R09-10 Michael L. Menne Testimony
Attachments A, B, C to Menne Testimony R09-10

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

IN THE MATTER OF:

PROPOSED AMENDMENTS TO

35 ILL. ADM. CODE 225

CONTROL OR EMISSIONS FROM

LARGE COMBUSTION SOURCES

John Therriault, Acting Clerk

Illinois Pollution Control Board

State

of Illinois Center

100

W. Randolph S1., Ste. 11-500

Illinois Environmental

Protection Agency

Division

of Legal Counsel

021 North Grand Avenue, East

P.O. Box 19276

Springfield, Illinois 62794-9276

Stephen Bonebrake

Kathleen Bassi

6600 Sears Tower

233 South Wacker Drive

Chicago, Illinois 60606

Tim Fox, Hearing Officer

Illinois Pollution Control Board

State

of Illinois Center

100

W. Randolph S1., Ste. 11-500

Chicago, Illinois

S. David Farris, Manager, Environmental

201 East Lake Shore Drive

Springfield, Illinois 62757

PLEASE TAKE NOTICE that I have today electronically filed with the Clerk

of the

Illinois Pollution Control Board, the Testimony

of Michael L. Menne, copies of which are

herewith served upon you.

Electronic Filing - Received, Clerk's Office, February 2, 2009

Dated: February 2, 2009

SCHIFF HARDIN, LLP

6600 Sears Tower

233 South Wacker Drive

Chicago, Illinois 60606

312-258-5500

Fax: 312-258-2600

by:

AMEREN ENERGY GENERATING

COMPANY, AMERENENERGY RESOURCES

GENERATING COMPANY, and ELECTRIC

ENERGY, INC.,

Uf<C2-

One of Its Attorneys

CERTIFICATE OF SERVICE

I, the undersigned, certify that on this 2nd day of February, 2009, I have served the

attached Testimony

of Michael L. Menne, by electronic mail and by first class mail, postage

affixed, upon the following persons:

John Therriault, Acting Clerk

Illinois Pollution Control Board

State

of Illinois Center

100

W. Randolph St., Ste. 11-500

Illinois Environmental Protection Agency

Division

of Legal Counsel

021 North Grand Avenue, East

P.O. Box 19276

Springfield, Illinois 62794-9276

Stephen Bonebrake

Kathleen Bassi

6600 Sears Tower

233 South Wacker Drive

Chicago, Illinois 60606

Tim Fox, Hearing Officer

Illinois Pollution Control Board

State of Illinois Center

100

W. Randolph St., Ste. 11-500

Chicago, Illinois

S. David Farris, Manager, Environmental

201 East Lake Shore Drive

Springfield, Illinois 62757

Electronic Filing - Received, Clerk's Office, February 2, 2009

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

IN THE MATTER OF:

AMENDMENTS TO

35 ILL.ADM.CODE 225:

CONTROL OF EMISSIONS FROM LARGE

COMBUSTION SOURCES (MERCURY

TESTIMONY OF MICHAEL L. MENNE

ON BEHALF

OF AMEREN COMPANIES

BACKGROUND AND QUALIFICATIONS

My name is Michael L. Menne and I am presenting this testimony on behalf of Ameren

Energy Generating Company, AmerenEnergy Resources Generating Company, and Electric

Energy, Inc., all

of which are subsidiaries of Ameren Corporation and which I will refer to

collectively as "Ameren." I am the Vice President

of the Environmental Services Department

for Ameren Services Company, a subsidiary

of Ameren Corporation. I joined the newly formed

environmental services department

of Union Electric Company, now doing business as

AmerenUE, in 1976. I became employed

as a Manager of Environmental Affairs for Ameren

Services Company in 1998 and served as a Manager

of the Environmental Safety and Health

Department, now the Environmental Services Department, for Ameren Services Company from

2000 to 2003. I am responsible for developing policies and procedures relating to environmental

compliance for Ameren Corporation and its operating subsidiaries. In that capacity I am

responsible for representing Ameren before regulatory and administrative bodies with respect to

state and federal permitting conditions and regulatory requirements.

Electronic Filing - Received, Clerk's Office, February 2, 2009

In total, Ameren's Illinois coal-fired power stations comprise twenty-one steam

generating units located at seven power stations throughout the state. These are primarily base

load facilities which provide electricity for central and southern Illinois homes and businesses.

II.

SUMMARY OF TESTIMONY

Ameren Corporation has a long history of being proactive in reducing emissions from our

power stations and working cooperatively with the Illinois Environmental Protection Agency

("IEPA" or the "Agency") to implement the Agency's air quality initiatives while providing

regulatory flexibility essential for surviving in today's rapidly changing economic climate.

Ameren is as committed as ever to further reducing emissions from its power plants. In fact, it

was Ameren' s willingness to partner with

IEP A during the original mercury rulemaking

proceeding) that provided the single critical impetus for resolution

of that contentious proceeding

paving the way for promulgation

of one of Illinois' most controversial air quality initiatives.

Ameren Corporation has a tradition of lowering emissions, and since 1990, its power stations

have reduced its sulfur dioxide ("S02") emissions by 80 percent and its nitrogen oxide (N0x")

emissions by 74 percent.

As an alternative compliance mechanism, Illinois' mercury rule contains a multi-

pollutant option (the Multi-Pollutant Standard or

"MPS") whereby sources that opt in agree to

additional reductions

of S02 and NO

emissions in exchange for deferring until 2015 compliance

with mandatory mercury emission standards.

Ameren opted all

of its twenty-one steam

generating units in to the MPS and is required to meet enumerated declining emission rates for

and S02. As a result of the unforeseen and extreme financial conditions of the U.S. and

global economies, however, compliance with the S02 emission limit

of 0.33 pounds per million

The case number for the original mercury rulemaking is found at R06-2S. Herein, I will refer to

this proceeding as the "original mercury rulemaking."

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Electronic Filing - Received, Clerk's Office, February 2, 2009

British thermal units

("lbs/mmBtu")

in calendar years 2013 and 2014 under Section

225.233(e)(2)(A)

of the MPS will cause Ameren to suffer significant economic hardship.

Therefore, we are seeking a revision to the 2013 and 2014 S02 emission rate

of the MPS. In

consideration for this single revision

to the MPS, Ameren proposes to amend the MPS to require

additional and more stringent S02 and NO

emission limits. The proposed amendment will

mitigate the severe economic hardship imposed by the 2013 and 2014 S02 emission rate of the

MPS and is being offered after extensive discussions with IEP

Indeed, the proposed

amendment will result in a net environmental benefit because it requires earlier reductions

S02 and NO

and, in 2017 and thereafter, an even more stringent emission rate requirement for

S02 than currently provided in the MPS.

The S02 emission rate modification that Ameren seeks is necessary because

of the

unprecedented business pressures facing Ameren. Regulatory flexibility is essential so that

strategic decisions and capital expenditures can be made prudently. The extreme disruption in

the domestic and international capital markets has limited the ability

of many companies,

including Ameren, to freely access those markets to support operations and refinance debt.

granted, this proposed amendment will allow our Illinois generating companies to defer, not

cancel, approximately $500 million

of environmental capital expenditures from the 2009-2012

timeframe to the 2013-2015 timeframe.

I would like to emphasize that Ameren is not reneging on its agreement reflected in the

MPS under Section 225.233. In order to comply with the MPS, Ameren has installed, or plans to

install, three flue gas desulfurization systems ("FGDs" or "scrubbers"), four selective catalytic

reduction systems ("SCRs"), and twelve activated carbon injection systems ("ACIs"). Over the

next eight years, Ameren intends to install and operate additional pollution control equipment

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necessary for it to achieve compliance with the proposed amendment. The proposed amendment

will allow Ameren to continue

to prudently deal with regulatory uncertainty and the global

financial crisis. Ameren remains fully committed to protecting the environment.

III.

PROPOSED AMENDMENT TO SECTION 233.22S(e) OF THE MPS

Section 225.233(e)(2)(A)

of the MPS establishes an emissions rate for S02 that is, in

reality, an interim or mid-point rate

of 0.33 Ibs/mmBtu

in 2013 and 2014, with the ultimate or

final emission rate

of 0.25 Ibs/mmBtu required for 2015 and thereafter.

The proposed

amendment replaces the S02 emission rate for 2013 and 2014 under the MPS with less stringent

S02 emission rates for that time period. In addition, Ameren, after consulting with IEP

accepted IEP A's request that the proposed amendment contain more stringent emission

requirements than the original MPS rule.

In response to the Agency's request and to provide an

environmental benefit, the proposed amendment provides earlier and additional emission rate

requirements for NO

and S02 and, starting in 2017, an even more stringent emission rate

requirement for S02.

Accordingly, Ameren proposes the following amendment:

2 Section 22S.233(e)(2)(A) provides that MPS sources must comply with an S02 emission rate of

0.33 Ibs/mmBtu

or 44 percent of its baseline, whichever is more stringent. In Ameren's case, the 0.33

Ibs/mmBtu

is the more stringent requirement and that is the rate that is discussed in this testimony.

3 This request occurred in a prior related proceeding before the Board, in Ameren' s Petition for

Variance, found at PCB09-21. Herein, I will refer to this proceeding as "Ameren' s Petition for

Variance,"

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Section 225.233

Multi-Pollutant Standards (MPS)

* * *

Emission Standards for NO

and S02.

Emission Standards.

Beginning in calendar year 2012 and continuing in each calendar

thereafter, for the EGUs in each MPS Group, the owner and

operator

of the EGUs must comply with an overall NOx annual

emission rate

of no more than 0.11 lb/million Btu or an emission

rate equivalent to 52 percent

of the Base Annual Rate of NO

emissions, whichever is more stringent.

Beginning in the 2012 ozone season and continuing in each ozone

season thereafter, for the EGUs in each MPS Group, the owner and

operator

of the EGUs must comply with an overall NO

seasonal

emission rate

of no more than 0.11 lb/million Btu or an emission

rate equivalent to 80 percent

of the Base Seasonal Rate of NO

emissions, whichever is more stringent.

S02 Emission Standards.

Beginning in calendar year 2013 and continuing in calendar year

2014, for the EGUs in each MPS Group, the owner and operator

the EGUs must comply with an overall S02 annual emission rate

of 0.33 lbs/million Btu or a rate equivalent to 44 percent of the

Base Rate

of S02 emissions, whichever is more stringent.

Beginning in calendar year 2015 and continuing in each calendar

year thereafter, for the EGUs in each MPS Grouping, the owner

and operator

of the EGUs must comply with an overall annual

emission rate for S02

of 0.25 lbs/million Btu or a rate equivalent to

35 percent

of the Base Rate of S02 emissions, whichever is more

stringent.

Ameren

MPS Group Multi-Pollutant Standard

Notwithstanding the provisions

of subsections (e)(1) and (2) of this

Section, this subsection (e)(3) applies to the Ameren MPS Group

as described in the notice

of intent submitted by Ameren Energy

Resources in accordance with subsection (b)

of this Section.

Emission Standards.

Beginning in the 2010 ozone season and continuing in

each ozone season thereafter, for the EGUs in the Ameren

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Electronic Filing - Received, Clerk's Office, February 2, 2009

MPS Group, the owner and operator of the EGUs must

comply with an overall NO

seasonal emission rate of no

more than 0.11 lb/million Btu.

ii)

Beginning in calendar year 2010 and continuing in calendar

year 2011, for the EGUs in the Ameren MPS Group, the

owner and operator

of the EGUs must comply with an

overall

annual emission rate of no more than 0.14

lbl

million Btu.

iii)

Beginning in calendar year 2012 and continuing in each

calendar year thereafter, for the EGUs in the Ameren MPS

Group, the owner and operator

of the EGUs must comply

with an overall

annual emission rate of no more than

0.11 lb/million Btu.

S02 Emission Standards

Beginning in calendar year 2010 and continuing in each

calendar year through 2013, for the EGUs in the Ameren

MPS Group, the owner and operator

of the EGUs must

comply with an overall S02 annual emission rate

of 0.50

lbs/million Btu.

ii)

In calendar year 2014, for the EGUs in the Ameren MPS

Group, the owner and operator

of the EGU s must comply

with an overall S02 annual emission rate

of 0.43 lbs/million

Btu.

iii)

Beginning in calendar year 2015 and continuing in calendar

year 2016, for the EGUs in the Ameren MPS Group, the

owner and operator

of the EGU s must comply with an

overall S02 annual emission rate

of 0.25 lbs/million Btu.

iv)

Beginning in calendar year 2017 and continuing in each

calendar year thereafter, for the EGUs in the Ameren MPS

Group, the owner and operator

of the EGU s must comply

with an overall S02 annual emission rate

of 0.23 lbs/million

Btu.

Compliance with the NO

and S02 emISSIon standards must be

demonstrated in accordance with Sections 225.310,225.410, and 225.510.

The owner or operator

of EGUs must complete the demonstration of

compliance before March 1 of the following year for annual standards and

before November 1 for seasonal standards, by which date a compliance

report must be submitted to the Agency.

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Electronic Filing - Received, Clerk's Office, February 2, 2009

Under the proposed amendment, Ameren is agreeIng to an early S02 emISSIon rate

beginning in 2010 and continuing through calendar year 2013. This emission rate is equivalent

to approximately 0.10 Ibs/mmBtu reduction over its current system-wide average S02 emission

rate.

It is also agreeing to early seasonal NO

and annual NO

emission rates in calendar year

2010. Lastly, Ameren is agreeing to achieve a S02 emission rate by 2017 and continuing

thereafter that is 0.02 Ibs/mmBtu more stringent than otherwise required under the MPS. A table

summarizing this information is attached to this testimony as

Attachment

A. These additional

reductions will result in a net environmental benefit to the state.

IV.

GROUNDS FOR AMENDMENT - ECONOMIC HARDSHIP

The deterioration of global economic conditions and the collapse of the U.S. capital and

credit markets since September 2008 have resulted in an economic crisis that impacts all industry

sectors and, in fact, makes compliance with the 2013 and 2014 S02 emission rate

of the MPS an

unreasonable hardship for Ameren. Since September, such spiraling conditions have only

worsened and exacerbated Ameren's economic hardship.

In order to comply with federal and state air quality regulations (including the MPS) at its

Illinois power stations, Ameren estimates that over the period 2008-2017, it would need to

borrow and expend at least $2.2 to $2.8 Billion; said amounts are currently being updated and

revised. In addition, annual estimated operating costs associated with installed pollution control

equipment range from $30 to $40 million. A three to four year procurement and engineering

lead time is necessary for pollution control projects to be operational by 2013 to ensure

compliance with the 2013 and 2014 S02 emission rate

of the MPS. Thus, Ameren would need to

immediately commence engineering, design, and related activities associated with the

simultaneous design and construction

of at least three scrubber projects at two separate power

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Electronic Filing - Received, Clerk's Office, February 2, 2009

stations. Such projects are capital intensive, and Ameren cannot finance them through day-to-

day operations. These costs will need to be financed through long-term, permanent financing

mechanisms. Given the current financial crises, these mechanisms are not available to Ameren.

Furthermore,

if these proj ects commence before there is any certainty as to how greenhouse

gases will be regulated, there

is the likelihood that the investment cost will become stranded.

Financial Uncertainty

The availability and cost of capital to Ameren's unregulated generating companies (i.e.

those units that comprise the Ameren MPS Group) in this market

is highly uncertain due to

conditions in the capital and commodity markets. Sales

of power from Ameren generating units

and the associated power prices are the source

of cash flow and earnings for Ameren' s MPS

Group units. These power prices began a precipitous drop in July 2008 and have continued to

fall.

The pollution control projects required for compliance with the MPS can be

accomplished only through long-term, permanent financing mechanisms. Investors' willingness

to provide long-term, permanent financing to unregulated power producers such as Ameren's

MPS Group units is based in large part on future power price expectations. In recent months,

future power prices have moved down sharply. The detrimental impacts

of this downturn can be

seen in the fact that Ameren is aware

of no long-term, permanent financings of unregulated

generating entities

of the magnitude required to finance these types of pollution control projects

since the summer

of 2008.

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

4 Ameren is aware that PSEG Power LLC, an unregulated generating company, issued

approximately $160 million

of debt in the retail market on or about January 20, 2008. However, this

small retail deal

is not substantial enough to finance pollution control projects of the magnitude required

under the MPS.

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Electronic Filing - Received, Clerk's Office, February 2, 2009

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:

The Ameren MPS Group generates and sells approximately 30 million MWh

of power

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

The future power prices and their expected financial consequences to Ameren identified

In the table above have also been confirmed by a recent Goldman Sachs' report, issued

December 11, 2008, and attached to my testimony as

Attachment B. 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' s regulated and unregulated entities.

Additional bases for the downgrade cited in the report include higher fuel costs, weakness in the

forward electric energy prices, and exposure to carbon dioxide

("C02") regulation.

Stranded Costs

The greatest uncertainty that coal-fired power generators face today is how and when

they will be regulated to address climate change. Most fossil fuel-fired electric generation

companies today, Ameren included, do not doubt that there will be some form

of climate change-

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Electronic Filing - Received, Clerk's Office, February 2, 2009

related regulation to which they will be subject. The cost of compliance with a greenhouse gas

("GHG") regulatory program will likely dwarf every environmental control requirement to date.

Merchant plant companies like Ameren' s Illinois power stations face even greater uncertainty

because they cannot assume they will recover their GHG compliance costs through rates paid by

users; rather, they must remain competitive in the market.

There is currently no technology which can be applied to large coal-fired power plants to

reduce or.capture CO2 on a large scale - technology that will likely be necessary to comply with

any GHG regulatory program. As a result, the options open to Ameren to meet any near-term

CO2 reduction goals would be to curtail or shut down coal-fired power stations or to switch to

natural gas. Most

of the federal and regional legislative GHG proposals have initial CO2

reduction targets in the 2012-2015 timeframe. Should any

of these proposals become law,

Ameren risks major stranded investments in S02 pollution control equipment under the current

MPS rule associated with meeting what

is essentially an interim emission rate of 0.33

Ibs/mmBtu

in 2013 and 2014. Ameren believes it will have a much clearer understanding of the CO2

reduction requirement facing its power stations within the next two years, thus further supporting

the amendment to the MPS to allow Ameren more time to make sound investment decisions.

In sum, due to the extreme financial circumstances taking place in the current economy

and the potential for substantial stranded costs with pending GHG regulation, achieving the S02

emission rate

of 0.33

Ibs/mmBtu

during calendar years 2013 through 2014 is not economically

feasible for the Ameren MPS Group in the time frame provided under Section 225.233(e)(2)(A)

of the MPS.

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Electronic Filing - Received, Clerk's Office, February 2, 2009

Public Economic Hardship - Effect on Labor

The economic hardship that compliance with the 2013 and 2014 S02 emission rate of the

MPS imposes upon Ameren is not limited to Ameren. Ameren currently employs nearly a

thousand employees at seven power stations across the state. Should Ameren be forced to shut

down power stations

as a direct result of economic hardship brought on by compliance with the

2013 and 2014 S02 emission rate

of the MPS, Ameren employees, contractors, local

communities and the state will bear a significant portion

of the economic impact in the form of

almost certain unemployment and loss of tax revenues. The devastating impact of these losses

on the local communities, the state and the residents

of the state cannot be understated in the

current economic conditions where the loss

of thousands of jobs across the country is nearly a

daily occurrence. In fact, the Illinois AFL-CIO, the International Brotherhood

of Electrical

Workers, and the United Mine Workers of America previously filed public comments in

Ameren's Petition for Variance, acknowledging the substantial impact the closure

of Ameren

power stations would have on labor and employment and tax revenue in Illinois.

See

Public

Comment

of Illinois AFL-CIO, PCB09-21, December 22,2008. Those organizations represent

Illinois' workforce and clearly understand the significant impact that would result from the

closure

of any of Ameren' s power stations.

GROUNDS FOR PROPOSED AMENDMENT - ECONOMICALLY

REASONABLE AND TECHNICALLY FEASIBLE

The proposed amendment provides an economically reasonable and technically feasible

alternative for Ameren, while benefiting the state. The proposed amendment would provide a

net environmental benefit to the State

of Illinois. The additional time provided by the proposed

amendment

to reduce S02 emissions beyond the 0.33

Ibs/mmBtu

requirement in calendar years

2013 and 2014 will greatly assist Ameren's efforts to work through the current economic crisis

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Electronic Filing - Received, Clerk's Office, February 2, 2009

by allowing Ameren to defer substantial capital expenditures. In exchange, Ameren has agreed

to both earlier and stricter S02 reductions, as well

as earlier NO

reductions.

Economically Reasonable

Despite the substantial economic conditions that Ameren faces now and in the near

future, the proposed amendments to Section 22S.233(e) are economically reasonable. The

investment

of significant capital to install pollution control equipment necessary to achieve

emission limits under the MPS is far more reasonable

if Ameren has additional time to assess the

regulatory and financial conditions that, in their present state, pose significant hurdles in making

sound investment decisions.

In addition, the pollution control technologies necessary to meet the proposed NO

and

S02 emission limits are

no different in kind than the technologies necessary to meet the current

emission limits under Section 22S.233(e). These technologies have already been found to be

economically reasonable during the original mercury rulemaking.

See

Opinion and Order of the

Board at 77-78, R06-2S, November

2, 2006.

The new compliance dates by which Ameren MPS Group units would be required to

meet S02 and NO

emission rates under the proposed amendment make such technologies

economically reasonable. Assuming availability

of capital, making capital expenditures now for

environmental proj ects at power stations that may be curtailed or shut down in the short term due

to greenhouse gas regulation is not financially prudent and would divert capital expenditures that

could be spent on future regulatory requirements. The timing

of the requirement has made it

economically unreasonable for Ameren. On the other hand, the time-table under the proposed

amendment

to reach and, in fact, exceed the S02 emission rates of 0.33

Ibs/mmBtu

and 0.25

Ibs/mmBtu

under the current MPS rule provides the extra time necessary to make more reasoned

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Electronic Filing - Received, Clerk's Office, February 2, 2009

economic decisions and thus renders the proposed amendment economically reasonable.

Ameren believes that its ability to obtain financing and determine whether it is appropriate to add

pollution controls to units, shut down units, or

do both will become clearer within the next two

years.

Technically Feasible

As compared with the current

requirem~nts

under the MPS, the proposed requirements to

meet an earlier S02 emission limit

of 0.50

Ibs/mmBtu,

an earlier seasonal NO

emission limit of

0.11 Ibs/mmBtu

and an interim annual NO

emission limit of 0.14

Ibs/mmBtu

by 2010, and the

more stringent S02 emission limit

of 0.23

Ibs/mmBtu

in 2017 are technically feasible. S02 is

currently generally controlled through FGDs, the use of low sulfur coal, or blending low sulfur

coal with Illinois coal containing higher levels

of sulfur. NO

emissions are generally controlled

by various combinations

of low NO

burners, over-fire air, selective non-catalytic reduction

systems ("SNCRs") and SCRs. These technologies have been found to be technically feasible in

other rulemakings, including the original mercury rulemaking.

See

Opinion and Order of the

Board at 37-38, R06-25, November 2,2006.

To achieve compliance with the proposed amendment, Ameren expects to operate

existing pollution controls and install and operate new controls. In particular, there is an existing

scrubber at Ameren's Duck Creek

Power Station that is being upgraded and replaced with a wet

FGD. This retrofit will be in service no later than 2010. Additionally, the Agency has issued

construction permits for the Coffeen Power Station for the installation

of two FGDs, also

scheduled to

go online by 2010.

Ameren's current system-wide average S02 emission rate at its coal-fired units, based

upon 2008 data,

is approximately 0.60

Ibs/mmBtu.

This emission rate reflects operation of the

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Electronic Filing - Received, Clerk's Office, February 2, 2009

control equipment listed on Table 1, attached hereto as

Attachment

C. When additional

pollution controls (including the FGD projects currently underway) come online, and/or

operating constraints are imposed, there will be a gradual reduction

of Ameren's system-wide

S02 emission rate to 0.50 Ibs/mmBtu in 2010, to 0.43 Ibs/mmBtu by January 1, 2014, to 0.25

Ibs/mmBtu by January

1, 2015, and down to 0.23 Ibs/mmBtu in 2017. There also will be a

gradual reduction

of Ameren's system-wide annual NO

emission rate to 0.14 Ibs/mmBtu in

2010, down to 0.11 Ibs/mmBtu in 2012, and seasonal NO

emission rate of 0.11 Ibs/mmBtu

beginning in 2010, two years earlier than required by the existing MPS.

VI.

ENVIRONMENTAL BENEFIT OF PROPOSED AMENDMENT

Ameren's proposed amendment, which requires earlier and more stringent S02 and NO

emission rates will result in a net environmental benefit. Mindful of the potential impact that any

revisions to the MPS could present, IEPA and Ameren previously worked together in

Ameren's

Petition for Variance to ensure that the proposal contained sufficient S02 and NO

emission

limitations to offset any increase in emissions as a result of relief from the S02 emission rate for

2013 through 2014 under the MPS. In fact, IEP A in that proceeding agreed that the proposed

S02 and NO

emission rates in Ameren's proposed amendment actually confer, in the Agency's

own words, a "small net environmental benefit."

See

IEPA Recommendation at 10, PCB 09-21,

November 17, 2008.

To assess the overall environmental effect of the revised emission limits under Ameren' s

proposed amendment, IEPA and Ameren evaluated projected mass emissions under the MPS and

5 Ameren notes that the Board denied its Petition for Variance, finding that the relief sought was

permanent relief and that the mechanism of either an adjusted standard or rulemaking was more

appropriate.

See

Opinion and Order of the Board at 16, PCB 09-21, January 22, 2009. Consistent with

the Agency's recommendation

in that variance proceeding

(see

IEPA Recommendation at 17, PCB 09-21,

November

17, 2008) and the Board's Order, Ameren is requesting that relief in this rulemaking docket.

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Electronic Filing - Received, Clerk's Office, February 2, 2009

the proposed amendment over an eleven-year period. From data derived by reports provided by

Ameren, IEP A calculated an average heat input for the Ameren MPS Group from 2010 through

2020 and multiplied that constant value by S02 and NO

emission rates to determine the total

tons

of S02 and NO

for the given period. The total tonnage of S02 and NO

calculated for this

time period assuming Ameren' s compliance with the MPS was then compared with the total

tonnage for S02 and NO

projected under the proposed amendment in order to determine if the

proposed amendment afforded a net environmental benefit. This evaluation, performed in the

fall

of 2008, confirmed that with the additional emission limitations required by IEPA, the

proposed amendment had a net environmental benefit.

As previously mentioned, the projected mass emission calculations required Ameren to

make reasoned decisions regarding the appropriate heat input data and emission rate values used

to develop a representative baseline upon which to evaluate a net environmental benefit. In the

initial analysis, IEP A calculated an average heat input based upon the three highest years

between 2000 and 2007. Accordingly, and in conjunction with this filing, Ameren repeated the

analysis but used updated data to include calendar year 2008 which resulted in a constant

projected heat input

of 340,446,252 mmBtu. This value is based upon an average heat input

reported at Ameren MPS Group units based upon data from certified Continuous Emission

Monitoring System (CEMS) reports for the three highest years from 2000 to 2008. With respect

to emission rates for the baseline MPS calculations, Ameren applied the emission rates utilized

by IEP A in the initial analysis (S02 emission rates

of 0.55

Ibs/mmBtu

for the period between

2010 and 2012, and

NOx emission rates of 0.15

Ibs/mmBtu

for the period between 2010 and

2011) which Ameren believes represented the Agency's proj ected emission rates for Illinois

6 IEPA calculated a net environmental benefit of 842 tons using emission limits under Ameren's

proposed amendment.

-15-

Electronic Filing - Received, Clerk's Office, February 2, 2009

sources operating under the federal Clean Air Interstate Rule ("CAIR"). All other emission rates

used in the baseline calculations reflect emission rates enumerated under the MPS.

important to note that the use

of such emission limits in the baseline calculation is a conservative

approach in that until the compliance periods

of the MPS or the proposed amendment are

triggered, Ameren may lawfully operate its units in accordance with its permits which provide

for emission requirements less stringent than those used in the baseline calculations. However,

had such baseline emission rates been used, the resulting calculations would have demonstrated

an even greater net environmental benefit from Ameren's proposed amendment. As to the mass

emission calculations under Ameren' s proposed amendment, Ameren used the constant heat

input from the baseline MPS calculations, and the S02 and NO

emission rates enumerated under

the proposed amendment which, as compared with the MPS, require earlier emission reductions

beginning in 2010.

The results confirmed Ameren's representation and

IEPA's prior statement that the

proposed amendment would result in a net environmental benefit. The total projected baseline

S02 and NO

emissions from the Ameren MPS Group under the MPS for the period of 2010

through 2020 was calculated at 868,138 tons.

The total projected S02 and NOx emissions for

the same period, but under the proposed amendment, was calculated at 867,287 tons.

Accordingly, the emission rates set forth in Ameren's proposed amendment will reduce the total

S02 and NO

emissions for the period between 2010 and 2020 by 851 tons.

is worth noting

that while the calculations represent mass emissions out to only 2020, should the calculations

have projected further in the future, the net environmental benefit would only have increased.

7 This tonnage value represents both compliance with the MPS and the estimated emissions

occurring between 2010 and 2012 for those emission rates not yet set by the MPS.

-16-

Electronic Filing - Received, Clerk's Office, February 2, 2009

This is because Ameren has committed to a more stringent S02 emission rate beginning in 2017

and continuing thereafter than otherwise required under the MPS.

VII.

CONCLUSION

I respectfully urge the Board to adopt this proposed amendment to the MPS. As some of

the members of this Board will recall, Ameren, in good faith, stepped forward and negotiated a

multi-pollutant approach that it thought would provide resolution to a contentious proceeding.

The commitment to a multi-pollutant approach - unlike anything

of its kind at the state or federal

level - did carry its risks due to the prescribed nature

of the very terms of the regulation.

Ameren, however, has considered its original negotiations in the proposed approach, but I stress

that external conditions have changed the amount

of risk and Ameren' s ultimate ability to

comply with the original approach.

A single element

of the MPS is no longer economically reasonable for Ameren, and

Ameren asks this Board to consider carefully the current state

of affairs and Ameren's hard work

towards restructuring a proposed amendment that does not just seek a change but provides an

environmental benefit to the state. I will conclude by stating that the amendment is economically

reasonable and technically feasible, and its promulgation will produce a net environmental

benefit for the state.

I conferred with Steven

C. Whitworth, Darrell E. Hughes and Anthony

Artman,

employees of Ameren, in developing my testimony. In addition, I also conferred with Gary M.

Rygh, Senior Vice President of Barclays Capital, Inc. in developing the economic portions of my

testimony. These individuals are present with me to answer any questions on my testimony.

Thank you for the opportunity to address this Board.

-17-

Electronic Filing - Received, Clerk's Office, February 2, 2009

Attachment A

Ameren’s Proposed Amendment vs. MPS Requirements:

Emission Limits and Compliance Dates

Year

Proposed Amendment

MPS

Proposed Amendment

MPS

Note: All numerical values are in lbs/mmBtu.

Ameren’s proposed amendment requests relief from the MPS only during calendar years

2013 and 2014, and only for the SO

emission rate.

Ameren’s SO

emission limit under the proposed amendment beginning in calendar year

2017 continues on in each calendar year thereafter.

Electronic Filing - Received, Clerk's Office, February 2, 2009

ATTACHMENT B

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

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

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.

December 11, 2008

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)

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

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.

December 11, 2008

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

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

Americas: Utilities: Power

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

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

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.

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

Americas: Utilities: Power

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

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

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.

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

Americas: Utilities: Power

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.

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

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.

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

Americas: Utilities: Power

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.

December 11, 2008

Americas: Utilities: Power

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.

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

Americas: Utilities: Power

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.

Electronic Filing - Received, Clerk's Office, February 2, 2009

December 11, 2008

Americas: Utilities: Power

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, February 2, 2009

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, February 2, 2009

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.

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, February 2, 2009

December 11, 2008

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, February 2, 2009

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, February 2, 2009

December 11, 2008

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.

December 11, 2008

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.

December 11, 2008

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, February 2, 2009

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, February 2, 2009

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

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.

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.

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, February 2, 2009

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.

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, February 2, 2009

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.

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:

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.

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.

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, February 2, 2009

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, February 2, 2009

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, February 2, 2009

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, February 2, 2009

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, February 2, 2009

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, February 2, 2009

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

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

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.

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, February 2, 2009

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, February 2, 2009

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.

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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.

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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.

December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

Price target and rating history chart(s)

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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.

December 11, 2008

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

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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

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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

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December 11, 2008

Americas: Utilities: Power

Goldman Sachs Global Investment Research

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Attachment C

Summary of Existing Pollution Control Equipment

Ameren Energy Generating Company

AmerenEnergy Resources Generating Company

Electric Energy, Inc.