Conversion to Solar Power from Nuclear Creates Extraordinary Profits for California Conventional Utilities: Top Picks from Hugh Wynne, a Senior Research Analyst at Sanford C. Bernstein & Co., LLC, and a Senior Vice President of AllianceBernstein

Wall Street Transcript

67 WALL STREET, New York - February 28, 2014 - The Wall Street Transcript has just published its Alternative Energy & Utilities Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Outlook for Biofuels and Biochemicals - Asia Pacific Demand for Solar Energy - Grid Parity Timelines for Alternative Energy - Solar Energy Pricing - Government Subsidies and Regulation - Solar Growth Drivers and Headwinds - Regulatory Headwinds for U.S. Utilities

Companies include: American Electric Power Co., (AEP), Dominion Resources, Inc. (D), Duke Energy Corp. (DUK), Edison International (EIX), Exelon Corp. (EXC), Firstenergy Corp. (FE), PG & E Corp. (PCG), Dynegy Inc. (DYN), Calpine Corp. (CPN), NRG Energy, Inc. (NRG), Ameren Corporation (AEE) and many others.

In the following excerpt from the Alternative Energy & Utilities Report, a Sanford Bernstein expert analyst discusses his current top picks for the sector for investors:

TWST: You've got "outperform" ratings on two of the utilities. Can you discuss each of those, and tell us why you think owning them this year is a good idea?

Mr. Wynne: The stocks that I like right now are ones where I think you have access to a high-quality utility franchise at a discount to its fair value and where there is some short- to medium-term catalyst for that discount to go away. The two stocks on which I have "outperforms" are Edison International and PG&E, and the situation is broadly similar in both.

California historically has offered one of the most constructive regulatory environments in the nation, allowing utilities in the state historically to achieve or even exceed their allowed ROEs, whereas on average across the country, as I mentioned, the industry has tended to under-earn its allowed ROE by about 100 basis points in the last decade. Secondly, the rate base growth expectations for electric utilities in California are quite high; they are about 8% at both PG&E and Edison International, whereas nationally rate base growth is expected to be materially slower, like 5%. So in an industry where the name of the game is putting capital to work at returns well in excess of its cost and doing so as rapidly as possible, a combination of 8% rate base growth and realized returns on equity that exceed allowed returns is exactly what you are looking for; so from my view these are attractive franchises, and when they are well-run as Edison International is, they are particularly attractive.

So both Edison International and PG&E right now are trading at material discounts to where their peers trade. I think that discount is perhaps most evident in the case of Edison, but it's probably about 15% in both companies' cases. And the reason for those discounts is an overhang of regulatory uncertainty, in the case of PG&E with respect to the penalty for the San Bruno gas pipeline explosion, and in the case of Edison the shutdown of its San Onofre nuclear power plant. We basically think that these discounts compensate and indeed materially overcompensate for the risk of those two regulatory overhangs...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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