North America Power & Utilities "June Equity Income Fund Inflows" Appicelli

Research evidence excerpt

North America Power & Utilities "June Equity Income Fund Inflows" Appicelli

Valuation Method and Risk Statement

North America Utilities: Our valuation methodology for the group is price-to-earnings based.

The adjustments applied fall into 7 categories. These are as follows: 1) Group Valuation Bias:

Flowing from our valuation work comparing Baa corporate yields to group dividend yields and

RU price-to-earnings ratios to those for the S&P 500, we incorporate a positive or negative

adjustment to our group multiple representing the gap we calculate to the nearest 5%; 2)

Growth Adjustment: We adjust our valuations based on the growth quartile each utility

occupies. First quartile receives a 4% premium, second quartile a 2% premium, third quartile

a 2% discount and fourth quartile a 4% discount; 3) Regulatory Adjustment: Our valuation

adjustments for regulation are based on our proprietary Regulatory Rankings. First quartile

jurisdictions receive 6%, second quartile 2%, third quartile -2% and fourth quartile -6%; 4)

Affordability: Valuations are adjusted based on energy burden over time in coverage areas.

First quintile receives a 2% premium, second quintile 1%, third quintile 0%, fourth quintile

-1%, and fifth quintile -2%; 5) Earnings Consistency Adjustment: We assign premiums/

discounts to reflect our views on track records, management execution and risks to the

business plans; 6) Multi Utility Diversified Valuation: For multi utilities (those with more than

15% of unregulated earnings), we perform a sum-of-the-parts analysis applying business/

region appropriate valuations to those diversified businesses; 7) One-off Adjustments: In

special situations, we value risk on an issue-specific basis. Common areas where we apply