Laclede Group, Inc. LG 51.66 $42.07 3.95% 4.02% 4,18% 3.00% New Jersey Resources Corporation NJR $1.52 545,53 3,34% 3,41% 3.55% 3.35% Northwest Natural Gas Company NWN $1.78 549.03 3.63% 3.72% 3,87% 4.17% Piedmont Natural Gas Company. Inc. PNV $1.20 $31.63 3,79% 3.86% 4.01% 4.70% South Jersey industries, Inc. SJI $1.61 $51,95 3,10% 3.23% 3,35% 6.00% Southwest Gas Corporation SWX $1.18 $43,74 2.70% 2.78% 2.89% 4,37% WGL Holdings, Inc. WGL 51.60 $40.29 3.97% 4.06% 4.22% 5.37%

PROXY GROUP MEAN

Notes: The proxy group DCI'" resui! is adjusted for flotation costs by dividing each company's expected dividend yield by (1 - flotation cost). The flotation cost adjustment is derived as the difference between the unadjusted DCF result and the DCF result adjusted for flotation costs,

]1] Source: Bloomberg Professional ]2J Source: Bloomberg Professional ]3) Equals [1J 1 [2J {4J Equals [3J x (1 + 0.5x [10]) I5J Equals [4J I (1 -0.0381) 16] Source: Zacks [7] Source: Yahoo! Finance 18] Source: Value Line [9} Source: Exhibit No. RBH-3 [10J Equals Average([6J, [7]. [8], [9]) [11J Equals [4} + [10] [12] Equals [51 + [10] {131 Equals average 112]- average [11]

NA 5.50% 5.96% 5,25% 9.95% 10.14% 5.50% 4.00% 4.01% 4.84% 8.77% 8.92% 5.30% 2.00% 5.57% 3.97% 7.99% 8.15% 1.85% 5.50% 7.20% 4,47% 7.89% 8.02% 4.50% 4.00% 7.34% 5.00% 8.72% 8.87% 4.70% 2,50% 2.19% 3.52% 7.38% 7.54% 6,00% 9.00% 11.58% 8,15% 11.37% 11.50% 4.05% 9,00% 6.60% 6.01% 8.78% 8.90% 5.60% 3.00% 3.78% 4.44% 8,50% 8.66%

8.82% 8.97%

DCF Result Adjusted For Flotation Costs: 8.97% DCF Result Unadjusted For Flotation Costs: 8.82%

Difference (Flotation Cost Adjustment):1 0.15%1[13]

prefiled direct testimony of robert b. hevert...1 2 3 q. 4 5 a. 6 7 8 q. 9 a. 10 11 12 13 q. 14 a....

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