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TARGET ROCK ADVISORS, LLC

TARGET ROCK ADVISORS, LLC. Electric Utility Sustainable Practices & the Cost of Capital: California Experience. 45 th Financial Forum Richard J. Rudden Society of Utility and Regulatory Financial Analysis Managing Partner Indianapolis, Indiana Target Rock Advisors, LLC

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TARGET ROCK ADVISORS, LLC

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  1. TARGET ROCK ADVISORS, LLC Electric Utility Sustainable Practices & the Cost of Capital: California Experience 45th Financial Forum Richard J. Rudden Society of Utility and Regulatory Financial Analysis Managing Partner Indianapolis, Indiana Target Rock Advisors, LLC April 19, 2013

  2. What is Enterprise Sustainability? The ability of an enterprise to endure in an environmentally and socio-economically responsible way. A values-based framework for planning and operations using integrated “triple bottom line” principles, i.e. balanced consideration of economic, environmental and social factors. To date, sustainability has been defined mostly in the context of specific programs and projects, e.g., renewables, energy efficiency and DSM. Target Rock considers sustainability at the organizational level.

  3. Vision Without Execution is Hallucination Albert Einstein Few utilities have bridged the vision of sustainability with itsexecution across all three TBL dimensions.

  4. Sustainability Cannot Exist Without an Integrated Strategic Planning Process That: • Focuses on enterprise sustainability as the unifying thread • Hard-codes TBL performance indicators into strategic objectives • Is long-term (e.g., 10 years) in nature and updated frequently • Is transparent and open to all stakeholders • Avoids masking the unpleasant truths • Considersfull supply chain and life-cycle factors • Aligns compensation with sustainability goals

  5. Sustainable Enterprises Can Deliver Long Term Value to All Stakeholders… • Customer satisfaction and brand value • Improved operating efficiency, lower costs and lower rates • Employee engagement • Customer savings through energy efficiency, distributed renewables • Reduced risks for renewable energy developers and owners • Reduced resource depletion • Better stock performance and lower cost of capital Costs and benefits must be allocated equitably among all stakeholders, or the system will become unsustainable.

  6. Sustainability Drives Stock Market PerformanceA Working Hypothesis

  7. Sustainability Drives Stock Market PerformanceA Working Hypothesis (cont’d)

  8. Should Utility Cost of Capital be Reduced in Rate Cases? – Some Considerations • Sustainability vs. rate case time horizons • Management incentives • Limits of sector-specific research • Index vs. individual company results • Analytical co-variables: size premium, good management • Relationship of authorized and realized ROE’s • Asymmetrical allocation of benefits among stakeholders

  9. Thank you. • Target Rock Advisors, LLC • 150 Vanderbilt Motor Parkway, Suite 401 • Hauppauge, NY 11788

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