NOF and COS2.pdf
Ameren Public Comment.pdf
Ameren Public Comment Exhibits.pdf

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

AMEREN ENERGY GENERATING

COMPANY, AMERENENERGY RESOURCES

GENERATING COMPANY, AND ELECTRIC

ENERGY, INC.,

Petitioners,

ILLINOIS ENVIRONMENTAL PROTECTION

AGENCY,

Respondent.

)

PCB 09-21

(Variance - Air)

To:

John Therriault, Assistant Clerk

Illinois Pollution Control Board

Chicago, Illinois 60601

therriauj@ipcb.state.il.us

NOTICE OF FILING

Mr. Bradley P. Halloran

Hearing Officer

Illinois Pollution Control Board

James

R. Thompson Center

100 West Randolph Street, Suite 11-500

Chicago, Illinois 60601

hallorab@ipcb.state.il.us

John Kim

Kent Mohr

Illinois Environmental Protection Agency

Division of Legal Counsel

1021 North Grand Avenue, East

P.O. Box 19276

Springfield, Illinois 62794-9276

john.j .kim@illinois.gov

kent.mohr@illinois.gov

Keith Harley

Elizabeth Schenkier

Chicago Legal Clinic, Inc.

205 West Monroe, Ste.

401

Chicago, IL 60606

kharley@kentlaw.edu

bshenkier(cl)clclaw.org

Division of Legal Counsel

Illinois Environmental Protection Agency

1021 North Grand Avenue, East

P.O. Box 19276

Springfield, Illinois 62794-9276

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

PLEASE TAKE NOTICE that I have today electronically filed with the Office of the

Clerk of the Pollution Control Board,

Public Comments of Petitioners and Response to Public

Comments of Respiratory Health Association of Metropolitan Chicago, Sierra Club of

Illinois, Natural Resources Defense Council, the American Bottom Conservancy, and the

Environmental Law and Policy Center,

copies

of which are herewith served upon you.

Ameren Energy Generating Company

Dated: December 30, 2008

Amy Antoniolli

SCHIFF HARDIN, LLP

6600 Sears Tower

233 South Wacker Drive

Chicago, Illinois 60606

312-258-5500

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

CERTIFICATE OF SERVICE

I, the undersigned, certify that on this 30th day of December, 2008, I have served

electronically the attached

Public Comments of Petitioners and Response to Public

Comments of Respiratory Health Association of Metropolitan Chicago, Sierra Club of

Illinois, Natural Resources Defense Council, the American Bottom Conservancy, and the

Environmental Law and Policy Center, upon the following persons:

John Therriault, Assistant Clerk

Illinois Pollution Control Board

Chicago, Illinois 60601

therriauj

(ci)i pcb.state. itus

John Kim

Kent Mohr

Illinois Environmental Protection Agency

Division of Legal Counsel

1021 North Grand Avenue, East

P.O. Box 19276

Springfield, Illinois 62794-9276

john. j.kim@illinois.gov

kent.mohr(ci)illinois.gov

and by first class mail, postage affixed, upon:

Illinois Environmental Protection Agency

Division

of Legal Counsel

1021 North Grand Avenue, East

P.O. Box 19276

Springfield, Illinois 62794-9276

233 South Wacker Drive

Chicago, Illinois 60606

Illinois Pollution Control Board

James

R. Thompson Center

100 West Randolph Street, Suite 11-500

Chicago, Illinois 60601

hallorab(ci)ipcb.state.il.us

Keith Harley

Elizabeth Schenkier

Chicago Legal Clinic, Inc.

205 West Monroe, Ste. 401

Chicago, IL 60606

kharley@kentlaw.edu

bschenkier@clclaw.org

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

AMEREN ENERGY GENERATING

COMPANY, AMERENENERGY

RESOURCES GENERATING COMPANY,

AND ELECTRIC ENERGY, INC.,

Petitioners,

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY,

Respondent.

)

PCB 09-21

(Variance - Air)

PUBLIC COMMENTS OF PETITIONERS AND RESPONSE TO PUBLIC COMMENTS

OF RESPIRATORY HEALTH ASSOCIATION OF

METROPOLIT

AN CHICAGO,

SIERRA CLUB OF ILLINOIS, NATURAL RESOURCES DEFENSE COUNCIL,

THE

AMERICAN BOTTOM CONSERVANCY, AND THE ENVIRONMENTAL LAW AND

POLICY

CENTER

NOW COME AMEREN ENERGY GENERATING COMPANY, AMERENENERGY

RESOURCES GENERATING COMPANY, and ELECTRIC ENERGY, INC. (collectively,

"Ameren" or "Petitioners"),

by and through their attorneys, SCHIFF HARDIN, LLP, and,

pursuant to Section 104.220 of the Illinois Pollution Control Board's ("Board") procedural rules

(35 Ill. Adm. Code 104.220), in response to the Public Comments of Respiratory Health

Association

of Metropolitan Chicago, Sierra Club of Illinois, Natural Resources Defense

Council, the American Bottom Conservancy, and the Environmental Law and Policy Center

(collectively, the "Environmental Groups"),l The Environmental Groups urge the Board to deny

The Environmental Groups' public comment will be cited to throughout this public

comment

as: "PC1 at

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

Ameren's petition for variance from certain requirements of the Multi-Pollutant Standard, 35

Ill.

Adm. Code 225.233 ("MPS") ("Petition"), or, in the alternative, hold hearings on the issue of

burden of proof. Ameren responds that it has met the applicable burden of proof and that the

request for hearing is untimely and asks the Board

to grant the requested relief.

INTRODUCTION

Through their public comments, the Environmental Groups claim that Ameren has not

met the requisite burden

of proof because uncertainty in the law does not create an arbitrary and

unreasonable hardship and because Ameren's claim

of financial hardship is vague and

unsubstantiated. Finally, the Environmental Groups claim Ameren has failed to demonstrate that

its hardship

as presented outweighs the environmental impact of the variance.

As described in more detail below, these claims are simply without merit. Indeed,

Ameren has met its burden

to demonstrate an arbitrary and unreasonable hardship and has shown

that the variance would, in fact, result in a net environmental benefit.

II.

AMEREN HAS MET ITS BURDEN TO DEMONSTRATE AN ARBITRARY AND

UNREASONABLE HARDSHIP

Ameren agrees with the Environmental Groups that in granting or denying a variance, the

Board holds petitioners

to a high standard: "the Board must balance individual hardship against

environmental impact." Monsanto Co.

v. PCB, 367 N.E.2d 684,691,67 Ill.2d 276, 293 (1997).

Individual hardship need not extend beyond a demonstration that a denial

of a variance results in

economic hardship. The Board has consistently held that economic hardship is itself sufficient

cause

to warrant a variance if no or minimal environmental impact is demonstrated.

See

Village

of Lake Zurich v. IEPA, 1997 WL 85225 at 6, PCB 97-77 (Feb. 20.1997); City of Farmington v.

IEPA, 2002 WL 31545634, PCB 03-6 (Nov. 7,2002) (granting variance on grounds that a denial

would impose

an economic hardship and that there will be no adverse environmental impact);

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

General Motors Corp. v. IEPA, 1992 WL 142715, PCB 88-193 (June 4,1992) (granting variance

where additional measures

to reduce emissions are not economically feasible and no adverse

impact on environment

if variance granted).

Ameren has shown that the individual hardship it must endure

to meet Section

225.233(e)(2)(A) is arbitrary and unreasonable given the remand

of the Clean Air Interstate Rule

("CAIR"), vacatur

of the Clean Air Mercury Rule ("CAMR") and political certainty of future

greenhouse gas legislation--all circumstances that did not exist at the time the MPS was

promulgated? Further, and even more unforeseeable, the deterioration of the economy and the

collapse

of the capital and credit markets following the failure of Lehman Brothers and other

major financial institutions in September, have resulted

in an economic crisis not seen since the

Great Depression and impacts all industry sectors. Since the filing

of this Petition for variance

on October

1, 2008, such spiraling conditions have only worsened and exacerbated Ameren's

claims

of economic hardship. The economic hardship that compliance would impose on Ameren

individually could very likely become a public hardship

if Ameren is forced to shut down plants

2 On December 23, 2008, the D.C. Circuit Court of Appeals reinstated CAIR, allowing CAIR to

remain in effect until it is replaced with a rule consistent with the Court's opinion. State of

North Carolina v. Environmental Protection Agency,

et al.,

No. 05-1244 (D.C. Cir. Dec. 23,

2008).

In its July 2008 opinion, the Court pointed out "more than several fatal flaws in the rule."

North Carolina

v. EPA, 531 F.3d 896, 901 (D.C. Cir. 2008). The flaws the Court identified

included: the U.S. EPA's flawed approach

of using region-wide caps with no state-specific

quantitative contribution determinations or emissions requirements, the failure

of CAIR to

connect states' emissions reductions to states' own significant contributions, unlawfully

connecting states' emissions reductions with the Title

IV trading program, and arbitrarily

allocating state budgets from the region-wide NOx cap but adjusting the distribution

allocations to states considering fuel type.

See Id.

Thus, any new rule the U.S. EPA promulgates

must differ from the existing CAIR with regard

to these substantive areas, and uncertainties

remain as

to actual implementation and future EPA action to correct the defects identified by the

Court.

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

as a consequence. If such circumstances were to occur, the economic impact to employees,

contractors and the State of Illinois would be significant.

Most importantly, it is clear Ameren has mitigated the environmental impact

of the

variance relief by agreeing to a compliance plan with more stringent emission rate requirements

for not only one but two pollutants.

is critical to note that, as it did in crafting the MPS

(see

Petition, par. 6), Ameren sought to collaborate with the Illinois Environmental Protection

Agency ("Agency") in drafting this request for relief.

is for that reason that the request for

relief contains earlier and additional emission rate requirements for NO

and S02, and,

ultimately, an even stricter emission rate requirement for S02. The request for relief, as amended

by Ameren's response to the Agency's Recommendation, actually confers, in the Agency's own

words, a "small net environmental benefit."

See

Recommendation at 10. In other words, the

variance relief provides an overall benefit to the environment

not detriment

as implied

through the public comments submitted. Balancing all

of these factors clearly justifies the

requested relief.

The dramatically changing and seriously unsettled regulatory environment for the coal-

fired electric generating industry would on its own support Ameren's demonstration

of an

arbitrary and unreasonable hardship. The Environmental Groups cite to Citizens Utility Co. v.

PCB, 134 Ill. App. 3d Ill, 115,479 N.E.2d 1213, 1216 (3rd Dist. 1985), for the proposition that

legal uncertainty does not create an unreasonable or arbitrary hardship. However, in past

variance proceedings the Board has actually relied on federal regulatory uncertainty

as grounds

for finding that an arbitrary and unreasonable hardship exists.

See

Village of Lake Zurich, 1997

WL 85225 at 6.

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

In Citizen's Utility, a utility that operated a sewage treatment facility sought review of a

Board decision

to deny a request for an extension of a variance. The utility requested an

extension of its variance until completion of a joint study to develop site specific water quality

standards for the DuPage River Basin, including the streams receiving the utility's discharges.

The utility believed the study would result in less demanding water quality standards.

affirming the Board's decision, the Appellate Court stated "[i]f ever the prospect of a future

change in the law were justification for non-compliance with the law

as it currently exists, such a

rule cannot apply on these

facts where the prospect of changes is so speculative." Citizen's

Utility, 134

Ill.

App. 3d at 115. The Appellate Court reasoned that the conclusions of the joint

study were unknown and any consequential changes to the Board's water quality standards were

mere conjecture.

Here there

IS simply no doubt that remand of CAIR and vacatur of CAMR, the

underlying bases for the Illinois Mercury Rule (Proposed New

35 Ill. Adm. Code 225 Control of

Emissions from Large Combustion Sources (Mercury), R06-25 (Dec. 21, 2006)) and the Illinois

CAIR (Proposed New Clean Air Interstate Rule

CCAIR) S02, NO

Annual and NO

Ozone

Season Trading Programs,

Ill.

Adm. Code 225, Parts A, C, D, E and F, R06-26 (Aug. 23,

2007)), have turned the air regulatory schemes for power plants on their heads making sound

plant by plant investment decisions nearly impossible.

In fact, the very recent D.C. Circuit Court

of Appeals remand on CAIR leaves us with even more uncertainty in light of the Court's

continued concern with the serious flaws

of the CAIR, including concern with the very core of

the Rule: the cap and trade program.

Additionally, the facts presented

III

the Petition demonstrating the reality of future

greenhouse gas legislation further justifies Ameren's request for relief. Unlike Citizen's Utility,

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

the prospect of change is not speculative, or mere conjecture, but rather an absolute. Unlike the

possibility

of more relaxed standards in an existing reb,tdatory scheme, any climate change

legislative proposals would need

to create a new regulatory scheme that would require new and

costly technology

to regulate carbon dioxide ("C0

2")

and other greenhouse gases.

See

Petition,

par 22. More relevant

to the Ameren MPS Group plants,

any climate change legislative

proposal would need

to deal directly with existing plants for which no retrofit "control"

technology exists and the only true form

of "control" is shutdown. As noted in the Petition,

should any

of the existing climate change proposals become law, Ameren risks hundred of

millions of dollars in stranded investments in S02 pollution control equipment associated with

meeting what is essentially an interim emission rate

of 0.33 Ibs/mmBtu in 2013. Petition, par.

32. Therefore, it is not the fact that greenhouse gases will be regulated at some point in the

future, it is the reality

of stranded investments in S02 pollution control equipment that will

impose an arbitrary and unreasonable hardship on Ameren given the current market conditions,

estimated costs

of compliance and lack of existing retrofit technology for CO2 control. These

certain changes

to Ameren's compliance obligations will become clearer over the next two years,

at which time Ameren will be able to make more informed investment and compliance decisions.

The Environmental Groups further state that "to the extent that uncertainties in

environmental law should ever be considered in the context

of variance proceedings, it is

important

to note that the regulatory changes Ameren is pointing to will subject it to more

stringent rules rather than less." PCI at

5. Ameren fully anticipates that impending regulatory

changes will result in more stringent rules. Ameren expects

to comply with the more stringent

3 Under the regulations, Ameren Corporation's MPS Group consists of all coal-fired

electric generating units it owned in Illinois

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

standards when they become effective and asserts that this is precisely why compliance with the

MPS 2013 interim emission rate for S02 and in the current economic market will result in an

arbitrary and unreasonable hardship.

The Environmental Groups also misconstrue the scope

of the shut-down provision of the

Illinois Mercury Rule. 35 Ill. Adm. Code 225.235. The Environmental Groups contend that the

possibility of future plant shutdowns due to the financial implications of meeting greenhouse gas

targets is not adequate justification for the variance because the MPS already provides a path for

shutdown. Ameren notes, however, that the MPS does not address shutdowns for climate change

regulations, other regulatory forces, or financial hardship. Further, the permanent shut-down

provision

of Section 225.235 is a compliance alternative for those electric generating units that

are subject to the mercury rule, but not for those companies that opted into the MPS. 35 Ill.

Adm. Code 225.235. Ameren

is not subject to the Section 225.235 because it has opted into the

MPS and compliance with the NOx and S02 emission limits found in the MPS require a different

approach.

It is important to highlight again that Ameren is seeking to delay the decision on how

to control the MPS Group for only two years, for only one emission rate, and for only one

pollutant until there is more regulatory certainty. The delay will further allow Ameren to

conserve cash and defer capital expenditures to manage through the current economic crisis. In

exchange, Ameren agrees to both earlier and, by 2017, stricter S02 reductions, as well as earlier

reductions as illustrated in the table below.

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

Section 225.233(e)(2)(A) v. Petition for Variance

Year

MPS

Petition for Variance

See

Petition, par. 50 as amended

Ameren's Response to Recommendation.

In the meantime, Ameren continues to pursue environmental compliance efforts and has

not sought relief from mercury-specific control requirements

or the MPS NO

emission rate.

With respect to mercury and in accordance with the applicable regulations, activated carbon

injection systems will

be installed across the generation fleet as required by July 2009 and three

scrubbers that are designed to achieve the co-benefit

of mercury removal will be installed and

operational at the Coffeen and Duck facilities

by Spring of2010.

III.

AMEREN'S FINANCIAL HARDSHIP JUSTIFIES THE REQUEST FOR RELIEF

The Environmental Groups next assert that Ameren's claim of financial hardship is vague

and unsubstantiated and imply that Ameren's financial situation is not as critical as set forth in

the Petition.

See

PCl at 6-8. The Environmental Groups are again incorrect in their assertions

and their comments simply ignore the dire economic conditions that have developed globally

over the past several months.

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

As noted in the Petition, the immediate costs of compliance with the existing standard

would require Ameren to expend $0.9-1.2 billion, with annual estimated operating costs

of $30-

40 million. Petition, par. 44. These are the costs of immediate compliance, due to procurement

and engineering lead times, for the projects to be operational

by 2013. These costs create a

likelihood

of stranded investment cost due to the regulatory uncertainty described previously.

Further, the immediate costs of compliance will create imminent and substantial hardship

for Ameren due to the financial crisis. Pollution control projects such

as those required by the

MPS can only be accomplished through long-term, permanent financing mechanisms. Investors'

willine,'l1ess to provide long-term, permanent financing to unregulated power producers such as

Petitioners is based in large part on future power price expectations. In recent months, future

power prices have moved down sharply. Set forth below is a table depicting futures prices for

CinHub Real Time (RT) Around-The-Clock (ATC) energy, calculated from peak and off-peak

settlement prices reported

by the New York Mercantile Exchange (NYMEX), on a per

megawatt-hour (MWh) basis. This data demonstrates the material drop in power prices expected

by market participants over the next few years:

This table shows CinHub Real Time (RT) Around the Clock (ATe) forward prices as reported by NYMEX.

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

The MPS Group power plants generate and sell approximately 30 million Mwh of power

annually. As a result, changes in power prices could reduce annual revenues significantly.

The above future power prices and their expected financial consequences to Ameren have

also been confirn1ed by a recent Goldman Sachs' report, issued December

11, 2008.

See

Exhibit

1. The report downgrades Ameren Corporation common stock from "neutral" to "sell" based on

negative prospects for economic growth that will affect sales at both Ameren Corporation's

regulated and unregulated entities. Additional bases for the downgrade cited in the report

include higher

fuel costs, weakness m future electric energy pnces, and exposure to CO

regulation.

See

Exhibit 1, pp. 25-30, 32.

The financing that Ameren Corporation's subsidiaries have been able

to secure in the last

few months has been at the regulated

entities-not the MPS Group. Earnings of regulated

entities

do not support construction financing for non-regulated entities-they support the

regulated entities

as required by relevant state regulatory commissions. Rather, the construction

investments

of the unregulated entities must be financed by the unregulated entities, such as the

MPS Group.

In contrast to the regulated entities, the availability and cost of capital to Ameren's

unregulated generating companies in this market is highly uncertain due

to conditions in the

capital and commodity markets. Regulated rate increases are irrelevant

to the financial condition

of the unregulated entities. What is relevant for the unregulated entities, or the MPS Group, is

power prices. Sales

of power from their generating units and the associated power prices are the

source

of cash flow and earnings for unregulated compames. These power prices began a

precipitous drop

in July and have continued to fall.

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

The Environmental Groups' quote of the

St. Louis Post Dispatch

article takes comments

regarding Ameren Corporation's available liquidity at the end

of October 2008 out of context.

Research analysts believe Ameren Corporation's liquidity position is not strong relative

similarly-positioned companies.

fact, a recent Citigroup Global Markets analysis reveals that

Ameren Corporation is among the utilities with the tightest liquidity profiles. "Citigroup finds

utilities have adequate liquidity for rest

of year," Mary Powers, Electric Power Daily (Oct. 13,

2008) ("The companies with the strongest upfront liquidity positions under the Citigroup

analysis through the end

of 2009 were Exelon, Entergy and Edison International.

The tightest

liquidity profiles were Duke Energy, Salt River Project and Ameren.")

(emphasis added).

Further, it should be noted that liquidity is a measure

of the availability of short-term

financing resources and cash

to support day-to-day cash requirements. Short-term financing

resources are not used to permanently fund major construction, in part, due

to the fact that

Ameren Corporation's short-term financing arrangements expire in 2010. Instead, short-term

financing only acts

as a bridge until long-term financing can be arranged. Reflecting today's

challenging capital markets, no long-term, permanent financings by unregulated generating

entities have occurred since the summer

of 2008 based on publicly available data. The

financings that the Ameren companies have been able

to complete in the past few months have

been at its regulated entities,4 not the unregulated entities that own and operate Illinois coal

plants, and the cost

of these financings have been far in excess of prior transactions.

stands to

reason that financings by riskier unregulated power generating entities, such as the MPS Group,

would be even more costly,

if available at all.

4 Rate increases recently approved by the Illinois Commerce Commission apply only

Ameren's regulated utilities and such revenues cannot be used to fund capital projects at its non-

regulated entities.

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

As noted above, the Board can balance economic hardship alone against environmental

impact in analyzing whether a petitioner has demonstrated individual hardship. The Board has

even acknowledged that it will consider general economic conditions in making its analysis.

See

lli!i1~illJlJ~~f!.n.£J~~~A,

1981 WL 21907 at 2, PCB 80-225 (Sept. 3, 1981) ("the

Board does not reject out

of hand allegations of special hardship resulting from general economic

conditions

...."). The Board has refused, however, to find an arbitrary and unreasonable

hardship where a petitioner's economic loss was self-imposed. Willowbrook Motel Partnership

v. PCB, 135 Ill. App. 3d 343,345,481 N.E. 2d 1032, 1034 (1st Dist. 1985). The economic crisis

that Ameren now faces is the furthest from self-imposed. Ameren had no way

of knowing the

tum the market would take at the time the MPS was designed and negotiated or at the time it

opted into the MPS. These economic and regulatory times are unique

quite like the perfect

storm

- and, therefore, granting the requested relief would not set a "dangerous precedent," as

the Environmental Groups claim, for the Board in addressing future variance proceedings.

IV.

AMEREN HAS ADEQUATELY ADDRESSED ENVIRONMENTAL IMPACT

Ameren has worked very hard together with the Agency to minimize any environmental

impact from the requested relief. In fact, addressing the environmental impact

of the requested

relief was

of utmost importance to both Ameren and the Agency. As a result, Ameren has

agreed to new and additional emission rate commitments to ensure that Ameren's compliance

plan will be at least environmentally neutral,

if not more beneficial.

is not that Ameren has given short shrift to the environmental impacts of the variance it

is seeking

as has been implied, but rather that the nature of the MPS addresses regional, rather

than individual, impacts

of air emissions. As set forth in more detail in Section

of the Petition,

USEPA has recognized that the reductions from a single plant or even a single company's

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Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

system of power plants in a single state have little measurable effect on downwind states. In the

Illinois mercury rule, the Board found that the MPS allowed Illinois units to comply with

mercury reductions using co-benefits from S02 and NO

emissions reductions. Mercury, R06-

25, slip op. at

10 (Nov. 2, 2006). The relief Ameren seeks in this variance will still achieve

significant reductions in S02 and NO

emissions, as well as the associated mercury reductions,

beyond those required outside of the MPS.

Recent and pending submittals for Illinois State Implementation Plan ("SIP") revisions

show that air quality in Illinois continues to improve. For example, USEPA is currently

reviewing Illinois' submittal for redesignation

of portions of the St. Louis metropolitan area

("Metro-East") from nonattainment for the 8-hour ozone National Ambient Air Quality Standard

("NAAQS") to attainment. The USEPA found the submittal adequate earlier this year.

73 F.R.

6719 (Feb. 5,2008).

Illinois has also drafted an attainment demonstration, maintenance plan, and motor vehicle

emissions budgets related to the 1997 8-hour ozone NAAQS for the Chicago area. The Agency

is seeking comments on the draft SIPs and proposes

to submit the revisions to the United States

Environmental Protection Agency ("USEPA") to meet the requirements of the federal Clean Air

Act ("CAA"). The revisions request that USEPA redesignate the Chicago area to attainment

the 1997 8-hour ozone NAAQS based on ambient monitoring data from 2006 through 2008.

Most recently, on the date

of this filing, USEPA issued its final designation of attainment

for I-hour ozone for the Chicago nonattainment area.

73 F.R. 79652 (Dec. 30,2008).

REQUEST FOR HEARING IS UNTIMELY

The Environmental Groups' recommendation that the Board hold a hearing to require

Ameren to meet its burden

of proof is untimely. The last possible date for requests for hearing in

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* * * * * PC # 3 * * * * *

this variance proceeding was November 20, 2008. This date includes a two-week extension of

the deadline that ordinarily applies to hearing requests in variance proceedings due to the

Agency's late publication

of notice. 35 111. Adm. Code 104.224(c) (HAny person may also file a

written request for hearing. The written request must be filed within

21 days after the

publication

of the Agency's notice ..."). Further, the decision deadline in this matter, January

28, 2009, is quickly approaching, and for reasons expressed

in the Petition, Ameren cannot

waive its right

to the decision deadline. The Environmental Groups did not file their public

comment until several weeks after the 21-day deadline for hearing requests and, therefore, their

alternative request for the Board

to hold a hearing must not be considered.

VI.

CONCLUSION

Never before have coal-fired electric generating units such as those in Ameren's MPS

Group been faced with such economic turmoil, the certainty

of impending climate change

regulation without the knowledge

of what those regulations will require, and a federal air

regulatory scheme in limbo with no clear direction in sight. We

do not come to this Board and

ask for help without pause. However, the future

of Ameren's plants depend on making the best

investment decisions possible and with

as much certainty as to what the very near future

regulatory schemes will ultimately be for the coal-fired power industry. When balanced against

the very limited requested relief, and considered together with the earlier and, ultimately, stricter

SOz emissions rates and additional NO

emission rates that would accompany the requested

relief resulting in a net environmental benefit, the hardship Ameren would endure to attempt

comply with Section 225.233(e)(2)(A) of the MPS is clearly arbitrary and unreasonable.

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* * * * * PC # 3 * * * * *

WHEREFORE, for the reasons set forth above, Petitioners AMEREN ENERGY

GENERATING COMPANY, AMERENENERGY RESOURCES GENERATING COMPANY,

and ELECTRIC ENERGY, INC., respectfully ask the Board to grant the requested relief.

Respectfully submitted,

AMEREN ENERGY GENERATING

COMPANY, AMERENENERGY RESOURCES

GENERATING COMPANY, and ELECTRIC

233 South Wacker Drive

Chicago, Illinois 60606

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

Exhibit 1

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

December 11, 2008

Americas: Utilities: Power

Dimming the lights: Downgrading Utilities on relative outperformance and weak demand

Industry context

We expect power demand will decline

approximately 1% in 2009, given the correlation

between electricity demand and GDP growth

which is projected to decline 1.6% in 2009. Lower

electricity demand weighs on revenues for

regulated companies and negatively impacts

near-term commodity prices for merchant

generators, driving down estimates across the

entire Power & Utilities sector.

Source of opportunity

We downgrade Regulated and Diversified Utilities

to Neutral on (1) relative outperformance versus

the S&P 500, (2) consensus estimates that appear

too high given a bearish demand outlook and (3)

lower 2009 expected commodity prices. YTD

utilities outperformed the S&P 500 by 900 bp,

with the Regulated Utilities sub-sector

outperforming by about 1,300 bp. IPPs – still

poised to create significant free cash flow – have

underperformed YTD by about 1,800 bp and we

maintain our Attractive coverage view.

Ratings Changes

Among Diversified Utilities, we downgrade

Sempra Energy (SRE) to Neutral and Ameren

(AEE) to Sell, while upgrading Edison

International (EIX) to Buy. Within Regulated

Utilities, we upgrade PG&E Corp (PCG) to Buy

while downgrading Portland General (POR) to

Neutral and Con Edison (ED) to Sell. Neutral-rated

Duke Energy (DUK), Great Plains Energy (GXP)

and Portland General (POR) all screen attractively

on relative valuations, although equity issuances

remain an overhang for GXP and POR.

Catalysts and Risks

Few sector-wide catalysts exist, unless (1) carbon

legislation is passed in 2009 or (2) the winter

heating season positively impacts commodity

prices. We expect negative consensus EPS

revisions for 2009/2010, especially as companies

revisit guidance levels in 1Q2009. Primary risks

include (1) lower than expected commodity

prices, (2) prolonged downturn in power demand,

(3) decreased rate base growth opportunities and

(4) higher than expected financing costs.

UPCOMING EVENTS

Annual Goldman Sachs Power and Utility Conference

May 19, 2009

New York, NY

RELATED RESEARCH

Upgrading Regulated and Diversified Utilities to Attractive,

Remaining Positive on IPPs. March 26, 2008.

Energy Carbonomics: CO2 still not fully priced into power

sector. May 26, 2008

Upcoming catalysts for Regulated Utilities, with equity

issuances a modest overhang. October 10, 2008.

Commodity oriented power stocks oversold, even though

reducing estimates and targets. October 12, 2008.

See the Financial Advisory Disclosure section of

this document for important disclosures.

Michael Lapides

(212) 357-6307 | michael.lapides@gs.com Goldman, Sachs & Co.

Theodore Durbin

(212) 902-2312 | ted.durbin@gs.com Goldman, Sachs & Co.

Jaideep Malik

(212) 934-6967 | jaideep.malik@gs.com Goldman Sachs India SPL

Zac Hurst

(212) 357-2399 | zac.hurst@gs.com Goldman, Sachs & Co.

The Goldman Sachs Group, Inc. does and seeks to do business with

companies covered in its research reports. As a result, investors

should be aware that the firm may have a conflict of interest that

could affect the objectivity of this report. Investors should consider

this report as only a single factor in making their investment

decision. Customers in the US can receive independent, third-party

research on companies covered in this report, at no cost to them,

where such research is available. Customers can access this

independent research at www.independentresearch.gs.com or call 1-

866-727-7000. For Reg AC certification, see the end of the text. Other

important disclosures follow the Reg AC certification, or go to

www.gs.com/research/hedge.html. Analysts employed by non-US

affiliates are not registered/qualified as research analysts with FINRA

The Goldman Sachs Group, Inc.

i th U S

Global Investment Research

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

Table of Contents

Lower electricity demand and commodity price expectations will weigh on the sector, although long-term valuation metrics still appear modestly attractive

GDP growth is the primary driver of annual electricity demand – a weak 2009 economic outlook implies negative yoy power demand

We tactically downgrade Regulated Utilities, as weaker yoy demand and expected negative EPS revisions offset attractive long-term fundamental valuation

Remaining positive on IPPs, given share price underperformance versus Diversified Utilities and due to significant expected free cash flow

Downgrading Diversified Utilities, as consensus forecasts remain too high

Appendices

Financial Advisory Disclosures

Disclosures

We would like to thank Neil Mehta for his contribution to this report. He is available at (212) 357-4042; neil.mehta@gs.com Goldman, Sachs & Co.

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

Lower electricity demand and commodity price expectations will weigh on the sector,

although long-term valuation metrics still appear modestly attractive

The weak economic outlook for 2009, likely carrying into 2010, drives decreased expectations for electricity demand

and power prices. Given updated regression analyses, GDP growth remains the most viable indicator of yoy weather-adjusted

electricity demand growth. Historically, every 1% change in GDP growth rates impacts demand for electricity by 0.6%-0.7% – and

negative GDP growth could drive negative yoy weather-adjusted demand for electricity. With the Goldman Sachs Economics

research team forecasting (1.6%) GDP yoy change for 2009 and weak economic conditions holding late into next year or beyond,

along with high unemployment levels, we are decreasing our demand growth assumptions across the board for all companies.

Specifically we are significantly decreasing 2009 demand growth estimates from positive 1%-2.5% to (1%) on average and

incorporating only modest improvements in 2010. Besides negatively impacting sales growth for Regulated Utilities, lower

demand growth drives decreased power price forecasts due to (1) lower expected natural gas prices, which drive power prices in

many regions and (2) lower marginal heat rates as markets take longer to tighten, both negatively impacting the commodity-

oriented Diversified Utilities and Independent Power Producers (IPPs).

Consensus estimates are too high and we tactically downgrade Regulated Utilities and Diversified Utilities from

Attractive to Neutral, even though both sub-sectors appear attractive on longer-term valuation metrics. On a YTD basis, the

broader utilities sector indices outperformed the S&P500 by roughly 900 bp and by about 450 bp in the last 30 days –

outperformance that could decelerate as companies update guidance in 1Q2009 and consensus estimates decline, largely due to

lower demand and decreased future power price expectations. On average, we decrease our 2009/2010 estimates for Regulated

Utilities to levels roughly 11%/5% below consensus. For Diversified Utilities, the new outlook for 2009/2010 also is below consensus,

by approximately 14%/9%, as outlined in Exhibit 29. Unless significant capital spending cuts occur, longer-term regulated earnings

power is largely not impacted, making the Regulated Utilities (and the regulated component of Diversified Utilities) appear

attractive on fundamentals, but near term catalysts – including equity issuances –and estimates may prove bearish, driving our sub-

sector downgrade.

We maintain our Attractive view on IPPs, especially NRG Energy, given (1) relative underperformance, (2) hedging

benefits that “protect” near-term earnings power and (3) free cash flow. While lower power price assumptions negatively

impact commodity oriented Independent Power Producers (IPPs), the 5 main stocks in this sub-sector all significantly

underperformed the broader utilities index and even the S&P 500. As detailed in the August 21 and November 21 editions of

“Hedge Fund Trend Monitor” published by the Goldman Sachs Portfolio Strategy team, hedge funds dominated the holders list for

many IPPs, likely creating technical issues for these stocks as funds de-leveraged and liquidated positions. IPPs in our coverage

universe, primarily NRG Energy (NRG-Buy) and Reliant Energy (RRI-Not Rated) do not face significant debt maturities in the coming

2-3 years and should create significant free cash flow – especially for NRG, as its strongly hedged generation position reduces near-

term risk of lower commodity prices. We reiterate our Buy rating on NRG and view the company as the most attractive

commodity-oriented stock in our coverage universe.

We upgrade two California-based utilities – PCG and EIX - on valuation and structural advantage of demand

decoupling. Among the Regulated Utilities, we are upgrading PG&E Corp (PCG) from Neutral to Buy, primarily on valuation and

given demand decoupling, which decreases near-term risk of lower electricity demand weighing on 2009/2010 earnings. Within the

Regulated universe, we downgrade large cap Con Edison (ED) from Neutral to Sell and Portland General (POR) from Buy to Neutral

– with the ED downgrade being primarily a relative valuation call. POR, along with mid-cap Great Plains Energy (GXP-Neutral)

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

screen attractively on long-term earnings power but near term equity financing needs remain an overhang and may present better

buying opportunities. Within the Diversified Utilities, we upgrade Edison International (EIX) from Neutral to Buy, also on valuation

and demand decoupling advantage for its regulated subsidiary in California. We downgrade Sempra Energy (SRE) from Buy to

Neutral – although maintaining a positive bias on longer-term earnings power given (1) growth in the company’s natural gas

infrastructure segments and (2) benefits from demand decoupling in its southern California utility segments. Consensus estimates

appear stretched for Sempra, especially given potential weakness in its commodity trading joint venture. We also downgrade

Ameren Corp (AEE) from Neutral to Sell, due to (1) limited longer-term earnings growth compared to peers and (2) recent relative

out-performance, as AEE shares outperformed other Diversified Utilities over the last six months.

GDP growth is the primary driver of annual electricity demand – a weak 2009 economic

outlook implies negative yoy power demand

GDP expectations for 2009 remain weak and conditions may persist through year-end. Considering the Goldman Sachs

Economic Research team forecasts GDP change of (1.6%) in 2009 and below-trend economic conditions lasting through at least

year-end 2009, demand for electricity faces significant headwinds. In prior recessions, electricity demand declined slightly, but the

current economic downturn already appears more extensive than many prior economic periods of low GDP growth.

US power demand drives near-term utility profits.

Our analysis of over 100 utility operating companies suggests growth in

power demand correlates with growth in EBITDA, shown in the bottom chart in Exhibit 1, as higher sales translate into higher gross

margins. We expect lower power demand in 2009 will drive reduced earnings for Regulated Utilities.

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 1: In prior recessions, lower GDP growth drove a decline in yoy electricity demand growth

Annual power demand growth versus GDP growth, 1975 – 2006

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Regulated Operating Co. EBITDA Growth

Power Demand Growth

Forecasted Power Demand Growth

EBITDA for Regulated Utilities

generally declines when demand

growth slows

Correlation is .44

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Power Demand Growth (Yearly)

Real GDP Growth

Forecasted Demand Growth

Forecasted GDP

In 1982 nat'l power

demand was at its

weakest, with a y/y

decrease of 2.8%

In the late 1990s,

divergence in GDP-

demand relationship

may be attributed to

weather

Power demand falls

in 1991 and 2001

downturns

Correlation between Demand Growth Rate and GDP is .65

Source: Goldman Sachs Research estimates

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Goldman Sachs Global Investment Research

Regression analysis highlights that GDP growth drives near-term US power demand. Annual weather-adjusted

electricity demand growth appears highly correlated to yoy real GDP growth, as detailed in Exhibit 1, where every 1% change in

GDP growth drives a 0.6%-0.7% change in electricity demand. Given relatively normal 2008 weather, except for the August portion

of the summer cooling season, demand for electricity likely will decline by approximately 1% in 2009.

Exhibit 2: Weather adjusted yoy electricity demand may decline in 2009, especially in Q1 and Q2

Power demand yoy change (%) by US region

-1.0%

-0.9%

East North Central Region

-0.9%

-1.1%

-1.1%

West North Central Region

-0.9%

-1.1%

-0.7%

-1.4%

-1.5%

AVG

2009E

AVG

2009E

-1.0%

-0.9%

East North Central Region

-0.9%

-1.1%

-1.1%

West North Central Region

-0.9%

-1.1%

-0.7%

-1.4%

-1.5%

AVG

2009E

AVG

2009E

Note: Estimates assume normal weather and no variation in regional GDP growth.

Source: EIA, NOAA, Goldman Sachs Research estimates

We tactically downgrade Regulated Utilities, as weaker yoy demand and expected

negative EPS revisions offset attractive long-term fundamental valuation

Near term “bearishness” outweighs longer term “bullish views”, driving our downgrade of Regulated Utilities from

Attractive to Neutral. Potentially bearish headwinds face the Regulated Utilities, given (1) weak expected demand trends for

2009/2010 driven by economic weakness in the US, (2) negative EPS revisions as consensus estimates for 2009/2010 appear

11%/5% too high, (3) potential equity issuances, especially among small/mid cap companies, with multiple companies trading

below book value and (4) mean reversion, as Regulated Utilities outperformed the S&P 500 by 1,300 bp on a YTD basis and about

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

2,000 bp since our late March 2008 upgrade of Regulated Utilities. As summarized in Exhibit 3 below, for longer-term investors,

four bullish factors exist as well, but these likely are overshadowed in the near-term by the bearish items, especially the expected

decline in consensus forecasts. On balance, we believe these offsetting factors will cause Regulated Utilities shares to trade in line

with the overall market, and therefore downgrade our coverage view from Attractive to Neutral.

Demand decoupling, forward test years and rate case timing matter even more in difficult market conditions,

creating potential advantages. With demand growth slowing and debt costs rising, companies – like California-based utilities

such as PG&E Corp or the regulated subsidiaries of Diversified Utilities Edison International and Sempra Energy – with demand

decoupling have competitive advantages, as they are less exposed to overall economic conditions negatively impacting demand.

Other companies, like Wisconsin Energy or Con Edison, benefit from forward test years in rate cases, since revenue increases offset

the negative impact of regulatory lag. In an unusual turn of events, companies that are filing or need to file rate cases in the near

future benefit, as they can reduce lag or update demand assumptions.

Exhibit 3: Bull and Bear cases for Regulated Utilities in 2009

Bull Case

Bear Case

Attractive dividend yields versus benchmark

Treasuries

Weak expected demand in 2009/2010

Attractive relative valuation versus the S&P 500

Negative expected EPS revisions, consensus

2009/2010 estimates 11%/5% too high

Attractive absolute valuation versus history

Mean reversion given relative share price out-

performance of Regulated Utilities versus the

S&P 500

Attractive fundamental DDM valuation

Equity issuances and higher financing costs

Source: Goldman Sachs Research estimates.

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Goldman Sachs Global Investment Research

The “Bear Case” for Regulated Utilities includes (1) weak expected yoy electricity demand growth,

(2) potential for negative EPS revisions and lower consensus estimates, (3) mean reversion given

recent relative outperformance versus the S&P500 and (4) potential equity issuances in 2009,

especially for several companies trading below book value.

We expect consensus estimates to move lower due to weak yoy electricity demand growth. As discussed above,

weather-adjusted electricity demand likely will decline roughly 1% in 2009, driven primarily by GDP contraction, with the trend only

slightly improving in 2010. This 2-3 percentage point change in expected yoy demand growth versus our previous expectation likely

weighs on sector performance, as Regulated Utilities often benefit from revenue growth tied to annual demand growth, especially

between rate cases when regulatory lag means they do not recover higher operating costs. For companies expecting rate cases in

the next 1-2 years, “lumpiness” in earnings likely exists as cases to some degree reduces regulatory lag’s impact on earnings

power. As detailed in Exhibit 4, we decrease our 2009/2010 EPS estimates by approximately 8%/5% on average for the Regulated

Utilities, with the greatest impact on El Paso Electric, Great Plains Energy, and Portland General.

Exhibit 4: Reducing estimates given lower expected yoy electricity demand, higher financing costs and – in select cases – lower rate base growth

GS EPS estimates - old versus new

Company

Ticker Rating

Regulated Utilities

Old

New

Old

New

Old

New

Old

New

Old

New

Large Cap

American Elec Power

-1%

Consolidated Edison

-8%

-5%

-3%

Great Plains Energy

-7%

-10%

Northeast

-1%

Portland General Electric

-7%

SCANA Corporation

-5%

-2%

EPS revisions

2012

Source: Goldman Sachs Research.

Consensus estimates appear 11% too high for 2009, and negative EPS revisions are likely in early 2009. As shown in

Exhibit 5, consensus estimates remain 11%/5% higher than our new 2009/2010 forecasts, primarily driven by our bearish demand

outlook and assumptions for higher financing costs for many companies. Consensus estimates appear especially high for

American Electric Power, El Paso Electric, Great Plains Energy, and Northeast Utilities. We revise our estimates for AEP to reflect the

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

negative impact of a nuclear outage, weighing on near term earnings but not long-term (2012) estimates. We believe negative EPS

revisions throughout 2009 – but especially in 1Q2009 when companies update guidance – will create headwinds for Regulated

Utilities.

Exhibit 5: Our new estimates for Regulated Utilities are 11%/5% below 2009/2010 consensus

GS EPS estimates versus consensus

2009

2010

Large Cap Regulated Utilities

Ticker

GS EPS

Cons

EPS

% Ch

GS EPS

Cons

EPS

% Ch

American Elec Power

AEP

$2.80

$3.28 -15%

$3.09

$3.49 -12%

Duke Energy

DUK

$1.17

$1.28

-9%

$1.38

$1.38

Consolidated Edison

$3.20

$3.17

$3.28

$3.33 -2%

PG&E

PCG

$3.08

$3.26

PGN

$2.87

$3.12

-8%

$3.07

$3.27 -6%

Large Cap Average

-7%

-5%

Small & Mid Cap Regulated Utilities

Cleco

CNL

$1.50

$2.27

$1.52

$1.67

Great Plains Energy

GXP

$1.10

$1.57 -30%

$1.65

$1.91 -13%

NSTAR

NST

$2.16

$2.36

-8%

$2.27

$2.54 -10%

Northeast Utilities

$1.56

$1.90 -18%

$1.95

$2.09 -7%

Portland General Electric

POR

$1.72

$1.86

-8%

$1.64

$2.04 -20%

SCANA Corporation

SCG

$2.76

$3.12

NVE

$0.76

$1.02 -26%

$1.28

$1.22

Wisconsin Energy

WEC

$3.01

$4.03

$1.97

$1.94

Small & Mid Cap Average

-13%

-5%

Regulated Utility Average

-11%

-5%

Source: GS Research Estimates, Factset.

Financing is an issue, as we expect equity issuances for many companies and the costs of new debt have increased.

Even though 10-Year Treasury yields declined, the spread between treasuries and new utility debt issuances widened over the last

3-6 months, as shown in Exhibit 8 below, increasing the average cost of debt for Regulated Utilities. In between rate cases, the

higher cost of debt may weigh on earnings power for Regulated Utilities, until they can update these debt costs in new rate filings.

Many Regulated Utilities, especially small/mid cap companies, likely require equity issuances to finance rate base growth and

maintain state authorized/mandated capital structures, as highlighted in Exhibits 6 and 7 below. Given share price performance of

companies issuing equity in 4Q2008, we believe this may present an overhang on the sub-sector overall, especially since several

Regulated Utilities trade below book value, as shown in Exhibit 9, implying immediate shareholder dilution for companies that need

to issue equity at current stock prices.

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Goldman Sachs Global Investment Research

Exhibit 6: Among large caps, Con Edison and Progress Energy have

significant equity financing needs

Net equity issuances among large cap regulated utilities, 2009-2012

Exhibit 7: Great Plains Energy, Northeast Utilities, and SCANA have

significant equity financing needs among small/mid cap Regulated Utilities

Net equity issuances among small/mid cap regulated utilities, 2009-2012

Large Cap Regulated Utilities

16%

14%

Net equity issuances as percent of market cap

2009 2010-2012

Small/Mid Cap Regulated Utilities

-1%

16%

20%

-24%

22%

19%

-5%

24%

31%

-6%

Net equity issuances as percent of market

cap

2009 2010-2012

Issuances

Buybacks

Source: Goldman Sachs Research estimates.

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Exhibit 8: Bond spreads have widened significantly in the last 6-12 months

Utility and non-financial investment grade cash bond spreads versus benchmark

Treasuries, November 2007-present

Exhibit 9: Several Regulated Utility stocks trade near or below book value

Percent difference from book value, Regulated Utilities

Non-financial BBB 10YR

-40%

-30%

-20%

-10%

10%

20%

30%

40%

50%

60%

NST WEC PCG SCG NU

CNL PGN

AEP

WR DUK POR GXP NVE

Percent Premium/(Discount) to Book Value

114%

Source: IBoxx, Goldman Sachs Research estimates

Source: Factset, Goldman Sachs Research estimates.

Trough multiples indicate

17%

downside if investors do not “look through” a difficult 2009. We reiterate our view that

investors should value Regulated Utilities on longer-term normalized earnings power, driven by rate base growth and authorized

returns set by regulators. However, a focus by investors solely on a bearish 2009 presents downside risk for Regulated Utilities, as

they currently trade at 13.0x our 2009 EPS estimates, well above the trough multiples of 9.5x-10.5x seen in 1991, 1994, and 2003, as

shown in Exhibit 9. Assuming trough multiples of 10.0x our 2009 estimates, 17% average downside from current levels exists for

Regulated Utilities, as highlighted in Exhibit 10. However, we do not expect Regulated Utilities to reach these trough levels, as (1)

the 2003 sell-off tied much more closely to non-regulated activities that fared poorly, most of which have since been divested and

(2) the 1991 and 1994 periods included significantly higher bond yields than currently expected, which weighed on dividend

focused utility equity prices.

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Goldman Sachs Global Investment Research

Exhibit 10: The trough on historical on 1-year forward consensus EPS

estimates is closer to 10x earnings

P/E multiples on 1-year forward consensus estimates, Regulated Utilities, 1990-

present

Exhibit 11: Average potential downside of about 16% exists if Regulated

Utilities trade to historical trough valuations

Trough valuations on 2009 estimates, Regulated Utilities

P/E (1yr forward consensus)

Regulated Utilities tend to

trough at around 10.0x 1-yr

forward P/E

Current

Trough

Close

Dividend

2009E

2009

Trough

Regulated Utilities

Ticker

12/10/08

Yield

EPS

Multiple

Value

Return

Large Cap

American Elec Power

Consolidated Edison

Great Plains Energy

Northeast Utilities

Portland General Electric

SCANA Corporation

-17%

Source: Goldman Sachs Research estimates

A “Bull” case exists for Regulated Utilities, given (1) the spread between Treasuries and dividend

yields, (2) attractive relative PE multiples versus the S&P500, (3) attractive current valuations

versus the last 3-4 years and (4) traditional DDM analyses that imply significant upside.

The interest rate environment should remain favorable for Regulated Utilities through 2009. As shown in Exhibits 12

and 13 below, the spread between the 10-year Treasury yield and dividend yields for Regulated Utilities widened and remain far

apart from the historical average, implying potential equity price increases if bond yields do not increase significantly. Regulated

Utility dividends currently yield 5.3% on average versus the 10 Year Treasury level of 2.9% currently and forecast YE2009 levels of

3.6%, expected by the Goldman Sachs Economic Research team.

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Goldman Sachs Global Investment Research

Exhibit 12: Low 10-year Treasury yields indicate share price upside for

Regulated Utilities

Yields, 10-year Treasury note and dividends on Regulated Utilities

Exhibit 13: The current yield spread is significantly below the historic

average, making Regulated Utility dividends attractive for yield-oriented

investors

Spread, 10-year Treasury yield and average dividend yield on Regulated Utilities

10-Year Treasury yield

Strong relationship between

dividend yields and 10-year

treasuries (R-squared = 62%)

Expected 10-year yields near

3.0% make utility dividends

Spread, 10-year yield - Dividend Yield

Current yield spread is

Source: Factset, Goldman Sachs research estimates.

Source: Factset, Goldman Sachs Research estimates.

Regulated Utilities screen attractively relative to the market, trading at a 20-25% discount to the S&P 500 despite

solid multi-year average annual EPS growth. As shown in Exhibit 14, we expect compound earnings growth of 8% through

2012 for Regulated Utilities, roughly in line with the S&P 500 assuming significant rebound in S&P earnings in 2010 from expected

2008/2009 levels. However, the “path” of earnings growth could prove less volatile for Regulated Utilities, with only a 1%-2%

decline in 2009 followed by 8%-10% growth in 2010-2012, versus much higher earnings volatility for the S&P 500. Regulated

Utilities screen attractively on P/E multiples versus the S&P 500, with the group at a 2x-3x or 20%-25% discount on forecasted

earnings, as shown in Exhibit 15. Regulated Utilities have traded roughly in-line with the S&P 500 over the last 3-4 years, as shown

in Exhibit 16, but over a longer 15-20 year cycle have generally traded at a 2x-3x multiple discount to the market, as shown in

Exhibit 17.

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Goldman Sachs Global Investment Research

Exhibit 14: We expect approximately 8% compound annual EPS growth for

Regulated Utilities through 2012, in-line with the S&P 500

Annual forecasted EPS growth, Regulated Utilities and S&P 500

Exhibit 15: Current forecasted P/Es for the Regulated Utilities are at a 20%-

25% discount to the S&P 500 through 2012

Forecasted P/E ratios, Regulated Utilities and S&P 500

-35%

-25%

-15%

-5%

15%

25%

35%

2012

Regulated Elec Utilities S&P 500

P/E

Regulated Utilities S&P 500

Source: Goldman Sachs Research estimates

Source: Goldman Sachs Research estimates.

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Goldman Sachs Global Investment Research

Exhibit 16: Regulated Utilities traded roughly in line with the S&P 500

over the last 3-4 years. . .

One year forward P/E multiple on consensus EPS estimates, Regulated Utilities

and S&P 500, January 2005 – present

Exhibit 17: . . .but have traded at 2.0x-3.0x P/E discount to the S&P 500

over a longer time frame

One-year forward P/E multiples on consensus EPS estimates, Regulated Utilities

and S&P 500, January 1993 - present

Regulated Electric Utilities

Regulated Electric Utilities

S&P 500

Reg Util. Average

Source: Factset, Goldman Sachs Research estimates.

On longer-term earnings power, Regulated Utilities screen attractive compared to recent historical levels. As detailed

in Exhibit 18 below, Regulated Utilities trade at approximately 9x our 2012 expected EPS estimates, their lowest valuation since

2005 and roughly two standard deviations below the average of 11x. Assuming mean reversion implies roughly 20% return upside

for Regulated Utilities.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 18: Regulated Utilities trade at the lowest P/E multiple since 2005

P/E multiple on 2012E EPS, Regulated Utilities

10x

12x

14x

16x

1/05

3/05

5/05

7/05

9/05

11/05

1/06

3/06

5/06

7/06

9/06

11/06

1/07

3/07

5/07

7/07

9/07

11/07

1/08

3/08

5/08

7/08

9/08

11/08

P/E 2012 EPS

Large cap regulated

Small/mid cap regulated

Total regulated group

+2 Std Dev

+1 Std Dev

Avg. 10.9x

-1 Std Dev

-2 Std Dev

Source: Factset, Goldman Sachs Research estimates

We decrease our baseline target P/E multiples for Regulated Utilities and highlight a range of

potential trading values – with approximately 16% total return upside.

For valuation of Regulated Utilities, we continue to employ both a DDM analysis and PE multiple screens to set

target prices. We value regulated utilities using a 50/50 weighting on (1) P/E multiples for longer-term regulated earnings power

and (2) a DDM model, as shown in Exhibit 19. Our 12-month target prices imply 16% upside from current levels.

•

We assume the shares trade between the low and mid-range of historic valuations. For P/E multiples, we

assume over the next 12 months the stocks trade to 9.0x our 2012 EPS estimates versus our previous assumption

of 11.0x. As shown in Exhibit 18 above, Regulated Utilities have traded on average at 11x 2012 EPS estimates

since 2005, with high-end valuations near 13.0x and low-end near 7.0x. Our 9.0x estimate is slightly below current

levels of 9.3x.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

•

Our DDM model assumes an 8.5% cost of equity and 2.5% terminal growth rate. Our DDM values

dividends explicitly for each company through 2012, with each company paying a 75% payout ration in the

terminal year for “apples to apples” comparisons. We also incorporate a 2.5% terminal growth rate, roughly in line

with expected long-term trend GDP growth. Assuming a risk free rate of 4% and risk premium of 4%-5%, and betas

below 1x implies average cost of equity at or below the 8.5% level used in our DDM analysis.

Exhibit 19: Regulated Utilities valuation

DDM and P/E valuation, Regulated Utilities

Ticker

Rating

12/10/2008

Price

DDM

Value

Current

Yield

Total Return,

DDM Only

2012 EPS

Multiple

Applied

P/E-based Value

12-month

Target Price

Total Return to 12-

Month Target

Large-Cap

American Electric Power

42%

25%

-2%

29%

15%

15%

22%

5.6%

10%

5.9%

39%

27%

23%

14%

44%

28%

23%

10%

-2%

$29

-15%

66%

52%

42%

30%

14%

48%

34%

24%

13%

Mid & Small-Cap Mean

4.4%

32%

20%

Mid & Small-Cap Median

4.3%

32%

21%

Regulated Utilities Mean

4.8%

29%

16%

Regulated Utilities Median

5.1%

24%

14%

Notes: Assumed cost of equity of 8.5%, terminal growth rate of 2.5% and 75% dividend payout ratios in 2012 for all companies

Source: Company data, Goldman Sachs Research estimates.

Risk/reward appears favorable for Regulated Utilities, as “trading bands” suggest limited downside and significant

upside to our target prices. Under a bear-case scenario, where the stocks trade at only 7x our 2012 estimates and removing the

DDM component to our analysis, we would expect only 18% downside on average from current levels, as shown in Exhibit 20. On

the other hand, the potential to the trade to the mid or high-case scenario implies substantial upside if the stocks trade above 10x

our 2012 estimates, closer to the average trading levels since 2005 and our target price assumptions. We believe the stocks will

trade between our low and mid-case values over the next 6-12 months and apply a 9.0x P/E to determine valuation. Returning to

peak multiples implies average total return above 48%, levels not likely to occur in the near term.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 20: Risk-reward looks favorable for Regulated Utilities, based on our new low/mid/high scenarios

Low-Mid-High valuations, Regulated Utilities

Assumption

Low

Mid

High

Regulated 2012 P/E multiple

7.0x

10.0x

13.0x

Close

2012

Dividend

Regulated Utilities

Ticker

12/10/08

EPS

Yield

Value

Return

Value

Return

Value

Return

Large Cap

American Elec Power

Consolidated Edison

Great Plains Energy

Northeast Utilities

Portland General Electric

SCANA Corporation

48%

Source: Goldman Sachs Research estimates.

Reiterating our Conviction Buy rating on NV Energy and upgrading defensive-oriented PG&E Corp

to the Buy list, while downgrading Portland General and Con Edison.

Among Regulated Utilities, we upgrade PG&E Corp from Neutral to Buy given relative valuation and structural advantages,

while downgrading Portland General (POR) from Buy to Neutral and Con Edison (ED) from Neutral to Sell.

Compared to large

cap peers, PG&E now trades at a modest discount, even though decoupling of usage provides a competitive advantage during

periods of declining MWh usage. Although Portland General screens attractively on relative valuations, we downgrade the

company to Neutral as an overhang exists – due to potential equity issuances of $225 mn-$250 mn in early/mid 2009. Shares of

other small/mid-cap Regulated Utilities, including Pepco Holdings (POM-Not Covered), underperformed upon issuing common

equity in the current market environment. We downgrade Con Edison to Sell on both relative valuations and potential equity needs,

although forward rate cases and test years do provide some protection from declines in demand. Relative valuation drives our

ratings on American Electric Power (AEP, Buy), NV Energy (NVE, Conviction Buy), Westar, NSTAR (NST, Sell) and SCANA (SCG,

Sell).

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 21: AEP, NVE and PCG trade at discounts on long-term earnings; ED, NST, and SCG trade at premiums on 2011-2012 EPS estimates

EPS estimates and P/E multiple comparisons, Regulated Utilities

Close

Price

Tot Ret

Dividend

Ticker

Rating

12/10/08

Target

to Target

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Yield

Regulated Utilities

Large-Cap

American Elec Power

AEP

Buy

25%

DUK

Neutral

15%

Consolidated Edison

Sell

-3%

PCG

Buy

PGN

Neutral

Mid & Small-Cap Regulated Utilities

Cleco

CNL

Neutral

27%

Neutral

14%

Great Plains Energy

GXP

Neutral

31%

NST

Sell

-15%

Northeast Utilities

Neutral

10%

NVE

Buy

54%

Portland General Electric

POR

Neutral

30%

SCANA Corporation

SCG

Sell

WEC

Neutral

13%

Buy

35%

Small / Mid Cap Mean

Small / Mid Cap Median

Regulated Utilities Mean

17%

12.7x

13.0x

11.1x

9.9x

9.3x

4.8%

Regulated Utilities Median

14%

12.9x

12.6x

11.1x

9.1x

9.0x

5.1%

Target Price and EPS Summary

EPS Estimates

P/E Multiples

Source: Company data, Goldman Sachs Research estimates.

Mean reversion opportunities may exist across market caps, as small/mid caps trade at a discount on longer term

earnings compared to many larger cap names, although likely equity issuances create an overhang. On 2011-2012

earnings power, many small/mid cap Regulated Utilities trade at a 1.0x-1.5x PE multiple discount to large cap companies likely due

to potential need for equity issuances and general market reversion to large cap stocks in periods of economic turmoil. Great

Plains Energy (GXP, Neutral) screens attractively on relative 2010-2012 P/E multiples, but similar to Portland General, we remain

Neutral given significant expected equity financing to fund rate base growth and capital spending needs. As shown in Exhibits 6-7

above, equity capital needs in 2009 are significant as a percentage of market capitalization for GXP, POR, NU and SCANA. El Paso

Electric (EE, Neutral) also appears undervalued on relative P/E, but the company’s lack of a dividend and uncertainty given the new

executive leadership drive our Neutral rating.

Remaining positive on IPPs, given share price underperformance versus Diversified

Utilities and due to significant expected free cash flow

Lower expected industrial demand, as well as decreased expected electricity demand, will weigh on natural gas

prices and marginal heat rates. In line with the Goldman Sachs’ Oil & Gas- E&P team, we adopt a lower natural gas price

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

forecast and lower marginal heat rates, as outlined in Exhibits 22 and 23 below. Lower 2009 natural gas pricing negatively impacts

companies like Reliant Energy (RRI-Not Rated) with significant unhedged generation capacity, while others – especially NRG Energy

(NRG-Buy) – with significant hedging are less impacted. Offsetting lower natural gas prices, we also lower expected 2009 coal

prices, positively impacting unhedged fuel costs for Reliant. EBITDA estimates for Reliant – due to the gradual withdrawal from its

large C&I segment in its Texas and Northeast retail segments – are down roughly 8% for 2010, while we only lower the EBITDA

forecast for NRG by 1%, as detailed in Exhibit 24.

Exhibit 22: We adopt lower 2009 natural gas price estimate by $1.75/MMBtu, but maintain our 2010-2012 estimates

Changes to natural gas prices (old v. new)

Potential new natural gas price forecast

New

Old

Difference

2012N

Source: GS Research estimates.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 23: We modestly decreased marginal heat rate assumptions for several regions

Goldman Sachs marginal heat rate forecasts

New

Old

New

Old

New

Old

New

Old

2012

Source: GS Research estimates.

Exhibit 24: Lowering estimates for IPPs with minimal near-term impact for NRG Energy given its hedging policies

Old v. new EBITDA estimates, $ millions

Ticker

Rating

Old

New

Old

New

Old

New

Old

New

Old

New

Independent Power Producers (IPPs)

-3%

Ormat Technologies

14%

-11%

2012

Source: GS Research estimates.

IPPs currently trade near the low end of their historical valuation range and expected free cash flow implies ability

for significant debt reduction or share buybacks. As highlighted in Exhibit 25, EV multiples for the IPPs compressed

significantly in the last 3-6 months, trading well below average and peak multiples. FCF yields of 20%-25% imply sizable potential

share repurchases or debt reduction opportunities over the next few years, as shown in Exhibit 26.

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 25: Significant EV/EBITDA multiple contraction over time for IPPs

0.0X

5.0X

10.0X

15.0X

20.0X

25.0X

1/1/2006

3/1/2006

5/1/2006

7/1/2006

9/1/2006

11/1/2006

1/1/2007

3/1/2007

5/1/2007

7/1/2007

9/1/2007

11/1/2007

1/1/2008

3/1/2008

5/1/2008

7/1/2008

9/1/2008

Source: GS Research Estimates, Factset.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 26: We expect IPPs to create significant free cash flow

Close

Company

Ticker

Rating

12/10/08

2008E

2009E

2010E

2011E

2012E

Independent Power Producers (IPPs)

Ormat Technologies

Special Situation and IPP Median

19.1%

Special Situation and IPP Mean

33.1%

1. FCF (2008E - 2012E) = CFO + CFI

Source: Goldman Sachs Research Estimates.

NRG Energy remains our top pick among the IPPs.

We maintain our Buy rating on NRG and apply a slight premium to our

baseline multiple of 6.0X on our 2011 EBITDA outlook – versus current trading levels near 5.3x. NRG Energy should generate free

cash flow yields above 20%, with which, at its current market capitalization, the company effectively repurchase its entire market

capitalization in approximately 4-5 years. While weaker NT natural gas prices negatively impact sentiment, prior hedging enables

the company to forestall a significant decline in profitability. NRG additionally trades at a discount to peers on EV/EBITDA in the

next 2-3 years, a discount we believe is unwarranted given its cash flow outlook. We apply a 6.2x EV multiple on 2011 estimates to

derive our $29/sh target price – but even at peer group multiples on 2010 forecasts, NRG screens attractively given its current

discount. Sum of the parts valuations for NRG imply significantly higher share price values than our current 12 month target price.

We remain Neutral-rated on Ormat Technologies (ORA), which faces near-term pressure due to lower oil prices negatively

impacting its Hawaii-based power plants, offset potentially by increased sentiment towards renewable generators. Exhibit 27 shows

our new estimates, and Appendix F details our new target prices for IPPs.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 27: IPPs currently trade at relatively low EV/EBITDA multiples, with NRG trading at a discount compared to peers

EV/EBITDA, 2008E-2010E, Independent Power Producers

Rating

Enterprise

value

2008E

2009E

2010E

2008E

2009E

2010E

6.4x

5.9x

5.6x

Note : Represents Adjusted EBITDA for GS covered companies

Note: 2008, 2009 and 2010 EBITDA at RRI includes the impact of $411mn, $138m and $47m, respectively, for gains or (losses) related to wholesale

hedges and energy derivative contracts.

Note : NC-Not covered; consensus estimates shown.

EBITDA estimates ($mn)

EV/EBITDA

Source: Factset, Goldman Sachs Research estimates.

Downgrading Diversified Utilities, as consensus forecasts remain too high

Lower commodity price expectations and decreased regulated earnings – leading to EPS

estimates below consensus – drive our tactical downgrade of Diversified Utilities from Attractive

to Neutral.

Lower electric demand and lower expected power prices decrease the earnings potential for Diversified Utilities.

Given their integrated operations and ownership of regulated and non-regulated subsidiaries, lower electric demand and lower

power prices negatively impact earnings for Diversified Utilities, with demand affecting the regulated subsidiaries and power prices

impacting the merchant generation segments. In line with the Goldman Sachs E&P research team, we adopt lower natural gas

prices that drive power price assumptions, as outlined in Exhibit 22 above. Hedging activity partially offsets decreases in power

prices and marginal heat rates, and we reduce our 2009 estimates by roughly 10% and our 2010 forecasts by 4%.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 28: We lower our 2009/2010 EPS estimates by 10%/4% for Diversified Utilities

EPS estimates, old v. new, Diversified Utilities

Ticker

Rating

Old

New

Old

New

Old

New

Old

New

Old

New

Diversified Utilities

Ameren

AEE

Sell

-9%

Edison International

EIX

Buy

-13%

ETR

Buy

EXC

Buy

-3%

SRE

Neutral

-5%

-5%

2012

EPS Revisions

2008

2009

2010

2011

Source: GS Research Estimates.

Consensus estimates are not moving quickly enough and remain too high. In our October 12, 2008 note Commodity

oriented power stocks oversold, even though reducing estimates and targets, we lowered our 2009-2010 EPS estimates for

Diversified Utilities by 7%-8% to reflect updated commodity price assumptions. We now decrease our estimates again given the

sharply deteriorating economy and lower expected power demand and pricing. Consensus estimates now appear unrealistically

high, with our estimates 14%/9% below the 2009/2010 consensus. We do not believe the stocks can work until the cycle of negative

EPS revisions is complete and consensus estimates more properly reflect reality.

Exhibit 29: Our estimates are 14%/9% below consensus for Diversified Utilities

GS versus consensus EPS estimates, 2009-2010

GS EPS estimates versus consensus

2009

2010

Diversified Utilities

Ticker

GS EPS

Cons

EPS

% Ch

GS EPS

Cons

EPS

% Ch

Ameren

AEE

$3.06

$3.34

-8%

$2.91

$3.06 -5%

Edison International

EIX

$3.36

$4.24 -21%

$4.18

$4.66 -10%

Entergy

ETR

$6.52

$7.65 -15%

$7.70

$8.32 -7%

Exelon

EXC

$4.11

$3.92

SRE

$3.56

$4.26

Source: GS Research Estimates

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Still employing a sum of the parts methodology, although revising baseline multiples, with

roughly 20%-25% average upside for Diversified Utilities.

We continue to value Diversified Utilities using a sum-of-the-parts methodology, separately valuing the regulated and

non-regulated segments, and incorporating premium/discount multiples, especially for exposure to eventual Co2-

related regulations. As detailed in our October 12

note, Commodity oriented power stocks oversold, even though reducing

estimates and targets, we value the “parts” of Diversified Utilities using two methodologies: (1) P/E metrics on regulated operations

and (2) EV/EBITDA metrics on the non-regulated Generation or IPP segment, with adjustments due to (a) returns on capital, (b) free

cash flow, and (c) exposure to carbon dioxide regulation. We now apply a 9.0x P/E trading multiple to long-term (2012) regulated

earnings, consistent with our treatment of Regulated Utilities, and maintain our 6.0x baseline EV/EBITDA multiple, consistent with

our methodology for IPPs, as detailed in Exhibit 30 below.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 30: We employ a sum of the parts valuation methodology for Diversified Utilities, incorporating the long-term impact of

carbon regulations and near term differences in FCF and returns

Target price methodology, Diversified Utilities

Estimated Target Prices - Forecast PE Multiple for Regulated Subsidiaries and EV Multiple on Merchant Generation

All figures in $ millions unless otherwise noted

Company

AEE

EIX

ETR

EXC

Average

Applied Target PE Multiple

9.0x

Utility

Equity Value per Share

$22

$33

$46

$11

Generation 2011 EBITDA

Total Generation & Other Non-Utility EBITDA

$645

$1,120

$1,369

$5,306

Baseline EV/EBITDA Multiple

6.0x

Adjustments to Baseline Multiple

Target

EV/EBITDA Multiple

4.3x

5.9x

9.3x

9.1x

7.2x

Enterprise Value - Generation & Other Non-Utility

$2,796

$6,621

$12,710

$48,139

Generation & Non-Utility

Equity

Value - Generation & Other Non-Utility

$947

$1,598

$9,423

$42,218

Current Diluted Share Count

Equity

Value per Share - Generation & Other Non-Utility

$48

$64

Target Price per Share

$27

$38

$95

$75

Total Return to Target

-12%

25%

21%

38%

18%

AEE

EIX

ETR

EXC

Average

Carbon NPV, $/sh

($1)

($0)

$16

$19

Generation Returns on Capital

Generation Free Cash Flow Yield 2010-2012

Carbon EV/EBITDA multiple

(1) AEE Generation EBITDA includes AERG, Genco, and 80% of EEI. Return on Capital calculation is for Genco only.

(2) EIX Generation EBITDA is Edison Mission. Non-Utility Net Debt includes $526mn of Edison Capital debt, and $1.62bn of Edison Mission operating leases.

(3) ETR Generation EBITDA is merchant nuclear assets. Non-Utility Net Debt includes $507mn NYPA liability.

(4) EXC Non-Utility Net Debt excludes all Utility-level debt and excludes Utility transition funding bonds.

Source: Factset, company reports, Goldman Sachs Research estimates.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 31: We expect nuclear generators EXC and ETR to trade at a premium, while EIX’s YTD underperformance appears

unwarranted

Target prices, total returns, and P/E multiples

Close

Price

Tot Ret

Ticker

Rating

12/10/08

Target

to Target

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Natural Gas Price Forecast ($/MMBtu)

$9.00

$5.50

$7.50

$8.00

$7.00

Diversified Utilities

Ameren

AEE

Sell

$33.34

$27

-11%

Edison International

EIX

Buy

$31.37

$38

25%

ETR

Buy

$80.89

$95

21%

EXC

Buy

$55.82

$75

38%

SRE

Neutral

$44.48

$46

Diversified Utilities Median

16%

12.1x

11.7x

10.8x

9.2x

Diversified Utilities Mean

21%

13.0x

12.4x

10.5x

9.6x

9.1x

IPP's

NRG Energy

NRG

Buy

$24.32

$29

19%

Ormat Technologies

ORA

Neutral

$31.74

$34

RRI

$5.12

Special Situation and IPP Median

13%

3.6x

16.8x

15.7x 10.4x

8.7x

Special Situation and IPP Mean

13%

10.9x

10.8x

15.0x

6.2x

6.6x

Estimates

P/E Multiples

P/E Multiples Summary

Source: Goldman Sachs Research estimates.

Risk/reward appears favorable for Diversified Utilities, as “trading bands” suggest moderate downside but

significant upside. Under a bear-case scenario, where the stocks trade (1) at only 8x P/E on regulated operations, (2) on a 4x on

EV/EBITDA estimates for the non-regulated businesses, and (3) receive zero value for carbon exposure, we estimate Diversified

Utilities have roughly 30% downside from current levels, as shown in Exhibit 32. However, a mid-case scenario would imply 22%

upside if the stocks trade at 10x on P/E regulated earnings and receive credit for carbon exposure. As discussed above, we apply a

9.0x P/E multiple, 6.0x EV multiple, and adjust for returns, free cash flow, and carbon exposure to derive our target prices, with

roughly 20%-25% average upside from current levels.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 32: Risk-reward appears favorable for Diversified Utilities, given our new low/mid/high valuation scenario analysis

Low-mid-high valuations, Diversified Utilities

Assumptions

Low

Mid

High

Regulated 2012 P/E multiple

7.0x

10.0x

13.0x

Non-Regulated baseline 2011 EV/EBITDA multiple

8.0x

Close

Dividend

Target

Return to

Diversified Utilities

Ticker

12/10/08

Yield

Price

Target

Value

Return

Value

Return

Value

Return

Edison International

72%

Note: SRE values derived via sum-of-the parts, and include low/mid/high values of: 7x/10x/13x Utility P/E, $350/$500/$650 Generation $/kW, 4x/6x/8x Pipeline EV/EBITDA,

0.3x/0.6x/1.0x Commodities Book Value, 8x/10.5x/13x Diversified P/E, and 4x/6x/8x Diversified EV/EBITDA

Source: Company data, Goldman Sachs Research estimates.

Valuation appears attractive, but we recommend taking profits. We upgraded Diversified Utilities in late March 2008 based

on positive commodity price exposure, relative earnings stability, and attractive valuation, and the group has outperformed the

S&P 500 by roughly 700-800 basis points since then. Valuation remains attractive based on our sum-of-the-parts methodology

shown above, with 20-25% upside to our 12-month target prices, and risk-reward appears favorable, also discussed above.

However, we recommend investors take profits on Diversified Utilities given weakening near-term fundamentals and likely earnings

disappointments.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Exhibit 33: Diversified Utilities have outperformed the S&P500 since 2Q2008,

Diversified Utilities equity performance vs. S&P

Diversified Utilities

S&P500

Diversified Utilities have

outperformed the S&P500

index by roughly 7% since

the beginning of 2Q2008

Source: Factset

Upgrading Edison International to Buy given (1) valuation, (2) structural advantages – given

expected decline in demand - for its regulated segment and (3) relative share price

underperformance YTD, while downgrading Sempra Energy to Neutral and Ameren (AEE) to Sell

We upgrade Edison International from Neutral to Buy and remain bullish on nuclear generators Entergy and Exelon.

Edison International, which expects roughly 80% of its long-term earnings power from its fast-growing regulated utility, has

underperformed YTD other Diversified Utilities by about 700 bp and Regulated Utilities by about 1900 bp, implying mean reversion

potential exists. Earnings power for the regulated segment in a difficult economic environment benefits compared to many peers,

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

since demand decoupling exists for the California utilities – the company’s regulated operations serve much of Southern California.

We reiterate Buy ratings on Entergy and Exelon, especially since nuclear generators are primary beneficiaries of carbon regulations

likely implemented by the middle of the next decade. Appendix D highlights the expected NPV benefits Entergy and Exelon will

accrue – worth over $15/sh for each company.

On a YTD basis, Sempra Energy (SRE) outperformed many large cap Diversified Utilities by 200-1300 bp, driving our

downgrade from Buy to Neutral, while we also downgrade Ameren Corp from Neutral to Sell. We downgrade Ameren

(AEE, Sell) from Neutral to Sell, as the shares screen expensive on relative valuation versus peer Diversified Utilities. Our $27

target price implies roughly 18% capital depreciation, offset by a 7%+ yield. We revise our SOTP methodology for Sempra Energy,

as detailed in Appendix C, to reflect lower earnings for the commodity trading segment and recognize risk exists given (1)

uncertainty regarding counterparty and JV partnership structure and (2) shrinkage volumes within the commodity trading sector

overall. More importantly, Sempra’s shares, down roughly 30% YTD, outperformed all large-cap Diversified Utilities in our coverage

universe by 400-600 bp and has traded in line or outperformed multiple others.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Appendices

Appendix A: Company overviews

Company Name:

American Electric Power

Estimate changes:

We reduce 2008-2010 EPS estimates to reflect (1) lower demand, especially in the Midwest, to reflect a yoy

decline from 2008 levels, with minimal improvement in 2010, (2) decreased off-system MWh sales to reflect the negative 2009

outage of the Cook nuclear facility and (3) lower commodity prices negatively impacting gross margins on off-system sales.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $40/sh to $36/sh for AEP given

(1) lower assumed PE trading multiples and bands for Regulated Utilities and (2) lower earnings given decrease in electricity

demand. We maintain our Buy rating on AEP.

Company Name:

Ameren Corp

Sub-Sector:

Diversified Utilities

Estimate changes:

We decrease 2009 EPS estimates to reflect lower demand at the company’s regulated subsidiaries and

decreased power prices for AEE’s non-regulated operations. We also lower 2011+ earnings to reflect higher costs of coal/rail

transportation to supply the coal generation portfolio

Target price and ratings changes:

We lower our SOTP-based target price from $34/sh to $27/sh to reflect a lower assumed trading

multiple and band for the regulated subsidiaries of AEE, in line with methodology for the Regulated Utilities sub-sector. We are

downgrading AEE from Neutral to Sell

Company Name:

Ticker Symbol

Estimate changes:

We decrease 2008/2009 EPS estimates to reflect lower demand in Louisiana given economic conditions. We

largely maintain or modestly increase our longer-term estimates for 2010-2012 given rate case timing and more normalized

demand growth after 2010.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $28/sh to $26/sh for CNL given

(1) lower assumed trading multiples and bands for Regulated Utilities and (2) lower earnings given decrease in electricity demand.

We maintain our Neutral rating on CNL.

Company Name:

Consolidated Edison

Sub-Sector:

Regulated Utilities

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

: We decrease our 2008-2012 EPS estimates to reflect (1) slightly lower longer-term rate base growth and (2)

higher financing costs and increased share count given decline in equity values.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $43/sh to $36/sh for ED given

(1) lower assumed trading multiples and bands for Regulated Utilities, (2) decreased regulated earnings power and (3) lower EPS

given increased share count. We downgrade ED from Neutral to Sell primarily on relative valuation. We expect a sizable equity

issuance, creating a negative catalyst, by mid-year 2009.

Company Name:

Estimate changes:

We increase our 2008 EPS estimate to reflect 3Q2008 reporting and revised financing assumptions for

FY2008, although we decrease 2009-2010 estimates given lower MWh demand growth assumptions and lower commodity

prices in 2009.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $18/sh to $16/sh for DUK

driven by (1) lower assumed trading multiples and bands for Regulated Utilities, applying, (2) decreased long-term rate base growth

assumptions and (3) higher financing costs, especially given current equity valuations. We remain Neutral rated on DUK.

Company Name:

Edison International

Sub-Sector:

Diversified Utilities

Estimate changes:

We reduce our 2008/2009 estimates for EIX to reflect lower commodity prices negatively impacting the

unhedged portion of the company’s merchant generation portfolio, while decreasing our longer-term forecast to reflect

slightly higher coal transportation costs and modestly lower than previously expected utility rate base growth.

Target price and ratings changes:

We decrease our 12-month SOTP-based target price from $47/sh to $38/sh to reflect a lower

assumed trading multiple and band for the regulated subsidiary of EIX, as, in line with methodology for the Regulated Utilities sub-

sector, as well as modestly lower non-regulated earnings power. Given relative underperformance on a YTD basis by EIX, we are

upgrading from Neutral to Buy.

Company Name:

Estimate changes:

We lower our 2008-2011 estimates to reflect (1) decreased commodity price and marginal heat rate

assumptions negatively impacting wholesale margins and (2) slightly higher costs of incremental debt issued to finance rate base

growth.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $25/sh to $21/sh for EE driven

by lower assumed trading multiples and bands for Regulated Utilities, applying an 9.0x PE multiple on long-term 2012 EPS

estimates.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Company Name:

Entergy Corp

Sub-Sector:

Diversified Utilities

Estimate changes:

We reduce our 2008-2010 estimates for ETR to reflect (1) decreased commodity price assumptions negatively

impacting the unhedged portion of the company’s non-regulated generation portfolio, (2) lower demand across ETR’s utility

subsidiaries in 2009 and 2010 and (3) slightly higher operating costs and fuel costs at the non-regulated nuclear generation fleet.

Target price and ratings changes:

We decrease our 12-month SOTP-based target price from $108/sh to $95/sh to reflect a lower

assumed trading multiple and band for the regulated subsidiaries of ETR, in-line with the methodology for the Regulated Utilities

sub-sector, as well as modestly lower non-regulated earnings power. We maintain our Buy rating on ETR.

Company Name:

Exelon Corp

Sub-Sector:

Diversified Utilities

Estimate changes:

We reduce our 2008-2010 estimates for EXC to reflect (1) decreased commodity price assumptions negatively

impacting the unhedged portion of the company’s non-regulated nuclear and coal generation portfolio, (2) lower demand across

EXC’s utility subsidiaries in 2009 and 2010 and (3) slightly higher operating costs and fuel costs at the non-regulated nuclear

generation fleet impacting 2011/2012 earnings

Target price and ratings changes:

We decrease our 12-month SOTP-based target price from $77/sh to $75/sh to reflect a lower

assumed trading multiple and band for the regulated subsidiaries of EXC, in line with the methodology for the Regulated Utilities

sub-sector, as well as modestly lower non-regulated earnings power. We maintain our Buy rating on EXC.

Company Name:

: We lower our 2008-2011 estimates to reflect (1) incremental shares outstanding given large expected equity

issuances in 2009-2011, (2) reduced demand expectations in 2009/2010 and (3) higher costs of new debt issuances.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $26/sh to $23/sh for GXP

driven by (1) lower assumed trading multiples and bands for Regulated Utilities and (2) our decreased EPS outlook given higher

costs of both debt/equity financing. We remain Neutral rated on GXP and anticipate a significant capital raise in the next 12 months,

likely an overhang on the company’s shares.

Company Name:

Estimate changes:

We reduce 2009 EPS estimates to reflect lower demand at the operating subsidiaries and slightly higher

financing costs. We largely maintain 2010-2011 estimates, as earlier-than-expected PSNH generation rate base growth roughly

offsets lower expected transmission growth. We increase 2012-2013 estimates based on higher expected transmission spending,

particularly at PSNH.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $26/sh to $25/sh for NU given

lower assumed trading multiples and bands for Regulated Utilities partially offset by higher earnings estimates. We maintain our

Company Name:

Estimate changes:

We decrease 2009-2012 EPS estimates to reflect lower electricity demand, partially offset by lower operating

expenses.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $34/sh to $29/sh for NST based

on (1) lower assumed trading multiples and bands for Regulated Utilities and (2) lower expected earnings. We maintain our Sell

rating on NST.

Company Name:

NRG Energy

Sub-Sector:

Independent Power Producers

Estimate changes:

We decrease 2009-2012 EBITDA estimates to reflect (1) decreased un-hedged power pricing due to lower

natural gas prices in 2009 and lower marginal heat rates in 2010-2012, (2) slightly higher un-hedged coal prices and rail

transportation costs.

Target price and ratings changes:

We maintain our EV/EBITDA based target price of $29, which assumes the shares trade at

6.2x our 2011 EBITDA estimate. We maintain our Buy rating on NRG.

Company Name:

Estimate changes:

We lower our 2008/2009 estimates to reflect lower estimated power demand in Nevada, while making only

$0.01-$0.02/sh adjustments to our long-term forecast of regulated earnings power.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $15/sh to $14/sh for NVE

driven by (1) lower assumed trading multiples and bands for Regulated Utilities. We reiterate our Conviction Buy rating and expect

the shares to mean revert closer to group multiples over the coming months.

Company Name:

Ormat Technologies

Sub-Sector:

Independent Power Producers

Estimate changes:

We decrease 2009-2012 EPS estimates to reflect (1) decreased un-hedged power pricing due to lower oil and

natural gas prices, (2) adjustments to timing of power plant start dates and contract dates and (3) higher financing, especially

higher interest expenses.

Target price and ratings changes:

We decrease our DCF based target price from $42/sh to $34/sh for ORA based on our lower

estimates. We maintain our Neutral rating on ORA.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Company Name:

Estimate changes:

We largely maintain our EPS estimates for PCG, updated multiple times in the last few months for quarterly

earnings and changes to project approvals and financing assumptions.

Target price and ratings changes

: We decrease our 12-month DDM and PE based target price from $41/sh to $37/sh for PCG given

lower assumed trading multiples and bands for Regulated Utilities. Given the company’s strategic advantage due to demand

decoupling and its relative PE multiples versus other large cap Regulated Utilities we upgrade PCG from Neutral to Buy.

Company Name:

Estimate changes:

We decrease estimates for 2008-2010 to reflect (1) lower than previously forecast demand growth, especially in

the company’s Florida-based subsidiary and (2) higher financing costs.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $43/sh to $40/sh for PGN given

lower assumed trading multiples and bands for Regulated Utilities. We maintain our Neutral rating on PGN.

Company Name:

Estimate changes:

We decrease 2009-2012 EPS estimates to reflect decreased power demand, higher financing costs and

increased share count, given the need for equity issuances in 2009 at lower-than-previously assumed market prices.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $27/sh to $23/sh for POR given

lower assumed trading multiples and bands for Regulated Utilities. While POR screens attractively on longer-term earnings, the

potential overhang of a sizable equity issuance may provide more attractive buying opportunities, especially since the shares trade

below book value. We downgrade POR from Buy to Neutral.

Company Name:

Reliant Energy

Sub-Sector:

Independent Power Producers

Estimate changes:

We revise our forecasts for RRI to reflect (1) negative impact of abnormal weather and power price purchases in

2008, (2) lower commodity prices in 2009, (3) decreased retail customer exposure, margins and associated operating expenses and

(4) lower than previously forecast financing costs.

Target price and ratings changes: We remain “Not Rated” on RRI.

Company Name:

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Rating:

Sell

Estimate changes:

We decrease our 2010-2012 estimates for SCG to reflect (1) lower power demand, especially in 2009/2010 and

(2) increased share count due to equity issuances at lower market values.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $39/sh to $34/sh for SCG given

lower assumed trading multiples and bands for Regulated Utilities. We maintain our SELL rating on SCG given it trades at a

relative premium to peers on longer-term earnings power.

Company Name:

Sempra Energy

Sub-Sector:

Diversified Utilities

: We decrease our EPS estimates for SRE to reflect (1) significantly lower expected earnings from the company’s

commodity trading joint venture, (2) lower near-term commodity prices and (3) slightly higher financing costs.

Target price and ratings changes:

We decrease our SOTP-based target price from $52/sh to $46/sh for SRE and downgrade the

shares from Buy to Neutral.

Company Name:

Rating

Estimate changes:

We revise EPS estimates for WR to reflect (1) modest changes to financing costs, (2) updated forecasts for non-

fuel operational costs and (3) slight increase to expected long-term share count.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $26/sh to $24/sh for WR given

lower assumed trading multiples and bands for Regulated Utilities. We maintain our BUY rating on WR.

Company Name:

Estimate changes:

We largely maintain our EPS estimates, having updated our forecast after the company’s 3Q2008 earnings

release and 10Q filing.

Target price and ratings changes:

We decrease our 12-month DDM and PE based target price from $51/sh to $46/sh for WEC given

lower assumed trading multiples and bands for Regulated Utilities. We maintain our Neutral rating on WEC

Source: Goldman Sachs Research

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Appendix B: Our regression analysis indicates for every 1% change in yoy GDP growth, there is a about 0.65% change in yoy electricity demand

yoy quarterly power demand growth vs. backtested yoy quarterly power demand growth

Dependent Variable:

% Year Over Year Change in Demand

Number of Observations: 72

Sample 1990-2007

Coefficient

Standard Error T-statistic

% Year Over Year Change in GDP

0.648215

0.047671

13.60

Year Over Year Change in Cooling Degree Days

0.00032

0.000026

12.32

Year Over Year Change in Heating Degree Days

0.0000961

0.00000989

9.71

R-Squared:

0.737

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Backtested YoY Demand Growth

Actual YoY Demand Growth

Source: EIA, NOAA, Goldman Sachs Research estimates.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Appendix C: Sempra Energy sum-of-the-parts valuation and target price

Sum-of-the-parts valuation including Commodities

Segment

Earnings or

Equiv.

Multiple /

Value

Applied

Metric Desc.

Per Share

Value

California Utilities

$2.88

$26

Generation

Total MW Capacity (2007)

2,630

$500

($/kW value)

Pipelines & Storage

Debt, Pipelines & Storage

3,350

$13

LNG

Cameron and Energia Costa Azul

(DCF)

Commodities

Book Value, SRE Portion

Parent/Other

($11)

$45

Valuations and Price Target

EV/EBITDA - excluding RBS Sempra Commodities

$51

12-month price target

$46

12-month Price target based on equal-

weighted average

Source: Goldman Sachs Research estimates.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Appendix D: Coal generators expected to benefit initially, but EBITDA decline over time compared to 2012E levels

Percentage improvement or decline from baseline 2012E EBITDA

Ameren (AEE, Sell)

Edison International (EIX, buy)

NRG Energy (NRG, Buy)

Reliant (RRI, Not Rated)

Entergy (ETR, Buy)

Exelon (EXC, Buy)

20%

40%

60%

80%

100%

120%

140%

160%

180%

2015

2018

2021

2024

2027

2030

2033

2036

2039

2042

2045

2048

2051

2054

20%

40%

60%

80%

100%

120%

140%

2015

2018

2021

2024

2027

2030

2033

2036

2039

2042

2045

2048

2051

2054

-80%

-60%

-40%

-20%

20%

40%

2015

2018

2021

2024

2027

2030

2033

2036

2039

2042

2045

2048

2051

2054

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

10%

20%

2015

2018

2021

2024

2027

2030

2033

2036

2039

2042

2045

2048

2051

2054

-80%

-60%

-40%

-20%

20%

40%

2015

2018

2021

2024

2027

2030

2033

2036

2039

2042

2045

2048

2051

2054

-80%

-60%

-40%

-20%

20%

40%

2015

2018

2021

2024

2027

2030

2033

2036

2039

2042

2045

2048

2051

2054

Source: Company data, Goldman Sachs Research estimates

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Appendix E: Old vs. new 12-month target prices

Company

Ticker Rating

Regulated Utilities

Old

New % Change

Large Cap

American Elec Power

25%

Consolidated Edison

-2%

15%

27%

14%

Great Plains Energy

28%

Northeast Utilities

10%

52%

Portland General Electric

30%

SCANA Corporation

34%

13%

16%

Diversified Utilities

-11%

Edison International

25%

21%

38%

16%

Independent Power Producers (IPPs)

19%

Ormat Technologies

13%

Return to

New Target

Target

Target price revisions

Source: Goldman Sachs estimates

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Appendix F: Valuation methodology and risks

Valuation

Ticker

Rating

Methodology

Diversified Utilities

Ameren

AEE

Sell

SoP

Regulatory risk in Missouri (rate case); Regulatory risk in Illinois

Edison International

EIX

Buy

SoP

Environmental capex potentially significant; Commodity risk due to minimal hedging

Entergy

ETR

Buy

SoP

LT Commodity prices put non-regulated earnings at risk; Hurricane cost recovery

Exelon

EXC

Buy

SoP

LT Commodity prices as company becomes increasingly dependent on nonregulated business; Regulatory risk in Illinois

Sempra Energy

SRE

Neutral

SoP

Lower-than-expected earnings from trading business; Commodity price risk; SoCal utilities rate case risk

Regulated Utilities

Large-Cap

American Elec Power

AEP

Buy

DDM & P/E

Cost recovery of capital invested in major projects; Greater-than-expected wholesale margins and environmental capex; Above-average debt levels

Duke Energy

DUK

Neutral

DDM & P/E

Rate case risk at DUK's regulated Franchise Electric business

Consolidated Edison

Sell

DDM & P/E

Below-average growth; Heavy capital spending to require substantial equity issuances in excess of guidance

PG&E

PCG

Buy

DDM & P/E

Delays in rate base growth

Progress Energy

PGN

Neutral

DDM & P/E

Lower-than-expected rate base growth, regulatory proceedings, greater-than-anticipated financing requirements

Mid and Small-Cap

Cleco

CNL

Neutral

DDM & P/E

Rate case exposure in Louisiana after Rodemacher completion; worse-than-anticipated cash flows from non-regulated plants

El Paso Electric

Neutral

DDM & P/E

Operational risk at Palo Verde may lead to less FCF and lower-than-expected equity repurchases

Great Plains Energy

GXP

Neutral

DDM & P/E

Risks to RoE in KS/MD; Greater-than-expected declines

Northeast Utilities

Neutral

DDM & P/E

Regulatory approval of transmission projects, construction risk, and general regulatory and rate case risk

NSTAR

NST

Sell

DDM & P/E

Lower-than-expected load growth, failure to capture incentive revenues, higher-than-expected O&M

NV Energy

NVE

Buy

DDM & P/E

Lower-than-expected rate base or load growth, long-term rate case risk

Portland General Electric

POR

Neutral

DDM & P/E

Regulatory risk from the OPUC; long-term rate base growth that varies from our estimates

SCANA Corporation

SCG

Sell

DDM & P/E

Rate case risk, lower-than-expected gross margins, customer growth or market share at Scana Energy

Wisconsin Energy

WEC

Neutral

DDM & P/E

Construction delays; Regulatory environment may become less friendly

Westar Energy

Buy

DDM & P/E

Regulatory risk

Special Situation Utilities and IPPs

NRG Energy

NRG

Buy

EV/EBITDA

Delay/cost increases on planned construction; LT Commodity price risk

Ormat Technologies

ORA

Neutral

DCF

Elimination or reduction of Production Tax Credits; decreased capacity factors at existing plants; lower long-term commodity prices

Reliant Energy

RRI

Lower-than-expected retail margins and generation capacity factors; Commodity risk

Identification

Main Company Risks

Source: GS Research estimates

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Appendix G: Lower GDP growth has proven to be a driver of lower power demand in prior recessions

Annual power demand growth versus GDP growth, 1975 - 2006

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan-03

Apr-03

Jul-03

Oct-03

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

YoY real GDP growth (%)

Unemployment Rate

Historicals

Estimates

YoY real GDP growth (%)

Unemployment Rate (%)

Source: Goldman Sachs Research estimates.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Appendix H: Sempra’s share price performance versus peer group

Price as of December 10, 2008

Company

Ticker

Primary analyst

Price

currency

Price as of

12/10/08

Price as of

07/31/07

Price performance

since 07/31/07

3 month price

performance

6 month price

performance

12 month price

performance

Americas Power & Utilities Peer Group

SRE

44.48

-30.3%

American Electric Power

Consolidated Edison, Inc.

Great Plains Energy Inc.

Ormat Technologies, Inc.

Wisconsin Energy Corp.

899.24

-40.7%

Note: Prices as of most recent available close, which could vary from the price date indicated above

This table shows movement in absolute share price and not total shareholder return. Results presented should not and cannot be viewed as an indicator of future performance.

Source: Factset, Quantum database.

Since being added to the Buy List on July 31, 2007, shares of SRE were down 16% but outperformed the S&P500 by 23% and the

UTY by 7%. Over the last 12 months, shares of SRE have outperformed the S&P500 by 10% and the UTY by 3% over the last twelve

months.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Appendix I: Portland General’s share price performance

Price as of December 10, 2008

Company

Ticker

Primary analyst

Price

currency

Price as of

12/10/08

Price as of

10/10/08

Price performance

since 10/10/08

3 month price

performance

6 month price

performance

12 month price

performance

Americas Power & Utilities Peer Group

Portland General Electric Co.

POR

18.44

-9.1%

-33.4%

American Electric Power

Consolidated Edison, Inc.

Great Plains Energy Inc.

Ormat Technologies, Inc.

Wisconsin Energy Corp.

899.24

0.0%

-40.7%

Note: Prices as of most recent available close, which could vary from the price date indicated above

This table shows movement in absolute share price and not total shareholder return. Results presented should not and cannot be viewed as an indicator of future performance.

Source: Factset, Quantum database

Since being added to the Buy List on October 10, 2008, shares of POR are down 9% and underperformed the S&P500 by 9% and the

UTY by 22%. Over the last 12 months, shares of POR have outperformed the S&P500 by 7% and are in line with UTY.

Financial Advisory Disclosures

Goldman Sachs is acting as financial advisor to Reliant Energy, Inc. in an announced strategic transaction.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Reg AC

I, Michael Lapides, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify

that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Investment profile

The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are:

growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's

coverage universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,

ROACE, and ROE.

Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month

volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make

comparisons between companies in different sectors and markets.

Disclosures

Coverage group(s) of stocks by primary analyst(s)

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant

published research.

Company-specific regulatory disclosures

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant

published research.

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution

Investment Banking Relationships

As of October 1, 2008, Goldman Sachs Global Investment Research had investment ratings on 3,165 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment

Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage

groups and views and related definitions' below.

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Goldman Sachs Global Investment Research

Price target and rating history chart(s)

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant

published research.

Regulatory disclosures

Disclosures required by United States laws and regulations

See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or

other ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; market making and/or specialist role.

The following are additional required disclosures:

Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their

households from owning securities of any company in the analyst's area of coverage.

Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes

investment banking revenues.

Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer,

director, advisory board member or employee of any company in the analyst's area of coverage.

Non-U.S. Analysts: Non-U.S. analysts may not be associated persons of Goldman, Sachs & Co. and

therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions on communications with subject company, public appearances and trading securities held by the analysts.

Distribution

of ratings:

See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if with respect

to multiple companies which are the subject of this report, on the Goldman Sachs website at http://www.gs.com/research/hedge.html. Goldman, Sachs & Co. is a member of SIPC(http://www.sipc.org).

Additional disclosures required under the laws and regulations of jurisdictions other than the United States

The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: This research, and any

access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act.

Canada: Goldman Sachs Canada Inc. has approved of, and agreed to take responsibility for,

this research in Canada if and to the extent it relates to equity securities of Canadian issuers. Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the

company of travel expenses for such visits.

Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from Goldman Sachs

(Asia) L.L.C.

India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited; Japan: See below.

Korea: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. Russia: Research reports distributed in

the Russian Federation are not advertising as defined in Russian law, but are information and analysis not having product promotion as their main purpose and do not provide appraisal within the

meaning of the Russian Law on Appraisal.

Singapore: Further information on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte. (Company

Number: 198602165W).

Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider their own investment risk. Investment results are

the responsibility of the individual investor.

United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial Services

Authority, should read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them

by Goldman Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request.

European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available at

http://www.gs.com/client_services/global_investment_research/europeanpolicy.html

Japan: Goldman Sachs Japan Co., Ltd. Is a Financial Instrument Dealer under the Financial Instrument and Exchange Law, registered with the Kanto Financial Bureau

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Japanese Securities Dealers Association or the Japanese Securities Finance Company.

Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a

stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review

Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular

coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of

the potential return or the likelihood of the realization of the return.

Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for

all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership.

Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one

of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation.

Attractive (A). The

investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation.

Neutral (N). The investment outlook over the following 12

months is neutral relative to the coverage group's historical fundamentals and/or valuation.

Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage

group's historical fundamentals and/or valuation.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

Not Rated (NR). The investment rating and target price, if any, have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic

transaction involving this company and in certain other circumstances.

Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target, if any, for this stock,

because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and

should not be relied upon.

Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or

Not Applicable (NA).

The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

Ratings, coverage views and related definitions prior to June 26, 2006

Our rating system requires that analysts rank order the stocks in their coverage groups and assign one of three investment ratings (see definitions below) within a ratings distribution guideline of no

more than 25% of the stocks should be rated Outperform and no fewer than 10% rated Underperform. The analyst assigns one of three coverage views (see definitions below), which represents the

analyst's investment outlook on the coverage group relative to the group's historical fundamentals and valuation. Each coverage group, listing all stocks covered in that group, is available by primary

analyst, stock and coverage group at http://www.gs.com/research/hedge.html.

Definitions

Outperform (OP). We expect this stock to outperform the median total return for the analyst's coverage universe over the next 12 months. In-Line (IL). We expect this stock to perform in line with the

median total return for the analyst's coverage universe over the next 12 months.

Underperform (U). We expect this stock to underperform the median total return for the analyst's coverage universe

over the next 12 months.

Coverage views: Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The

investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation.

Cautious (C). The investment outlook over the following 12

months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.

Current Investment List (CIL). We expect stocks on this list to provide an absolute total return of approximately 15%-20% over the next 12 months. We only assign this designation to stocks rated

Outperform. We require a 12-month price target for stocks with this designation. Each stock on the CIL will

automatically come off the list after 90 days unless renewed by the covering analyst and

the relevant Regional Investment Review Committee.

Global product; distributing entities

The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certain contractual arrangements, on a global

basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics, currencies, commodities and portfolio

strategy.

This research is disseminated in Australia by Goldman Sachs JBWere Pty Ltd (ABN 21 006 797 897) on behalf of Goldman Sachs; in Canada by Goldman Sachs Canada Inc. regarding Canadian

equities and by Goldman Sachs & Co. (all other research); in Germany by Goldman Sachs & Co. oHG; in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities

Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs JBWere (NZ) Limited on behalf of

Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W); and in the United States of America by Goldman, Sachs & Co. Goldman Sachs International has

approved this research in connection with its distribution in the United Kingdom and European Union.

European Union: Goldman Sachs International, authorised and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the European Union and

United Kingdom; Goldman, Sachs & Co. oHG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also be distributing research in Germany.

General disclosures in addition to specific disclosures required by certain jurisdictions

This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is

accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports

published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment.

Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a

substantial percentage of the companies covered by our Global Investment Research Division.

Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are

contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the

recommendations or views expressed in this research.

We and our affiliates, officers, directors, and employees, excluding equity analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or

derivatives (including options and warrants) thereof of covered companies referred to in this research.

This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal

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research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of the investments referred to in this research and the

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Americas: Utilities: Power

Goldman Sachs Global Investment Research

income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates

could have adverse effects on the value or price of, or income derived from, certain investments.

Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options

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Our research is disseminated primarily electronically, and, in some cases, in printed form. Electronic research is simultaneously available to all clients.

Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, One New York Plaza, New York, NY 10004.

No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs

Group, Inc.

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

Exhibit 2

Electronic Filing - Received, Clerk's Office, December 30 , 2008

* * * * * PC # 3 * * * * *

AFFIDAVIT QF WARNER L. BAXTER

I, WARNER L. BAXTER. having first been duly sworn, state as follows:

I am the Executive Vice President and Chief Financial Officer for Arneren

Corporation and its subsidiaries AMEREN ENERGY GENERATING COMPANY and

AmerenENERGY RESOURCES GENERATING COMPANY (collectively"Ameren").

In my capacity as principal financial officer of Arneren, 1 am responsible for all aspects

ofthe financial status of ArneTen including financial reporting. accounting procedures,

capital budgets and expenditures, and their debt and credit securities.

I also serve on the Board ofManagers of Ameren Energy Resources

qampany, LLC, which owns 80% of the common stock ofELECTRlC ENERGY, INC.,

one ofthe petitioner companies in this matter.

1have reviewed the public comments filed by certain environmental

organizations

and Ameren's and Electric Energy. Inc. '5 response to those comments.

The statements offaets contained in the petitioners' joint response are true

and correct to the best of my knowledge and belief.

FlJRTHER, AFF1DIANT SAYETHNOT.

.He.-

Subscribed and sworn to before me this

Carol A. Head - Notary Public

Notary Seal, State

Missouri - St. Charles County

Commission

#06477170

My Commission Expires

11/20/2010

Electronic Filing - Received, Clerk's Office, December 30 , 2008

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