Caprateratereport by oconnorassociate

Date: May 17, 2017 From: Cynthia Rowley, Director – Property Tax Division Subject: Capitalization Rate Study The Property Tax Division of the Minnesota Department of Revenue is responsible for the assessment of utility, pipeline, and railroad operating property. We complete a Capitalization Rate Study each year. The rates developed in the study are used as part of the valuations of these properties. We welcomed partners from utility, pipeline and railroad companies to the department’s Spring Forum on March 8, 2017. They shared industry‐specific insight at the Forum. We posted the initial Capitalization Rate Study on April 20, 2017 and welcomed comments until April 28, 2017. We appreciated the comments we received. The comments were thoughtful and provided us with additional ideas for the Study. We apologize for the brief comment period. We remain committed to providing as much time for comments as possible, but we need to be aware of our statutory deadlines. We revised the Study after we reviewed your comments.

Who can I contact with questions? Holly Soderbeck, State Assessed Property Section, Property Tax Division 651‐556‐6119, sa.property@state.mn.us Sincerely,

Cynthia Rowley, Director Property Tax Division

600 N. Robert St., St. Paul, MN 55146 www.revenue.state.mn.us

An equal opportunity employer This material is available in alternate formats.

2017 Capitalization Rate Study, Revised Assessment Year 2017

Property Tax Division Minnesota Department of Revenue Revised May 17, 2017

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Introduction

Table of Contents Introduction .............................................................................................................................................4 Yield Capitalization Rate.........................................................................................................................5 Guideline Companies

Market Rate of Equity

Capital Asset Pricing Model (CAPM)

Empirical Capital Asset Pricing Model

Build-Up Model

Dividend Growth Model (DGM)

Multi-Stage Dividend Growth Model (Multi-Stage DGM)

Market Rate of Debt

Market Rate of Preferred Stock

Direct Capitalization Rate ..................................................................................................................... 12 Guideline Companies

Equity Component

Debt Component

Flotation Costs....................................................................................................................................... 13 Company-Specific Risk ......................................................................................................................... 14 Illiquidity ............................................................................................................................................... 15 Growth ................................................................................................................................................... 15 Short-Term Growth Rate

Long-Term Growth Rate

Inflation

Market-to-Book Ratios .......................................................................................................................... 18 State Assessed Property Spring Forum ................................................................................................. 18 Revision Comments .............................................................................................................................. 19 Cost of Debt

Cost of Equity

Illiquidity

Flotation Costs

Value Line Investment Survey Report Dates

Studies Completed by Others

Direct Capitalization Rates

Questions? ............................................................................................................................................. 22 Appendix A – Electric ............................................................................................................................. A-1 Appendix B – Gas Distribution ............................................................................................................... B-1 Appendix C – Gas Transmission Pipeline .............................................................................................. C-1 Appendix D – Fluid Transportation Pipeline .......................................................................................... D-1 Page | 2

Introduction

Appendix E – Class I Railroads and Other Railroads ..............................................................................E-1 Appendix F – Ex Ante Calculation .......................................................................................................... F-1 Appendix G – Guideline Company Addendum ...................................................................................... G-1 Appendix H – Comparison of Studies ..................................................................................................... H-1

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Introduction

Introduction The Minnesota Department of Revenue is responsible for the assessment of utility, pipeline, and railroad operating property. The department considers these market segments State Assessed Property. The department completes this study to determine unitary valuations of State Assessed Property in Minnesota. The department’s Property Tax Division assesses these properties, in part, using the income approach to valuation. The income capitalization approach measures the present value of the anticipated future benefits of property ownership. There are two methods of income capitalization: direct and yield capitalization.1  Yield capitalization calculates the net present value of the anticipated future income by discounting cash flows using the yield rate.  Direct capitalization converts an estimate of a single year’s net operating income expectancy into an indication of value for the subject property. This conversion is based on the market-observed relationship between an income level and market value. Under the income approach, yield capitalization rates are used in yield capitalization models and direct capitalization rates are used in direct capitalization models. The table below summarizes the rates derived from this study, by market segment. Market Segments

Yield Capitalization Rate

Direct Capitalization Rate

Implied Growth Rate 2

Short‐Term Growth Rate 3

Long‐Term Growth Rate 4

Implied Inflation Rate 5

Electric

7.13%

5.20%

1.93%

5.38%

2.60%

1.57%

Gas Distribution

6.81%

4.70%

2.11%

5.25%

2.60%

1.57%

Gas Transmission Pipeline

8.96%

7.11%

1.85%

7.74%

2.60%

1.57%

Fluid Transportation Pipeline

10.08%

7.21%

2.87%

8.97%

2.60%

1.57%

Class I Railroads

9.16%

5.38%

3.78%

8.75%

2.60%

1.57%

Other Railroads

9.78%

6.00%

3.78%

6.50%

2.60%

1.57%

The band of investment method is used for both the yield capitalization and direct capitalization rates. This method calculates the combined rate of the debt and equity components using the capital structure indicated by the market. The table below shows an example of the band of investment method:

Debt Equity

Capital Structure 50% 50%

× × ×

Market Rate 6% 10% Combined Rate

= = = =

Weighted Rate 3% 5% 8%

Appraisal Institute (2013). The Appraisal of Real Estate, 14th Edition, Page 46 2 This is the difference between the yield capitalization rate and the direct capitalization rate for each market segment. 3 Mean five-year growth rates from Yahoo! Finance for Gas Transmission Pipeline and Fluid Transportation Pipeline. Mean growth rates from five year projected earnings growth Value Line Investment for Electric, Gas Distribution, Class I Railroads, and Other Railroads. 4 This is the estimated long-term growth rate of the United States Economy, explained in further detail in the Growth section of this narrative. 5 See the Inflation Section 1

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Introduction

Yield Capitalization Rate The yield capitalization model is based on the premise that the value of a property is equivalent to the present value of all future benefits.6 Yield capitalization calculates the present value of the anticipated future income by discounting cash flows using the yield rate (Y0). The present value of future benefits as of the assessment date is what the current owner would be giving up by selling the property and what the new owner would be receiving by purchasing the property. Key – Variables used in equations Discounted Cash Flows is the most sophisticated form of yield capitalization and is used when explicit forecasts of net cash flows (NCF) are available and when these forecasts show that the rate of change in the cash flows is not constant. Net cash flows are equal to net operating income (NOI) plus non-cash expenses minus capital expenditures minus change in working capital. Net operating income is an after-tax accounting income prior to any deductions for interest or dividends. Net operating income includes an expense for actual income taxes paid or imputed income taxes paid if the company does not pay income taxes at the operating level.

Yield Rate for Current Assessment Period

NCF

Net Cash Flows

NCF1 Net Cash Flows for Next Period n

nth Period

Expected long‐term growth rate in net cash flows

NOI

Net Operating Income

Value = NCF1 / (1+Y0)1 + NCF2 / (1+Y0)2 + NCF3 / (1+Y0)3 + … + NCFn / (1+Y0)n Because explicit forecasts of cash flows are generally not made into perpetuity, after the period of explicit forecasts the assumption is made that the growth rate will become stable and a long-term growth rate (g) is applied to the cash flows into perpetuity. This step is called the reversion. The formula below shows three periods of explicit forecasts followed by the reversion. Value = NCF1 / (1+Y0)1 + NCF2 / (1+Y0)2 + NCF3 / (1+Y0)3 + ((NCF3 * (1+g)/ (Y0-g)) / (1+Y0)3) Stable Growth Yield Capitalization is used when explicit forecasts of net cash flows are not available or when the forecasted growth in net cash flows is stable. This model is simplified, but is mathematically identical to the Discounted Cash Flows model when the forecasted growth rate (g) is constant. Value = NCF1 / (Y0 – g) 1 A version of this model – that assumes that the constant growth rate is 0%, which means that the income with remain the same over time – is called a Zero Percent Stable Growth Yield Capitalization Model. Value = NCF1 / (Y0– 0%)1 If the further assumption is made that the net cash flows will be equal to the net operating income – which means that depreciation will be equal to capital expenditures over time – the formula becomes: Value = NOI1 / (Y0– 0%)1 This model assumes 0% growth into perpetuity.

Western States Association of Tax Administrators, (2009). Appraisal Handbook – Unit Valuation of Centrally Assessed Properties, Page III-13

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Yield Capitalization Rate

Guideline Companies The department reviews the Standard Industrial Classification Code and market segments listed by Value Line Investment Survey when selecting guideline companies. The department began with the Value Line Investment Survey industry because Value Line is a well-respected, widely used publication. Value Line classifies equities into 100 unique industries and groupings. Value Line creates their industries in-house and every company is constantly evaluated to make sure that they are located in the proper sector.7 The department may not have included companies that underwent a merger or acquisition in the previous calendar year or companies that have announced an upcoming merger or acquisition during the current calendar year. The department reviewed possible guideline companies for comparability in their market segments to the companies doing business in Minnesota. See the Guideline Company Selection beginning on page G-1 for details on the companies reviewed for each market segment.

Market Rate of Equity The department used the Capital Asset Pricing Model (CAPM) and the Dividend Growth Model (DGM) to determine the market rate of equity for each market segment. The Build-Up Model was also considered. The market rate of equity for each market segment was selected after considering five different CAPM’s and two different DGM’s. The models allowed the department to establish a range of acceptability. The department arrived at the indicated rate of equity by placing the most reliance on the Dividend Growth Model, using earnings growth, and secondary reliance on Dr. Aswath Damodaran’s forward-looking model and the Ex Post model. The department explains these models in more detail below.

Capital Asset Pricing Model (CAPM) The CAPM is based on the theory that all investors will independently optimize their portfolios. The expected return on an asset is related to its risk. The department uses this model to determine the market rate of equity. The department used the U.S. Treasury 20-year coupon bond yield as of December 30, 2016, as the risk-free rate in the CAPM. It also uses a market specific beta that is calculated using data from the Value Line Investment Survey. Risk Free Rate The risk-free rate reflects the actual market conditions as of the assessment date of January 2, 2017. According to Ben Bernanke, “Low interest rates are not a short-term aberration, but part of a long-term trend.” He continued that the Federal Reserve is keeping the interest rates low, only in a very narrow sense, and stated, “The Fed’s [Federal Reserve] ability to affect real rates of return, especially longer-term real rates, is transitory and limited.”8 Damodaran also spoke on the subject, stating, “There is only one rate that the Federal Reserve sets, and it is the Fed Funds rate. It is the rate at which banks trade funds, that they hold at the Federal Reserve, with each other.” He goes on to say, “interest rates in the U.S. (and Europe) have been low because inflation has been non-existent and real growth has been anemic.”9

Severo Nieves, (9 March 2016). Value Line Institutional Services, Institutional Sales & Marketing, Analyst, email Bernanke, Ben. (30 March 2015). “Why are interest rates so low?” Retrieved from http://www.brookings.edu/blogs/benbernanke/posts/2015/03/30-why-interest-rates-so-low. 9 Damodaran, Aswath, Dr. (4 September 2015). “The Fed, interest rates, and stock prices: fighting the fear factor.” Retrieved from http://aswathdamodaran.blogspot.com/2015/09/the-fed-interest-rates-and-stock-prices.html. 7 8

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Capital Asset Pricing Model

As provided by Damodaran, “In the long term, the real riskless rate will converge on the real growth rate of the economy and the nominal riskless rate will approach the nominal growth rate of the economy.… A simple rule of thumb on the stable growth rate is that it should not exceed the riskless rate used in the valuation”10. Beta The beta selected for each market segment indicates the market segment’s risk relative to the market. The effects of unlevering and relevering guideline companies’ betas for the selected capital structure for each market segment were analyzed. The income tax liability data was not reliable for Gas Transmission Pipeline or Fluid Transportation Pipeline companies because the companies are limited partnerships and most or all of the income tax liability is “passed-through” to the shareholders. See each market segment’s Beta Analysis page in the appendices for more information on how the department arrived at the indicated beta. Equity Risk Premium The equity risk premium, as defined by Shannon Pratt and Roger Grabowski, is the extra return over the expected yield on risk-free securities that investors expect to receive from an investment in a diversified portfolio of common stocks.11 Bradford Cornell has a similar definition for the equity risk premium, noting it is the difference between the return on common stock and the return on government securities.12 As provided by Damodaran, “Broadly speaking, there are two ways of estimating equity risk premiums, with the first being a historical premium estimated by looking at the difference between past returns on stocks and the risk free investment and the second being a forward looking estimate, where you back out from stock prices what investors are building in as an expected return on stocks in the future.”13 The department reviewed five different calculations of the equity risk premium: Ex Post, long-term expected equity risk premium from Duff & Phelps Annual Valuation Handbook: Guide to Cost of Capital Supply Side, long-term expected equity returns forecasted by the use of supply side models from Duff & Phelps Annual Valuation Handbook: Guide to Cost of Capital Ex Ante, forward looking model using a three-stage dividend growth model of the Standard & Poor’s 500 Damodaran, forward looking equity risk premium as calculated by Dr. Aswath Damodaran, Professor of Finance at the Stern School of Business at New York University Duff & Phelps, recommended equity risk premium (conditional). The Duff & Phelps recommended equity risk premium was developed in relation to (and should be used in conjunction with) a 3.50% “normalized” risk-free rate.14

10 Damodaran, A. Chapter 2, Intrinsic Valuation, Page 32, Retrieved from http://people.stern.nyu.edu/adamodar/pdfiles/DSV2/Ch2.pdf th 11 Pratt, Shannon and Grabowski, Roger, (2010). Cost of Capital Applications and Examples, 4 Ed., Pages 115-116 12 Cornell, Bradford, (1999). The Equity Risk Premium, Page 18 13 Damodaran, Aswath, Dr. (April 2016). The Cost of Capital: The Swiss Army Knife of Finance, Page 11. Retrieved from http://people.stern.nyu.edu/adamodar/pdfiles/papers/costofcapital.pdf 14 2016 Valuation Handbook – Guide to Cost of Capital

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Capital Asset Pricing Model

The equity risk premium (RPe) is multiplied by the market segment specific beta (β). The product is then added to the risk-free rate (Rf) to estimate the market rate of equity for the market segment. Market Rate of Equity for Market Segment = (RPe x β) + Rf

Key – Variables used in equations

RPe

Equity risk premium

Risk‐free rate

β Beta Historical risk premiums have high standard errors and they assume that U.S. equity markets will revert to what they have historically delivered as returns. Yet, the difference between annual returns on investments of stocks and the 10-year Treasury Bond as provided by Damodaran have changed significantly over time, as shown in the below chart15: Time Period 1928‐2016 1967‐2016 2007‐2016

Stocks minus 10‐year Treasury Bond 6.24% 4.37% 3.62%

Empirical Capital Asset Pricing Model The Empirical Capital Asset Pricing Model (ECAPM) is modified from the above CAPM Model. The ECAPM applies 25% weight to the equity risk premium component and 75% weight to the beta times the equity risk premium component. This reduces the sensitivity of the cost of equity estimate. According to Steven Kihm, Andrew Satchwell, and Peter Cappers, the model “mutes the sensitivity of the cost of equity estimate to changes in the beta coefficient, consistent with the adjustment suggested by the empirical research.”16 The equity risk premium (RPe) is multiplied by the market segment-specific beta (β) and 75%. The product is then added to the equity risk premium (RPe) multiplied by 25%. The two products and the risk free rate are added tighter to estimate the market rate of equity for the market segment. Market Rate of Equity for Market Segment = (RPe x β x 75%) + (RPe x 25%) + Rf We completed five ECAPM models for each market segment, using the equity risk premiums described in the Capital Asset Pricing Model section above.

Build‐Up Model The Build-Up Model is another model used to estimate the market rate of equity. Some view this as a version of the Capital Asset Pricing Model without specifically incorporating systematic risk.17 A fundamental assumption of the CAPM is that the risk premium portion of a security’s expected return is a function of that security’s systematic risk.18

Damodaran, A. January 2017 Data Update 2: The Resilience of US Equities. January 13, 2017. http://aswathdamodaran.blogspot.in/2017/01/january-2017-data-update-2-resilience.html 16 Kihm, Steven; Satchwell, Andrew; and Cappers, Peter. The Financial Impacts of Declining Investment Opportunities on Electric Utility Shareholders, Electricity Markets & Policy Group, Technical Brief, Page 20 th 17 Pratt, Shannon and Grabowski, Roger, Cost of Capital Applications and Examples, 4 Ed., Page 102 (2010) 18 Ibid, p. 105 15

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Capital Asset Pricing Model

An investor can diversify their portfolio to remove unsystematic risk (market segment-specific risk). Systematic risk (market risk) is the risk related to an Key – Variables used in equations investment return that cannot be eliminated through diversification.19 Equity risk premium RPe In the Build-Up Model, the market rate of equity for the Risk‐free rate Rf market segment is equal to the risk free rate plus the equity Market segment specific risk risk premium plus the risk specific to the market segment for RP premium (unsystematic) U unsystematic risk. Market rate of equity for Market Segment = Rf + RPe + RPu The Build-Up Model can be used when the inputs are not available to complete CAPM. The department was able to complete the CAPM for each market segment and did not need to resort to the Build-Up Model.

Dividend Growth Model (DGM) The department also uses the DGM to determine the market rate of equity. It is based on the theory that the prices paid for a share of stock reflect the investors’ discounted present value of future expected earnings.20 The DGM is a widely used method and is also called the Discounted Cash Flows Model or Gordon Growth Model. The formula for this model is the same as the simplified Discounted Cash Flows Income Model explained above, referred to as Stable Growth Yield Capitalization, using a stable growth rate. Estimating the sustainable growth rate is explored below in this section and the Growth section. Theoretically, the growth estimate in the DGM is the estimated growth in dividends, which are cash flows to equity shareholders after reinvestment. Dividend growth estimates may track earnings growth estimates. However, companies may change dividend payment policies drastically, resulting in large differences between earnings growth estimates and dividend growth estimates. A consensus based on substantial academic literature indicates analysts’ forecasts of earnings take account of all the information provided by more formulaic forecasting rules and incorporate other information as well. “Based on these findings, the most common solution is to assume that the dividend payout rate remains effectively constant and to use analyst forecasts of earnings growth as a proxy for the growth rate of dividends.”21 Another issue that leads the department to question the usefulness and reliability of the dividend growth rate in this model is the trend for U.S. companies to include stock buybacks in their dividend payment policies. This is discussed in detail in the Stock Buybacks section. The formula uses Dividend Yield (DY), which is next year’s expected dividends per share divided by the current market price per share of stock, plus an estimate of growth. Both dividend and earnings growth models were reviewed.

th 19 Keown, Arthur; Martin, John; and Petty, J., Foundations of Finance: The Logic and Practice of Financial Management, 8 Ed., (2014). Page 195 20 Western States Association of Tax Administrators (2009)., Appraisal Handbook – Unit Valuation of Centrally Assessed Properties, Page III-20 21 Cornell, Bradford, (1999). The Equity Risk Premium, Page 105

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Dividend Growth Model

Dividend Growth (DG), analysts’ estimates of dividend growth is used in the model: Market Rate of Equity for Market Segment = DY + DG Earnings Growth (EG), analysts’ estimates of earnings growth is used in the model:

Key – Variables used in equations

Dividend Yield

Dividend Growth

Earnings Growth

Market Rate of Equity for Market Segment = DY + EG Another formulaic expression of the Dividend Growth Model is: KE = D1 / P0 + G1 In this expression, the Cost of Equity is estimated by taking the Dividend Yield (Expected Dividends in the next period divided by the Recent Stock Price) plus expected growth. This model is the same model as the simplified Discounted Cash Flows Income Model that the department referred to as the Stable Growth Yield Capitalization, mentioned above. The formula is stated again here: Value = NCF1 / (Y0 – g).

Key – Variables used in equations

Cost of Equity

Expected Dividends

Recent Stock Price

Proj. 5‐year Growth Rate

Yield Rate for Current Assessment Period

Stable Growth

NCF1

Net Cash Flows for Next Period

Instead of solving for value as the Stable Growth Yield Capitalization Model does, the DGM solves for cost of equity. The dividend and earnings growth rates provided by Value Line Investment Survey were used for the guideline companies for the Railroad, Electric, and Gas Distribution segments. Value Line Investment Survey provides analysts’ estimates of change in earnings and dividends from 2013-2015 to 2019-2021. Guideline companies for the Gas Transmission Pipeline and Fluid Transportation Pipeline segments did not have sufficient data provided by Value Line for earnings or dividends growth rates. As a result, the growth estimate for the next five years as provided by Yahoo! Finance was used. There is less information available for earnings growth and dividend growth estimates in the Gas Transmission Pipeline and Fluid Transportation Pipeline market segments, causing concern about the reliability of these estimates. See each market segment’s Dividend Growth Model page in the appendices for more information on how the department arrived at the indicated rate. The growth rate used in the DGM is a short-term growth rate, typically much higher than the growth rate of the U.S. economy. This model is used to calculate value of a company into perpetuity. It is not possible for a company to grow at a growth rate higher than the U.S. economy in the long-term. According to Damodaran, “the amount of cash that U.S. companies are returning to stockholders is unstainable, given the earnings and expectations of growth.”22 Pratt and Grabowski also state, “Long-term growth rates 22 Damodaran, A. January 2017 Data Update 9: Dividends and Buybacks Damodaran, February 6, 2017. http://aswathdamodaran.blogspot.com/2017/02/january-2017-data-update-9-

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Dividend Growth Model

exceeding the real growth in GDP [Gross Domestic Product] plus inflation are generally not sustainable.”23

Multi‐Stage Dividend Growth Model (Multi‐Stage DGM) The department completed a multi-stage dividend growth model to account for the short-term growth estimates available. Unlike the DGM discussed in the previous section, the multi-stage dividend growth model assumes that growth is not constant. This allows the department to use analysts’ short-term growth estimates and the Key – Variables used in equations long-term, sustainable growth estimate. KE Cost of Equity David Parcell (2010) provides the following multi-stage DGM formula in The Cost of Capital – A Practitioner’s Guide, published by the Society of Utility and Regulatory Financial Analysts: KE = (D1 / P0) + 0.67(G1) + 0.33(g)

Expected Dividends

Recent Stock Price

Projected 5‐year Growth Rate

Average of G1 and g

Stable Growth

Stock Buybacks A company’s net income represents income that the company can reinvest or distribute to its owners.24 Dividends are often considered the primary approach for publicly traded firms to return cash or assets to their shareholders. However, companies can also return cash to their stockholders through stock buybacks – buying back outstanding stock in the firm and reduce the number of shares outstanding.25 Because a company cannot act as its own shareholder, the company absorbs repurchased shares, and the number of outstanding shares on the market is reduced. This increases the relative ownership stake of each investor because there are fewer shares, or claims, on the earnings of the company.26 The amount of cash that U.S. companies are returning to stockholders is unsustainable, given the earnings and expectations of growth. In 2015 and 2016, the companies in the S&P 500 returned more than 100% of earnings to investors.27 Given the trend of U.S. companies to include stock buybacks in their dividend payment policies, the department questions the reliability of the expected dividends and expected dividend growth rate inputs of the Dividend Growth Model (DGM).

Market Rate of Debt The department used the Corporate Bond Yield Averages for Public Utility Bonds from Mergent Bond Record to estimate the market rate of debt for each company used as a guideline company for the Electric, Gas Distribution, Gas Transmission Pipeline, and Fluid Transportation Pipeline market segments.

dividends.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FpHUuM+%28Musing s+on+Markets%29 th 23 Pratt, Shannon and Grabowski, Roger, (2010). Cost of Capital Applications and Examples, 4 Ed., Page 681 24 Keown, Arthur; Martin, John; and Petty, J., (2014). Foundations of Finance: The Logic and Practice of Financial Management, 8th Ed., Page 53 th 25 Damodaran, Aswath, Dr. (2015). Applied Corporate Finance, 4 Ed., Page 439 26 http://www.investopedia.com/articles/02/041702.asp 27 Damodaran, Aswath, Dr. (2017, February 06). January 2017 Data Update 9: Dividends and Buybacks. Retrieved February 06, 2017, from http://aswathdamodaran.blogspot.com/2017/02/january-2017-data-update-9dividends.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A%2Bblogspot%2FpHUuM%2B%28 Musings%2Bon%2BMarkets%29

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Dividend Growth Model

The department used the Corporate Bond Yield Averages for Industrial Bonds from Mergent Bond Record to estimate the market rate of debt for each company used as a guideline company for the Railroad market segments. The department considered using the yield to maturity of the guideline companies for selecting the cost of debt for each market segment. The department compiled and reviewed data from S&P Capital IQ McGraw Hill Financial. However, the data was not available for several guideline companies. Given that the data was incomplete, the department will use the bond yield averages from Mergent Bond Record for the 2017 assessment. The department will continue to research additional sources for future assessments. In previous years, the department used a pre-tax cost of debt. The department will continue to review use of an after-tax cost of debt. See each market segment’s Indicated Rate of Debt page for more information on how the department arrived at the indicated rate of debt.

Market Rate of Preferred Stock Preferred stock makes up a minimal percentage of the capital structure for all market segments. The amount of capital structure attributable to preferred stock was not materially significant and was not included in indicated capital structure for each market segment.

Direct Capitalization Rate Direct capitalization is used to convert an estimate of a single year’s net operating income expectancy into an indication of value in one direct step.28 The direct rate (D0) is an expression of the market observed relationship between price and income.

Key – Variables used in equations

Direct Capitalization Rate

NOI1

Net Operating Income for the next year

Value Market Value This market observed direct rate is applied to the net operating income (NOI) of the property to indicate the market value (value). Value = NOI1 / D0

Guideline Companies The Standard Industrial Classification Code and market segments listed by Value Line Investment Survey were used when selecting guideline companies. The department began with the Value Line Investment Survey industry because Value Line is a well-respected, widely used publication. Value Line classifies equities into 100 unique industries and groupings. Their industries are created in-house and every company is constantly evaluated to make sure that they are located in the proper sector.29 Companies that underwent a merger or acquisition in the previous calendar year or companies that have announced an upcoming merger or acquisition during the current calendar year may have been excluded.

28 Western States Association of Tax Administrators (2009). Appraisal Handbook – Unit Valuation of Centrally Assessed Properties, Page III-8 29 Severo Nieves, Value Line Institutional Services, Institutional Sales & Marketing Analyst, email dated March 9, 2016

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Public Comment

Possible guideline companies were reviewed for comparability in their market segments to the companies doing business in Minnesota. See the Guideline Company Selection beginning on page G-1 for more detail on the companies reviewed for each market segment.

Equity Component An inverse of the Price to Earnings (P/E) Ratio is used to estimate the equity component in the direct rate. The Price to Earnings Ratio (P/E Ratio) as calculated by Value Line Investment Survey was used. The Trailing P/E Ratio as calculated by Value Line Investment Survey was used if the P/E Ratio was not calculated. The P/E ratio most indicative of the market segment data was selected. The inverse of the selected ratio is the equity component of the direct capitalization rate. The P/E Ratios for the Fluid Transmission Pipelines and the Gas Transmission Pipelines were adjusted for income tax because the P/E Ratio for those companies did not include income taxes due to the nature of their legal organization type. The marginal tax rate used for imputing income taxes was 35.0%.30 The P/E Ratio was not adjusted for income taxes for Electric, Gas Distribution, Class I Railroads, or Other Railroads because those guideline companies’ P/E Ratios were already adjusted for income taxes. See each market segment’s Direct Equity Component page for more information on how the department arrived at the indicated equity component.

Debt Component The department used the Corporate Bond Yield Averages for Public Utility Bonds from Mergent Bond Record to estimate the market rate of debt for each company used as a guideline company for the Electric, Gas Distribution, Gas Transmission Pipeline, and Fluid Transportation Pipeline market segments. The department used the Corporate Bond Yield Averages for Industrial Bonds from Mergent Bond Record to estimate the market rate of debt for each company used as a guideline company for the Railroad market segments. The department considered using the current yield of the guideline companies for selecting the cost of debt for each market segment. The department compiled and reviewed data from S&P Capital IQ McGraw Hill Financial. However, the data was not available for several guideline companies. Given that the data was incomplete, the department will use the bond yield averages from Mergent Bond Record for the 2016 assessment. The department will continue to research additional sources for future assessments. In previous years, the department used a pre-tax cost of debt. The department will continue to review use of an after-tax cost of debt. See each market segment’s Indicated Rate of Debt page in the appendices for more information on how the department arrived at the indicated rate of debt.

Flotation Costs

Flotation costs are costs incurred when a company issues a new security, including fees to an investment banker, legal fees, accounting, and other out of pocket expenses. The market-determined opportunity cost 30 Organization for Economic Co-Operation and Development, (2017). OECD StatExtracts, Table II.1. Corporate income tax rate, http://stats.oecd.org//Index.aspx?QueryId=58204#, downloaded March 8, 2017

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Public Comment

of capital is not affected by the flotation costs of a particular firm.31 The correct procedure for the economic analysis of flotation costs does not alter the weighted average cost of capital.32 The yield rates and direct rates in this study are market derived, using market data. Unlike for determining allowable rates of return in rate cases, the recovery of previously incurred costs is not added to the yield rates or direct rates used for estimating market value. The yield rate and direct rate are not recovery mechanisms for the costs of doing business. Flotation cost adjustments were not made to the yield rate or direct rate in this study. Dr. Richard Simonds stated in his paper published in the Journal of Property Tax Assessment & Administration, “When capitalizing net operating income in the income approach, a flotation-cost adjustment cannot be applied to the cost of capital. Advocates of an adjustment may be confusing the concept of the allowed rate of return on invested capital in a rate-regulated environment with the concept of the market-determined opportunity cost of capital.”33 Thomas Copeland and Fred Weston find that adjusting for flotation costs in the rate of return is incorrect because it implicitly adjusts the opportunity cost of funds supplied to the firm. The true marketdetermined opportunity cost is unaffected by the flotation costs of a particular firm.34

Company‐Specific Risk The department does not include an adjustment for company-specific risk or a size premium adjustment for a specific company. The department estimates the market cost of capital for each market segment, per Minnesota Rules 8100 and 8106. The department does not agree with a size premium adjustment based on the average market capitalization size of the guideline companies and does not find this to be generally accepted practice. Damodaran points out several reasons why a size adjustment to the CAPM is not appropriate, concluding that the empirical evidence is not as conclusive as it was initially thought to be.35 He also finds that forward-looking risk premiums are yielding no premiums for small cap [market capitalization] stocks and much of the additional risk is either diversifiable or double counted.36 Eugene Fama and Kenneth French analyzed size premiums of companies that move to different market capitalizations and found, “the size premium is almost entirely a result of the extreme positive returns of small-cap [market capitalization] stocks that move to a big-cap [market capitalization] portfolio from one year to the next.”37

31 Western States Association of Tax Administrators, (2009). Appraisal Handbook – Unit Valuation of Centrally Assessed Properties, Page III-31 rd 32 Copeland, Thomas E., & Weston, Fred J. (1988). Financial Theory and Corporate Policy (3 ed.). Addison-Wesley Publishing Company. 33 Simonds, Richard R., Dr. (2006). “Income Capitalization, Flotation Costs, and the Cost of Capital.” Journal of Property Tax Assessment & Administration, Volume 3, Issue 4. rd 34 Copeland, Thomas E. & Weston, Fred J. (1988). Financial Theory and Corporate Policy (3 ed.) Addison-Wesley Publishing Company. Page 534 35 Damodaran, Aswath, Dr. “Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2011 Edition.” Retrieved from: http://people.stern.nyu.edu/adamodar/pdfiles/papers/ERP2011.pdf ,36 Damodaran, Aswath, Dr. (11 April 2015). “The small cap premium: Where is the beef?” Retrieved from: http://aswathdamodaran.blogspot.com/2015/04/the-small-cap-premium-fact-fiction-and.html. 37 Fama, Eugene F. and French, Kenneth R. (2007). “Migration.” Financial Analysts Journal, Volume 63, Number 3. CFA Institute.

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Public Comment

Illiquidity The department does not adjust capitalization rates for illiquidity. As the Appraisal of Real Estate (2013) explains: “A discount rate reflects the relationship between income and the value that a market will attribute to that income. The financial and economic concepts implicitly in a discount rate are complex and have been the subject of significant analysis for more than a century. Although four key components can be identified within a discount rate – the safe rate plus considerations of illiquidity, management, and various risks – a discount rate that is constructed by adding allowances for these components can be misleading and inaccurate” (p. 458).38 The above referenced quote from the Appraisal of Real Estate is in Chapter 21, The Income Capitalization Approach. The resource further discusses the Direct and Yield methods in Chapters 23 and 24, respectively.

Growth The importance of the growth rate is that it affects the yield model, explained in the Yield Capitalization Rate section. Minnesota Rules, 8100 and 8106 imply a Zero Percent Growth Yield model. If the assumption that income streams remain equal over time is incorrect, the model may not accurately indicate the market value of the company. For a company with a changing income streams, a Discounted Cash Flows model or Stable Growth Yield model may better at estimating the value for the company under review. The Discounted Cash Flows model uses explicit forecasts of income and expenses for each period. These inputs can be estimated if they are not made available. The Implied Growth Rate is the difference between the yield rate and the direct rate. The direct rate is the relationship between an estimate of a single year’s net operating income and the value of the property, while the yield rate converts income from future periods into present value. The Western States Association of Tax Administrators Appraisal Handbook states, “direct capitalization is not affected by the appraiser’s view of the future income.”39 In addition, Unit Valuation Insights states, “The direct capitalization rate is typically calculated as the yield capitalization rate minus an expected long-term growth rate.”40

Short‐Term Growth Rate The department reviewed short-term growth rates from several sources to derive an estimate of a shortterm growth rate for each market segment. Business news service Reuters provides analysts’ estimates of market segment earnings per share growth. The estimates for the next five years for the industry (as of January 17, 2017) are as follows: Electric 9.88%

Gas Distribution ‐8.97%

Gas Transmission Pipeline 7.49%

Fluid Transportation Pipeline 7.49%

Class I Railroads

Other Railroads

8.96%

Appraisal Institute (2013). The Appraisal of Real Estate, 14th Edition, Page 458 39 Ibid., Page III-9 40 Schweihs, Robert P. & Reilly, Robert F. (Spring 2014). Unit Valuation Insights, Issues Related to the Unit Valuation Principle, Page 77 38

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Public Comment

Value Line Investment Survey provides analysts’ estimates of change in earnings and dividends from 2013-2015 to 2019-2021. Gas Transmission Pipeline and Fluid Transportation Pipeline segments did not have sufficient data provided by Value Line for earnings or dividends growth rates. The average growth rates provided by Value Line Investment Survey are as follows: Electric

Gas Distribution

Class I Railroads

Other Railroads

Earnings Growth Rate

5.38%

5.25%

8.78%

6.50%

Dividend Growth Rate

5.09%

3.50%

10.17%

N/A 41

Yahoo! Finance provides growth estimates for the next five years for several publicly traded companies. These estimates were used for Gas Transmission Pipeline market segment and Fluid Transportation Pipeline market segment. The average growth estimates for the guideline companies are as follows: Gas Transmission Pipeline 5‐Year Growth Estimate

Fluid Transportation Pipeline

7.74%

8.97%

Based on the sources above, the indicated short-term growth rate for each market segment is as follows:

Short‐Term Growth Rate

Electric

Gas Distribution

Gas Transmission Pipeline

Fluid Transportation Pipeline

Class I Railroads

Other Railroads

5.38%

5.25%

7.74%

8.97%

8.78%

6.50%

This evidence indicates that there is significant short-term growth in each market segment.

Long‐Term Growth Rate The department reviewed long-term growth rates from several sources to derive an estimate of long-term growth for the market as a whole. “Since no firm can grow forever at a rate higher than the growth rate of the economy in which it operates, the constant growth rate cannot be greater than the overall growth rate of the economy.”42 Therefore, the risk-free rate can be viewed as the maximum constant growth rate for each market segment. The U.S. Treasury 20-year Coupon Bond Yield on December 30, 2016, was 2.79%.43 The sources analyzed for this report indicate varying rates of growth in the U.S. economy over the longterm:

41 Genesee & Wyoming is the only railroad company used for the Other Railroads market segment. Genesee & Wyoming does not pay dividends. Therefore, there is no estimated growth rate for dividends for Genesee & Wyoming. 42 Damodaran, Aswath, Dr. (n.d.) The Stable Growth Rate, A. Damodaran, http://pages.stern.nyu.edu/~adamodar/New_Home_Page/valquestions/stablegrowthrate.htm 43 Board of Governors of the Federal Reserve System, H.15, Selected Interest Rates, Market Yield on U.S. Treasury Securities 20-year constant maturity quoted on investment bases, 2015 4th quarter daily average, December 30, 2016. http://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15

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Public Comment

    

The World Bank forecasts that U.S. real Gross Domestic Product (GDP) will grow by 2.7% in 2017, 2.9% in 2018, and 2.9% in 2019.44 Trading Economics projects the U.S. GDP growth rate to trend around 2.60% in 202045. The Economist Intelligence Unit forecasts that U.S. real GDP will grow by 1.80% from 2015 to 2050.46 A 2014 publication from the Organisation for Economic Co-operation and Development (OECD) indicates that the average growth rate in potential GDP for the U.S. is 1.70% from 2031 to 2060.47 The Congressional Budget Office estimates that U.S real GDP will expand at an average annual rate of 2.1% from the fourth quarter of 2016 to the fourth quarter of 2018, and at 1.9% from during the second half of the 2017 – 2027 time period.48

After considering the above sources, the department applies the most reliance on the average growth rate in potential U.S. GDP for 2015 to 2050, and secondary reliance on the U.S. Treasury 20-year Coupon Bond Yield on December 30, 2016. The indicated long-term growth rate of the U.S. economy is 2.60%.

Inflation Inflation makes future income less valuable than today’s income. Inflation is the percentage change in the value of the Wholesale Price Index (WPI) on a year-to-year basis. It effectively measures the change in the prices of a basket of goods and services in a year.49 According to Arthur Keown, John Martin, and J. William Petty, “investors require nominal (or quoted) rate of interest that exceeds the inflation rate or else their realized real return will be negative.”50 According to Damodaran, “An inflation-indexed Treasury security does not offer a guaranteed nominal return to buyers, but instead provides a guaranteed real return.”51 According to Cornell, “inflation is not considered explicitly when using the equity risk premium to forecast long-run future stock returns because it is already included in the interest rates that go into the calculation.”52 Cornell continues, “When investors invest, their goal is to increase future consumption. Consequently, the success of an investment is measured not in nominal dollars but real dollars… investors are concerned with real returns, defined as the percent increase in purchasing power, not nominal returns.”53

44 World Bank Group Flagship Report, Global Economic Prospects – Weak Investment in Uncertain Times, January 2017, Page 4 45 Trading Economics, United States GDP Growth Rate Forecast, http://www.tradingeconomics.com/forecast/gdp-annualgrowth-rate, accessed on February 22, 2017 46 The Economist Intelligence Unit. http://country.eiu.com/article.aspx?articleid=794253063&Country=United States&topic=Economy&subtopic=Long-term+outlook&subsubtopic=Summary, accessed on March 6, 2017 47 Congressional Budget Office. (February 2, 2017). The Budget and Economic Outlook: 2017 to 2027, https://www.cbo.gov/sites/default/files/115th-congress-2017-2018/reports/52390-outlooktestimonyhouse.pdf, accessed on March 14, 2017 OECD (2014), “Growth Prospects and Fiscal Requirements Over the Long Term”, OECD Economic Outlook, Volume 2014/1, Page 224 48 Congressional Budget Office. (February 2, 2017). The Budget and Economic Outlook: 2017 to 2027, https://www.cbo.gov/sites/default/files/115th-congress-2017-2018/reports/52390-outlooktestimonyhouse.pdf, accessed on March 14, 2017 49 http://economictimes.indiatimes.com/definition/inflation 50 Keown, Arthur; Martin, John; and Petty, J. William, (2014). Foundations of Finance: The Logic and Practice of Financial Management, 8th Ed., Page 35 th 51 Damodaran, Aswath, Dr. (2015). Applied Corporate Finance, 4 Ed., Page 90 52 Cornell, Bradford, (1999). The Equity Risk Premium, Page 29 53 Ibid. Page 31

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Public Comment

The Budget and Economic Outlook: 2017–2027, published by the Congressional Budget Office (CBO), estimates that the inflation rate rises to 1.9% in 2017 and to 2.0% in 2018, where it remains throughout the rest of the coming decade.54 The U.S. Treasury issues inflation-indexed securities. Comparing the inflation-indexed securities to the non-inflation indexed securities, one can estimate the inflation rate. Using the 10-year, 20-year, and 30year securities, the department estimated the inflation rate between 1.57% and 1.74% as shown below.55

Estimated Inflation

10‐Year

20‐Year

30‐Year

1.57%

1.74%

The department used the expected inflation rate of 2.0% provided by the CBO’s estimate in The Budget and Economic Outlook: 2017 – 2027. Given the indicated long-term growth rate of the U.S. economy of 2.60% and the expected inflation rate of 2.0%, the department estimates the nominal growth rate at 4.60%.

Market‐to‐Book Ratios The department analyzes market-to-book ratios of publicly traded stock and debt securities by market segment, as data is available. This analysis indicates how the market perceives the value of these assets relative to the book value. A market-to-book ratio below one indicates that there may be obsolescence affecting that market segment; a ratio over one would indicate that there is no obsolescence.

State Assessed Property Spring Forum The department held the 2017 State Assessed Property Spring Forum on March 8, 2017 and invited company representatives from each market segment, academic professionals, employees at the Minnesota Department of Commerce and Public Utilities Commission, appraisers, and assessors. The forum was an opportunity for participants to provide input for the upcoming Capitalization Rate Study. We encouraged everyone to participate. We asked participants to discuss current market conditions, industry trends and developments, mergers and acquisitions, new projects, and other topics that could affect the Capitalization Rate Study. Three company representatives discussed the current trends they see in their market segment. We used the information they provided to see how well it lined up with the data we reviewed while completing this study. The company representatives noted that railroad market segment growth has been slowing. We also noted that forecasts of growth from Value Line have declined for the railroad market segment compared to the previous year. The representative for the electric market segment noted that their expected beta is down from last year, cost of equity is down from last year, and the cost of debt might decline. The department also noted that the beta, cost of equity, and cost of debt decreased for the electric market segment from the previous year.

54 Congressional Budget Office. (February 2, 2017). The Budget and Economic Outlook: 2017 to 2027, https://www.cbo.gov/sites/default/files/115th-congress-2017-2018/reports/52390-outlooktestimonyhouse.pdf, accessed on March 14, 2017 55 Difference between inflation-indexed and non-inflation indexed securities for 10-year, 20-year, and 30-year daily rates, averaged. Downloaded from www.federalreserve.gov

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Public Comment

Revision Comments The department posted the initial Capitalization Rate Study on April 20, 2017 for public comment. The department received comments from interested parties and appreciated the responses and feedback for the 2017 Capitalization Rate Study. Your opinions and input were carefully considered. We appreciate everyone that took the time to provide us with comments. The department revised some of the content in this report after we received public comments. Overall, the yield and direct capitalization rates were revised upward. Below are summaries of the comments the department received and our response. Several responses indicated that the commenter would like to see changes at least one year prior to implementation. This may not be feasible in all situations. However, the department understands the request and will do our best to allow those impacted sufficient time to review the methods we use in valuation.

Cost of Debt After‐Tax Cost of Debt Most of the feedback the department received expressed a need for additional time to review the after-tax cost of debt subject. Several of the comments also detailed their disagreement with the after-tax cost of debt. For the January 2, 2017 assessments, the department will use the before-tax cost of debt. The department will continue to review the applicability of the after-tax cost of debt for the valuation models we use. We encourage companies to continue the discussion after they have had additional time to review. Use of the before-tax cost of debt instead of the after-tax cost of debt results in a higher cost of debt component of the yield and direct capitalization rates.

Cost of Debt Data Sources Some comments indicated that the department should consider using industrial bond yields instead of utility bond yields for the Gas Transmission Pipeline market segment from Mergent Bond Record. The comments also indicated the department should consider using Bloomberg and Standard & Poor’s as data sources for the bond yield averages. The department will review these other sources of data for future studies. In the initial study, the department used Public Utility Bond Averages for December 2016 for the electric, gas distribution, gas transmission pipeline, and fluid transportation pipeline market segments. The department uses Industrial Bond Yield Averages for December 2016 for the Class I and Other Railroad market segments. After considering the comments, the department used the industrial averages for gas transmission pipeline and fluid transportation pipeline market segments. This changed the cost of debt from 4.79% to 4.85% for fluid transportation pipeline market segment and 5.76% to 5.79% for gas transmission pipeline market segment. The department used the bond yield averages published in Mergent Bond Record, January 2017 Edition.

Cost of Equity Several of the comments the department received related to the selected cost of equity for different market segments. In general, the comments indicated that the department’s cost of equity is too low. The department placed the most reliance on Dividend Growth Model, Earnings Growth in the initial study. The comments generally agreed with this approach, but argued for more reliance on Dividend Growth Models and less reliance on Capital Asset Pricing Models. Page | 19

Public Comment

After considering the comments, the department reconciled a higher indicated rate of equity for each market segment. For the Electric and Gas Distribution market segments, the department placed more reliance on the Dividend Growth Model – Earnings Growth. For the Gas Transmission Pipeline and Fluid Transportation Pipeline market segments, the department reconciled a higher indicated equity rate for the Dividend Growth Model – Earnings Growth by placing equal reliance on the mean and median. For the Class I Railroads and Other Railroads market segments, the department placed more reliance on the Dividend Growth Model – Earnings Growth and the Capital Asset Pricing Model Ex Post when reconciling the indicated rate of equity. The department completed several cost of equity indicators and selected the cost of equity within the range established by the different cost of equity indicators. The department reconciled and placed more reliance on specific equity models based on the provided comments.

Dividend Growth Models Growth Estimate Several companies commented that they do not believe the Value Line Investment Survey estimates for growth are accurate because their analysts use a mix of historical and forecasts in their estimate of growth. A Value Line education article by Kenneth J. DeFranco, Jr. states, “All rates are computed utilizing the average number for a base three-year period to an average number for a future period in order to eliminate short-term fluctuations that may distort results.”56 Value Line’s website also provides an explanation of their 3-to-5-year projections, stating, “the 3-to-5-year projection is based on an analyst’s educated estimates. You should consider it as a subjective, but unbiased, measure.”57 The department will continue to use the growth estimates as provided in the first publication of this study. Some comments also indicated that the department could complete their own growth estimate using Value Line data. The department needs sufficient time to review and complete this calculation. In addition, others who would be affected by adding this new calculation would not have time to review and offer their opinion if it were added at this time. It is also important to note that analysts’ estimates are estimates from experts in their fields and come from widely used and respected sources The department will continue to review the growth estimates by Value Line analysts as well as growth rates completed by other analysts, such as Zacks, Yahoo! Finance, Reuters, and Standard & Poor’s. Value Line, in general, fluctuates less over each year. The department will continue to review this subject for future studies. Retention or Plow Back Model Comments also suggested the department complete a “Retention Growth” or “Plowback” model to estimate the cost of equity. The model calculates a market growth factor based on a company’s long-term outlook for return on equity and retention ratio. The department does not have sufficient time to review and implement a new model at this stage in the valuation process. Others affected by adding a new model will not have time to review and offer their opinion. The department will look at completing this model 56DeFranco Jr., Kenneth J., The Annual Rates Box, http://staging.valueline.com/Tools/Educational_Articles/Stocks_Detail.aspx?id=8920#.WQo7501OmUk, accessed on 5/2/2017 57 Value Line, Understanding the Value Line Research, http://www.valueline.com/about/help.aspx, accessed on 5/4/2017

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Public Comment

for the next study and encourages anyone with information about this type of model to contact us with your opinion.

Capital Asset Pricing Model – Ex Ante Several comments included disagreements with the department’s ex ante equity risk premium used in the Capital Asset Pricing Model. The department believes this forward-looking indicator of the cost of equity is important to continue to calculate and consider in the reconciliation of the cost of equity. One comment specifically suggested the department follow ex ante models completed by other states. At least one of the other states mentioned uses a single-stage dividend growth model of the S&P 500 to estimate the forward-looking equity risk premium. The department uses a multi-stage dividend growth model to estimate the forward-looking equity risk premium. Cornell explains the multi-stage approach as using the analyst’s forecasts for the first five years, applying a linear convergence to the analyst’s forecasts to the long-run economic growth forecast for the next fifteen years, and using the long-run economic growth rate after that.58 As provided by Damodaran, “no firm can grow forever at a rate higher than the growth rate of the economy in which it operates; the constant growth rate cannot be greater than the overall growth rate of the economy.”59 Therefore, the short-term growth estimates can be unrealistic when applied to a perpetuity model.

New Cost of Equity Models The department included two additional cost of equity models in the original publication of this year’s study, the Empirical Capital Asset Pricing Model and the Multi-Stage Dividend Growth Model. In general, the comments we received about these two new models were positive. The department will continue to complete these models and review them as part of the study. Conversely, a few comments expressed disagreement with the department making changes without first publishing the changes for a full year before implementing the changes. The department did not place significant reliance on these models to select the indicated cost of equity, rather used the new models to establish a reasonable range for the cost of equity.

Illiquidity Several comments suggested the department include adjustments for illiquidity. Some comments also stated that the department’s quote from the Appraisal of Real Estate was taken out of context. One comment also suggested that the department’s models are constructed from components that measure a safe rate and various risks to one extent or another. The department disagrees with illiquidity adjustments. The department included more information in the Illiquidity section in response to comments on this subject. See the above Illiquidity section for the department’s position.

Flotation Costs Several comments suggested the department include adjustments for flotation costs. The department considered the comments and did not make any changes regarding this subject. See the above Flotation Costs section for the department’s position.

Cornell, Bradford (1999). The Equity Risk Premium, p. 106-113 Damodaran, Aswath, Dr. (n.d.) The Stable Growth Rate, A. Damodaran, http://pages.stern.nyu.edu/~adamodar/New_Home_Page/valquestions/stablegrowthrate.htm

58 59

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Public Comment

Value Line Investment Survey Report Dates In the initial publication of this study, the department used Value Line Reports for the guideline companies with specific publication dates. The Value Line published the Electric Utility (Central) reports on December 16, 2016 and Electric Utility (West) on October 28, 2016. After further review, the department will use Value Line published reports for the Electric Utility (West) guideline companies as of January 27, 2017. The January 27, 2017 publication date is more indicative of information known or knowable as of January 2, 2017 than the October 28, 2016 publication date. The three guideline companies used by the department in Value Line’s Electric Utility (West) are Black Hills Corp., Northwestern Corp., and Xcel Energy Inc. The data did not vary significantly in the reports from October 28, 2016 to January 27, 2017.

Studies Completed by Others Several commenters provided studies they completed, studies completed by other states, and studies completed for a specific industry as completed by external consultants. The department appreciates receiving these studies. The department reviews these studies to understand what rates others are calculating as well as the different models and inputs these rates are based on. It is important to note that while these other studies are estimating the cost of capital; those completing the studies may use them for other purposes, for different models, or apply the results to different income levels than the department. See Appendix H for a comparison of studies.

Direct Capitalization Rates The department also received comments about the direct capitalization rate. The comments provided disagreement with the department’s use of direct capitalization rates and how the rates are applied to arrive at an indicator of market value. The Minnesota Tax Court has found the direct capitalization method authoritative.

Questions? If you have questions about the 2017 Capitalization Rate Study, please contact Holly Soderbeck at 651556-6119 or sa.property@state.mn.us.

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Public Comment

Electric January 2, 2017, Assessment

Appendix A ‐ Electric

2017 Capitalization Rate Study

Yield Rate

Long Term Debt Common Equity Yield Rate

Capital Structure 36.00% 64.00%

Rate

Composite

4.79% 8.44%

1.72% 5.40% 7.13%

Electric Utility Yield Rate

Page | A-1

7.13%

Yield Rate

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Structure Company Allete Inc. Alliant Energy Corp. Ameren Corp. American Electric Power Company Inc.

Black Hills Corp. CenterPoint Energy Inc. CMS Energy Corp. DTE Energy Co. Entergy Corp. MGE Energy Inc. Northwestern Corp. OGE Energy Corp. Otter Tail Corp. Vectren Corp. WEC Energy Group Xcel Energy Inc.

Value of Long Term Debt 1,358,900,000 3,816,900,000 6,607,000,000 17,320,000,000 3,211,800,000 7,736,000,000 9,912,000,000 9,903,000,000 13,887,000,000 388,100,000 1,819,400,000 2,505,200,000 460,800,000 1,713,800,000 9,088,100,000 13,403,000,000

Value of Preferred Equity None 400,000,000 142,000,000 None None None 37,000,000 None 233,200,000 None None None None None 30,400,000 None

Value of Common Equity

Total Market Value

% Long Term Debt

% Preferred Equity

% Common Equity

3,095,870,393 8,208,215,442 11,971,600,933 29,242,084,868 3,280,814,003 10,241,627,948 11,141,672,000 17,080,408,797 12,406,397,800 2,097,436,385 2,771,106,992 6,398,482,806 1,527,533,175 4,130,147,051 17,491,510,711 20,927,655,154

4,454,770,393 12,425,115,442 18,720,600,933 46,562,084,868 6,492,614,003 17,977,627,948 21,090,672,000 26,983,408,797 26,526,597,800 2,485,536,385 4,590,506,992 8,903,682,806 1,988,333,175 5,843,947,051 26,610,010,711 34,330,655,154

30.50% 30.72% 35.29% 37.20% 49.47% 43.03% 47.00% 36.70% 52.35% 15.61% 39.63% 28.14% 23.18% 29.33% 34.15% 39.04%

0.00% 3.22% 0.76% 0.00% 0.00% 0.00% 0.18% 0.00% 0.88% 0.00% 0.00% 0.00% 0.00% 0.00% 0.11% 0.00%

69.50% 66.06% 63.95% 62.80% 50.53% 56.97% 52.83% 63.30% 46.77% 84.39% 60.37% 71.86% 76.82% 70.67% 65.73% 60.96%

Mean Median

35.71% 36.00%

0.32% 0.00%

63.97% 63.62%

Indicated Industry Capital Structure

36.00%

64.00%

We selected the median capital structure as the indicated capital structure, rounding to 36% debt, 64% equity.

Notes: Data downloaded from Value Line.

Page | A- 2

Capital Structure

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Debt Company

Debt Rating

Allete Inc. Alliant Energy Corp. Ameren Corp. American Electric Power Company Inc. Black Hills Corp. CenterPoint Energy Inc. CMS Energy Corp. DTE Energy Co. Entergy Corp. MGE Energy Inc. Northwestern Corp. OGE Energy Corp. Otter Tail Corp. Vectren Corp. WEC Energy Group Xcel Energy Inc.

A3 Baa1 Baa1 Baa1 Baa2 Baa2 Baa2 Baa1 Baa3 A1 A3 A3 A3 N/A A3 A3 Mean Median

Indicated Rate of Debt

Long Term Debt Rate 4.27 4.79 4.79 4.79 4.79 4.79 4.79 4.79 4.79 4.27 4.27 4.27 4.27 N/A 4.27 4.27 4.55 4.79 4.79%

We estimated the cost of debt at 4.27% for 7 of the guideline companies and 4.79% for 8 of the guideline companies. Therefore, the median is also the mode. We placed the most reliance on the median to arrive at the indicated rate of debt.

Public Utility Bond Yield Averages from Mergent Bond Record, January 2017 Edition Public Uitlity Bond Averages, December 2016

Mergent Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3

S&P AAA AA+ AA AA‐ A+ A A‐ BBB+ BBB BBB‐

Yield Avg

4.11

4.27

4.79

Notes: Companies with BB (S&P) or Ba (Mergent's) Bond ratings or less were excluded from the data. Not rated companies also excluded.

Page | A-3

Indicated Rate of Debt

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Equity Model CAPM ‐ Ex Post CAPM ‐ Supply Side CAPM ‐ Ex Ante CAPM ‐ Damodaran CAPM ‐ Duff & Phelps Empirical CAPM ‐ Ex Post Emiprical CAPM ‐ Supply Side Empirical CAPM ‐ Ex Ante Empirical CAPM ‐ Damodaran Empirical CAPM ‐ Duff & Phelps DGM ‐ Dividend Growth DGM ‐ Earnings Growth Multi‐Stage DGM Indicated Rate of Equity

Rate 7.79% 7.09% 6.77% 6.89% 7.46% 8.27% 7.51% 7.16% 7.29% 7.85% 9.00% 9.30% 8.84% 8.44%

We established a range of acceptability for the cost of equity with all available models. We considered all of the data and placed the most reliance on the Dividend Growth Model, Earnings Growth. The department placed secondary reliance on the Capital Asset Pricing Models using Dr. Damodaran's and the Ex Post equity risk premiums.

Page | A- 4

Indicated Rate of Equity

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Direct Rate and Growth

Debt Component Equity Component Direct Rate

Page | A-5

Capital Structure 36.00% 64.00%

Rate

Composite

4.79% 5.43%

1.72% 3.48% 5.20%

Electric Utility Direct Rate

5.20%

Yield Rate Direct Rate Implied Industry Growth Rate

7.13% 5.20% 1.93%

Direct Rate and Growth

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Asset Pricing Model (CAPM) CAPM Model

Equity risk premium x Industry Beta = Industry Risk Premium

6.94% 0.72 5.00%

5.97% 0.72 4.30%

Ex Ante, 3 Stage Dividend Growth Model4 5.53% 0.72 3.98%

+ Risk‐Free Rate1

2.79%

3.50%

= Indicated Equity Rate Rounded Indicated Equity Rate

7.79%

7.09%

6.77%

6.89%

7.46%

7.79%

7.09%

6.77%

6.89%

7.46%

Ex Post

Supply Side

Dr. Damodaran Equity Risk Premium5 5.69% 0.72 4.10%

Duff & Phelps6 5.50% 0.72 3.96%

Notes: 1 2 3 4 5 6

US Treasury 20 year Coupon Bond Yield, December 30, 2016 Long‐horizon expected equity risk premium (historical), 2017 Valuation Handbook – Guide to Cost of Capital Long‐horizon expected equity risk premium (supply side), 2017 Valuation Handbook – Guide to Cost of Capital 3 Stage Dividend Growth Model, S & P 500, See Exhibit, Ex Ante Calculation Implied Equity Risk Premium on January 1, 2017 as determined by Dr. Aswath Damodaran; http://pages.stern.nyu.edu/~adamodar/ Duff & Phelps recommended equity risk premium (conditional) : The Duff & Phelps recommended ERP was developed in relation to (and should be used in conjunction with) a 3.5% “normalized” risk‐free rate. 2017 Valuation Handbook – Guide to Cost of Capital

Page | A-6

Capital Asset Pricing Model

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Empirical Capital Asset Pricing Model (ECAPM) ECAPM Model

Equity risk premium x Industry Beta x 75% = Industry Risk Premium (weighted)

6.94% 0.72 75% 3.75%

5.97% 0.72 75% 3.22%

Ex Ante, 3 Stage Dividend Growth 4 Model 5.53% 0.72 75% 2.99%

Equity risk premium x 25% = Equity Risk Premium (weighted)

6.94% 25% 1.74%

5.97% 25% 1.49%

5.53% 25% 1.38%

5.69% 25% 1.42%

5.50% 25% 1.38%

+ Risk‐Free Rate1

2.79%

3.50%

= Indicated Equity Rate Rounded Indicated Equity Rate

8.27% 8.27%

7.51% 7.51%

7.16% 7.16%

7.29% 7.29%

7.85% 7.85%

Ex Post

Supply Side

Dr. Damodaran Equity Risk 5 Premium 5.69% 0.72 75% 3.07%

Duff & Phelps6 5.50% 0.72 75% 2.97%

Notes: 1 2 3 4 5 6

Page | A-7

ECAPM

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Dividend Growth Model

4.00% 6.00% 6.00%

Projected Dividend Growth Rate 5 Year (DG) 3.50% 4.50% 4.00%

Cost of Capital Earnings Growth DY + EG 7.40% 9.30% 9.60%

Cost of Capital Dividend Growth DY+ DG 6.90% 7.80% 7.60%

4.00%

5.00%

9.00%

3.00% 4.50% 3.30% 3.50% 5.10% 2.00% 3.60% 3.90% 3.30% 3.40% 3.80% 3.50%

7.50% 2.00% 6.00% 6.00% 0.50% 7.00% 6.50% 3.00% 6.00% 9.00% 6.00% 5.50%

6.00% 4.50% 6.50% 6.50% 2.50% 4.00% 5.50% 9.50% 1.50% 5.00% 7.00% 6.00%

10.50% 6.50% 9.30% 9.50% 5.60% 9.00% 10.10% 6.90% 9.30% 12.40% 9.80% 9.00%

9.00% 9.00% 9.80% 10.00% 7.60% 6.00% 9.10% 13.40% 4.80% 8.40% 10.80% 9.50%

3.58% 3.50%

5.38% 6.00%

5.09% 5.00%

8.95% 9.30%

8.67% 9.00%

Company

Current Dividend Yield (DY)

Proj EPS Growth Rate 5 Year (EG)

Allete Inc. Alliant Energy Corp. Ameren Corp.

3.40% 3.30% 3.60%

American Electric Power Company Inc.

DGM ‐ Dividend Growth, Indicated Rate

9.00%

DGM ‐ Earnings Growth, Indicated Rate

9.30%

We placed more reliance on the median to arrive at the indicated rates for DGM ‐ Earnings Growth and DGM ‐ Dividend Growth.

Notes: Dividend Yield and growth rates provided by Value Line

Page | A-8

Dividend Growth Model

Electric January 2, 2017 Assessment

2017 Capitalization Rate Study

Multi‐Stage Dividend Growth Model KE = (D1 / P0) + 0.67(G1) + 0.33(g) Where: KE Cost of Equity D1 / P0 Dividend Yield

G1 Growth Estimate, next five years g Stable Growth

Company

D1 / P0 Dividend Yield

G1 Growth Estimate, next five years

g Stable Growth

0.67 x G1

.33 x g

KE Cost of Equity

CMS Energy Corp. DTE Energy Co. Entergy Corp. MGE Energy Inc. Northwestern Corp. OGE Energy Corp. Otter Tail Corp. Vectren Corp. WEC Energy Group Xcel Energy Inc.

3.30% 3.50% 5.10% 2.00% 3.60% 3.90% 3.30% 3.40% 3.80% 3.50%

6.00% 6.00% 0.50% 7.00% 6.50% 3.00% 6.00% 9.00% 6.00% 5.50%

4.60% 4.60% 4.60% 4.60% 4.60% 4.60% 4.60% 4.60% 4.60% 4.60%

4.02% 4.02% 0.34% 4.69% 4.36% 2.01% 4.02% 6.03% 4.02% 3.69%

1.52% 1.52% 1.52% 1.52% 1.52% 1.52% 1.52% 1.52% 1.52% 1.52%

8.84% 9.04% 6.95% 8.21% 9.47% 7.43% 8.84% 10.95% 9.34% 8.70%

Mean Median

8.78% 8.84%

Multi‐Stage DGM, Indicated Rate

8.84%

We placed the most reliance on the median to arrive at the indicated rate.

Notes: Dividend Yield provided by Value Line Growth Estimates, Next 5 Years for Earnings provided Value Line

Page | A-9

Multi-Stage Dividend Growth Model

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Equity Component of the Direct Rate Company

Value Line P/E Ratio

21.4 22.1 17.9 14.5 19.0 18.6 19.4 18.2 15.7 26.2 16.5 16.3 24.6 19.3 18.2 18.1

Mean Median Selected Price to Earnings (P/E) Ratio

19.13 18.40 18.40

Indicated Equity Component of the Direct Rate

5.43%

We placed the most reliance on the median price to earnings ratio.

Notes: The Price/Earnings Ratio was downloaded from Value Line. *Trailing P/E Ratio

Page | A-10

Direct Equity Component

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Beta Analysis Company Allete Inc. Alliant Energy Corp. Ameren Corp. American Electric Power Company Inc. Black Hills Corp. CenterPoint Energy Inc. CMS Energy Corp. DTE Energy Co. Entergy Corp. MGE Energy Inc. Northwestern Corp. OGE Energy Corp. Otter Tail Corp. Vectren Corp. WEC Energy Group Xcel Energy Inc. Electric Beta Mean Electric Beta Median Unlevered and Relevered Mean* Indicated Beta

Beta 0.75 0.70 0.65 0.65 0.90 0.85 0.65 0.65 0.65 0.70 0.70 0.90 0.85 0.75 0.60 0.60 0.72 0.70 0.72 0.72

We considered the mean, median, and unlevered/relevered mean. We placed more reliance on the mean when selecting the indicated beta.

Notes: *See the Unlevering Relevering Beta page for the calculation

Page | A-11

Beta Analysis

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Unlevering/Relevering Betas Value Line

Capital Structure Tab of Cap Rate

Value Line

Formula

Levered Beta (Published)

Unlevered Beta

0.75 0.70 0.65 0.65 0.90 0.85 0.65 0.65 0.65 0.70 0.70 0.90 0.85 0.75 0.60 0.60

0.54 0.50 0.48 0.47 0.55 0.58 0.41 0.45 0.33 0.62 N/A 0.70 0.69 0.59 0.45 0.42

Unlevering of Betas

Actual Income Tax Rate

Actual Debt in Capital Structure

Actual Equity in Capital Structure

13.00% 15.00% 36.00% 36.00% 34.00% 37.00% 34.00% 26.00% 12.50% 35.00% Nil 29.00% 25.00% 35.00% 38.00% 35.00%

30.50% 30.72% 35.29% 37.20% 49.47% 43.03% 47.00% 36.70% 52.35% 15.61% 39.63% 28.14% 23.18% 29.33% 34.15% 39.04%

69.50% 66.06% 63.95% 62.80% 50.53% 56.97% 52.83% 63.30% 46.77% 84.39% 60.37% 71.86% 76.82% 70.67% 65.73% 60.96%

Average

0.72

Formula

Capital Structure Tab of Cap Rate

Formula

Relevering of Betas

Composite Income Tax Rate

Industry Debt in Capital Structure

Industry Equity in Capital Structure

Levered Beta

29.37% 30.54% 31.73% 31.38% 30.95% 30.53% 29.95% 29.74% 30.23% 31.91% 31.50% 31.37% 31.43% 31.87% 31.61% 31.07%

36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00% 36.00%

64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00% 64.00%

0.75 0.70 0.66 0.65 0.76 0.81 0.57 0.63 0.46 0.86 N/A 0.97 0.96 0.82 0.62 0.58

Average

Page | A-12

0.72

Unlevering Relevering Betas

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Calculation of Market to Book Ratios for the Electric Market Segment December 31, 2016 calendar year information for the January 2, 2017 Assessment A market to book ratio over one would be an indication of no obsolescence. Market Value estimates for Common Equity are from Value Line. Market Value Estimates for Long‐Term Debt are from the company's 10‐K. Book Value amounts are from the company's 10‐K.

Market to Book Ratio for Equity

Allete Inc. Alliant Energy Corp. Ameren Corp.

Market Value of Book Value of Common Equity Common Equity from Value Line from 10‐K 3,095,870,393 1,893,000,000 8,208,215,442 3,862,000,000 11,971,600,933 7,103,000,000

American Electric Power Company Inc. Black Hills Corp. CenterPoint Energy Inc. CMS Energy Corp. DTE Energy Co. Entergy Corp. MGE Energy Inc. Northwestern Corp. OGE Energy Corp. Otter Tail Corp. Vectren Corp. WEC Energy Group Xcel Energy Inc.

29,242,084,868 3,280,814,003 10,241,627,948 11,141,672,000 17,080,408,797 12,406,397,800 2,097,436,385 2,771,106,992 6,398,482,806 1,527,533,175 4,130,147,051 17,491,510,711 20,927,655,154

Company

Page | A-13

17,397,000,000 1,614,639,000 3,460,000,000 4,290,000,000 9,499,000,000 8,081,809,000 724,088,000 1,676,227,000 3,252,100,000 670,104,000 1,768,100,000 8,929,800,000 11,020,849,000 Average

Market to Book Ratio

Source

1.64 2.13 1.69

2016 10‐K, page 71 2016 10‐K, page 65 2016 10‐K, page 31

1.68 2.03 2.96 2.60 1.80 3.00 2.90 1.65 1.97 2.28 2.34 1.96 1.90 2.16

2016 10‐K, page S‐5 2016 10‐K, page 104 2016 10‐K, page 74 2016 10‐K, page 83 2016 10‐K, page 59 2016 10‐K, page 57 2016 10‐K, page 56 2016 10‐K, page F‐6 2016 10‐K, page 48 2016 10‐K, page 61 2016 10‐K, page 22 2016 10‐K, page 72 2016 10‐K, page 166

Market to Book Ratios

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Market to Book Ratio for Debt Market Value of Company Long‐Term Debt from 10‐K Allete Inc. 1,653,800,000 Alliant Energy Corp. 4,336,100,000 Ameren Corp. 7,772,000,000 American Electric Power Company Inc. 22,211,900,000 Black Hills Corp. 3,351,305,000 CenterPoint Energy Inc. 8,443,000,000 CMS Energy Corp. 9,089,000,000 DTE Energy Co. 11,905,000,000 Entergy Corp. 14,815,535,000 MGE Energy Inc. 430,122,000 Northwestern Corp. 1,852,052,000 OGE Energy Corp. 2,803,900,000 Otter Tail Corp. 538,542,000 Vectren Corp. 1,835,800,000 WEC Energy Group 9,818,200,000 Xcel Energy Inc. 15,513,209,000

Book Value Long Term Debt from 10‐K 1,569,100,000 4,315,600,000 7,276,000,000 20,391,200,000 3,216,932,000 8,846,000,000 8,640,000,000 11,270,000,000 14,467,655,000 391,242,000 1,793,338,000 2,530,800,000 583,835,000 1,714,000,000 9,285,800,000 14,450,247,000 Average

Market to Book Ratio 1.05 1.00 1.07 1.09 1.04 0.95 1.05 1.06 1.02 1.10 1.03 1.11 0.92 1.07 1.06 1.07 1.04

Source 2016 10‐K, page 103 2016 10‐K, page 115 2016 10‐K, page 112 2016 10‐K, page 236 2016 10‐K, page 171 2016 10‐K, page 103 2016 10‐K, page 83 2016 10‐K, page 108 2016 10‐K, page 129 2016 10‐K, page 79 2016 10‐K, page F‐24 2016 10‐K, page 61 2016 10‐K, page 110 2016 10‐K, page 103 2016 10‐K, page 115 2016 10‐K, page 131

Application of Capital Structure as determined in the Capitalization Rate Study Common Equity Long‐term Debt

Page | A-14

Capital Structure Market to Book 64.00% 2.16 36.00% 1.04 Overall Market to Book Ratio

Composite 1.38 0.38 1.76

Market to Book Ratios

Electric January 2, 2017, Assessment

2017 Capitalization Rate Study

Debt Rating Analysis Company

Ticker

CUSIP

Issue

CenterPoint Energy Inc. CMS Energy Corp. CMS Energy Corp. Ameren Un Elec Ameren Un Elec Vectren Util Hldgs Inc. Vectren Util Hldgs Inc. Wisconsin Electric Power Wisconsin Electric Power Wisconsin Energy Corp. Wisconsin Electric Power Xcel Energy Inc.

CNP CMS CMS N/A N/A N/A N/A N/A N/A N/A N/A XEL

15189TAL1 125896AT7 125896BA7 02360FAA4 02360FAB2 92239MAG6 92239MAH4 976656BP2 976656BL1 976657AH9 976656BZ0 98389BAH3

Sr Nt Conv 144a Sr Nt Conv Sr Nt Sr Secd Nts Sr Secd Nt Sr Nt Insd Nt Debs Deb 2007 Ser A Jr Sub Nt

Deb Sr Nt

Maturity Date

Callable

S&P Industry

1/15/2024 7/15/2023 7/17/2017 10/1/2019 8/1/2037 12/1/2035 10/1/2036 6/1/2028 12/1/2095 5/15/2067 12/1/2036 7/1/2036

Yes Yes Yes Yes Yes Yes Yes No No Yes Yes Yes

Multi‐Utilities Multi‐Utilities Multi‐Utilities

N/A N/A N/A N/A N/A N/A N/A N/A Electric

Coupon %

Yield to Maturity %

52‐Week Low Price

52‐Week High Price

Sales Price

Current Yield

2.88 3.38 6.55 5.10 5.30 6.10 5.95 6.5 6.88 6.25 5.7 6.50

N/A N/A N/A 2.15 3.99 5.00 5.94 3.95 5.16 7.28 4.07 4.49

N/A N/A N/A N/A N/A N/A 100 N/A 131.72 87.62 121.48 N/A

0 0 N/A 0 0 0 100.00 0 131.72 87.62 121.48 0

N/A N/A N/A 107.79 118.23 113.32 100.00 123.17 132.63 86.15 122.03 125.84

N/A N/A N/A 4.73 4.48 5.38 5.95 5.27 5.18 7.25 4.67 5.16

Mean

4.67

Mean

5.34

Median

4.49

Median

5.18

Companies not available: Allete Inc. Alliant Energy Corp. Ameren Corp. American Electric Power Company Inc. Black Hills Corp. DTE Energy Co. Entergy Corp. MGE Energy Inc. Northwestern Corp. OGE Energy Corp. Otter Tail Corp. Vectren Corp. WEC Energy Group Xcel Energy Inc. Data compiled from S&P Capital IQ McGraw Hill Financial on January 9, 2017

Page | A-15

Debt Rating Analysis

Gas Distribution January 2, 2017, Assessment

Appendix B - Gas Distribution

2017 Capitalization Rate Study

Yield Rate

Long Term Debt Common Equity Yield Rate

Capital Structure 26.00% 74.00%

Rate

Composite

4.53% 7.61%

1.18% 5.63% 6.81%

Gas Distribution Yield Rate

Page | B-1

6.81%

Yield Rate

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Structure Company Atmos Energy Corp. Chesapeake Utilities Corp. Delta Natural Gas Co. Inc. New Jersey Resources Corp. NiSource Inc. Northwest Natural Gas Co. RGC Resources Inc. South Jersey Industries Spire Inc. WGL Holdings Inc.

Value of Long Term Debt 2,205,600,000 143,500,000 50,400,000 967,800,000 6,096,200,000 530,200,000 32,800,000 808,700,000 1,833,700,000 1,194,300,000

Value of Preferred Equity None None None None None None None None None 28,200,000

Value of Common Equity

Total Market Value

% Long Term Debt

% Preferred Equity

% Common Equity

7,564,277,977 1,074,246,510 183,237,000 2,886,034,380 7,064,729,895 1,596,971,960 119,441,700 2,618,794,235 2,995,047,901 3,399,049,089

9,769,877,977 1,217,746,510 233,637,000 3,853,834,380 13,160,929,895 2,127,171,960 152,241,700 3,427,494,235 4,828,747,901 4,621,549,089

22.58% 11.78% 21.57% 25.11% 46.32% 24.93% 21.54% 23.59% 37.97% 25.84%

N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.61%

77.42% 88.22% 78.43% 74.89% 53.68% 75.07% 78.46% 76.41% 62.03% 73.55%

Mean Median

26.12% 24.26%

0.61% 0.61%

73.81% 75.74%

Indicated Industry Capital Structure

26.00%

74.00%

We selected the mean capital structure as the indicated capital structure, rounding to 26% debt, 74% equity.

Notes: Data downloaded from Value Line.

Page | B- 2

Capital Structure

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Debt Company

Debt Rating

Atmos Energy Corp. Chesapeake Utilities Corp. Delta Natural Gas Co. Inc. New Jersey Resources Corp. NiSource Inc. Northwest Natural Gas Co. RGC Resources Inc. South Jersey Industries Spire Inc. WGL Holdings Inc.

A2 N/A N/A N/A (P)Ba1 (P)A3 N/A BBB+ Baa2 A3 Mean Median

Indicated Rate of Debt

Long Term Debt Rate 4.27 N/A N/A N/A * 7.21 4.27 N/A 4.79 4.79 4.27 4.93 4.53

4.53%

We placed most reliance on the median when selecting the indicated rate of debt.

Public Utility Bond Yield Averages from Mergent Bond Record, January 2017 Edition Public Uitlity Bond Averages, December 2016

Mergent Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3

S&P AAA AA+ AA AA‐ A+ A A‐ BBB+ BBB BBB‐

Yield Avg

4.11

4.27

4.79

Notes: Not rated companies or companies who's debt rat was not available were excluded. *These companies are rated below the Mergent Bond Record Bond Yield Averages. We analyzed the Mergent Bond Record, January 2017 issue, for U.S. Corporate Bonds that were considered below investment grade. We determined the average Ba yield to maturity is 7.21%.

Page | B-3

Indicated Rate of Debt

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Equity Model CAPM ‐ Ex Post CAPM ‐ Supply Side CAPM ‐ Ex Ante CAPM ‐ Damodaran CAPM ‐ Duff & Phelps Empirical CAPM ‐ Ex Post Empirical CAPM ‐ Supply Side Empirical CAPM ‐ Ex Ante Empirical CAPM ‐ Damodaran Empirical CAPM ‐ Duff & Phelps DGM ‐ Dividend Growth DGM ‐ Earnings Growth Multi‐Stage DGM Indicated Rate of Equity

Rate 7.65% 6.97% 6.66% 6.77% 7.35% 8.17% 7.42% 7.08% 7.20% 7.76% 6.50% 7.90% 7.76% 7.61%

Page | B- 4

Indicated Rate of Equity

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Direct Rate and Growth

Debt Component Equity Component Direct Rate

Page | B-5

Capital Structure 26.00% 74.00%

Rate

Composite

4.53% 4.76%

1.18% 3.52% 4.70%

Gas Distribution Direct Rate

4.70%

Yield Rate Direct Rate Implied Industry Growth Rate

6.81% 4.70% 2.11%

Direct Rate and Growth

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Asset Pricing Model (CAPM) CAPM Model

Equity risk premium x Industry Beta = Industry Risk Premium

6.94% 0.70 4.86%

5.97% 0.70 4.18%

Ex Ante, 3 Stage Dividend Growth Model4 5.53% 0.70 3.87%

+ Risk‐Free Rate1

2.79%

3.50%

= Indicated Equity Rate Rounded Indicated Equity Rate

7.65%

6.97%

6.66%

6.77%

7.35%

7.65%

6.97%

6.66%

6.77%

7.35%

Ex Post

Supply Side

Dr. Damodaran Equity Risk Premium5 5.69% 0.70 3.98%

Duff & Phelps6 5.50% 0.70 3.85%

Notes: 1 2 3 4 5 6

Page | B-6

Capital Asset Pricing Model

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Empirical Capital Asset Pricing Model (ECAPM) ECAPM Model

Equity risk premium x Industry Beta x 75% = Industry Risk Premium (weighted)

6.94% 0.70 75% 3.64%

5.97% 0.70 75% 3.13%

Ex Ante, 3 Stage Dividend Growth 4 Model 5.53% 0.70 75% 2.90%

Equity risk premium x 25% = Equity Risk Premium (weighted)

6.94% 25% 1.74%

5.97% 25% 1.49%

5.53% 25% 1.38%

5.69% 25% 1.42%

5.50% 25% 1.38%

+ Risk‐Free Rate1

2.79%

3.50%

= Indicated Equity Rate Rounded Indicated Equity Rate

8.17% 8.17%

7.42% 7.42%

7.08% 7.08%

7.20% 7.20%

7.76% 7.76%

Ex Post

Supply Side

Dr. Damodaran Equity Risk 5 Premium 5.69% 0.70 75% 2.99%

Duff & Phelps6 5.50% 0.70 75% 2.89%

Notes: 1 2 3 4 5 6

Page | B-7

ECAPM

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Dividend Growth Model

6.50% 6.00% N/A 3.50% ‐2.50% 2.00% N/A 6.50% 3.50% 2.50%

Cost of Capital Earnings Growth DY + EG 9.00% 10.40% N/A 6.00% 4.50% 10.20% N/A 6.30% 12.20% 6.40%

Cost of Capital Dividend Growth DY+ DG 9.00% 7.90% N/A 6.50% 0.50% 5.20% N/A 9.80% 6.70% 5.40%

3.50% 3.50%

8.13% 7.70%

6.38% 6.60%

Company

Current Dividend Yield (DY)

Proj Earnings Growth Rate 5 Year (EG)

Proj Dividend Growth Rate 5 Year (DG)

2.50% 1.90% 3.20% 3.00% 3.00% 3.20% 3.20% 3.30% 3.20% 2.90%

6.50% 8.50% N/A 3.00% 1.50% 7.00% N/A 3.00% 9.00% 3.50%

2.88% 3.00%

5.25% 5.00%

Mean Median

DGM ‐ Dividend Growth, Indicated Rate

6.50%

DGM ‐ Earnings Growth, Indicated Rate

7.90%

We placed equal reliance on the mean and median to arrive at the indicated rates for DGM ‐ Earnings Growth and DGM ‐ Dividend Growth, rounding to the nearest tenth.

Notes: Dividend Yield provided by Value Line Delta Natural Gas and RGC Resources, Inc. do not have analysts estimates and, therefore, the companies were not included in the mean, median, or model. They are still shown. NiSource was not included in the mean, median, or model because they are considered an outlier.

Page | B-8

Dividend Growth Model

Gas Distribution January 2, 2017 Assessment

2017 Capitalization Rate Study

Multi‐Stage Dividend Growth Model KE = (D1 / P0) + 0.67(G1) + 0.33(g) Where: KE Cost of Equity D1 / P0 Dividend Yield

G1 Growth Estimate, next five years g Stable Growth

Company

D1 / P0 Dividend Yield

G1 Growth Estimate, next five years

g Stable Growth

0.67 x G1

.33 x g

KE Cost of Equity

Atmos Energy Corp. Chesapeake Utilities Corp. New Jersey Resources Corp. NiSource Inc. Northwest Natural Gas Co. South Jersey Industries Spire Inc. WGL Holdings Inc.

2.50% 1.90% 3.00% 3.00% 3.20% 3.30% 3.20% 2.90%

6.50% 8.50% 3.00% 1.50% 7.00% 3.00% 9.00% 3.50%

4.60% 4.60% 4.60% 4.60% 4.60% 4.60% 4.60% 4.60%

4.36% 5.70% 2.01% 1.01% 4.69% 2.01% 6.03% 2.35%

1.52% 1.52% 1.52% 1.52% 1.52% 1.52% 1.52% 1.52%

8.37% 9.11% 6.53% 5.52% 9.41% 6.83% 10.75% 6.76%

Mean Median

7.91% 7.60%

Multi‐Stage DGM, Indicated Rate

7.76%

We placed equal reliance on the mean and median to arrive at the indicated rate.

Notes: Dividend Yield provided by Value Line Growth Estimates, Next 5 Years for Earnings provided Value Line

We removed the below companies because they do not have growth estimates availabe through Value Line

Delta Natural Gas Co. Inc. RGC Resources Inc.

Page | B-9

3.20% 3.20%

N/A N/A

4.60% 4.60%

N/A N/A

1.52% 1.52%

N/A N/A

Multi-Stage Dividend Growth Model

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Equity Component of the Direct Rate Company Atmos Energy Corp. Chesapeake Utilities Corp. Delta Natural Gas Co. Inc. New Jersey Resources Corp. NiSource Inc. Northwest Natural Gas Co. RGC Resources Inc. South Jersey Industries Spire Inc. WGL Holdings Inc. Mean Median Selected Price to Earnings (P/E) Ratio Indicated Equity Component of the Direct Rate

Value Line P/E Ratio 20.80 23.90 32.20 19.70 20.80 26.30 20.50 22.40 18.80 19.80

22.52 20.80 21.00 4.76%

We placed the most reliance on the median price to earnings ratio.

Notes: The Price/Earnings Ratio was downloaded from Value Line. * Trailing P/E Ratio

Page | B-10

Direct Equity Component

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Beta Analysis Company Atmos Energy Corp. Chesapeake Utilities Corp. Delta Natural Gas Co. Inc. New Jersey Resources Corp. NiSource Inc. Northwest Natural Gas Co. RGC Resources Inc. South Jersey Industries Spire Inc. WGL Holdings Inc.

Beta 0.70 0.65 0.65 0.80 NMF 0.65 0.45 0.80 0.70 0.75

Electric Beta Mean Electric Beta Median Unlevered and Relevered Mean* Indicated Beta

0.68 0.70 0.69 0.70

We considered the mean, median, and unlevered/relevered mean. We placed more reliance on the median when selecting the indicated beta to account for the wide range of betas.

Notes: * See the Unlevering Relevering Beta page for the calculation

Page | B-11

Beta Analysis

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Unlevering/Relevering Betas Unlevering of Betas Atmos Energy Corp. Chesapeake Utilities Corp. Delta Natural Gas Co. Inc. New Jersey Resources Corp. NiSource Inc. Northwest Natural Gas Co. RGC Resources Inc. South Jersey Industries Spire Inc. WGL Holdings Inc.

Value Line

Capital Structure Tab of Cap Rate

Value Line

Formula

Actual Income Tax Rate

Actual Debt in Capital Structure

Actual Equity in Capital Structure

Levered Beta (Published)

Unlevered Beta

36.40% 40.00% 37.90% 32.00% 33.50% 35.00% 38.40% 25.00% 32.50% 39.00%

22.58% 11.78% 21.57% 25.11% 46.32% 24.93% 21.54% 23.59% 37.97% 25.84%

77.42% 88.22% 78.43% 74.89% 53.68% 75.07% 78.46% 76.41% 62.03% 73.55%

0.70 0.65 0.65 0.80 NMF 0.65 0.45 0.80 0.70 0.75 0.68

0.59 0.60 0.56 0.65 N/A 0.53 0.38 0.65 0.50 0.62

Average

Relevering of Betas Atmos Energy Corp. Chesapeake Utilities Corp. Delta Natural Gas Co. Inc. New Jersey Resources Corp. NiSource Inc. Northwest Natural Gas Co. RGC Resources Inc. South Jersey Industries Spire Inc. WGL Holdings Inc.

Formula

Capital Structure Tab of Cap Rate

Formula

Composite Income Tax Rate

Industry Debt in Capital Structure

Industry Equity in Capital Structure

Levered Beta

34.97% 34.97% 34.97% 34.97% 34.97% 34.97% 34.97% 34.97% 34.97% 34.97%

26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00%

74.00% 74.00% 74.00% 74.00% 74.00% 74.00% 74.00% 74.00% 74.00% 74.00%

0.72 0.74 0.69 0.80 N/A 0.65 0.47 0.80 0.61 0.76 0.69

Average

Page | B-12

Unlevering Relevering Betas

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Debt Rating Analysis Maturity Date

Callable

S&P Industry

Coupon %

Yield to Maturity %

52‐Week Low Price

52‐Week High Price

Sales Price

Current Yield

7/15/2028 10/15/2034 6/15/2017

Yes Yes Yes

Gas Utilities Gas Utilities Gas Utilities

6.75 5.95 6.35

3.89 4.25 1.42

118.73 114.86 102.29

122.21 120.90 101.38

5.52 4.92 6.26

4/1/2021

Yes

Gas Utilities

5.75

5.74

N/A

100.00

5.75

9/15/2017

Yes

N/A

5.25

2.09

102.31

101.67

5.16

9/15/2020

Yes

N/A

5.45

2.64

109.08

109.41

4.98

MTN Series B 2003‐3

7/15/2017

N/A

4.66

3.66

N/A

100.35

4.64

MTN Series B 2003‐4

7/15/2033

N/A

5.55

4.63

110.43

110.38

5.02

Company

Ticker

CUSIP

Issue

Atmos Energy Corp. Atmos Energy Corp. Atmos Energy Corp.

ATO ATO ATO

049560AA3 049560AG0 049560AH8

Delta Natural Gas Co. Inc.

DGAS

247748AG1

NiSource Finance

N/A

65473QAQ6

NiSource Finance

N/A

65473QAR4

Deb Sr Nt Sr Nt Insd Quarterly Nt Iq Nts Gtd Fxd Rt Sr Nt Gtd Fxd Rt Sr Nt

South Jersey Gas

N/A

83851MAK3

South Jersey Gas

N/A

83851MAM9

Mean

3.54

Mean

5.28

Median

3.78

Median

5.09

Companies not available: Chesapeake Utilities Corp. New Jersey Resources Corp. Northwest Natural Gas Co. RGC Resources Inc. South Jersey Industries Spire Inc. WGL Holdings Inc.

Data compiled from S&P Capital IQ McGraw Hill Financial on March 6, 2017

Page | B-13

Debt Rating Analysis

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Calculation of Market to Book Ratios for the Electric Market Segment December 31, 2016 calendar year information for the January 2, 2017 Assessment A market to book ratio over one would be an indication of no obsolescence. Market Value estimates are from the Capital Structure page of the Capitalization Rate Study. Book Value amounts are from the company's balance sheet as listed in the 10‐K or Annual Report

Market to Book Ratio for Equity Market Value of Company Common Equity from Value Line Atmos Energy Corp. 7,564,277,977 Chesapeake Utilities Corp. 1,074,246,510 Delta Natural Gas Co. Inc. 183,237,000 New Jersey Resources Corp. 2,886,034,380 NiSource Inc. 7,064,729,895 Northwest Natural Gas Co. 1,596,971,960 RGC Resources Inc. 119,441,700 South Jersey Industries 2,618,794,235 Spire Inc. 2,995,047,901 WGL Holdings Inc. 3,399,049,089

Page | B-14

Book Value of Common Equity 3,463,059,000 446,086,000 77,726,969 1,166,591,000 4,071,200,000 850,497,000 23,941,445 1,289,240,000 1,768,200,000 574,496,000 Average

Market to Book Ratio 2.18 2.41 2.36 2.47 1.74 1.88 4.99 2.03 1.69 5.92 2.77

Source 2016 10‐K, page 35 2016 10‐K, page 24 2016 10‐K, page 41 2016 10‐K, page 27 2016 10‐K, page 19 2016 10‐K, page 56 2016 10‐K, page 34 2016 10‐K, page 57 2016 10‐K, page 60 2016 10‐K, page 78

Fiscal Year End 9/30/2016 Fiscal Year End 6/30/2016 Fiscal Year End 9/30/2016

Fiscal Year End 6/30/2016 Fiscal Year End 9/30/2016 Fiscal Year End 9/30/2016

Market to Book Ratios

Gas Distribution January 2, 2017, Assessment

2017 Capitalization Rate Study

Market to Book Ratio for Debt Market Value of Company Long‐Term Debt from 10‐K Atmos Energy Corp. 2,844,990,000 Chesapeake Utilities Corp. 161,500,000 Delta Natural Gas Co. Inc. 55,324,000 New Jersey Resources Corp. 1,131,077,000 NiSource Inc. 7,064,100,000 Northwest Natural Gas Co. 793,339,000 RGC Resources Inc. 36,163,523 South Jersey Industries 1,080,800,000 Spire Inc. 2,083,700,000 WGL Holdings Inc. 1,641,900,000

Book Value Long Term Debt 2,460,000,000 145,900,000 50,422,796 1,082,845,000 6,421,300,000 679,334,000 33,896,200 1,039,914,000 2,257,100,000 1,446,000,000 Average

Market to Book Ratio 1.16 1.11 1.10 1.04 1.1 1.17 1.07 1.04 0.92 1.14 1.09

Source 2016 10‐K, page 95 2016 10‐K, page 78 2016 10‐K, page 4 1& 49 2016 10‐K, page 98 2016 10‐K, page 89 2016 10‐K, page 71 2016 10‐K, page 60 2016 10‐K, page 76 2016 10‐K, page 96 2016 10‐K, page 66

Application of Capital Structure as determined in the Capitalization Rate Study Common Equity Long‐term Debt

Page | B-15

Market to Book Capital Structure 74.00% 2.77 26.00% 1.09 Overall Market to Book Ratio

Composite 2.05 0.28 2.33

Market to Book Ratios

Gas Transmission Pipeline January 2, 2017, Assessment

Appendix C Gas Transmission Pipeline

2017 Capitalization Rate Study

Yield Rate

Long Term Debt Common Equity Yield Rate

Capital Structure

Rate

Composite

39.00% 61.00%

4.85% 11.59%

1.89% 7.07% 8.96%

Gas Transmission Pipeline Yield Rate

Page |C -1

8.96%

Yield Rate

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Structure Company Boardwalk Pipeline Partners LP Enterprise Products Partners LP Kinder Morgan Inc. ONEOK Partners LP TC PipeLines LP Williams Partners LP

Value of Long Term Debt 3,626,800,000 21,121,200,000 36,700,000,000 6,691,700,000 1,896,000,000 18,918,000,000

Value of Preferred Equity N/A N/A N/A N/A N/A N/A

Value of Common Equity

Total Market Value

4,322,625,425 53,909,536,466 49,178,984,956 12,013,276,531 3,617,046,000 22,263,446,418

7,949,425,425 75,030,736,466 85,878,984,956 18,704,976,531 5,513,046,000 41,181,446,418

% Long Term Debt 45.62% 28.15% 42.73% 35.77% 34.39% 45.94%

Mean Median

38.77% 39.25%

61.23% 60.75%

Indicated Industry Capital Structure

39.00%

61.00%

% Preferred Equity

% Common Equity

N/A N/A N/A N/A N/A N/A

54.38% 71.85% 57.27% 64.23% 65.61% 54.06%

We selected the median capital structure as the indicated capital structure due to the large range of values, rounding to 39% debt, 61% equity.

Notes: Data downloaded from Value Line.

Page |C -2

Capital Structure

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Debt Company

Debt Rating

Boardwalk Pipeline Partners LP Enterprise Products Partners LP Kinder Morgan Inc. ONEOK Partners LP TC PipeLines LP Williams Partners LP

Baa3 N/A Baa3 Baa2 Baa2 Baa3 Mean Median

Indicated Rate of Debt

Long Term Debt Rate 4.85 N/A 4.85 4.85 4.85 4.85 4.85 4.85 4.85%

We estimated that the guideline companies have the same cost of debt.

Industrial Bond Yield Averages from Mergent Bond Record, January 2017 Edition Industrial Bond Averages, December 2016

Mergent Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3

S&P AAA AA+ AA AA‐ A+ A A‐ BBB+ BBB BBB‐

Yield Avg

4.13

4.29

4.85

Notes: Companies with BB (S&P) or Ba (Mergent's) Bond ratings or less were excluded from the data. Not rated companies also excluded.

Page |C -3

Indicated Rate of Debt

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Equity Model CAPM ‐ Ex Post CAPM ‐ Supply Side CAPM ‐ Ex Ante CAPM ‐ Damodaran CAPM ‐ Duff & Phelps Empirical CAPM ‐ Ex Post Empirical CAPM ‐ Supply Side Empirical CAPM ‐ Ex Ante Empirical CAPM ‐ Damodaran Emprical CAPM ‐ Duff & Phelps Dividend Growth Model Multi‐Stage DGM Indicated Rate of Equity

Rate 10.42% 9.36% 8.87% 9.05% 9.55% 10.25% 9.21% 8.73% 8.91% 9.41% 13.45% 12.87% 11.59%

We established a range of acceptability for the cost of equity with all available models. We considered all of the data and placed the most reliance on the Dividend Growth Model. The department placed secondary reliance on the Capital Asset Pricing Models using Dr. Damodaran's and the Ex Post equity risk premiums.

Page |C -4

Indicated Rate of Equity

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Direct Rate and Growth

Debt Component Equity Component Direct Rate

Page |C -5

Capital Structure 39.00% 61.00%

Rate

Composite

4.85% 8.55%

1.89% 5.22% 7.11%

Gas Transmission Direct Rate

7.11%

Yield Rate Direct Rate Implied Industry Growth Rate

8.96% 7.11% 1.85%

Direct Rate and Growth

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Asset Pricing Model (CAPM) CAPM Model Ex Post

Supply Side

Ex Ante, 3 Stage Dividend Growth 4 Model

Dr. Damodaran Equity Risk 5 Premium

Duff & Phelps6

Equity risk premium x Industry Beta = Industry Risk Premium

6.94% 1.10 7.63%

5.97% 1.10 6.57%

5.53% 1.10 6.08%

5.69% 1.10 6.26%

5.50% 1.10 6.05%

+ Risk‐Free Rate1

2.79%

3.50%

10.42%

9.36%

8.87%

9.05%

9.55%

10.42%

9.36%

8.87%

9.05%

9.55%

= Indicated Equity Rate Rounded Indicated Equity Rate

Notes: 1 2 3 4 5 6

US Treasury 20 year Coupon Bond Yield, December 30, 2016 Long‐horizon expected equity risk premium (historical), 2016 Valuation Handbook – Guide to Cost of Capital Long‐horizon expected equity risk premium (supply side), 2016 Valuation Handbook – Guide to Cost of Capital 3 Stage Dividend Growth Model, S & P 500, See Exhibit, Ex Ante Calculation Implied Equity Risk Premium on January 1, 2016 as determined by Dr. Aswath Damodaran; http://pages.stern.nyu.edu/~adamodar/ Duff & Phelps recommended equity risk premium (conditional) : The Duff & Phelps recommended ERP was developed in relation to (and should be used in conjunction with) a 4.0% “normalized” risk‐free rate. 2016 Valuation Handbook – Guide to Cost of Capital

Page | C-6

Capital Asset Pricing Model

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Empirical Capital Asset Pricing Model (ECAPM) ECAPM Model

Equity risk premium x Industry Beta x 75% = Industry Risk Premium (weighted)

6.94% 1.10 75% 5.73%

5.97% 1.10 75% 4.93%

Ex Ante, 3 Stage Dividend Growth 4 Model 5.53% 1.10 75% 4.56%

Equity risk premium x 25% = Equity Risk Premium (weighted)

6.94% 25% 1.74%

5.97% 25% 1.49%

5.53% 25% 1.38%

5.69% 25% 1.42%

5.50% 25% 1.38%

+ Risk‐Free Rate1

2.79%

3.50%

10.25% 10.25%

9.21% 9.21%

8.73% 8.73%

8.91% 8.91%

9.41% 9.41%

Ex Post

= Indicated Equity Rate Rounded Indicated Equity Rate

Supply Side

Dr. Damodaran Equity Risk 5 Premium 5.69% 1.10 75% 4.69%

Duff & Phelps6 5.50% 1.10 75% 4.54%

Notes: 1 2 3 4 5 6

Page | C-7

ECAPM

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Dividend Growth Model Company Boardwalk Pipeline Partners LP Enterprise Products Partners LP TC PipeLines LP Williams Partners LP Mean Median

Current Dividend Yield (DY) 2.30% 6.30% 6.90% 9.10%

Growth Estimate, Next 5 Years 15.30% 5.67% 6.00% 4.00%

6.15% 6.60%

7.74% 5.84%

Dividend Growth Model, Indicated Rate

Indicated Cost of Equity 17.60% 11.97% 12.90% 13.10% 13.89% 13.00% 13.45%

We placed equal reliance on the mean and median when selecting the indicated rate.

Notes: Dividend Yield provided by Value Line Growth Estimates, Next 5 Years for Earnings provided Yahoo! Finance Kinder Morgan Inc. and Williams Partners LP are not included in the above calculation (even though they are shown) because analysts' estimates were not available. ONEOK Partners, L.P. is not included in the above calculation because they are considered an outlier.

We removed ONEOK Partners LP and Kinder Mogan Inc. because they are outliers:

Kinder Morgan Inc. ONEOK Partners LP

Page | C-8

2.30% 7.50%

‐0.50% 29.74%

1.80% 37.24%

Dividend Growth Model

Gas Transmission Pipeline January 2, 2017 Assessment

2017 Capitalization Rate Study

Multi‐Stage Dividend Growth Model KE = (D1 / P0) + 0.67(G1) + 0.33(g) Where: KE Cost of Equity D1 / P0 Dividend Yield

G1 Growth Estimate, next five years g Stable Growth

Company

D1 / P0 Dividend Yield

G1 Growth Estimate, next five years

g Stable Growth

0.67 x G1

.33 x g

KE Cost of Equity

Boardwalk Pipeline Partners LP Enterprise Products Partners LP TC PipeLines LP Williams Partners LP

2.30% 6.30% 6.90% 9.10%

15.30% 5.67% 6.00% 4.00%

4.60% 4.60% 4.60% 4.60%

10.25% 3.80% 4.02% 2.68%

1.52% 1.52% 1.52% 1.52%

14.07% 11.62% 12.44% 13.30%

Mean Median

12.86% 12.87%

Multi‐Stage DGM, Indicated Rate

12.87%

We placed equal reliance on the mean and median to arrive at the indicated rate.

Notes: Dividend Yield provided by Value Line Growth Estimates, Next 5 Years for Earnings provided Yahoo! Finance

We removed the below two companeis as outliers.

Kinder Morgan Inc. ONEOK Partners LP

Page | C-9

2.30% 7.50%

‐0.50% 29.74%

4.60% 4.60%

‐0.34% 19.93%

1.52% 1.52%

3.48% 28.94%

Multi-Stage Dividend Growth Model

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Equity Component of the Direct Rate Company Boardwalk Pipeline Partners LP Enterprise Products Partners LP ONEOK Partners LP TC PipeLines LP Williams Partners LP Mean Median Selected Price to Earnings (P/E) Ratio Selected Marginal Tax Rate

Value Line P/E Ratio 15.30 19.10 17.50 13.20 26.90

18.40 17.50 18.00 35.00%

Selected P/E Ratio x (1 ‐ Selected Marginal Tax Rate)

11.70

Indicated Equity Component of the Direct Rate

8.55%

We placed equal reliance on the mean and median price to earnings ratio.

Notes: Kinder Morgan Inc. was removed from this analysis as it is a coproration, not a partnership as the other guidline companies. The P/E ratio is affected by the tax treatment of the corporate organization. The Price to Earnings Ratio was downloaded from Value Line. *Trailing P/E Ratio The earning component of the above P/E ratios have not been adjusted for income taxes. We have adjusted the selected P/E ratio for income taxes by multiplying the selected P/E ratio by 1 minus the selected marginal tax rate.

Page | C-10

Direct Equity Component

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Beta Analysis Company Boardwalk Pipeline Partners LP Enterprise Products Partners LP Kinder Morgan Inc. ONEOK Partners LP TC PipeLines LP Williams Partners LP Beta Mean Beta Median Unlevered and Relevered Mean* Indicated Beta

Beta 0.85 1.15 1.25 1.05 1.00 1.35 1.11 1.10 1.11 1.10

We considered the mean and median, placing more reliance on the median when selecting the indicated beta. We unlevered and relevered the betas (see the Unelevering Relevering Beta page). However, the income tax data is not reliable for this market segment and we did not give weight to the unlevered relevered mean.

Notes: * See the Unlevering Relevering Beta page for the calculation

Page | C-11

Beta Analysis

Gas Transmission Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Unlevering/Relevering Betas Value Line

Capital Structure Tab of Cap Rate

Value Line

Formula

Unlevering of Betas

Actual Income Tax Rate

Actual Debt in Capital Structure

Actual Equity in Capital Structure

Levered Beta (Published)

Unlevered Beta

Boardwalk Pipeline Partners LP Enterprise Products Partners LP Kinder Morgan Inc. ONEOK Partners LP TC PipeLines LP Williams Partners LP

0.50% 0.50% 16.00% 1.50% 0.00% 1.00%

45.62% 28.15% 42.73% 35.77% 34.39% 45.94%

54.38% 71.85% 57.27% 64.23% 65.61% 54.06%

0.85 1.15 1.25 1.05 1.00 1.35 1.11

0.46 0.83 0.77 0.68 0.66 0.73

Average Formula

Capital Structure Tab of Cap Rate

Formula

Relevering of Betas

Composite Income Tax Rate

Debt in Capital Structure

Equity in Capital Structure

Levered Beta

Boardwalk Pipeline Partners LP Enterprise Products Partners LP Kinder Morgan Inc. ONEOK Partners LP TC PipeLines LP Williams Partners LP

3.25% 3.25% 3.25% 3.25% 3.25% 3.25%

39.00% 39.00% 39.00% 39.00% 39.00% 39.00%

61.00% 61.00% 61.00% 61.00% 61.00% 61.00%

0.74 1.34 1.25 1.10 1.07 1.18 1.11

Average

Page | C-12

Unlevering Relevering Betas

Gas Transmission Pipeline January 2, 2017 Assessment

2017 Capitalization Rate Study

Debt Rating Analysis Callable

S&P Industry

Coupon %

Yield to Maturity %

52‐Week Low Price

52‐Week High Price

Sales Price

Current Yield

Company

Ticker

CUSIP

Issue

Maturity Date

Enterprise Prods Oper LP

N/A

293791AP4

Gtd Fixed Rt Sr Nt

10/15/2034

Yes

N/A

6.65

4.79

N/A

121.89

5.45

N/A

293791AV1

Jr Sub Nt Fixed/fltg Rate

8/1/2066

Yes

N/A

4.74

4.78

94.05

99.25

4.77

N/A

494550AJ5

3/15/2031

Yes

N/A

7.4

5.4

N/A

119.47

6.19

N/A

494550AL0

3/15/2032

Yes

N/A

7.75

5.29

121.95

125.25

6.18

Sr Nt

8/15/2033

Yes

N/A

7.3

5.51

N/A

119.09

6.12

Sr Nt

1/15/2038

Yes

N/A

6.95

5.52

N/A

117.57

5.91

Enterprise Prods Oper LP Kinder Morgan Energy Partners Kinder Morgan Energy Partners Kinder Morgan Energy Partners Kinder Morgan Energy Partners Kinder Morgan Energy Partners

N/A N/A

494550AQ 9 494550AW 6

N/A

494550AV8

Sr Nt

2/1/2037

Yes

N/A

6.5

5.59

N/A

110.73

5.86

ONEOK Inc.

OKE

682680AB9

Deb

10/1/2028

Yes

N/A

6.88

5.85

109

108.50

6.33

ONEOK Inc.

OKE

682680AN3

Fxd Rt Nt

6/15/2035

Yes

N/A

5.53

N/A

105.25

5.7

9/30/2028

Yes

N/A

6.5

6.69

98.61

98.47

6.6

2/1/2019

Yes

N/A

6.4

6.39

N/A

100.00

6.4

10/1/2036

Yes

N/A

6.65

5.14

113.06

118.42

5.61

ONEOK Inc.

OKE

682680AA1

ONEOK Inc.

OKE

682680AD5

ONEOK Partners LP

OKS

68268NAC 7

Page | C-13

Sr Insd Quarterly Nt Sr Insd Quarterly Nt Gtd Sr Nt

Debt Rating Analysis

Gas Transmission Pipeline January 2, 2017 Assessment Williams Companies Inc. Williams Companies Inc. Williams Companies Inc. Williams Companies Inc. Williams Companies Inc. Williams Companies Inc. Williams Companies Inc.

2017 Capitalization Rate Study

WMB

969457BG4

9/1/2021

Yes

N/A

7.88

4.1

114.25

115.31

6.82

WMB

969457AW 0

Fixed Rt Nt

7/15/2019

Yes

N/A

7.62

3.83

108

108.50

7.02

WMB

969457BD1

Sr Nt

6/15/2031

Yes

N/A

7.75

5.83

114

118.38

6.54

WMB

969457BB5

Deb Ser A

1/15/2031

Yes

N/A

7.5

5.67

112.75

117.38

6.38

WMB

969457BM 1

3/15/2032

Yes

N/A

8.75

5.88

120.75

128.38

6.81

WMB

969457AH3

Deb

7/15/2020

N/A

10.25

N/A

WMB

969457AK6

Deb

11/15/2021

N/A

9.38

N/A

Mean

5.40

Mean

6.16

Median

5.52

Median

6.19

Companies not available: Boardwalk Pipeline Partners LP Enterprise Products Partners LP Kinder Morgan Inc. TC PipeLines LP Williams Partners LP

Companies not used as guideline companies: Energy Transfer Partners LP Spectra Energy Partners LP Sunoco Logistics Partners LP

ETP

29273RAF6

Sr Nt

10/15/2036

Yes

N/A

6.62

5.51

108

113.15

5.85

Not Available Not Available

Data compiled from S&P Capital IQ McGraw Hill Financial on March 6, 2017

Page | C-14

Debt Rating Analysis

Gas Transmission Pipeline January 2, 2017 Assessment

2017 Capitalization Rate Study

Calculation of Market to Book Ratios for the Gas Transmission Market Segment December 31, 2016 calendar year information for the January 2, 2017 Assessment A market to book ratio over one would be an indication of no obsolescence. Market Value estimates for Common Equity are from Value Line. Market Value Estimates for Long‐Term Debt are from the company's Annual Report or 10‐K. Book Value amounts are from the company's balance sheet as listed in the 10‐K or Annual Report

Market to Book Ratio for Equity Company Boardwalk Pipeline Partners LP Enterprise Products Partners LP Kinder Morgan Inc. ONEOK Partners LP TC PipeLines LP Williams Partners LP

Market Value of Common Equity 4,322,625,425 53,909,536,466 49,178,984,956 12,013,276,531 3,617,046,000 22,263,446,418

Book Value of Common Equity 4,530,900,000 22,266,000,000 34,802,000,000 6,177,820,000 1,146,000,000 21,453,000,000 Average

Market to Book Ratio 0.95 2.42 1.41 1.94 3.16 1.04 1.82

Book Value Long Term Debt

Market to Book Ratio

Source 2016 10‐K, page 45 2016 10‐K, page 62 2016 10‐K, page 77 2016 10‐K, page 76 2016 10‐K, page F‐7 2016 10‐K, page 86

Market to Book Ratio for Debt Market Value of Company Long‐Term Debt from 10‐K Boardwalk Pipeline Partners LP 3,709,200,000 Enterprise Products Partners LP 23,697,700,000 Kinder Morgan Inc. 37,354,000,000 ONEOK Partners LP 7,100,000,000 TC PipeLines LP 1,908,000,000 Williams Partners LP 18,907,000,000

Page | C-15

3,558,900,000 23,697,700,000 36,205,000,000 6,698,957,000 1,867,000,000 18,470,000,000 Average

1.04 1.00 1.03 1.06 1.02 1.02 1.03

Source 2016 10‐K, page 59 2016 10‐K, page 62, F‐65 2016 10‐K, page 101 2016 10‐K, page 90 2016 10‐K, page F‐28 2016 10‐K, page 124

Market to Book Ratios

Gas Transmission Pipeline January 2, 2017 Assessment

2017 Capitalization Rate Study

Application of Capital Structure as determined in the Capitalization Rate Study Common Equity Long‐term Debt

Page | C-16

Capital Structure Market to Book 61.00% 1.82 39.00% 1.03 Overall Market to Book Ratio

Composite 1.11 0.40 1.51

Market to Book Ratios

Fluid Transportation Pipeline January 2, 2017, Assessment

Appendix D - Fluid Transportation Pipeline

2017 Capitalization Rate Study

Yield Rate

Long Term Debt Common Equity Yield Rate

Capital Structure 36.00% 64.00%

Rate

Composite

5.79% 12.49%

2.08% 7.99% 10.08%

Fluid Transportation Pipeline Yield Rate

Page | D -1

10.08%

Yield Rate

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Structure Company

Value of Long Term Debt

Buckeye Partners LP Holly Energy Partners LP Magellan Midstream Partners LP NuStar Energy LP Plains All American Pipeline

3,826,900,000 1,070,600,000 4,073,500,000 3,153,000,000 9,634,000,000

Value of Preferred Equity N/A N/A N/A N/A N/A

Value of Common Equity

% Long Term Debt

% Preferred Equity

% Common Equity

12,991,832,142 3,011,111,090 19,740,477,742 6,931,316,040 22,947,919,802

29.46% 35.55% 20.64% 45.49% 41.98%

N/A N/A N/A N/A N/A

70.54% 64.45% 79.36% 54.51% 58.02%

Mean Median

34.62% 35.55%

65.38% 64.45%

Indicated Industry Capital Structure

36.00%

64.00%

9,164,932,142 1,940,511,090 15,666,977,742 3,778,316,040 13,313,919,802

Total Market Value

We selected the median capital structure as the indicated capital structure, rounding to 36% debt, 64% equity.

Notes: Data downloaded from Value Line

Page | D - 2

Capital Structure

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Debt Company

Debt Rating

Long Term Debt Rate

Buckeye Partners LP Holly Energy Partners LP Magellan Midstream Partners LP NuStar Energy LP Plains All American Pipeline

Baa3 Ba3 Baa1 Ba1 Baa3

4.85 7.21 4.85 7.21 4.85

Mean Median

Indicated Rate of Debt

* *

5.79 4.85 5.79%

We used the mean when selecting the indicated rate.

Industrial Bond Yield Averages from Mergent Bond Record, January 2017 Edition Industrial Bond Averages, December 2016

Mergent Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3

S&P AAA AA+ AA AA‐ A+ A A‐ BBB+ BBB BBB‐

Yield Avg

4.13

4.29

4.85

Notes: Not rated companies or companies who's debt rating was not available were excluded. * These companies are rated below the Mergent Bond Record Bond Yield Averages. We analyzed the Mergent Bond Record, January 2017 issue, for U.S. Corporate Bonds that were considered below investment grade. We determined the average Ba yield to maturity is 7.21%.

Page | D - 3

Indicated Rate of Debt

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Equity Model CAPM ‐ Ex Post CAPM ‐ Supply Side CAPM ‐ Ex Ante CAPM ‐ Damodaran CAPM ‐ Duff & Phelps Empirical CAPM ‐ Ex Post Emiprical CAPM ‐ Supply Side Empirical CAPM ‐ Ex Ante Empirical CAPM ‐ Damodaran Empirical CAPM ‐ Duff & Phelps Dividend Growth Model Multi‐Stage DGM Indicated Rate of Equity

Rate 10.08% 9.06% 8.60% 8.76% 9.28% 9.99% 8.98% 8.53% 8.69% 9.21% 15.55% 14.31% 12.49%

Page | D - 4

Indicated Rate of Equity

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Direct Rate and Growth

Debt Component Equity Component Direct Rate

Page | D - 5

Capital Structure 36.00% 64.00%

Rate

Composite

5.79% 8.01%

2.08% 5.13% 7.21%

Fluid Transportation Pipeline Direct Rate

7.21%

Yield Cap Rate Direct Cap Rate Implied Industry Growth Rate

10.08% 7.21% 2.87%

Direct Rate and Growth

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Asset Pricing Model (CAPM) CAPM Model

Equity risk premium x Industry Beta = Industry Risk Premium

6.94% 1.05 7.29%

5.97% 1.05 6.27%

Ex Ante, 3 Stage Dividend Growth Model4 5.53% 1.05 5.81%

+ Risk‐Free Rate1

2.79%

3.50%

10.08%

9.06%

8.60%

8.76%

9.28%

10.08%

9.06%

8.60%

8.76%

9.28%

Ex Post

= Indicated Equity Rate Rounded Indicated Equity Rate

Supply Side

Dr. Damodaran Equity Risk Premium5 5.69% 1.05 5.97%

Duff & Phelps6 5.50% 1.05 5.78%

Notes: 1 2 3 4 5 6

Page | D - 6

Capital Asset Pricing Model

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Empirical Capital Asset Pricing Model (ECAPM) ECAPM Model

6.94% 1.05 75% 5.47%

5.97% 1.05 75% 4.70%

Ex Ante, 3 Stage Dividend Growth 4 Model 5.53% 1.05 75% 4.35%

6.94% 25% 1.735%

5.97% 25% 1.49%

5.53% 25% 1.38%

5.69% 25% 1.42%

5.50% 25% 1.38%

+ Risk‐Free Rate1

2.79%

3.50%

= Indicated Equity Rate Rounded Indicated Equity Rate

9.99% 9.99%

8.98% 8.98%

8.53% 8.53%

8.69% 8.69%

9.21% 9.21%

Ex Post Equity risk premium x Industry Beta x 75% = Industry Risk Premium (weighted) Equity risk premium x 25% = Equity Risk Premium (weighted)

Supply Side

Dr. Damodaran Equity Risk 5 Premium 5.69% 1.05 75% 4.48%

Duff & Phelps6 5.50% 1.05 75% 4.33%

Notes: 1 2 3 4 5 6

Page | D - 7

ECAPM

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Dividend Growth Model Company Buckeye Partners LP Holly Energy Partners LP Magellan Midstream Partners LP Plains All American Pipeline Mean Median

Current Dividend Yield 7.70% 7.30% 5.10% 6.80%

Growth Estimate, Next 5 Years 8.11% 7.70% 6.77% 13.28%

Indicated Cost of Equity 15.81% 15.00% 11.87% 20.08%

6.73% 7.05%

8.97% 7.91%

15.69% 15.41%

Dividend Growth Model, Indicated Rate

15.55%

We placed equal reliance on the mean and median to arrive at the indicated rate.

Notes: Dividend Yield provided by Value Line Growth Estimates, Next 5 Years for Earnings provided Yahoo! Finance

We removed NuStar Energy LP as an outlier:

NuStar Energy LP

Page | D - 8

9.10%

‐7.60%

1.50%

Dividend Growth Model

Fluid Transportation Pipeline January 2, 2017 Assessment

2017 Capitalization Rate Study

Multi‐Stage Dividend Growth Model KE = [(D1 / P0) + 0.67(G1) + 0.33(g)] Where: KE Cost of Equity D1 / P0 Dividend Yield

G1 Growth Estimate, next five years g Stable Growth

Company

D1 / P0 Dividend Yield

G1 Growth Estimate, next five years

g Stable Growth

0.67 x G1

.33 x g

KE Cost of Equity

Buckeye Partners LP Holly Energy Partners LP Magellan Midstream Partners LP Plains All American Pipeline

7.70% 7.30% 5.10% 6.80%

8.11% 7.70% 6.77% 13.28%

4.60% 4.60% 4.60% 4.60%

5.43% 5.16% 4.54% 8.90%

1.52% 1.52% 1.52% 1.52%

14.65% 13.98% 11.15% 17.22%

Mean Median

14.25% 14.31%

Multi‐Stage DGM, Indicated Rate

14.31%

We placed the most reliance on the median to arrive at the indicated rate.

Notes: Dividend Yield provided by Value Line Growth Estimates, Next 5 Years for Earnings provided Yahoo! Finance

We removed NuStar Energy LP as an outlier:

NuStar Energy LP

Page |D -9

9.10%

‐7.60%

4.60%

‐5.09%

1.52%

5.53%

Multi-Stage Dividend Growth Model

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Equity Component of the Direct Rate Company Buckeye Partners LP Holly Energy Partners LP Magellan Midstream Partners LP NuStar Energy LP Plains All American Pipeline Mean Median Selected Price to Earnings (P/E) Ratio Selected Marginal Tax Rate

Value Line P/E Ratio 15.10 18.30 * 19.30 22.00 * 21.10 19.16 19.30 19.20 35.00%

P/E Ratio x (1 ‐ Selected Marginal Tax Rate)

12.48

Indicated Equity Component of the Direct Rate

8.01%

We placed equal reliance on the median and means when selecting the price to earnings ratio.

Notes: The Price/Earnings Ratio was downloaded from Value Line. *Trailing P/E Ratio The earning component of the above P/E ratios have not been adjusted for income taxes. We have adjusted the selected P/E ratio for income taxes by multiplying the selected P/E ratio by 1 minus the selected marginal tax rate.

Page | D - 10

Direct Equity Component

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Beta Analysis Company Buckeye Partners LP Holly Energy Partners LP Magellan Midstream Partners LP NuStar Energy LP Plains All American Pipeline

Beta 1.05 0.90 1.05 1.05 1.25

Beta Mean Beta Median Unlevered and Relevered Mean* Indicated Beta

1.06 1.05 1.08 1.05

We considered the mean and median, placing more reliance on the median when selecting the indicated beta given the wide range of betas. We unlevered and relevered the betas (see the Unlevering Relevering Beta page). However, the income tax data is not reliable for this market segment and we did not give significant reliance to the unlevered relevered mean.

Notes: * See the Unlevering Relevering Beta page for the calculation

Page | D - 11

Beta Analysis

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Unlevering/Relevering Betas

Unlevering of Betas Buckeye Partners LP Holly Energy Partners LP Magellan Midstream Partners NuStar Energy LP Plains All American Pipeline

Relevering of Betas Buckeye Partners LP Holly Energy Partners LP Magellan Midstream Partners NuStar Energy LP Plains All American Pipeline

Page | D - 12

Value Line

Capital Structure Tab of Cap Rate

Value Line

Formula

Actual Income Tax Rate 0.20% 0.20% 0.50% 4.60% 7.00%

Actual Debt in Capital Structure 29.46% 35.55% 20.64% 45.49% 41.98%

Actual Equity in Capital Structure 70.54% 64.45% 79.36% 54.51% 58.02% Average

Levered Beta (Published) 1.05 0.90 1.05 1.05 1.25 1.06

Unlevered Beta 0.74 0.58 0.83 0.58 0.75

Formula

Capital Structure Tab of Cap Rate

Formula

Composite Income Tax Rate 2.50% 2.50% 2.50% 2.50% 2.50%

Debt in Capital Structure 36.00% 36.00% 36.00% 36.00% 36.00%

Equity in Capital Structure 64.00% 64.00% 64.00% 64.00% 64.00% Average

Levered Beta 1.15 0.90 1.29 0.90 1.16 1.08

Unlevering Relevering Betas

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Debt Rating Analysis Company

Ticker

CUSIP

Buckeye Partners LP

BPL

118230AE1

Magellan Midstream Partners LP Plains All Amern Pipeline LP

MMP N/A

Issue

Fixed Rt Nts 559080AC0 Sr Nt 72650RAM4 Sr Nt

Maturity Date

Callable

S&P Industry

Coupon %

Yield to Maturity %

52‐Week Low Price

52‐Week High Price

Sales Price

Current Yield

7/1/2017

Yes

N/A

5.12

2.7

N/A

100.78

5.08

5/1/2037 5/15/2036

Yes Yes

N/A N/A

6.4 6.7

4.98 5.79

118.07 109.13

117.81 110.35

5.43 6.07

Mean

4.49

Mean

5.53

Median

4.98

Median

5.43

Companies not available: Holly Energy Partners LP NuStar Energy LP Plains All American Pipeline

HEP NS PAA

Not Using Due to Merger Sunoco Logistics Partners LP

SXL

Not available

Enbridge Energy Partners LP

EEP

29250RAD8

Enbridge Energy Partners LP

EEP

29250RAG1

Nt‐ Fully Exchang ed From Cusip Fixed Rt Sr Gbl Nts

6/1/2033

Yes

N/A

5.95

5.92

96.23

100.21

5.93

12/15/2034

Yes

N/A

6.3

N/A

Data compiled from S&P Capital IQ McGraw Hill Financial on March 6, 2017

Page | D - 13

Debt Rating Analysis

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Calculation of Market to Book Ratios for the Fluid Transportation Market Segment December 31, 2016 calendar year information for the January 2, 2017 Assessment A market to book ratio over one would be an indication of no obsolescence. Market Value estimates for Common Equity are from Value Line. Market Value Estimates for Long‐Term Debt are from the company's 10‐K. Book Value amounts are from the company's 10‐K.

Market to Book Ratio for Equity Market Value of Common Equity Buckeye Partners LP 9,164,932,142 Holly Energy Partners LP 1,940,511,090 Magellan Midstream Partners LP 15,666,977,742 NuStar Energy LP 3,778,316,040 Plains All American Pipeline 13,313,919,802 Company

Book Value of Common Equity 4,698,423,000 512,110,000 2,092,105,000 1,611,617,000 8,816,000,000 Average

Market to Book Ratio 1.95 3.79 7.49 2.34 1.51 3.42

Source 2016 10‐K, page 63 2016 10‐K, page 86 2016 10‐K, page 44 2016 10‐K, page 62 2016 10‐K, page 72

Market to Book Ratio for Debt Company Buckeye Partners LP Holly Energy Partners LP Magellan Midstream Partners LP NuStar Energy LP Plains All American Pipeline

Page | D - 14

Long‐term Debt Book Value Long Term Market Value Debt from 10‐K 4,333,488,000 4,217,695,000 723,750,000 690,912,000 4,262,321,000 4,087,192,000 3,084,762,000 3,014,364,000 10,300,000,000 10,124,000,000 Average

Market to Book Ratio 1.03 1.05 1.04 1.02 1.02 1.03

Source 2016 10‐K, page 65 2016 10‐K, page 73 2016 10‐K, page 114 2016 10‐K, page 85 2016 10‐K, page F‐27

Market to Book Ratios

Fluid Transportation Pipeline January 2, 2017, Assessment

2017 Capitalization Rate Study

Application of Capital Structure as determined in the Capitalization Rate Study Common Equity Long‐term Debt

Page | D - 15

Capital Structure Market to Book 64.00% 3.42 36.00% 1.03 Overall Market to Book Ratio

Composite 2.19 0.37 2.56

Market to Book Ratios

Class I Railroads and Other Railroads January 2, 2017, Assessment

Appendix E ‐ Class I Railroads and Other Railroads

2017 Capitalization Rate Study

Yield Rate Class I Railroads

Long Term Debt Common Equity Yield Rate

Capital Structure 21.00% 79.00%

Rate

Composite

4.85% 10.31%

1.02% 8.14% 9.16%

Class I Railroads Yield Rate

9.16%

Other Railroads

Long Term Debt Common Equity Yield Rate

Capital Structure 31.00% 69.00%

Rate

Composite

7.21% 10.93%

2.24% 7.54% 9.78%

Other Railroads Yield Rate

Page | E-1

9.78%

Yield Rate

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Structure

56,813,079,000 27,556,092,000 42,211,533,000 6,417,569,271 11,445,384,075 40,086,318,936 96,882,783,136

% Long Term Debt 13.23% 23.10% 23.42% 30.82% 19.88% 23.84% 15.69%

Mean All Median All

21.43% 23.10%

0.05% 0.05%

78.57% 76.90%

Mean Class I* Median Class I*

19.86% 21.49%

0.05% 0.05%

80.13% 78.48%

Mean Other Railroads^ Median Other Railroads^

30.82% 30.82%

N/A N/A

69.18% 69.18%

Indicated Industry Capital Structure, Class I Railroads

21.00%

79.00%

Indicated Industry Capital Structure, Other Railroads

31.00%

69.00%

Company

Value of Long Term Debt

Canadian National Railway Co. Canadian Pacific Railway Limited CSX Corp. Genesee & Wyoming Kansas City Southern Norfolk Southern Corp. Union Pacific Corp.

7,517,000,000 6,366,000,000 9,888,000,000 1,977,600,000 2,275,700,000 9,555,000,000 15,205,000,000

Value of Preferred Equity None None None None 6,100,000 None None

Value of Common Equity 49,296,079,000 21,190,092,000 32,323,533,000 4,439,969,271 9,163,584,075 30,531,318,936 81,677,783,136

Total Market Value

% Preferred Equity

% Common Equity

N/A N/A N/A N/A 0.05% N/A N/A

86.77% 76.90% 76.58% 69.18% 80.06% 76.16% 84.31%

We placed more reliance on the median capital structure when selecting the indicated capital structure for Class I Railroads, rounding to 21% debt, 79% equity. We selected the mean capital structure as the indicated capital structure for Other Railroads, rounding to 31% debt, 69% equity.

Notes: Data downloaded from Value Line. * Does not include Genesee & Wyoming. ^ Genesee & Wyoming only.

Page | E-2

Capital Structure

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Debt Company

Debt Rating

Canadian National Railway Co. Canadian Pacific Railway Limited CSX Corp. Genesee & Wyoming Kansas City Southern Norfolk Southern Corp. Union Pacific Corp.

A2 Baa1 Baa1 Ba2 (P)Baa3 Baa1 A3

Long Term Debt Rate 4.29 4.85 4.85 7.21 4.85 4.85 4.29

Mean Class I* Median Class I*

4.66 4.85

Indicated Rate of Debt, Class I Railroads

4.85%

Indicated Rate of Debt, Other Railroads^

7.21%

We selected the median as the indicated rate of debt for Class I Railroads. We selected Genesee & Wyoming's long‐term debt rate as the indicated rate of debt for Other Railroads.

Industrial Bond Yield Averages from Mergent Bond Record, January 2017 Edition Industrial Bond Averages, December 2016

Mergent Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3

S&P AAA AA+ AA AA‐ A+ A A‐ BBB+ BBB BBB‐

Yield Avg 4.06

4.13

4.29

4.85

Notes: *Does not include Genesee & Wyoming. ^Genesee & Wyoming Only. **Genesee & Wyoming is rated below the Mergent Bond Record Bond Yield Averages. We analyzed the Mergent Bond Record, January 2017 issue, for U.S. Corporate Bonds that were considered below investment grade. We determined the average Ba yield to maturity is 7.21%.

Page | E-3

Indicated Rate of Debt

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Indicated Rate of Equity Class I Railroads Model CAPM ‐ Ex Post CAPM ‐ Supply Side CAPM ‐ Ex Ante CAPM ‐ Damodaran CAPM ‐ Duff & Phelps Empirical CAPM ‐ Ex Post Empirical CAPM ‐ Supply Side Empirical CAPM ‐ Ex Ante Empirical CAPM ‐ Damodaran Empirical CAPM ‐ Duff & Phelps DGM ‐ Dividend Growth DGM ‐ Earnings Growth Mulit‐Stage DGM Indicated Rate of Equity

Rate 10.63% 9.54% 9.04% 9.22% 9.72% 10.41% 9.34% 8.86% 9.03% 9.54% 11.85% 10.30% 9.01% 10.31%

Model CAPM ‐ Ex Post CAPM ‐ Supply Side CAPM ‐ Ex Ante CAPM ‐ Damodaran CAPM ‐ Duff & Phelps Empirical CAPM ‐ Ex Post Empirical CAPM ‐ Supply Side Empirical CAPM ‐ Ex Ante Empirical CAPM ‐ Damodaran Empirical CAPM ‐ Duff & Phelps DGM ‐ Dividend Growth DGM ‐ Earnings Growth Mulit‐Stage DGM Indicated Rate of Equity

Rate 12.51% 11.15% 10.53% 10.76% 11.20% 11.81% 10.55% 9.98% 10.19% 10.65% 11.85% 10.30% 9.01% 10.93%

Other Railroads

Page | E-4

Indicated Rate of Equity

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Direct Rate and Growth Class I Railroads

Debt Component Equity Component Direct Rate

Capital Structure 21.00% 79.00%

Rate

Composite

4.85% 5.52%

1.02% 4.36% 5.38%

Class I Railroads Direct Rate

5.38%

Yield Rate Direct Rate Estimated Industry Growth Rate

9.16% 5.38% 3.78%

Other Railroads

Debt Component Equity Component Direct Rate

Page | E-5

Capital Structure 31.00% 69.00%

Rate

Composite

7.21% 5.46%

2.24% 3.77% 6.00%

Other Railroads Direct Rate

6.00%

Yield Rate Direct Rate Estimated Industry Growth Rate

9.78% 6.00% 3.78%

Direct Rate and Growth

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Asset Pricing Model (CAPM) Class I Railroads CAPM Model

Equity risk premium x Industry Beta = Industry Risk Premium

6.94% 1.13 7.84%

5.97% 1.13 6.75%

Ex Ante, 3 Stage Dividend Growth 4 Model 5.53% 1.13 6.25%

2.79%

3.50%

10.63%

9.54%

9.04%

9.22%

9.72%

10.63%

9.54%

9.04%

9.22%

9.72%

Ex Post

+ Risk‐Free Rate

= Indicated Equity Rate Rounded Indicated Equity Rate

Supply Side

Dr. Damodaran Equity Risk 5 Premium 5.69% 1.13 6.43%

Duff & Phelps6 5.50% 1.13 6.22%

Notes: 1 2 3 4 5 6

Page | E-6

CAPM - Class I Railroads

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Capital Asset Pricing Model (CAPM) Other Railroads CAPM Model

Equity risk premium x Industry Beta = Industry Risk Premium

6.94% 1.40 9.72%

5.97% 1.40 8.36%

Ex Ante, 3 Stage Dividend Growth 4 Model 5.53% 1.40 7.74%

2.79%

3.50%

12.51%

11.15%

10.53%

10.76%

11.20%

12.51%

11.15%

10.53%

10.76%

11.20%

Ex Post

+ Risk‐Free Rate

= Indicated Equity Rate Rounded Indicated Equity Rate

Supply Side

Dr. Damodaran Equity Risk 5 Premium 5.69% 1.40 7.97%

Duff & Phelps6 5.50% 1.40 7.70%

Notes: 1 2 3 4 5 6

Page | E-7

CAPM - Other Railroads

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Empirical Capital Asset Pricing Model (ECAPM) Class I Railroads ECAPM Model

Equity risk premium x Industry Beta x 75% = Industry Risk Premium (weighted)

6.94% 1.13 75% 5.88%

5.97% 1.13 75% 5.06%

Ex Ante, 3 Stage Dividend Growth Model4 5.53% 1.13 75% 4.69%

Equity risk premium x 25% = Equity Risk Premium (weighted)

6.94% 25% 1.74%

5.97% 25% 1.49%

5.53% 25% 1.38%

5.69% 25% 1.42%

5.50% 25% 1.38%

+ Risk‐Free Rate1

2.79%

3.50%

10.41% 10.41%

9.34% 9.34%

8.86% 8.86%

9.03% 9.03%

9.54% 9.54%

Ex Post

= Indicated Equity Rate Rounded Indicated Equity Rate

Supply Side

Dr. Damodaran Equity Risk Premium5 5.69% 1.13 75% 4.82%

Duff & Phelps6 5.50% 1.13 75% 4.66%

Notes: 1 2 3 4 5 6

Page | E-8

ECAPM - Class I Railroads

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Empirical Capital Asset Pricing Model (ECAPM) Other Railroads ECAPM Model

Equity risk premium x Industry Beta x 75% = Industry Risk Premium (weighted)

6.94% 1.40 75% 7.29%

5.97% 1.40 75% 6.27%

Ex Ante, 3 Stage Dividend Growth Model4 5.53% 1.40 75% 5.81%

Equity risk premium x 25% = Equity Risk Premium (weighted)

6.94% 25% 1.74%

5.97% 25% 1.49%

5.53% 25% 1.38%

5.69% 25% 1.42%

5.50% 25% 1.38%

+ Risk‐Free Rate1

2.79%

3.50%

11.81% 11.81%

10.55% 10.55%

9.98% 9.98%

10.19% 10.19%

10.65% 10.65%

Ex Post

= Indicated Equity Rate Rounded Indicated Equity Rate

Supply Side

Dr. Damodaran Equity Risk Premium5 5.69% 1.40 75% 5.97%

Duff & Phelps6 5.50% 1.40 75% 5.78%

Notes: 1 2 3 4 5 6

Page | E-9

ECAPM - Other Railroads

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Dividend Growth Model

Company

Canadian National Railway Co. Canadian Pacific Railway Limited

CSX Corp. Genesee & Wyoming Kansas City Southern Norfolk Southern Corp. Union Pacific Corp. Mean Median

Current Dividend Yield (DY)

Proj EPS Growth Rate 5 Year (EG)

1.70% 1.00% 2.10% Nil 1.50% 2.30% 2.20%

9.50% 12.50% 8.00% 6.50% 9.00% 6.50% 7.00%

Proj Dividend Growth Rate 5 Year (DG) 13.50% 14.00% 9.50% Nil 10.50% 4.00% 9.50%

1.80% 1.90%

8.75% 8.50%

10.17% 10.00%

Cost of Capital Earnings Growth DY + EG 11.20% 13.50% 10.10% ‐‐‐ 10.50% 8.80% 9.20% 10.55% 10.30%

Cost of Capital Dividend Growth DY + DG 15.20% 15.00% 11.60% ‐‐‐ 12.00% 6.30% 11.70% 11.97% 11.85%

DGM ‐ Dividend Growth, Indicated Rate

11.85%

DGM ‐ Earnings Growth, Indicated Rate

10.30%

We placed most relaince on the median when selecting the indicated rate given the wide range in values.

Notes: Dividend Yield provided by Value Line. Genesee & Wyoming is shown in the above calculation, but is not included in the mean, median or model because they do not pay dividends.

Page | E-10

Dividend Growth Model

Class I Railroads and Other Railroads January 2, 2017 Assessment

2017 Capitalization Rate Study

Multi‐Stage Dividend Growth Model KE = (D1 / P0) + 0.67(G1) + 0.33(g) Where: KE Cost of Equity D1 / P0 Dividend Yield

G1 Growth Estimate, next five years g Stable Growth

Company

D1 / P0 Dividend Yield

G1 Growth Estimate, next five years

g Stable Growth

0.67 x G1

.33 x g

KE Cost of Equity

Canadian National Railway Co. Canadian Pacific Railway Limited CSX Corp. Kansas City Southern Norfolk Southern Corp. Union Pacific Corp.

1.70% 1.00% 2.10% 1.50% 2.30% 2.20%

9.50% 12.50% 8.00% 9.00% 6.50% 7.00%

4.60% 4.60% 4.60% 4.60% 4.60% 4.60%

6.37% 8.38% 5.36% 6.03% 4.36% 4.69%

1.52% 1.52% 1.52% 1.52% 1.52% 1.52%

9.58% 10.89% 8.98% 9.05% 8.17% 8.41%

Mean Median

9.18% 9.01%

Multi‐Stage DGM, Indicated Rate

9.01%

We placed the most reliance on the median to arrive at the indicated rate.

Notes: Dividend Yield provided by Value Line. Growth Estimates, Next 5 Years for Earnings provided Value Line.

We removed Genesee & Wyoming because they do not pay dividends.

Genesee & Wyoming

Page | E-11

Nil

6.50%

4.60%

4.36%

1.52%

N/A

Multi-Stage Dividend Growth Model

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Equity Component of the Direct Rate, Class I Railroads Company Canadian National Railway Co. Canadian Pacific Railway Limited CSX Corp. Kansas City Southern Norfolk Southern Corp. Union Pacific Corp.

Value Line P/E Ratio 18.50 16.80 18.30 17.90 17.70 19.50

Mean Median Selected Price to Earnings (P/E) Ratio

18.12 18.10 18.10

Indicated Equity Component of the Direct Rate

5.52%

Equity Component of the Direct Rate, Other Railroads Company Canadian National Railway Co. Canadian Pacific Railway Limited CSX Corp. Genesee & Wyoming Kansas City Southern Norfolk Southern Corp. Union Pacific Corp. Mean Median Selected Price to Earnings (P/E) Ratio Indicated Equity Component of the Direct Rate

Value Line P/E Ratio 18.50 16.80 18.30 21.30 17.90 17.70 19.50 18.57 18.30 18.30 5.46%

We placed the most reliance on the median price to earnings ratio for both the Class I and Other Railroads.

Notes: The Price/Earnings Ratio was downloaded from Value Line. *Trailing P/E Ratio

Page | E-12

Direct Equity Component

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Beta Analysis Company Canadian National Railway Co. Canadian Pacific Railway Limited CSX Corp. Genesee & Wyoming Kansas City Southern Norfolk Southern Corp. Union Pacific Corp.

Beta 1.00 1.20 1.20 1.40 1.15 1.10 1.05

Class I Railroads* Beta Mean Beta Median Unlevered and Relevered Mean^ Indicated Beta

1.12 1.13 1.13 1.13

Other Railroads^^ Beta Mean Beta Median Indicated Beta

1.40 1.40 1.40

We placed equal reliance on the mean and median when selecting the indicated beta for both Class I and Other Railroads.

Notes: * Does not include Genesee & Wyoming. ^ See the Unlevering Relevering Beta page for the calculation. We did not unlever and relever the beta for Other Railroads as it is only Genesee & Wyoming. ^^ Genesee & Wyoming only

Page | E-13

Beta Analysis

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Unlevering/Relevering Betas Guideline Companies for Class I Railroads

Unlevering of Betas Canadian National Railway Co.

Canadian Pacific Railway Limited CSX Corp. Kansas City Southern Norfolk Southern Corp. Union Pacific Corp.

Value Line

Capital Structure Tab of Cap Rate

Value Line

Formula

Actual Income Tax Rate

Actual Debt in Capital Structure

Actual Equity in Capital Structure

Levered Beta (Published)

Unlevered Beta

26.50% 26.00% 37.00% 33.00% 38.00% 37.50%

13.23% 23.10% 23.42% 19.88% 23.84% 15.69%

86.77% 76.90% 76.58% 80.06% 76.16% 84.31%

1.00 1.20 1.20 1.15 1.10 1.05 1.12

0.90 0.98 1.01 0.99 0.92 0.94

Average Beta

Relevering of Betas Canadian National Railway Co.

Canadian Pacific Railway Limited CSX Corp. Kansas City Southern Norfolk Southern Corp. Union Pacific Corp.

Formula

Capital Structure Tab of Cap Rate

Formula

Composite Income Tax Rate

Debt in Capital Structure

Equity in Capital Structure

Levered Beta

33.00% 33.00% 33.00% 33.00% 33.00% 33.00%

21.00% 21.00% 21.00% 21.00% 21.00% 21.00%

79.00% 79.00% 79.00% 79.00% 79.00% 79.00%

1.06 1.15 1.19 1.17 1.08 1.11 1.13

Average Beta

Page | E-14

Unlevering Relevering Beta

Class I Railroads and Other Railroads January 2, 2017, Assessment

2017 Capitalization Rate Study

Debt Rating Analysis Company

Ticker

CUSIP

Issue

Canadian National Railway Co.

CNI

136375BD3

Canadian National Railway Co.

CNI

136375BE1

Canadian National Railway Co. Canadian National Railway Co. CSX Corp. CSX Corp. CSX Corp. CSX Corp. CSX Corp. Kansas City Southern Norfolk Southern Corp. Norfolk Southern Corp. Norfolk Southern Corp. Norfolk Southern Corp. Norfolk Southern Corp. Norfolk Southern Corp. Norfolk Southern Corp. Norfolk Southern Corp. Norfolk Southern Corp. Union Pacific Corp. Union Pacific Corp. Union Pacific Corp. Union Pacific Corp. Union Pacific Corp.

CNI CNI CSX CSX CSX CSX CSX KSU NSC NSC NSC NSC NSC NSC NSC NSC NSC UNP UNP UNP UNP UNP

136375BA9 136375AY8 126408GH0 126408GK3 126408GJ6 126408AQ6 126408AM5 485170AF1 655844AV0 655844AK4 655844AX6 655844AW8 655844AF5 655844AQ1 655844AJ7 655844AE8 655844AA6 907818CX4 907818CF3 907818CW6 907818CU0 907818BY3

Nt Puttable Reset Secs Purs Nt Deb Nt Fixed Rt Nt Fixed Rt Nt Deb Deb Fxd Rt Deb Fixed Rt Sr Nt Nt Nt Nt Fixed Rt Nt Fixed Rt Sr Nt Fixed Rt Nt Nt Fixed Rt Nt Fxd Rt Deb Deb Fxd Rt Nt Sr Nt Deb

Maturity Date

Callable

S&P Industry

Coupon %

Yield to Maturity %

52‐Week Low Price

52‐Week High Price

Sales Price

Current Yield

7/15/2028

Yes

Railroads

6.9

3.34

132.85

133.39

5.17

7/15/2018

Railroads

6.71

N/A

134.35

134.99

4.97

5/15/2023 7/15/2036 10/1/2036 5/1/2037 5/1/2017 9/15/2022 5/15/2022 12/15/2025 3/15/2105 5/15/2097 5/17/2029 5/17/2025 5/1/2037 2/15/2031 5/15/2027 5/15/2017 3/1/2021 5/1/2037 2/1/2029 5/1/2017 5/1/2034 2/1/2028

Yes No Yes Yes Yes No No Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes No

Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads Railroads

6.8 7.62 6 6.15 5.6 8.1 8.62 7 6 7.9 5.64 5.59 7.05 7.25 7.8 7.7 9 6.15 6.62 5.65 6.25 7.12

1.69 3.48 4.28 4.36

107.53 N/A 119.02 122.4

107.53 0 119.02 122.4

106.99 122.97 122.63 123.79

6.35 6.2 4.89 4.96

3.24 3.24 N/A 5.06 5.43 3.92 3.48 4.45 3.88 3.7 1.33 3.51 4.23 3.38 1.48 4.03 3.66

121.87 125.18 N/A 115.17 143.02 114.42 114.06 135.04 133.79 133.52 102.3

121.87 125.18 N/A 115.17 143.02 114.42 114.06 135.04 133.79 133.52 102.3 0 123.25 129.9 101.53 125.76 129.02

124.44 125.58 N/A 118.31 144.79 116.52 114.95 134.37 136.04 134.57 101.35 120.34 125.76 131.60 100.72 127.31 130.94

6.5 6.86 N/A 5.07 5.45 4.84 4.86 5.24 5.32 5.79 7.59 7.47 4.89 5.03 5.6 4.9 5.44

123.25 129.9 101.53 125.76 129.02

Mean

3.70

Mean

5.61

Median

3.79

Median

5.28

Companies not available: Genesse & Wyoming Canadian Pacific Railway Limited Data compiled from S&P Capital IQ McGraw Hill Financial on March 1, 2017

Page | E-15

Debt Rating Analysis

Class I Railroads and Other Railroads January 2, 2017 Assessment

2017 Capitalization Rate Study

Calculation of Market to Book Ratios for Railroad Market Segment December 31, 2016 calendar year information for the January 2, 2017 Assessment

A market to book ratio over one would be an indication of no obsolescence.

Market Value estimates for Common Equity are from Value Line. Market Value Estimates for Long‐Term Debt are from the company's Annual Report or 10‐K. Book Value amounts are from the company's balance sheet as listed in the 10‐K or Annual Report

Market to Book Ratio for Equity Company Canadian National Railway Co. Canadian Pacific Railway Limited

CSX Corp. Genesee & Wyoming Kansas City Southern Norfolk Southern Corp. Union Pacific Corp.

Market Value of Common Equity from Value Line 49,296,079,000 21,190,092,000 32,323,533,000 4,439,969,271 9,163,584,075 30,531,318,936 81,677,783,136

Book Value of Common Equity

11,053,576,800 ^ 3,445,444,800 ^ 11,694,000,000 3,187,121,000 4,089,900,000 12,409,000,000 19,932,000,000 Class I Average* Other Railroads Average**

Market to Book Ratio 4.46 6.15 2.76 1.39 2.24 2.46 4.10 3.90 1.39

Source 2016 Full Year Financials Report, page 55 2016 Annual Report, page 98 2016 10‐K, page 23 2016 10‐K, page F‐3 2016 10‐K, page 52 2016 10‐K, page K 39 2016 10‐K, page 49

Market to Book Ratio for Debt Company Canadian National Railway Co. Canadian Pacific Railway Limited

CSX Corp. Genesee & Wyoming Kansas City Southern Norfolk Southern Corp. Union Pacific Corp.

Page | E-16

Market Value of Long‐Term Debt from 10‐K 9,000,163,200 7,433,848,800 12,096,000,000 2,303,531,000 2,303,800,000 11,626,000,000 15,900,000,000

Book Value Long Term Debt ^ ^

8,145,877,600 ^ 6,467,843,200 ^ 11,293,000,000 2,359,453,000 2,296,900,000 10,112,000,000 15,000,000,000 Class I Average* Other Railroads Average**

Market to Book Ratio 1.10 1.15 1.07 0.98 1.00 1.15 1.06 1.08 0.98

Source 2016 Full Year Financials Report, page 55 2016 Annual Report, page 117 2016 10‐K, page 104 2016 10‐K, page F‐42 2016 10‐K, page 44 2016 10‐K, page K 39 2016 10‐K, page 72

Market to Book Ratios

Class I Railroads and Other Railroads January 2, 2017 Assessment

2017 Capitalization Rate Study

Class I Railroads Application of Capital Structure as determined in the Capitalization Rate Study Capital Structure Common Equity Long‐term Debt

79.00% 21.00%

Market to Book

3.90 1.08 Overall Market to Book Ratio

Composite 3.08 0.23 3.31

Other Railroads Application of Capital Structure as determined in the Capitalization Rate Study Capital Structure Common Equity Long‐term Debt

69.00% 31.00%

Market to Book

1.39 0.98 Overall Market to Book Ratio

Composite 0.96 0.30 1.26

Notes: Canadian Dollars converted to U.S. Dollars using 12/2016 exchange rate of 0.7448 from the Bank of Canada

Page | E-17

Market to Book Ratios

Appendix F - Ex Ante Calculation

Ex Ante Calculation January 2, 2017, Assessment

2017 Capitalization Rate Study

3 Stage Dividend Growth Model, Implied Equity Risk Premium

Implied Market Rate Range =

7.37%

Mean Median

7.84% 7.84%

Market Rate Used

8.32%

(Less) Risk-Free Rate

2.79%

Equals Equity Risk Premium

5.53%

8.32%

Assumptions:

Stages 1st Stage

Growth

Model 1

1-5 years

Constant @:

12.09%

2nd Stage

6-15 years

Linear from:

3rd Stage

Years

15 years -perpetuity GDP Growth: GDP Growth^^:

Real and Inflation Real + Inflation

Model 1 Start Price† Expected Dividends†† 12.090% 1st Stage 12.090% Growth Rates 12.090% 12.090% 11.40% 10.717% 10.031% 9.345% 8.658% 2nd Stage Growth Rates 7.972% 7.285% 6.599% 5.913% 5.226% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540%

Page |F -1

11.40%

to Inflation^

2.80%

1.57%

4.54%

3.17%

* Linear from 1st 1.74% Stage to 3rd Stage

3.17%

Model 2 7.37%

Model 2

Starting Industry

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 2060 2061 2062 2063 2064 2065 2066 2067

1.60%

12.09%

4.54%

Model 1 8.32%

Impled Market Return

Year

11.40% to Real Growth**

Model 2 *

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

S & P 500

Starting Industry

(2,184.88) 49.09 55.02 61.68 69.13 77.49 86.33 95.58 105.17 115.00 124.95 134.91 144.74 154.30 163.42 171.96 179.77 187.93 196.46 205.38 214.70 224.45 234.64 245.29 256.43 268.07 280.24 292.97 306.27 320.17 334.71 349.90 365.79 382.39 399.76 417.90 436.88 456.71 477.45 499.12 521.78 545.47 570.24 596.12 623.19 651.48 681.06 711.98 744.30 778.09 813.42 850.35

Start Price† Expected Dividends†† 12.090% 1st Stage Growth 12.090% Rates 12.090% 12.090% 11.40% 10.580% 9.757% 8.934% 2nd Stage 8.110% Growth 7.287% Rates 6.463% 5.640% 4.817% 3.993% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170%

S & P 500 $ (2,184.88) $ 49.09 $ 55.02 $ 61.68 $ 69.13 $ 77.49 $ 86.33 $ 95.46 $ 104.78 $ 114.14 $ 123.40 $ 132.39 $ 140.94 $ 148.89 $ 156.06 $ 162.30 $ 167.44 $ 172.75 $ 178.23 $ 183.88 $ 189.70 $ 195.72 $ 201.92 $ 208.32 $ 214.93 $ 221.74 $ 228.77 $ 236.02 $ 243.50 $ 251.22 $ 259.19 $ 267.40 $ 275.88 $ 284.62 $ 293.65 $ 302.96 $ 312.56 $ 322.47 $ 332.69 $ 343.24 $ 354.12 $ 365.34 $ 376.92 $ 388.87 $ 401.20 $ 413.92 $ 427.04 $ 440.57 $ 454.54 $ 468.95 $ 483.82 $ 499.15

Ex Ante Calculation

Ex Ante Calculation January 2, 2017, Assessment 2068 2069 2070 2071 2072 2073 2074 2075 2076 2077 2078 2079 2080 2081 2082 2083 2084 2085 2086 2087 2088 2089 2090 2091 2092 2093 2094 2095 2096 2097 2098 2099 2100 2101 2102 2103 2104 2105 2106 2107 2108 2109 2110 2111 2112 2113 2114 2115 2116 2117 2118 2119 2120 2121 2122 2123 2124 2125 2126 2127 2128 2129 2130 2131 2132

4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 3rd Stage Growth Rates 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% 4.540% Reversion`` Implied Market Return

2017 Capitalization Rate Study

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

888.95 929.31 971.50 1,015.61 1,061.72 1,109.92 1,160.31 1,212.99 1,268.06 1,325.63 1,385.81 1,448.73 1,514.50 1,583.26 1,655.14 1,730.28 1,808.84 1,890.96 1,976.81 2,066.55 2,160.38 2,258.46 2,360.99 2,468.18 2,580.23 2,697.38 2,819.84 2,947.86 3,081.69 3,221.60 3,367.86 3,520.76 3,680.60 3,847.70 4,022.39 4,205.01 4,395.91 4,595.49 4,804.12 5,022.23 5,250.24 5,488.60 5,737.78 5,998.28 6,270.60 6,555.29 6,852.90 7,164.02 7,489.26 7,829.28 8,184.73 8,556.31 8,944.77 9,350.86 9,775.39 10,219.19 10,683.14 11,168.16 11,675.19 12,205.25 12,759.37 13,338.64 13,944.21 14,577.28 32.49 8.32%

3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3rd Stage 3.170% Growth 3.170% Rates 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% 3.170% Reversion`` Implied Market Return

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

514.98 531.30 548.14 565.52 583.45 601.94 621.02 640.71 661.02 681.97 703.59 725.90 748.91 772.65 797.14 822.41 848.48 875.38 903.13 931.75 961.29 991.76 1,023.20 1,055.64 1,089.10 1,123.63 1,159.25 1,195.99 1,233.91 1,273.02 1,313.38 1,355.01 1,397.96 1,442.28 1,488.00 1,535.17 1,583.84 1,634.04 1,685.84 1,739.28 1,794.42 1,851.30 1,909.99 1,970.53 2,033.00 2,097.45 2,163.94 2,232.53 2,303.30 2,376.32 2,451.65 2,529.36 2,609.55 2,692.27 2,777.61 2,865.66 2,956.50 3,050.23 3,146.92 3,246.68 3,349.60 3,455.78 3,565.33 3,678.35 20.55 7.37%

*S&P 500 Earnings and Estimate Report dated 1/26/2017, http://us.spindices.com/indices/equity/sp-500 **First Quarter 2017 Survey of Professional Forecasters - Philadelphia Federal Reserve Release Date 2/10/2017 ^Inflation Range = Federal Reserve, Treasuries Inflation - Indexed ^^GDP Growth = Real growth + Inflation † Start Price is the S&P 500 Index -2016 4th quarter hi-low average downloaded from Yahoo! Finane ††Expected Dividends from Political Calculations article, The Future for S&P 500 Dividends in 2017, Published 12/22/2016

``Reversion Calculation: A. Last period's expected dividends, growth applied B. Implied Market Risk Premum Less Long-Term Growth C. A / B

D. C / ((1 + Implied Market Risk Premium) ^ Last Period +1)

Page |F -2

####### ########## 15,239.09 3,794.95 3.78% 4.20% 403,488.93 90,392.10 32.49 20.55

Ex Ante Calculation

Guideline Companies

2017 Capitalization Rate Study

Appendix G – Guideline Companies

Guideline Company Addendum Contents Table of Contents Market Segment: Electric ....................................................................................................................................... 1 Companies Included in the Electric Market Segment ......................................................................................... 1 Companies Not Included in the Electric Market Segment ................................................................................ 10 Market Segment: Gas Distribution ....................................................................................................................... 29 Companies Included in the Gas Distribution Market Segment ......................................................................... 29 Companies Not Included in the Gas Distribution Market Segments ................................................................ 35 Market Segment: Gas Transmission Pipeline and Fluid Transportation Pipeline ................................................ 39 Companies Included in the Gas Transmission Pipeline Market Segment ........................................................ 39 Companies Included in the Fluid Transportation Pipeline Market Segment .................................................... 42 Companies Not Included in the Gas Transmission Pipeline or Fluid Transportation Market Segments.......... 46 Market Segment: Railroad, Class I and Other Railroads ...................................................................................... 87 Companies Included in the Railroad Market Segment...................................................................................... 87 Companies Not Included in the Railroad Market Segment............................................................................... 90 Note: The information below is verbatim from Value Line and the company’s website.

Market Segment: Electric Companies Included in the Electric Market Segment ALLETE, Inc. Company Summary from Value Line: ALLETE, Inc. is the parent of Minnesota Power, which supplies electricity to 146,000 customers in northeastern MN, & Superior Water, Light & Power in northwestern WI. Electric rev. breakdown: taconite mining/processing, 26%; paper/wood products, 9%; other industrial, 8%; residential, 12%; commercial, 13%; wholesale, 16% other, 16%. ALLETE Clean Energy owns renewable energy projects. Acq’d U.S. Water Services 2/15. Has real estate operation in FL. Generating sources: coal & lignite, 51%; wind, 11%; other, 3%; purchased, 35%. Fuel costs: 22% of revs. ’15 deprec. rate: 3.3%. Has 1,600 employees. Additional Company Information from Website: ALLETE's Minnesota Power electric utility serves 144,000 residents, 16 municipalities and some of the nation's largest industrial customers. Other businesses include BNI Energy, delivers energy solutions in North Dakota; ALLETE Clean Energy, a developer and operator of energy projects throughout the US with limited environmental impact; Superior Water, Light & Power, serves electric, water and gas to residents in Superior, Wisconsin; ALLETE Renewable Resources, which operates and maintains wind generation facilities in North Page | G – 1

Electric

Guideline Companies

2017 Capitalization Rate Study

Dakota; and U.S. Water Services, an integrated industrial water management company serving customers in USA and Canada.1 Why was the company included? This company is similar (and is one of) to the Electric Companies that the State Assessed Section is responsible for valuing. The company engages in providing energy in the upper Midwest. Alliant Energy Corp. Company Summary from Value Line: Alliant Energy Corp., formerly named Interstate Energy, is a holding company formed through the merger of WPL Holdings, IES Industries, and Interstate Power. Supplies electricity, gas, and other services in Wisconsin, Iowa, and Minnesota. Elect. revs. by state: WI, 44%; IA, 55%; MN, 1%. Elect. rev.: residential, 39%; commercial, 24%; industrial, 30%; wholesale, 6%; other, 1%. Fuel sources, 2015: coal, 46%; gas, 19%; other, 35%. Fuel costs: 49% of revs. 2015 depreciation rate: 5.7%. Estimated plant age: 13 years. Has 4,070 employees. Additional Company Information from Website: We serve approximately 950,000 electric customers and 410,000 natural gas customers. We have approximately 4,000 employees. We are traded on the New York Stock Exchange under the ticker LNT.2 Why was the company included? This company is similar (and is one of) to the Electric Companies that the State Assessed Section is responsible for valuing. The company engages in providing energy in the upper Midwest. Ameren Corporation Company Summary from Value Line: Ameren Corporation is a holding company formed through the merger of Union Electric and CIPSCO. Acq’d CILCORP 1/03; Illinois Power 10/04. Has 1.2 mill. electric and 127,000 gas customers in Missouri; 1.2 mill. electric and 813,000 gas customers in Illinois. Discontinued nonregulated power-generation operation in ’13. Electric rev. breakdown: residential, 45%; commercial, 33%; industrial, 12%; other, 10%. Generating sources: coal, 67%; nuclear, 23%; hydro, 4%; purchased & other, 6%. Fuel costs: 30% of revs. ’15 reported deprec. rates: 3%-4%. Has 8,500 employees. Additional Company Information from Website: Ameren Corporation is a Fortune 500 company that trades on the New York Stock Exchange under the symbol AEE. It is the parent company of Ameren Illinois, based in Collinsville, Ill., and Ameren Missouri in St. Louis. Ameren Transmission Company, also based in St. Louis, designs and builds regional transmission projects. Ameren was created by the combination of three Illinois utilities (CIPSCO Incorporated, CILCO Inc. and Illinois Power Company) and Union Electric Company of St. Louis. The name comes from combining the words American and Energy. Employing more than 8,500 personnel, Ameren powers the quality of life for 2.4 million electric customers and more than 900,000 natural gas customers across a 64,000-square-mile area. Ameren Missouri ranks as the largest electric power provider in Missouri, and Ameren Illinois ranks as Illinois' third largest natural gas distribution operation in total number of customers. Ameren companies generate a net capacity of nearly 10,200 megawatts of electricity and own more than 7,500 circuit miles of transmission lines. Ameren's rates are some of the lowest in the nation.3 http://www.allete.com/OurBusinesses, Accessed 12/19/16 http://www.alliantenergy.com/AboutAlliantEnergy/CompanyInformation/index.htm, Accessed 12/19/16 3 https://www.ameren.com/about/facts, accessed 12/19/2016 1 2

Page | G - 2

Electric

Guideline Companies

2017 Capitalization Rate Study

Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company engages in providing energy in the Midwest. American Electric Power Company, Inc. Company Summary from Value Line: American Electric Power Company, Inc. (AEP), through 10 operating utilities, serves 5.4 mill. customers in Arkansas, Kentucky, Indiana, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, & West Virginia. Electric rev. breakdown: residential, 40%; commercial, 23%; industrial, 19%; wholesale, 15%; other, 3%. Sold 50% stake in Yorkshire Holdings (British utility) ’01; SEEBOARD (British utility) ’02; Houston Pipeline ’05; commercial barge operation in ’15. Generating sources not available. Fuel costs: 37% of revs. ’15 reported deprec. rates (utility): 0.4%- 11.8%. Has 17,400 employees. Additional Company Information from Website: At AEP, we dedicate ourselves to providing reliable service and shareholder value, with continued focus on safety. AEP is one of the largest electric utilities in the U.S., serving nearly 5.4 million customers in 11 states. We own: A more than 40,000-mile electricity transmission network – the largest in the nation; more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined; and approximately 31,000 megawatts of generating capacity. Our major businesses include: Regulated Utility Operations - seven regional electric utilities serving customers across 11 states; Transmission - the nation's strongest transmission network, with a national vision for the nation's power grid; Power Generation - one of the nation's largest, most efficient, and most innovative generation fleets; and AEP Energy Partners - providing electric supply to customers in deregulated electricity markets.4 Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company engages in providing energy in the Midwest. Black Hills Corporation Company Summary from Value Line: Black Hills Corporation is a holding company for utilities that serve 207,000 electric customers in CO, SD, WY and MT, and 1 million gas customers in NE, IA, KS, CO, WY, and AR. Mines coal & has a gas & oil E&P business. Acq’d Mallon Resources 3/03; Cheyenne Light 1/05; utility ops. from Aquila 7/08; SourceGas 2/16. Discont. telecom in ’05; oil marketing in ’06; gas marketing in ’11. Electric revenue breakdown: res’l, 31%; comm’l, 38%; ind’l, 16%; other, 15%. Generating sources: coal, 33%; other, 4%; purch., 63%. Fuel costs: 35% of revs. ’15 deprec. rate: 3.3%. Has 3,100 employees. Additional Company Information from Website: We are a growth-oriented, vertically integrated energy company with a mission of improving life with energy and a vision to be the energy partner of choice. Based in Rapid City, South Dakota, the company serves 1.2 million natural gas and electric utility customers in eight states. The company's non-regulated businesses generate wholesale electricity and produce natural gas, oil and coal.5 Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company engages in providing energy in the Midwest.

4 5

https://www.aep.com/about/, accessed 12/19/2016 https://www.blackhillscorp.com/about, accessed on 12/19/2016

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CenterPoint Energy, Inc. Company Summary from Value Line: CenterPoint Energy, Inc. is a holding company for Houston Electric, which serves 2.4 million customers in Houston and environs, and gas utilities with 3.3 million customers in Texas, Minnesota, Arkansas, Louisiana, and Oklahoma. Owns 55.4% of Enable Midstream Partners. Discontinued Texas Genco Holdings in ’04. Electric revenue breakdown: residential, 52%; commercial, 31%; industrial, 15%; other, 2%. Does not own generating assets. Gas costs: 42% of revenues. ’15 depreciation rate: 6.0%. Has 7,500 employees. Additional Company Information from Website: CenterPoint Energy, Inc., headquartered in Houston, Texas, is a domestic energy delivery company that includes electric transmission & distribution, natural gas distribution and energy services operations. With more than 7,400 employees, CenterPoint Energy and its predecessor companies have been in business for more than 140 years.6 We sell and deliver natural gas to 3.2 million homes and businesses in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas, including the high-growth areas of Houston and Minneapolis. We maintain the wires, poles and electric infrastructure serving our 5,000-square-mile electric service territory in the Houston metropolitan area. While our employees ensure the reliable delivery of power from power plants to homes and businesses, we neither generate power nor sell it to customers. Our natural gas marketing business, CenterPoint Energy Services (CES), sells non rate-regulated natural gas and related services to approximately 100,000 commercial, industrial and wholesale customers in 26 states. For over 80 years, HSP has provided heating and cooling solutions for Minnesota homeowners. We proudly offer expert repair, along with service and maintenance plans, and professional sales for both gas and electric equipment.7 Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in the Houston metropolitan area. CMS Energy Corporation Company Summary from Value Line: CMS Energy Corporation is a holding company for Consumers Energy, which supplies electricity and gas to lower Michigan (excluding Detroit). Has 1.8 million electric, 1.7 million gas customers. Has 1,034 megawatts of nonregulated generating capacity. Sold Palisades nuclear plant in ’07. Electric revenue breakdown: residential, 43%; commercial, 34%; industrial, 16%; other, 7%. Generating sources: coal, 44%; gas, 10%; other, 3%; purchased, 43%. Fuel costs: 47% of revenues. ’15 reported deprec. rates: 3.5% electric, 2.8% gas, 8.7% other. Has 7,400 employees. Additional Company Information from Website: CMS Energy Corporation’s business strategy is focused primarily on its principal subsidiary, Consumers Energy Company, Michigan’s largest electric and natural gas utility, serving 6.7 million of the state’s 10 million residents. With our subsidiary, CMS Enterprises Company, we are also engaged in independent power generation in several states. Our business also includes EnerBank® USA, which specializes in providing unsecured home improvement payment option programs for homeowners through nationwide dealer networks.8 Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in the Midwest. http://www.centerpointenergy.com/en-us/corporate, accessed on 12/19/2016 http://www.centerpointenergy.com/en-us/corporate/about-us/company-overview, accessed on 12/19/2016 8 http://www.cmsenergy.com/about-cms-energy/default.aspx, accessed 12/19/2016 6 7

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DTE Energy Company Company Summary from Value Line: DTE Energy Company is a holding company for DTE Electric (formerly Detroit Edison), which supplies electricity in Detroit and a 7,600-square-mile area in southeastern Michigan, and DTE Gas (formerly Michigan Consolidated Gas). Customers: 2.1 mill. electric, 1.3 mill. gas. Has various nonutility operations. Electric revenue breakdown: residential, 45%; commercial, 35%; industrial, 13%; other, 7%. Generating sources: coal, 67%; nuclear, 17%; gas, 1%; purchased, 15%. Fuel costs: 54% of revenues. ’15 reported deprec. rates: 3.5% electric, 2.6% gas. Has 10,000 employees. Additional Company Information from Website: DTE Energy (NYSE: DTE) is a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide. Its operating units include an electric utility serving 2.2 million customers in Southeastern Michigan and a natural gas utility serving 1.2 million customers in Michigan. The DTE Energy portfolio includes non-utility energy businesses focused on power and industrial projects, natural gas pipelines, gathering and storage, and energy marketing and trading. As one of Michigan's leading corporate citizens, DTE Energy is a force for growth and prosperity in the 450 Michigan communities it serves in a variety of ways, including philanthropy, volunteerism and economic progress. Information about DTE Energy is available on the DTE Energy home page, Twitter account and Facebook page. DTE Energy has more than 10,000 employees in utility and non-utility subsidiaries involved in a wide range of energy-related businesses. The company's growing non-utility businesses are built around the strengths, skills and assets of DTE Energy's electric and gas utilities.9 Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in the Midwest. Entergy Corporation Company Summary from Value Line: Entergy Corporation supplies electricity to 2.9 million customers through subsidiaries in Arkansas, Louisiana, Mississippi, Texas, and New Orleans (regulated separately from Louisiana). Distributes gas to 200,000 customers in Louisiana. Has a nonutility subsidiary that owns six nuclear units (one no longer operating). Electric revenue breakdown: residential, 38%; commercial, 27%; industrial, 26%; other, 9%. Generating sources: gas, 35%; nuclear, 31%; coal, 7%; purchased, 27%. Fuel costs: 33% of revenues. ’15 reported depreciation rate: 2.9%. Has 13,600 employees. Additional Company Information from Website: Entergy Corporation is an integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including nearly 10,000 megawatts of nuclear power. Entergy delivers electricity to 2.8 million utility customers in Arkansas, Louisiana, Mississippi and Texas. Entergy has annual revenues of approximately $11.5 billion and more than 13,000 employees. Entergy Corporation is an integrated energy company engaged primarily in electric power production and retail.10

9 https://www.newlook.dteenergy.com/wps/wcm/connect/dte-web/home/about-dte/common/about-dte/about-dte, accessed 12/21/2016 10 http://entergy.com/about_entergy/, accessed 12/21/2016

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Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in Arkansas, Louisiana, Mississippi, and Texas. MGE Energy, Inc. Company Summary from Value Line: MGE Energy Inc. is a holding company for Madison Gas and Electric, which provides electric service to approximately 146,000 customers in a 316-square-mile area of Dane County and gas service to 152,000 customers in 1,682 square miles in seven counties in Wisconsin. Electric revenue breakdown, ’15: residential, 33%; commercial, 53%; industrial, 5%; public authorities and other, 9%. Generating sources, ’15: coal, 48%; purchased power, 40%; natural gas and other, 12%. Fuel costs: 24% of revenues. ’15 reported depreciation rate: 3.6%. Has 708 employees. Additional Company Information from Website: MGE Energy, a public utility holding company, is headquartered in the state capital Madison, Wis. MGE Energy trades on NASDAQ with the stock ticker MGEE. MGE Energy is dedicated to long-term value for its shareholders. We have increased our dividend for more than 40 consecutive years and have paid dividends for more than 100 years. MGE Energy is the parent company of the following: Madison Gas and Electric Company (MGE) provides natural gas and electric service in south-central and western Wisconsin. MGE Transco Investment, LLC owns interest in the American Transmission Company. MGE Power owns assets in the West Campus Cogeneration Facility in Madison, Wis. and the Elm Road Generating Station in Oak Creek, Wis. MAGAEL, LLC holds title to properties acquired for future utility plant expansion. Central Wisconsin Development Corporation promotes business grown in MGE's service area. MGE Services, LLC provides construction and other services. Its subsidiary NGV Fueling Services, LLC, installs, owns and maintains equipment used to fuel natural gas-powered vehicles.11 Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in Wisconsin. NorthWestern Corporation Company Summary from Value Line: NorthWestern Corporation (doing business as NorthWestern Energy) supplies electricity & gas in the Upper Midwest and Northwest, serving 416,000 electric customers in Montana and South Dakota and 277,000 gas customers in Montana (83% of gross margin), South Dakota (15%), and Nebraska (2%). Electric revenue breakdown: residential, 40%; commercial, 51%; industrial, 5%; other, 4%. Generating sources are not provided by company. Fuel costs: 40% of revenues. ’14 reported depreciation rate: 2.9%. Has 1,600 employees. Additional Company Information from Website: For more than 100 years, NorthWestern Energy has delivered the energy and exceptional service that our customers and communities count on – safely, efficiently and responsibly. We own and operate natural gas production, transmission and distribution systems serving 279,200 customers. We own and operate a diverse generation fleet of wind, water, natural gas and coal-fired resources* and the high-voltage transmission system and distribution system that reliably delivers responsibly-produced electricity to more than 421,800 customers daily. Our regulated electricity utility business in Montana includes generation, transmission and distribution. Our service territory covers approximately 107,600 square miles or about 73% of Montana’s land area. Our South Dakota electric utility business operates as a vertically integrated generation transmission and distribution utility. We have the exclusive right to serve an area in South Dakota comprised of 25 counties. Our 11

https://www.mgeenergy.com/about-us/about.htm, accessed 12/21/2016

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regulated natural gas utility business in Montana includes production, storage transmission and distribution. Since 2010, we have acquired gas production and gathering system assets as part of an overall strategy to provide rate stability and customer value through the addition of regulated assets that are not subject to market forces. We provide natural gas to 60 South Dakota communities and also transport natural gas for eight gas-marketing firms and three large end-user accounts. In Nebraska we provide natural gas service to four communities and transport natural gas for three gas-marketing firms and one end-user account.12 Why was the company included? This company is located in the Electric Utility (West) Value Line Industry and operates in Montana, Wyoming, South Dakota, and Nebraska with generating facilities in North Dakota and Iowa. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. 15% of their gross margin is derived from South Dakota. OGE Energy Corporation Company Summary from Value Line: OGE Energy Corp. is a holding company for Oklahoma Gas and Electric Company (OG&E), which supplies electricity to 830,000 customers in Oklahoma (84% of electric revenues) and western Arkansas (8%); wholesale is (8%). Owns 26.3% of Enable Midstream Partners. Electric revenue breakdown: residential, 41%; commercial, 24%; industrial, 16%; other, 19%. Generating sources: coal, 34%; gas, 30%; wind, 5%; purchased, 31%. Fuel costs: 39% of revenues. ’15 reported depreciation rate (utility): 2.9%. Has 2,600 employees. Additional Company Information from Website: OGE Energy Corp. (NYSE: OGE), is headquartered in Oklahoma City and is the parent company of Oklahoma Gas and Electric Company (OG&E), a regulated electric utility serving more than 800,000 customers in Oklahoma and western Arkansas. In addition, OGE holds 26.3 percent limited partner interest and 50 percent general partner interest in Enable Midstream Partners, LP. OG&E serves more than 800,000 retail customers in Oklahoma and western Arkansas, and a number of wholesale customers throughout the region. OG&E, with about 6,800 megawatts of capacity, generates electricity from natural gas, western coal, and wind. OG&E's electric transmission and distribution systems span 30,000 square miles.13 Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in Oklahoma and Arkansas. Otter Tail Corporation Company Summary from Value Line: Otter Tail Corporation is the parent of Otter Tail Power Company, which supplies electricity to over 130,000 customers in Minnesota (50% of retail elec. revs.), North Dakota (41%), and South Dakota (9%). Electric rev. breakdown, ’15: residential, 32%; commercial & farms, 35%; industrial, 30%; other, 3%. Fuel costs: 15.5% of revenues. Also has operations in manufacturing and plastics. 2015 depr. rate: 2.9%. Has 2,005 employees. Off. and dir. own 1.6% of common stock; Cascade Investment, LLC, 9.1%; The Vanguard Group, 7.1%; BlackRock, Inc., 5.4% (3/16 Proxy). Additional Company Information from Website: With offices in Fargo, North Dakota and Fergus Falls, Minnesota, Otter Tail Corporation is a growing company with approximately $800 million in revenues and approximately 1,900 employees across several industries. Our diversified operations include an electric utility and manufacturing businesses. Otter Tail Corporation delivers 12 13

http://www.northwesternenergy.com/our-company/about-us, accessed 12/22/2016 http://phx.corporate-ir.net/phoenix.zhtml?c=106374&p=irol-irhome, accessed 12/22/2016

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value by building strong electric utility and manufacturing platforms. For our shareholders we deliver above average returns through operational excellence and growing our businesses. For our customers we commit to quality and value in everything we do. For our employees we provide an environment of opportunity with accountability where people are valued and empowered to do their best work.14 Why was the company included? This company is similar to (and is one of) the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in the Midwest. Vectren Corporation Company Summary from Value Line: Vectren is a holding company formed through the merger of Indiana Energy and SIGCORP. Supplies electricity and gas to an area nearly two-thirds of the state of Indiana. Owns gas distribution assets in Ohio. Has a customer base exceeding 1.1 million. 2014 Electricity revenues: residential, 37%; commercial, 27%; industrial, 35%; other, 1%. 2014 Gas revenues: residential, 67%; commercial, 28%; other, 5%. Nonutility operations include Infrastructure Services and Energy Services. Est’d plant age: electric, 8 years. ’14 depreciation rate: 4.8%. Has 5,500 employees. Additional Company Information from Website: Vectren Corporation is an energy holding company headquartered in Evansville, Ind. Vectren's wholly owned subsidiary, Vectren Utility Holdings, Inc., serves as the intermediate holding company for three operating utilities: Vectren Energy Delivery of Indiana - North (Vectren North), Vectren Energy Delivery of Indiana South (Vectren South) and Vectren Energy Delivery of Ohio (VEDO). Vectren North provides energy delivery services to 570,000 natural gas customers located in central and southern Indiana. Vectren South provides energy delivery services to 142,000 electric customers and 111,000 gas customers located in southwestern Indiana. Vectren South also owns and operates electric generation to serve its electric customers and optimizes those assets in the wholesale power market. VEDO provides energy delivery services to approximately 314,000 natural gas customers located in west central Ohio. Vectren's electric customers are served by a mixed portfolio of 1,000 megawatts (MW) of coal-fired generation and up to 273 MW of gas-fired generation. Also, purchases from the Ohio Valley Electric Corporation (OVEC) of up to 32 MW and additional load from the Midcontinent Independent System Operator (MISO) power pool occasionally supplement Vectren load requirements. Furthermore, interruptible load and demand side management initiatives can yield more than 60 MW of energy savings to meet peak demand if needed. Vectren's Nonutility Group is involved in Infrastructure Services and Energy Services. Infrastructure Services provides underground construction, repair, and replacement services (Miller Pipeline and Minnesota Limited.) Energy Services provides energy performance contracting services and renewable energy project development (Energy Systems Group).15 Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in Indiana and Ohio. WEC Energy Group Company Summary from Value Line: WEC Energy Group, Inc. (formerly Wisconsin Energy) is a holding company for utilities that provide electric, gas & steam service in WI & gas service in IL, MN, & MI. Customers: 1.6 mill. elec., 2.8 mill. gas. Acq’d Integrys Energy 6/15. Sold Point Beach nuclear plant in ’07. Elec. rev. breakdown: residential, 35%; small 14 15

http://www.ottertail.com/about.cfm, accessed 12/22/2016 https://www.vectren.com/Corporate/About_Vectren.jsp, accessed 12/22/2016

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commercial & industrial, 31%; large commercial & industrial, 21%; other, 13%. Generating sources: coal, 52%; gas, 16%; renewables, 3%; purchased, 29%. Fuel costs: 38% of revs. ’15 reported deprec. rates (utility): 1.2%3.0%. Has 8,400 employees. Additional Company Information from Website: We are one of the nation’s largest electric and natural gas delivery companies, with deep operational expertise, scale and financial resources to meet the region’s future energy needs. We focus on reliable service, customer satisfaction and shareholder value. We’re privileged to provide vital services to nearly 4.4 million customers in Wisconsin, Illinois, Michigan and Minnesota. Our scale and geographic proximity allow for operating efficiencies across our 70,000 miles of electric distribution lines, 44,000 miles of natural gas distribution and transmission lines, and 8,800 megawatts of reliable power plant capacity. We’re committed to delivering worldclass reliability and the very best customer care – anywhere. Our customers are at the heart of our business, and we work every day to help grow and support the communities we serve. As a Fortune 500 company, we value and develop our employees who are making a difference in a mission that matters.16 MILWAUKEE, June 29, 2015 /PRNewswire/ -- Wisconsin Energy Corporation announced today it has completed the acquisition of Integrys Energy – forming the WEC Energy Group (NYSE: WEC). 17 Why was the company included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in the Midwest. This company completed an acquisition of Integrys (operations in Minnesota) in June 2015. Xcel Energy Company Summary from Value Line: Xcel Energy Inc. is the parent of Northern States Power, which supplies electricity to Minnesota, Wisconsin, North Dakota, South Dakota & Michigan & gas to Minnesota, Wisconsin, North Dakota & Michigan; Public Service of Colorado, which supplies electricity & gas to Colorado; & Southwestern Public Service, which supplies electricity to Texas & New Mexico. Customers: 3.5 mill. electric, 1.9 mill. gas. Elec. rev. breakdown: residential, 31%; sm. comm’l & ind’l, 36%; lg. comm’l & ind’l, 18%; other, 15%. Generating sources not available. Fuel costs: 43% of revs. ’15 reported depr. rate: 2.8%. Has 11,700 employees. Additional Company Information from Website: Xcel Energy provides the energy that powers millions of homes and businesses across eight Western and Midwestern states, including Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. Our workforce of more than 12,000 is rising to the challenge of a changing industry—one that requires us to be even more customer focused, forward thinking and productive. Together, we remain committed to meeting our customers’ fundamental need for safe, reliable, affordable energy, but those needs are evolving. We recognize that our customers and the communities we serve want more control over how their energy is produced and how they use it. In anticipation of this expectation, Xcel Energy continues to offer innovative solutions that give customers more options, help them manage their energy use and support their values. We are a recognized industry leader in delivering renewable energy and reducing carbon and other emissions, efforts that have put us on a path to a more sustainable energy future. Our business requires that we achieve the right mix in all we do—cultivating the right talent, offering customers the right options, collaborating with communities, investing for the future and protecting the environment. Headquartered in Minneapolis, Minn., https://www.wecenergygroup.com/about/aboutus.htm, accessed 12/22/2016 http://www.prnewswire.com/news-releases/wisconsin-energy-completes-acquisition-of-integrys-to-form-wec-energygroup-300106090.html, accessed 12/22/2016

16 17

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Xcel Energy Inc.’s operations include the activity of four wholly owned utility subsidiaries that serve electric and natural gas customers in our eight states. These utility subsidiaries, referred to as operating companies, are Northern States Power Company-Minnesota, Northern States Power Company-Wisconsin, Public Service Company of Colorado and Southwestern Public Service Company. 18 Why was the company included? This company is similar to (and is one of) the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in the Midwest and West.

Companies Not Included in the Electric Market Segment AES Corporation Company Summary from Value Line: AES Corp. has four LOB: contract generation, competitive supply, large utilities, and growth distribution. Contr. gener. consists of multiple gener. facilities engaging in long-term contracts. The competitive supply unit consists of gener. facil. that sell electricity in the spot market. The util. line is comprised of regulated electric comp. The growth distrb. unit incl. utilities located in emerging economies. Lat. Amer. ops., 50% of 2015 revenues; North Amer., 21%; MCAC, 17%; EMEA, 9%; Asia, 3%. Employs about 21,800. T. Rowe Price owns 16.0% of shs.; BlackRock, 9.9%; Vanguard, 9.2%; Boston Partners, 6.3%, State St., 5.1% (3/16 proxy). Additional Company Information from Website: The AES Corporation (NYSE: AES) is a Fortune 200 global power company. We provide affordable, sustainable energy to 17 countries through our diverse portfolio of distribution businesses as well as thermal and renewable generation facilities. Our workforce of 21,000 people is committed to operational excellence and meeting the world’s changing power needs. Our 2015 revenues were $15 billion and we own and manage $37 billion in total assets. We are dedicated to improving the lives of our customers by leveraging our energy solutions that encompass a broad range of technologies and fuel types, including coal, diesel, gas, oil, pet coke and renewables. Our people share a passion to help meet the world’s current and increasing energy needs, while providing communities and countries the opportunity for economic growth due to the availability of reliable, affordable electric power.19 Why was the company not included? This company is located in the Power Company Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota.

18 19

https://www.xcelenergy.com/company/corporate_responsibility_report/who_we_are, accessed 12/22/2016 http://www.aes.com/about-us/about-us-overview/default.aspx, accessed 12/19/2016

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Avangrid, Inc. Company Summary from Value Line: AVANGRID, Inc., formerly Iberdrola USA, Inc., is a diversified energy and utility company with more than $30 billion in assets and operations in 25 states. It operates regulated utilities and electricity generation through two primary lines of business: Avangrid Networks and Avangrid Renewables. The former group includes eight electric and natural gas utilities, serving customers in New York and New England. The latter operates 6.3 gigawatts of electricity capacity, primarily through wind power, in the U.S. Fuel costs: 22% of ’15 rev. Has 2.2 million elect., 1 million gas customers. Has 6,810 employees. Additional Company Information from Website: AVANGRID, Inc. (NYSE: AGR) is a diversified energy and utility company with more than $30 billion in assets and operations in 25 states. The company operates regulated utilities and electricity generation through two primary lines of business. Avangrid Networks includes eight electric and natural gas utilities, serving 3.1 million customers in New York and New England. Avangrid Renewables operates 6.3 gigawatts of electricity capacity, primarily through wind power, in states across the United States. AVANGRID employs 7,000 people. The company was formed by a merger between Iberdrola USA and UIL Holdings Corporation in 2015. IBERDROLA S.A. (Madrid: IBE), a worldwide leader in the energy industry, owns 81.5% of AVANGRID.20 AVANGRID, Inc. (NYSE: AGR) is a U.S. based diversified energy and utility company with $30 billion in assets and operations in 25 states, created through the merger of Iberdrola USA and UIL Holdings Corp. in December 2015.21 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. This company was recently created through the merger of Iberdrola USA and UIL Holdings Corp. Avista Corporation Company Summary from Value Line: Avista Corporation (formerly The Washington Water Power Company) supplies electricity & gas in eastern Washington & northern Idaho. Supplies electricity to part of Alaska & gas to part of Oregon. Customers: 392,000 electric, 335,000 gas. Acq’d Alaska Electric Light and Power 7/14. Sold Ecova energy-management sub. 6/14. Electric rev. breakdown: residential, 34%; commercial, 31%; industrial, 11%; wholesale, 13%; other, 11%. Generating sources: gas & coal, 32%; hydro, 28%; purchased, 40%. Fuel costs: 44% of revs. ’15 reported deprec. rate (Avista): 3.1%. Has 1,900 employees. Additional Company Information from Website: We are an energy company involved in the production, transmission and distribution of energy as well as other energy-related businesses. Avista Utilities is our operating division that provides electric service to more than 600,000 electric and natural gas customers. Our service territory covers 30,000 square miles in eastern Washington, northern Idaho and parts of southern and eastern Oregon, with a population of 1.5 million. Alaska Energy and Resources Company, an Avista subsidiary, provides retail electric service in the city and borough of Juneau through its subsidiary Alaska Electric Light and Power Company. Our stock is traded under the ticker

20 21

https://www.avangrid.com/AboutAvanGrid/default.html, accessed on 12/19/2016

http://www.avangrid.com/NewsRoom/NewsReleases/default.html, accessed 12/22/2016

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symbol "AVA." Avista’s legacy of innovation is rooted in the renewable energy we’ve generated since our founding in 1889.22 Why was the company not included? This company is located in the Electric Utility (West) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Cleco Corporation Company Summary from Value Line: Not Available Additional Company Information from Website: Cleco is a regulated utility company headquartered in Pineville, Louisiana. In business since 1935, the company has approximately 1,200 employees serving approximately 287,000 customers in Louisiana through its retail business and supplies wholesale power in Louisiana and Mississippi. We offer reasonable rates, reliable service and a customer-focused workforce. Cleco owns nine generating units with a total nameplate capacity of 3,310 megawatts, 11,931 miles of distribution lines and 1,305 miles of transmission lines. We use multiple generating sources and multiple fuels to serve our customers. In addition to power generated by Cleco units, we have access to purchased power when it's needed and when it's more cost effective than our generation.23 “The sale of Pineville-based Cleco Corp. to an investor group is complete, the company announced…” April 13, 2016 article.24 Why was the company not included? This company was acquired by a private firm and is no longer publically traded. Consolidated Edison, Inc. Company Summary from Value Line: Consolidated Edison, Inc. is a holding company for Consolidated Edison Company of New York, Inc. (CECONY), which sells electricity, gas, and steam in most of New York City and Westchester County. Also owns Orange and Rockland Utilities (O&R, acquired 7/99), which operates in New York, New Jersey, and Pennsylvania. Has 3.6 million electric, 1.2 million gas customers. Pursues competitive energy opportunities through three wholly owned subsidiaries. Purchases most of its power. Fuel costs: 35% of revenues. ’14 reported depreciation rates: 2.9%-3.1%. Has 14,600 employees. Additional Company Information from Website: Con Edison's principal business segments are Consolidated Edison Company of New York's regulated electric, gas, and steam utility activities, Orange & Rockland Utilities' (O&R) regulated electric and gas utility activities, and Con Edison's competitive energy businesses. Con Edison of New York provides electric service to approximately 3.3 million customers and gas service to approximately 1.1 million customers in New York City and Westchester County. The company also provides steam service in parts of Manhattan. Orange & Rockland provides electric service to 301,000 customers in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service to 130,000 customers in southeastern New York and adjacent areas of eastern Pennsylvania. Con Edison's competitive energy businesses participate in segments of the http://www.avistacorp.com/about/Pages/aboutus.aspx, accessed 12/19/2016 https://www.cleco.com/about-us, accessed 12/19/2016 24 http://www.thetowntalk.com/story/news/2016/04/13/cleco-sale-complete/82995678/, accessed 12/19/2016 22 23

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electricity industry that are less comprehensively regulated than our regulated businesses. These segments include the operation of electric generation facilities, trading of electricity and fuel, sales of electricity to wholesale and retail customers, and sales of certain energy-related goods and services. Con Edison Transmission offers customers diverse, low-cost energy supplies by investing in electric and gas transmission projects. Con Edison Solutions is a retail energy supply and services company that sells electricity directly to delivery-service customers of utilities primarily in the Northeast and Mid-Atlantic regions. Con Edison Development participates in infrastructure projects, developing and operating a grid of connected renewable energy infrastructure throughout the continental United States. Con Edison Energy is a wholesale energy supply company that procures electric energy, fuel, and capacity for Con Edison Solutions. We operate one of the world’s largest energy delivery systems. Founded in 1823 as the New York Gas Light company, our electric, gas, and steam service now provides energy for the 10 million people who live in New York City and Westchester County. We’re constantly looking toward the future and exploring ways to innovate and take advantage of developing technology. But, more than anything, we’re listening to you and working hard to give you cleaner, more efficient energy choices, and more control over when and how you use your power. Con Edison of New York serves 3.3 million customers averaging a population of approximately nine million people throughout a 604-square-mile service territory. Con Edison operates one of the most complex electric power systems in the world. It is also the world's most reliable. Con Edison distributes natural gas to 1.1 million customers in Manhattan, the Bronx, Queens, and Westchester County, making it one of the largest gas distribution companies in the United States. Con Edison operates the largest district-energy steam system in the United States. The steam system provides service to approximately 1,700 customers in Manhattan, from the Battery to 96th Street on the West Side and 89th Street on the East Side.25 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Dominion Resources, Inc. Company Summary from Value Line: Dominion Resources, Inc. is a holding company for Virginia Power & North Carolina Power, which serve 2.6 mill. customers in Virginia & northeastern North Carolina. Serves 2.3 mill. gas customers in Ohio, West Virginia, & Utah. Nonutility ops. incl. independent power production. Owns 70.9% of Dominion Midstream Partners. Acq’d Questar 9/16. Elec. rev. breakdown: residential, 46%; commercial, 32%; industrial, 7%; other, 15%. Generating sources: nuclear, 30%; coal, 26%; gas, 23%; other, 6%; purch. 15%. Fuel costs: 31% of revs. ’15 reported depr. rates: 2.3%-3.7%. Has 14,700 employees. Additional Company Information from Website: Dominion is one of the nation's largest producers and transporters of energy, with a portfolio of approximately 26,000 megawatts of generation, 14,400 miles of natural gas transmission, gathering and storage pipeline, and 6,500 miles of electric transmission lines. Dominion operates one of the nation's largest natural gas storage systems with 1 trillion cubic feet of storage capacity and serves more than 6 million utility and retail energy customers. Our company is built on a proud legacy of public service, innovation and community involvement. In addition to our core energy production, transportation and storage businesses, we invest in communities where we live and work and by practicing responsible environmental stewardship wherever we operate.26

https://www.conedison.com/en/about-us/our-businesses, accessed 12/19/2016 accessed 12/19/2016

26https://www.dom.com/corporate/about-us/company-profile,

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Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Duke Energy Corporation Company Summary from Value Line: Duke Energy Corporation is a holding company for utilities with 7.4 mill. elec. customers in NC, FL, IN, SC, Oh, & KY, and 1.5 mill. gas customers in OH, KY, NC, SC, and TN. Owns independent power plants & has 25% stake in National Methanol in Saudi Arabia. Acq’d Progress Energy 7/12; Piedmont Natural Gas 10/16; discontinued most int’l ops. in ’16. Elec. rev. breakdown: residential, 43%; commercial, 29%; industrial, 15%; other, 13%. Generating sources: coal, 29%; nuclear, 27%; gas, 23%; other, 1%; purchased, 20%. Fuel costs: 33% of revs. ’15 reported deprec. rates: 2.6%-3.0%. Has 29,200 empls. Additional Company Information from Website: We are one of the largest electric power holding companies in the United States, supplying and delivering electricity to approximately 7.4 million U.S. customers. We have approximately 52,700 megawatts of electric generating capacity in the Carolinas, the Midwest and Florida – and natural gas distribution services serving more than 1.5 million customers in Ohio, Kentucky, Tennessee and the Carolinas. Our commercial and international businesses own and operate diverse power generation assets in North America and Latin America, including a portfolio of renewable energy assets.27 Duke Energy Corporation is an energy company headquartered in Charlotte, N.C. Its Regulated Utilities business unit serves 7.4 million retail electric customers in six states in the Southeast and Midwest regions of the United States, representing a population of approximately 24 million people. Duke Energy is a Fortune 125 company traded on the New York Stock Exchange under the symbol DUK.28 Duke Energy completed its acquisition of Piedmont Natural Gas, closing the transaction on October 3, 2016.29 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Also, the company was recently involved in an acquisition. Edison International (formerly SCECorp) Company Summary from Value Line: Edison International (formerly SCECorp) is a holding company for Southern California Edison Company (SCE), which supplies electricity to 4.9 mill. customers in a 50,000-sq.-mi. area in central, coastal, & southern CA (excl. Los Angeles & San Diego). Edison Energy is an energy svcs. co. Disc. Edison Mission Energy (independent power producer) in ’12. Elec. rev. breakdown: residential, 37%; commercial, 44%; industrial, 6%; other, 13%. Generating sources: gas, 7%; nuclear, 7%; hydro, 1%; purchased, 85%. Fuel costs: 37% of revs. ’15 reported depr. rate: 3.9%. Has 13,700 empls. Additional Company Information from Website: Our subsidiary SCE is one of the largest electric utilities in the United States and a longtime leader in renewable energy and energy efficiency. With headquarters in Rosemead, Calif., SCE serves approximately 15 million people in a 50,000 square-mile area of central, coastal and Southern California. SCE has provided electric https://www.duke-energy.com/our-company/about-us, accessed 12/21/2016 http://www.duke-energy.com/pdfs/de-factsheet.pdf, accessed 12/21/2016 29 https://news.duke-energy.com/releases/duke-energy-completes-acquisition-of-piedmont-natural-gas, accessed 12/21/2016 27 28

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service in the region for more than 125 years. SCE maintains grid assets valued at more than $20 billion, including 1.4 million power poles, 700,000 transformers and 103,000 miles of distribution and transmission lines. In the past 5 years, SCE’s energy efficiency programs have helped customers save enough energy to power 1.2 million homes for a year. SCE delivered more than 18 billion kilowatt-hours of renewable power to customers in 2015. That’s nearly 24% of all the electricity we delivered that year.30 Why was the company not included? This company is located in the Electric Utility (West) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. El Paso Electric Company Company Summary from Value Line: El Paso Electric Company (EPE) provides electric service to 405,000 customers in an area of approximately 10,000 square miles in the Rio Grande valley in western Texas (68% of revenues) and southern New Mexico (19% of revenues), including El Paso, Texas and Las Cruces, New Mexico. Wholesale is 13% of revenues. Electric revenue breakdown by customer class not available. Generating sources: nuclear, 47%; gas, 34%; coal, 6%; purchased, 13%. Fuel costs: 28% of revenues. ’15 reported depreciation rate: 2.6%. Has about 1,000 employees. Additional Company Information from Website: El Paso Electric is a regional electric utility providing generation, transmission and distribution service to approximately 400,000 retail and wholesale customers in a 10,000 square mile area of the Rio Grande valley in west Texas and southern New Mexico. Its service territory extends from Hatch, New Mexico to Van Horn, Texas and includes two connections to Juarez, Mexico and the Comisión Federal de Electricidad (CFE), Mexico’s national utility. EPE’s principal industrial and large customers include steel production, copper and oil refining, and United States military installations including the United States Army at Fort Bliss in Texas and the White Sands Missile Range and Holloman Air Force Base in New Mexico. EPE has a net dependable generating capability of 1,990 MW. It’s facilities include a 15.8 percent interest in the Palo Verde Nuclear Generating Station in Wintersburg, Arizona, the Rio Grande Power Station in Sunland Park, New Mexico, the Newman Power Station, Copper Power Station and Montana Power Staton in El Paso.31 Why was the company not included? This company is located in the Electric Utility (West) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Empire District Electric Company Company Summary from Value Line: The Empire District Electric Company supplies electricity to 170,000 customers in a 10,000 sq. mi. area in southwestern Missouri (89% of retail elec. revs.), Kansas (5%), Oklahoma (3%), & Arkansas (3%). Acquired Missouri Gas (44,000 customers) 6/06. Supplies water service (4,000 customers) and has a small fiberoptics operation. Elec. rev. breakdown: residential, 42%; commercial, 31%; industrial, 16%; other, 11%. Generating sources: coal, 50%; gas, 27%; hydro, 1%; purch., 22%. Fuel costs: 31% of revenues. ’15 reported depr. rate: 3.2%. Has about 750 employees.

30 31

https://www.edison.com/home/about-us/our-companies.html, accessed 12/21/2016 https://www.epelectric.com/about-el-paso-electric, accessed 12/21/2016

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Additional Company Information from Website: Empire District is an investor-owned, regulated utility providing electric, natural gas (through its wholly owned subsidiary The Empire District Gas Company), and water service, to approximately 218,000 customers in Missouri, Kansas, Oklahoma, and Arkansas. A subsidiary of the company provides fiber optic services.32 Why was the company not included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in Missouri, Kansas, Oklahoma, and Arkansas. This company is current undergoing an acquisition. The Empire District Electric Company and Algonquin Power & Utilities Corp. announced June 16, 2016 that Empire’s shareholders voted to approve the previous announced Agreement and Plan of Merger, dated February 9, 2016.33 Eversource Energy Company Summary from Value Line: Eversource Energy (formerly Northeast Utilities) is the parent of utilities that have 3.1 million electric, 504,000 gas customers. Supplies power to most of Connecticut and gas to part of Connecticut; supplies power to three fourths of New Hampshire’s population; supplies power to western Massachusetts and parts of eastern Massachusetts & gas to central & eastern Massachusetts. Acquired NSTAR 4/12. Electric revenue breakdown: residential, 52%; commercial, 36%; industrial, 5%; other, 7%. Fuel costs: 39% of revenues. ’15 reported deprec. rate: 2.9%. Has 8,200 employees. Additional Company Information from Website: Eversource is New England’s largest energy delivery company, safely and reliably delivering energy to more than 3.6 million electric and natural gas customers in Connecticut, Massachusetts and New Hampshire. The company operates more than 4,270 circuit miles of transmission lines, 72,000 pole miles of distribution lines, 578 substations, 449,737 distribution transformers and 6,459 miles of natural gas distribution pipelines across our service territory. Our customers:  Connecticut: 1.2 million electric in 149 communities, 222,000 natural gas in 71 communities.  Massachusetts: 1.4 million electric in 140 communities, 283,000 natural gas in 51 communities.  New Hampshire: 510,000 electric in 211 communities.34 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Exelon Corporation Company Summary from Value Line: Exelon Corporation is a holding company for Commonwealth Edison, PECO Energy, Baltimore Gas and Electric, Pepco, Delmarva Power, & Atlantic City Electric. Has 8.6 mill. elec., 1.3 mill. gas customers. Has nonregulated generating & energy marketing ops. Acq’d Constellation Energy 3/12; Pepco Holdings 3/16. Elec. rev. breakdown: res’l, 63%; small comm’l & ind’l, 23%; large comm’l & ind’l, 13%; other, 1%. Generating https://www.empiredistrict.com/About, accessed 12/21/2016 http://www.prnewswire.com/news-releases/empire-shareholders-approve-merger-with-algonquin-power--utilities-corp583296711.html, accessed 12/21/2016 34 https://www.eversource.com/Content/general/about/about-eversource/customer-profile, accessed 12/21/2016 32 33

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sources: nuclear, 68%; other, 8%; purch., 24%. Fuel costs: 44% of revs. ’15 depr. rates: 2.8%-3.5% elec., 2.2% gas. Has 34,000 empls. Additional Company Information from Website: We are a FORTUNE 100 company that works in every stage of the energy business: power generation, competitive energy sales, transmission and delivery. As the nation's leading competitive energy provider, Exelon does business in 48 states, D.C., and Canada and had 2015 revenues of $34.5 billion. We employ approximately 34,000 people nationwide.35 Exelon Corporation (NYSE: EXC) and Pepco Holdings, Inc. (NYSE: POM) announced on March 23 that the two companies had completed their merger transaction. The announcement followed the approval of the merger by the Public Service Commission of the District of Columbia (DC PSC). The merger brought together Exelon’s three electric and gas utilities — BGE, ComEd and PECO — and Pepco Holdings’ three electric and gas utilities — Atlantic City Electric, Delmarva Power and Pepco — to create the leading mid-Atlantic electric and gas utility company.36 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Also, this company recently underwent an acquisition. FirstEnergy Corporation Company Summary from Value Line: FirstEnergy Corp. is a holding company for Ohio Edison, Pennsylvania Power, Cleveland Electric, Toledo Edison, Metropolitan Edison, Penelec, Jersey Central Power & Light, West Penn Power, Potomac Edison, & Mon Power. Provides electric service to over 6 million customers in OH, PA, NJ, WV, MD, & NY. Acq’d Allegheny Energy 2/11. Electric revenue breakdown by customer class not available. Generating sources: coal, 44%; nuclear, 26%; purchased, 30%. Fuel costs: 43% of revenues. ’13 reported deprec. rate: 2.6%. Has 15,800 employees. Additional Company Information from Website: We are a forward-thinking electric utility powered by a diverse team of employees committed to making customers’ lives brighter, the environment better and our communities stronger. FirstEnergy (NYSE: FE) is dedicated to safety, reliability and operational excellence. Headquartered in Akron, Ohio, FirstEnergy includes one of the nation's largest investor-owned electric systems, more than 24,000 miles of transmission lines that connect the Midwest and Mid-Atlantic regions, and a diverse generating fleet with a total capacity of nearly 17,000 megawatts. Our company has invested $10 billion in environmental efforts since 1970, and we have a continuing commitment to cleaner energy resources, smarter technology and a more sustainable planet.37 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota.

http://www.exeloncorp.com/company/about-exelon, accessed 12/21/2016 http://www.pepcoholdings.com/about-us/exelon-acquisition/, accessed 12/22/2016 37 https://www.firstenergycorp.com/about.html, accessed 12/21/2016 35 36

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Fortis, Inc. Company Summary from Value Line: Fortis Inc. owns a diverse collection of businesses. Its main focus is electricity and gas utility operations (both regulated and non-regulated) in the United States, Canada, and the Caribbean. It serves more than three million electricity and gas customers. Owns UNS Energy (Arizona), Central Hudson (New York), FortisBC Energy (British Columbia), FortisAlberta (Central Alberta), and Eastern Canada (Newfoundland). Fortis also operates 23 hotels, comprised of 4,400 rooms, in eight Canadian provinces. Additional Company Information from Website: Fortis Inc. has its origin in the formation of St. John’s Electric Light Company in 1885 in the province now known as Newfoundland and Labrador. That company eventually became Newfoundland Light & Power Co. Limited which became the first wholly owned subsidiary of Fortis Inc. Fortis was created as a holding company in 1987 with the mission to expand and diversify. Today, Fortis is a leader in the North American utility industry with assets of approximately $47 billion and 2015 revenue of $6.7 billion. Our 8,000 employees serve utility customers in five Canadian provinces, nine U.S. states and three Caribbean countries.38 Why was the company not included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. This company is in the Electric Utility (Central) Value Line Industry. Fortis completed an acquisition of ITC Holdings Corp in October 2016.39 Fortis Inc. began trading on the New York Stock Exchange on October 14, 2016. The company also trades on the Toronto Stock Exchange.40 Due to the recent acquisition we will not use this company. We will review this company for use as a guideline company in the future. Great Plains Energy Company Summary from Value Line: Great Plains Energy Incorporated is a holding company for Kansas City Power & Light and two other subsidiaries, which supply electricity to 853,000 customers in western Missouri (71% of revenues) and eastern Kansas (29%). Acquired Aquila 7/08. Sold Strategic Energy (energy-marketing subsidiary) in ’08. Electric revenue breakdown: residential, 40%; commercial, 39%; industrial, 9%; other, 12%. Generating sources: coal, 63%; nuclear, 13%; wind, 1%; gas & oil, 1%; purchased, 22%. Fuel costs: 24% of revenues. ’15 reported deprec. rate (utility): 3.0%. Has 2,900 employees. Additional Company Information from Website: Great Plains Energy Incorporated (NYSE: GXP) is the holding company of Kansas City Power & Light Company and KCP&L Greater Missouri Operations Company (GMO). The utilities operate under the brand name KCP&L. Our vertically integrated electric utilities serve just over 851,200 customers in 47 counties in Missouri and Kansas with a combined diverse generation platform of more than 6,400 MW of capacity.41 Why was the company not included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in the Midwest. Great Plains Energy and Westar Energy, Inc. announced that their respective shareholders approved all proposals necessary for Great Plains Energy’s

https://www.fortisinc.com/about-us, accessed 12/21/2016 http://business.financialpost.com/news/energy/fortis-completes-acquisition-of-itc-eyes-renewable-power-shift-forgrowth?__lsa=24fb-ebab, accessed 12/21/2016 40 https://www.fortisinc.com/news-and-media/news-releases/news-release?id=2102625, accessed 12/21/2016 41 http://www.greatplainsenergy.com/overview.html, accessed 12/21/2016 38 39

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acquisition of Westar Energy on September 26, 2016.42 After the acquisition, we will review the company again to see if we should include the company as a guideline company. Hawaiian Electric Industries, Inc. Company Summary from Value Line: Hawaiian Electric Industries, Inc. is the parent company of Hawaiian Electric Company, Inc. (HECO) & American Savings Bank (ASB). HECO & its subs., Maui Electric Co. (MECO) & Hawaii Electric Light Co. (HELCO), supply electricity to 458,000 customers on O‘ahu, Maui, Molokai, Lanai, & Hawaii. Operating companies’ systems are not interconnected. Disc. int’l power sub. in ’01. Elec. rev. breakdown: res’l, 31%; comm’l, 34%; large light & power, 34%; other, 1%. Generating sources: oil, 54%; purchased, 46%. Fuel costs: 48% of revs. ’15 reported depr. rate (util.): 3.2%. Has 3,900 empls. Additional Company Information from Website: At Hawaiian Electric Industries (HEI), through our subsidiaries, Hawaiian Electric Company and American Savings Bank, we strive to be trusted and valued leaders in improving the economic well-being of the state, promoting the environmental sustainability of our islands, and benefiting the communities we serve. At the Hawaiian Electric Companies, we're committed to achieving a 100 percent renewable energy future for Hawaii. As we continue to add diverse types of local renewable energy, Hawaii will reduce its dependence on imported oil. Our vision is to empower our customers and communities with affordable, reliable, clean energy, and provide innovative energy leadership for Hawaii. At American Savings Bank, we are the bank where everybody is somebody – a place where teammates work together to make banking easy while providing the best customer experience. For more than 90 years we have championed the dreams of generations of island residents and businesses. Our strength comes from helping customers succeed and supporting the communities they live in. HEI works proactively to improve the future of Hawaii and its communities. These efforts are integrated into our core business strategies. By helping our state achieve economic prosperity and a clean environment, and by addressing our communities' needs, we build a sustainable future for our companies and for Hawaii.43 Why was the company not included? This company is located in the Electric Utility (West) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. IDACORP, Inc. Company Summary from Value Line: IDACORP, Inc. is a holding company for Idaho Power Company, a regulated electric utility that serves 530,000 customers throughout a 24,000-square-mile area in southern Idaho and eastern Oregon (population: 1 million). Most of the company’s revenues are derived from the Idaho portion of its service area. Revenue breakdown: residential, 40%; commercial, 24%; industrial, 14%; irrigation, 13%; other, 9%. Generating sources: hydro, 36%; coal, 28%; gas, 13%; purchased, 23%. Fuel costs: 34% of revenues. ’15 reported depreciation rate: 2.7%. Has 2,000 employees. Additional Company Information from Website: Boise, Idaho-based IDACORP is a holding company comprised of Idaho Power Company, a regulated electric utility; IDACORP Financial, a holder of affordable housing projects and other real estate investments; and IdaWest Energy, an operator of small hydroelectric generation projects that satisfy the requirements of the Public Utility Regulatory Policies Act of 1978. IDACORP was formed Oct. 1, 1998, following approval by Idaho 42 http://www.businesswire.com/news/home/20160926006171/en/Great-Plains-Energy-Westar-Energy-ShareholdersApprove, accessed 12/21/2016 43 http://www.hei.com/CustomPage/Index?keyGenPage=1073751872, accessed 12/21/2016

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Power shareholders, the Federal Energy Regulatory Commission and the public utility commissions of Idaho, Oregon, Nevada and Wyoming (states where IDACORP has conducted business or has holdings). Under the holding company structure, Idaho Power Company is the primary subsidiary. This regulated utility, created in 1916, is dedicated to providing quality electric service to more than 530,000 general business customers in a 24,000-square-mile service area in southern Idaho and eastern Oregon. The backbone of the company’s generation portfolio is a series of 17 hydroelectric plants it owns and operates on the Snake River and its tributaries. Idaho Power also owns three natural gas-fired power plants and a partial interest in three coal-fired generating stations. IDACORP's common stock is traded on the New York Stock Exchange under the trading symbol "IDA".44 Why was the company included? This company is part of Value Line’s Electric Utility (West) industry, but it is similar to the Electric Companies that the State Assessed Section is responsible for valuing. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. ITC Holdings Corporation

Company Summary from Value Line: Not Available Additional Company Information from Website: ITC Holdings Corp. invests in the electricity transmission grid to improve reliability, expand access to markets, lower the costs of delivered energy and allow new generating resources to interconnect to its transmission systems. The largest independent electricity transmission company in the country, ITC operates in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma. ITC also focuses on new areas where significant transmission system improvements are needed through ITC Grid Development and its subsidiaries.45 Why was the company not included? This company was similar to (and is one of) the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in the Midwest and South. Fortis completed an acquisition of ITC Holdings Corp in October 2016.46 MDU Resources Group, Inc. Company Summary from Value Line: MDU Resources Group, Inc. is a diversified natural resource company. Segments: construction materials and contracting (45% of ’15 revs; 57% of ’15 op. inc.), construction services (22%, 17%), natural gas distribution (19%, 20%); electric (7%, 13%) and pipeline and energy services (4%, 11%). Utilities sell gas & electricity in northwest and upper Midwest U.S. Construction materials has 1.1 billion tons of construction aggregate reserves. Purchased certain leasehold positions in Wyoming 2/14. Has 8,689 employees. Additional Company Information from Website: A strong infrastructure is the heart of the American economy. It is the natural gas and electricity that power business, industry and our daily lives. It is the pipes and wires that connect our homes, factories, offices and http://www.idacorpinc.com/about-us/at-a-glance, accessed 12/21/2016 http://www.itc-holdings.com/itc/about-us, accessed 12/21/2016 46 http://business.financialpost.com/news/energy/fortis-completes-acquisition-of-itc-eyes-renewable-power-shift-forgrowth?__lsa=24fb-ebab, accessed 12/21/2016 44 45

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stores to bring them to life. It is the transportation network of roads, highways and airports that keeps our economy moving. Infrastructure is our business. We provide value-added natural resource products and related services that are essential to energy and transportation infrastructure. Our company was founded in 1924 as a small electric utility serving a handful of farm communities on the border of Montana and North Dakota. We realized early the value of delivering a variety of services, and we grew our company by developing a core line of businesses. Today, we are a multibillion-dollar corporation with most of our businesses headquartered in Bismarck, North Dakota, but operations and customers across the country. MDU Resources is the largest publicly traded company headquartered in North Dakota, and we do business in 48 states. Since 1948, our stock has been traded on the New York Stock Exchange. It trades under the symbol MDU.47 Why was the company not included? This company is located in the Natural Gas Diversified Company Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota that are very similar to the companies in Minnesota. MDU Resources Group, Inc.’s majority operating segment is construction materials and contracting. This company is reviewed as a potential guideline company because it has an operating subsidiary located in Minnesota. NextEra Energy, Inc. Company Summary from Value Line: NextEra Energy, Inc. (formerly FPL Group, Inc.) is a holding company for Florida Power & Light Company (FPL), which provides electricity to 4.8 million customers in a 27,650-sq.-mi. area in eastern & southern Florida. NextEra Energy Resources is a nonregulated power generator with nuclear, gas, & wind ownership. Has a 79.9% stake in NextEra Energy Partners. Rev. breakdown: residential, 54%; commercial, 36%; industrial & other, 10%. Generating sources: gas, 69%; nuclear, 22%; coal, 4%; purchased, 5%. Fuel costs: 30% of revs. ’15 reported depr. rate (utility): 3.3%. Has 13,800 employees. Additional Company Information from Website: NextEra Energy, Inc.is a leading clean energy company. 2015 revenues of approximately $17.5 billion. Approximately 45,000 megawatts of generating capacity, which includes megawatts associated with noncontrolling interests related to NextEra Energy Partners, LP (NYSE: NEP), as of April 2016. 14,300 employees in 27 states and Canada as of year-end 2015. We have two principal subsidiaries. Florida Power & Light Company (FPL), the largest rate-regulated electric utility in Florida, serves more than 4.8 million customer accounts in the state and has the third-largest number of customers in the United States. NextEra Energy Resources, LLC, together with its affiliated entities, is the world’s largest generator of renewable energy from the wind and sun. NextEra Energy is one of the largest operators of commercial nuclear power units in the United States. We have eight nuclear units at five plant sites located in Florida, New Hampshire, Iowa and Wisconsin. These facilities have the capacity to generate more than 6,400 megawatts of emissions-free electricity, enough to supply the needs of nearly 5 million households.48 JUNO BEACH, Fla., July 29, 2016 – NextEra Energy, Inc. (NYSE: NEE) today announced a definitive agreement under which a newly formed subsidiary of NextEra Energy will acquire 100 percent of the equity of reorganized Energy Future Holdings Corp. (“EFH”) and certain of its direct and indirect subsidiaries, including EFH’s approximately 80 percent indirect interest in Oncor Electric Delivery Company (“Oncor”), which implies a total enterprise value of approximately $18.4 billion.49

http://www.mdu.com/our-business, accessed 12/21/2016 http://www.nexteraenergy.com/company/factsheet.shtml, accessed 12/22/2016 49 http://www.nexteraenergy.com/news/contents/2016/072916b.shtml, accessed 1/9/2017 47 48

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Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. This company has nuclear plants in Wisconsin. However, this company reached a definitive agreement on July 29, 2016 to purchase Oncor Electric Delivery Company. Will consider this company in future studies. Ormat Technologies, Inc. Company Summary from Value Line: Ormat Technologies, Inc., together with its subsidiaries, provides geothermal and recovered energy power and products through two operating segments. Its electricity division (63% of 2015 revenues) develops, constructs, owns, and operates geothermal power plants, selling electricity. Under the product segment (37% of revenues), the company designs and manufactures power units for geothermal plants and power units for recovered generation. Has 1,060 employees. Southern Cal Pwr., Sierra Pacific Pwr., and Nevada Pwr., accounted for 19.2% of ’15 revs. Officers/ directors own 23.0% of outs. stock. Inc.: DE. Additional Company Information from Website: Headquartered in Reno, Nevada, Ormat is a leading geothermal company and the only vertically integrated company solely engaged in geothermal and recovered energy generation (REG), with the objective of becoming a leading global provider of renewable energy. The Company has over five decades of experience in the development of state-of-the-art, environmentally sound power solutions. The company designs, develops, builds, owns and operates geothermal and recovered energy-based power plants. The in-depth knowledge gained from these operations gives the Company the competitive edge by enabling efficient maintenance and timely response to operational issues. In addition to owning and operating geothermal power plants in the United States and other countries, the Company designs, manufactures and sells power generating equipment as well as complete power plants on a turnkey basis.50 Why was the company not included? This company is located in the Power Company Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. PG&E Corporation (Pacific Gas and Electric Company, Inc.) Company Summary from Value Line: PG&E Corporation is a holding company for Pacific Gas and Electric Company and nonutility subsidiaries. Supplies electricity and gas to most of northern and central California. Has 5.3 million electric and 4.4 million gas customers. Electric revenue breakdown: residential, 38%; commercial, 40%; industrial, 12%; agricultural, 9%; other, 1%. Generating sources: nuclear, 23%; gas, 9%; hydro, 5%; purchased, 63%. Fuel costs: 34% of revenues. ’15 reported depreciation rate (utility): 3.8%. Has 23,000 employees. Additional Company Information from Website: PG&E Corporation is an energy-based holding company headquartered in San Francisco. It is the parent company of Pacific Gas and Electric Company. PG&E Corporation subsidiaries provide customers with public utility services, and services relating to the generation of energy, transmission of electricity and natural gas, generation of electricity, and the distribution of energy.51

50 51

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Why was the company not included? This company is located in the Electric Utility (West) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Pepco Holdings, Inc. Company Summary from Value Line: Not Available Additional Company Information from Website: Exelon Corporation (NYSE: EXC), now including the Pepco Holdings utilities, is the nation’s leading competitive energy provider, with 2015 revenues of approximately $34.5 billion. Headquartered in Chicago, Exelon does business in 48 states, the District of Columbia and Canada. Exelon is one of the largest competitive U.S. power generators, with more than 32,700 megawatts of owned capacity comprising one of the nation’s cleanest and lowest-cost power generation fleets. The company’s Constellation business unit provides energy products and services to approximately 2 million residential, public sector and business customers, including more than two-thirds of the Fortune 100. Exelon’s six utilities deliver electricity and natural gas to approximately 10 million customers in Delaware, the District of Columbia, Illinois, Maryland, New Jersey and Pennsylvania through its Atlantic City Electric, BGE, ComEd, Delmarva Power, PECO and Pepco subsidiaries. 52 Exelon Corporation (NYSE: EXC) and Pepco Holdings, Inc. (NYSE: POM) announced on March 23 that the two companies had completed their merger transaction. The announcement followed the approval of the merger by the Public Service Commission of the District of Columbia (DC PSC). The merger brought together Exelon’s three electric and gas utilities — BGE, ComEd and PECO — and Pepco Holdings’ three electric and gas utilities — Atlantic City Electric, Delmarva Power and Pepco — to create the leading mid-Atlantic electric and gas utility company.53 Why was the company not included? This company was acquired by Exelon Corporation and is no longer publically traded. Pinnacle West Capital Corporation Company Summary from Value Line: Pinnacle West Capital Corporation is a holding company for Arizona Public Service Company (APS), which supplies electricity to 1.1 million customers in most of Arizona, except about half of the Phoenix metro area, the Tucson metro area, and Mohave County in northwestern Arizona. Discontinued SunCor real estate subsidiary in ’10. Electric revenue breakdown: residential, 49%; commercial, 39%; industrial, 5%; other, 7%. Generating sources: coal, 31%; nuclear, 27%; gas & other, 20%; purchased, 22%. Fuel costs: 32% of revenues. ’15 reported deprec. rate: 2.7%. Has 6,400 employees. Additional Company Information from Website: Pinnacle West Capital Corporation (NYSE: PNW) is an investor owned electric utility holding company based in Phoenix, Arizona with consolidated assets of about $15 billion. For over 125 years, Pinnacle West and our affiliates have provided energy and energy-related products to people and businesses throughout Arizona -- our history and Arizona’s history are bound together. Pinnacle West derives essentially all of our revenues and earnings from our wholly-owned subsidiary, Arizona Public Service (“APS”). APS is a vertically-integrated electric utility that provides either retail or wholesale electric service to most of the State of Arizona, 1.2 million 52 53

http://www.pepcoholdings.com/about-us/, accessed12/22/2016 http://www.pepcoholdings.com/about-us/exelon-acquisition/, accessed 12/22/2016

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customers in total. APS is also the operator and co-owner of the Palo Verde Nuclear Generating Station – a primary source of electricity for the Southwest. Pinnacle West’s other principal subsidiary is Bright Canyon Energy.54 Why was the company not included? This company is located in the Electric Utility (West) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. PNM Resources, Inc. Company Summary from Value Line: PNM Resources is a holding company with two regulated electric utilities. Its Public Service of New Mexico unit (PNM) provides power generation, transmission, and distribution services across north central New Mexico, including the cities of Albuquerque and Santa Fe. Texas-New Mexico Power Company (TNMP) transmits and distributes power throughout New Mexico. Electric rev. breakdown ’15: residential, 30%; commercial, 32%; industrial, 19%; other, 19%. Fuels: coal, 57%; nuclear, 30%; gas/oil, 12%; solar, 1%. Fuel costs: 49% of revenues. ’15 depreciation rate: 3.3%. Has 1,881 employees. Additional Company Information from Website: PNM Resources Inc. is an energy holding company based in Albuquerque, New Mexico. It serves electricity to more than 761,000 homes and businesses in New Mexico and Texas through its regulated utilities, PNM and TNMP. In 2015 consolidated operating revenues totaled $1.4 billion. The company’s generation capacity of more than 2,787 megawatts reflects a balanced mix of coal, natural gas, nuclear, wind, solar and geothermal generation. PNM Resources’ common stock trades on the NYSE under the ticker PNM.55 Why was the company not included? This company is located in the Electric Utility (West) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Portland General Electric Company Company Summary from Value Line: Portland General Electric Company (PGE) provides electricity to 860,000 customers in 52 cities in a 4,000square-mile area of Oregon, including Portland and Salem. The company is in the process of decommissioning the Trojan nuclear plant, which it closed in 1993. Electric revenue breakdown: residential, 47%; commercial, 35%; industrial, 12%; other, 6%. Generating sources: gas, 23%; coal, 19%; wind, 8%; hydro, 7%; purchased, 43%. Fuel costs: 35% of revenues. ’15 reported depreciation rate: 3.6%. Has 2,600 employees. Additional Company Information from Website: For more than 125 years, we’ve been powering the pioneering spirit of our region — keeping energy safe, reliable and responsibly generated. We are deeply committed to the success of the communities we serve and strive to bring innovative solutions to our customers and a bright energy future for Oregon. 56

http://www.pinnaclewest.com/about-us/default.aspx, accessed 12/22/2016 http://www.pnmresources.com/about-us/our-businesses.aspx, accessed 12/22/2016 56 https://www.portlandgeneral.com/our-company/pge-at-a-glance/quick-facts, 12/22/2016 54 55

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Why was the company not included? This company is located in the Electric Utility (West) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. PPL Corporation Company Summary from Value Line: PPL Corporation (formerly PP&L Resources, Inc.) is a holding company for PPL Electric Utilities (formerly Pennsylvania Power & Light Company), which distributes electricity to 1.4 million customers in eastern & central PA. Acq’d Kentucky Utilities and Louisville Gas and Electric (1.2 million customers) 11/10. Has electric distribution sub. in U.K. (7.8 million customers). Sold gas distribution subsidiary in ’08. Spun off power generating subsidiary in ’15. The company no longer breaks out data on electric operating statistics. Fuel costs: 22% of revs. ’15 reported deprec. rate: 2.6%. Has 12,800 employees. Additional Company Information from Website: As one of the largest investor-owned companies in the U.S. utility sector, PPL Corporation delivers on its promises to customers, investors, employees and the communities we serve. Our utilities – Western Power Distribution, Louisville Gas and Electric and Kentucky Utilities, and PPL Electric Utilities – provide an outstanding service experience for our customers, consistently ranking among the best in the U.S. and the U.K. Our stable earnings, secure dividend, solid management and high-quality assets represent an excellent low-risk opportunity for those looking to invest in the utility sector. For employees, the PPL family of companies offers the potential to grow in a wide range of exciting career opportunities. We are committed to providing essential energy services in extraordinary ways and we deliver. And we are a positive force in the cities and towns where we do business, providing support for programs that create jobs, donating millions to charitable organizations that improve the quality of life, and encouraging the generosity of employees who volunteer freely to help others. $7.7 billion in annual revenue. 10.5 million utility customers in the U.S. and U.K. 13,000 employees About 8,000 megawatts of regulated generation capacity in the U.S.57 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Public Service Enterprise Group, Inc. Company Summary from Value Line: Public Service Enterprise Group Incorporated is a holding company for Public Service Electric and Gas Company (PSE&G), which serves 2.2 million electric and 1.8 million gas customers in New Jersey, and PSEG Power LLC, a nonregulated power generator with nuclear, gas, and coal-fired plants in the Northeast. PSEG Energy Holdings is involved in renewable energy. The company no longer breaks out data on electric and gas operating statistics. Fuel costs: 31% of revenues. ’15 reported depreciation rate (utility): 2.5%. Has 12,700 employees. Additional Company Information from Website: PSEG is a diversified energy company. Established in 1903, the company has long had a key role in fueling New Jersey's economy and supporting the state's quality of life. Public Service Electric and Gas (PSE&G) is New Jersey's largest provider of electric and gas service – serving 2.2 million electric customers and 1.8 million gas customers or nearly three out of every four people in the state. PSEG also owns and operates a diverse fleet of power plants with approximately 12,000 megawatts of generating capacity located primarily in the Mid-Atlantic 57

https://www.pplweb.com/who-we-are/about-us/, accessed 12/22/2016

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and Northeast regions and has solar energy facilities throughout the United States. Another member of the PSEG family of companies, PSEG Long Island, operates the electric transmission and distribution system of the Long Island Power Authority, with 1.1 million customers. PSEG has approximately 13,000 employees, who are carrying forward a proud tradition of dedicated service over more than 100 years.58 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. SCANA Corporation Company Summary from Value Line: SCANA Corporation is a holding company for South Carolina Electric & Gas Company, which supplies electricity to 707,000 customers in central, southern, and southwestern South Carolina. Supplies gas service to 1.3 million customers in North Carolina, South Carolina, and Georgia. Electric revenue breakdown: residential, 44%; commercial, 33%; industrial, 18%; other, 5%. Generating sources: coal, 48%; oil & gas, 28%; nuclear, 19%; hydro, 3%; purchased, 2%. Fuel costs: 46% of revenues. ’15 reported depreciation rate: 2.6%. Has 5,800 employees. Additional Company Information from Website: Headquartered in Cayce, South Carolina, SCANA is an energy-based holding company that has brought power and fuel to homes in the Carolinas and Georgia for 160 years. SCANA is principally engaged, through subsidiaries, in regulated electric and natural gas utility operations and other non-regulated energy-related businesses in South Carolina, North Carolina and Georgia. In 1846, local business leaders met to form the Charleston Gas Light Company. Two years later, the company lit the streets of Charleston with gas streetlights. SCANA Corporation, a diversified holding company, was formed on December 31, 1984. Over half a million electric customers in 25 counties throughout South Carolina. More than 1.2 million customers in South Carolina, North Carolina and Georgia. Nearly 6,000 full and part-time employees.59 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Sempra Energy Company Summary from Value Line: Sempra Energy is a holding co. for San Diego Gas & Electric Company, which sells electricity & gas mainly in San Diego County, & Southern California Gas Company, which distributes gas to most of Southern California. Customers: 1.4 mill. electric, 6.6 mill. gas. Elec. rev. breakdown: residential, 41%; commercial, 42%; industrial, 10%; other, 7%. Purchases most of its power; the rest is gas. Has subs. in gas pipeline & storage, power generation, & liquefied natural gas. Sold commodities business in ’10. Power costs: 37% of revs. ’15 reported deprec. rates: 2.7%-5.7%. Has 17,400 employees. Additional Company Information from Website: Sempra Energy is a Fortune 500 energy services holding company, based in San Diego, Calif., that combines deep industry expertise with rigorous risk management to deliver superior shareholder returns.

58 59

https://www.pseg.com/family/index.jsp, accessed 12/22/2016 https://www.scana.com/about, accessed 12/22/2016

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Sempra Energy was created in 1998 by a merger of parent companies of two long-established, and highly respected, investor-owned utilities -- Los Angeles-based Pacific Enterprises, the parent company of Southern California Gas Co., and Enova Corporation, the parent company of San Diego Gas & Electric -- with rich histories dating back more than a century. Sempra Energy capitalizes on new opportunities in competitive energy markets. The company’s ongoing focus is to enhance shareholder value and meet customer needs by sustaining the financial strength, operational flexibility and skilled workforce needed to succeed in rapidly changing market conditions. In 2015, Sempra Energy produced revenues of approximately $10 billion. Over the past 10 years, Sempra Energy has delivered a total shareholder return of 181 percent, compared with total returns of 104 percent for the S&P 500 Utilities Index and 102 percent for the S&P 500 Index. During the past five years, Sempra Energy’s total shareholder return was 110 percent. For multi-year periods, Sempra Energy is among the top performers in its industry. Sempra Energy’s California utilities, San Diego Gas & Electric and SoCalGas, serve more than 20 million consumers. And its other businesses – Sempra U.S. Gas & Power and Sempra International – develop and operate critical energy infrastructure and provide gas and electricity services in North America and South America.60 Why was the company not included? This company is located in the Electric Utility (West) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. Southern Company Company Summary from Value Line: The Southern Company, through its subs., supplies electricity to 4.6 million customers in GA, AL, FL, and MS. Also has a competitive generation business. Acq’d AGL Resources (renamed Southern Company Gas, 4.5 mill. customers in GA, FL, NJ, IL, VA, & TN) 7/16. Electric rev. breakdown: residential, 38%; commercial, 32%; industrial, 19%; other, 11%. Retail revs. by state: GA, 50%; AL, 34%; FL, 9%; MS, 7%. Generating sources: gas & oil, 44%; coal, 32%; nuclear, 15%; hydro, 3%; purchased, 6%. Fuel costs: 31% of revs. ’15 reported depr. rate (utility): 3.0%. Has 32,000 employees. Additional Company Information from Website: With more than 9 million customers, 44,000 megawatts of generating capacity and 1,500 billion cubic feet of combined natural gas consumption and throughput, Atlanta-based Southern Company (NYSE: SO) is America's premier energy company serving the Southeast through its subsidiaries. A leading U.S. producer of clean, safe, reliable and affordable energy, Southern Company owns electric utilities in four states, natural gas distribution utilities in seven states, a competitive generation company serving wholesale customers across America and a nationally recognized provider of customized energy solutions, as well as fiber optics and wireless communications. Southern Company brands are known for energy innovation, excellent customer service, high reliability and retail electric prices that are below the national average. Through an industry-leading commitment to innovation, Southern Company and its subsidiaries are inventing America's energy future by developing the full portfolio of energy resources, including carbon-free nuclear, 21st century coal, natural gas, renewables and energy efficiency, and creating new products and services for the benefit of customers. Southern Company has been named by the U.S. Department of Defense and G.I. Jobs magazine as a top military employer, recognized among the Top 50 Companies for Diversity by DiversityInc, listed by Black Enterprise magazine as one of the 40 Best Companies for Diversity and designated a Top Employer for Hispanics by Hispanic Network. The company has earned a National Award of Nuclear Science and History from the National Atomic Museum

http://www.sempra.com/, accessed 12/22/2016

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Foundation for its leadership and commitment to nuclear development and is continually ranked among the top utilities in Fortune's annual World's Most Admired Electric and Gas Utility rankings.61 Southern Company (NYSE: SO) and AGL Resources announced July 1, 2016 the completion of a merger creating one of America's leading energy providers. AGL Resources has become a wholly owned subsidiary of Southern Company, which now has 11 electric and natural gas utilities with operations across the U.S.62 Why was the company not included? This company is located in the Electric Utility (East) Value Line Industry. We are limiting the guideline companies for electric to the Electric Utility (Central) Value Line Industry as well as those companies that are located in or directly next to Minnesota. The company also recently underwent an acquisition. TECO Energy, Inc. Company Summary from Value Line: Not Available Additional Company Information from Website: Emera Inc. (TSX: EMA) today announced that it has completed the acquisition of all outstanding shares of TECO Energy Inc. for approximately US$6.5 billion.63 Why was the company not included? Teco Energy, Inc. was acquired by Emera, Inc. UIL Holdings Corp Company Summary from Value Line: Not Available Additional Company Information from Website: AVANGRID, Inc. (NYSE: AGR) is a U.S. based diversified energy and utility company with $30 billion in assets and operations in 25 states, created through the merger of Iberdrola USA and UIL Holdings Corp. in December 2015.64 Why was the company not included? This company is now part of AVANGRID, Inc. Westar Energy Company Summary from Value Line: Westar Energy, Inc., formerly Western Resources, is the parent of Kansas Gas & Electric Company. Westar supplies electricity to 700,000 customers in Kansas. Electric revenue sources: residential and rural, 41%; commercial, 38%; industrial, 21%. Sold investment in ONEOK in 2003 and 85% ownership in Protection One in 2004. 2014 depreciation rate: 3.9%. Estimated plant age: 16 years. Fuels: coal, 48%; nuclear, 8%; gas, 44%. Has 2,411 employees. BlackRock Inc. owns 7.2% of common; The Vanguard Group owns 6.3%; Stowers Institute owns 5.7% (4/15 proxy).

http://southerncompany.com/about-us/our-business/home.cshtml, accessed 12/22/2016 http://www.southerncompany.com/news/2016-07-01-complete-merger.cshtml?hp=lnau_box3, accessed 12/22/2016 63 http://www.tecoenergy.com/news/article/index.cfm?article=872, accessed12/22/2016 61 62 64

http://www.avangrid.com/NewsRoom/NewsReleases/default.html, accessed 12/22/2016

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Additional Company Information from Website: Westar Energy is the largest electric energy provider in Kansas. We provide generation, transmission and distribution to approximately 687,000 customers in much of east and east-central Kansas. Westar Energy is dedicated to operating the best electric utility in the Midwest and providing quality service at below average prices. The company is headquartered in Topeka, and employs about 2,400 people in Kansas. Our energy centers in eleven Kansas communities generate more than 7,000 megawatts of electricity, and we operate and coordinate 34,000 miles of transmission and distribution lines.65 KANSAS CITY, Mo. & TOPEKA, Kan.--(BUSINESS WIRE)--Great Plains Energy Incorporated (NYSE: GXP), the parent company of KCP&L, and Westar Energy, Inc. (NYSE: WR) today September 26, 2016 that their respective shareholders approved all proposals necessary for Great Plains Energy’s acquisition of Westar Energy at each company’s respective shareholder meeting. 66 Why was the company not included? This company is similar to the Electric Companies that the State Assessed Section is responsible for valuing. The company serves an electric service territory in Kansas. However, Great Plains Energy and Westar Energy, Inc. announced that their respective shareholders approved all proposals necessary for Great Plains Energy’s acquisition of Westar Energy on September 26, 2016.

Market Segment: Gas Distribution Companies Included in the Gas Distribution Market Segment Atmos Energy Corporation Company Summary from Value Line: Atmos Energy Corporation is engaged primarily in the distribution and sale of natural gas to roughly three million customers through six regulated natural gas utility operations: Louisiana Division, West Texas Division, Mid-Tex Division, Mississippi Division, Colorado-Kansas Division, and Kentucky/Mid-States Division. Gas sales breakdown for fiscal 2015: 66%, residential; 29%, commercial; 3%, industrial; and 2% other. The company has around 4,760 employees. Officers and directors own approximately 1.5% of common stock (12/15 Proxy). Additional Company Information from Website: Atmos Energy Corporation, headquartered in Dallas, is the country's largest natural-gas-only distributor, serving about 3 million natural gas distribution customers in more than 1,400 communities in eight states from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energy also provides natural gas marketing and procurement services to industrial, commercial and municipal customers primarily in the Midwest and Southeast and manages company-owned natural gas pipeline and storage assets, including one of the largest intrastate natural gas pipeline systems in Texas.67 Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing.

http://investors.westarenergy.com/phoenix.zhtml?c=89455&p=irol-irhome, accessed 12/22/2016 http://www.businesswire.com/news/home/20160926006171/en/Great-Plains-Energy-Westar-Energy-ShareholdersApprove, accessed 12/21/2016 67 https://www.atmosenergy.com/company/about-atmos-energy, accessed 12/22/2016 65 66

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Chesapeake Utilities Corporation Company Summary from Value Line: Chesapeake Utilities Corporation consists of two units: Regulated Energy and Unregulated Energy. The Regulated Energy segment (65% of 2015 revenues) distributes natural gas in Delaware, Maryland, and Florida; distributes electricity in Florida; and transmits natural gas on the Delmarva Peninsula and in Florida. The Unregulated Energy operation (35% of 2015 revenues) wholesales and distributes propane; markets natural gas; and provides other unregulated energy services, including midstream services in Ohio. Officers and directors own 5.4% of common stock; T. Rowe Price, 8.3; BlackRock, 5.8% (3/16 Proxy). Additional Company Information from Website: Chesapeake Utilities Corporation is a diversified energy company that provides superior service to its customers and communities. For more than 100 years, the Company has successfully delivered safe, secure, reliable and efficient solutions that are environmentally and economically smart. Chesapeake positions itself for long-term growth that creates superior value.68 Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing. Delta Natural Gas Company Company Summary from Value Line: Delta Natural Gas Company, Inc. distributes natural gas to approximately 36,000 retail customers on its distribution system in central and southeastern Kentucky. The Regulated segment sells natural gas to its retail customers, primarily in 23 rural counties. This segment also transports gas to industrial customers on its system that purchase gas in the open market, as well as transports gas on behalf of local producers not on its distribution system. The Non-Regulated segment purchases natural gas on the open market and from Kentucky producers, and resells this gas to industrial customers on its distribution system and to others not on its system. This segment also produces natural gas that is sold to Delgasco for resale. Delta owns approximately 2,600 miles of natural gas gathering, transmission, distribution, storage, and service lines; and holds leases for the storage of natural gas under 8,000 acres. Has 148 employees. Additional Company Information from Website: Corporate Profile:  Started 1949; growth through expansion and acquisitions  Regulated by Kentucky Public Service Commission  Distributes, transports and gathers natural gas  June 30, 2016 annual throughput of 20.1 bcf. (2.6 bcf sales; 17.5 bcf transportation)  Quarterly gas cost recovery filings recover gas cost in rates  Primarily weather-sensitive residential /commercial sales  Rates adjust December-April billing months for weather variances from normal (30 year average)69 Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing.

68 69

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Gas Natural, Inc. Company Summary from Value Line: On October 10, 2016, First Reserve, a leading global private equity and infrastructure investment firm, agreed to acquire all of the outstanding shares of Gas Natural, Inc. common stock for $13.10 per share, for a total value of about $196 million. Due to this news, the company’s ranks were suspended. Gas Natural, Inc., a holding company, distributes and sells natural gas to residential, commercial, and industrial customers. Annually it distributes roughly 21 Bcf of natural gas through regulated utilities operating in Maine, Montana, North Carolina, and Ohio. Its natural gas utility subsidiaries include Bangor Gas (Maine), Brainard (Ohio), Cut Bank Gas (Montana), EWM (Montana), Frontier Gas (North Carolina), NEO (Ohio), and Orwell (Ohio). As of September 30, 2016, it served about 68,600 customers. In October 2016, Gas Natural closed a $92 million debt refinancing following receipt of regulatory approvals to reorganize its utilities within a wholly-owned subsidiary. Has 182 employees. Additional Company Information from Website: Gas Natural Inc. (NYSE MKT: EGAS), a holding company, distributes and sells natural gas to end-use residential, commercial and industrial customers. It distributes approximately 26 billion cubic feet of natural gas to approximately 68,000 customers through regulated utilities operating in Montana, Ohio, Pennsylvania, Maine, North Carolina and Kentucky. The Company’s other operations include natural gas production and natural gas marketing. The Company's Montana public utility was originally incorporated in 1909. Gas Natural‘s strategy for growth is to expand throughput, particularly in the Maine and North Carolina markets, while looking for acquisitions that are either adjacent to its existing utilities or in under saturated markets. The company’s common stock currently trades on the NYSE MKT under the ticker symbol “EGAS.” 70 Why was the company not included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing. Spire, Inc., formerly The Laclede Group Company Summary from Value Line: Spire Inc., formerly known as the Laclede Group, Inc., is a holding company for natural gas utilities, which distributes natural gas across Missouri, including the cities of St. Louis and Kansas City. Has roughly 1.6 million customers. Acquired Missouri Gas 9/13, Alabama Gas Co 9/14. Utility therms sold and transported in fiscal 2016: 2.6 bill. Revenue mix for regulated operations: residential, 67%; commercial and industrial, 23%; transportation, 2%; other, 8%. Has around 3,078 employees. Officers and directors own 3.2% of common shares (1/16 proxy). Additional Company Information from Website: Spire’s natural gas utilities and other related businesses work together to enrich the lives of the 1.56 million customers we serve across Missouri and Alabama. Our gas marketing business maintains the balance between our natural gas supplies and our customers’ needs, ensuring the highest reliability at the lowest costs. And we’ve tapped into the growing market of cleaner-burning natural gas vehicles that can conveniently support business fleets of all kinds.71 April 28, 2016, shareholders approved renaming The Laclede Group (NYSE: LG) to Spire. Starting April 29, the company’s common stock shares will trade under the ticker symbol “SR” on the New York Stock Exchange.72 http://www.egas.net/about-us/who-we-are/, accessed 12/22/2016 http://www.spireenergy.com/our-company, accessed 12/22/2016 72 http://www.lacledegas.com/about/news/article/143/, accessed 12/22/2016 70 71

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Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing. New Jersey Resources Corporation Company Summary from Value Line: New Jersey Resources Corp. is a holding company providing retail/wholesale energy svcs. to customers in New Jersey, and in states from the Gulf Coast to New England, and Canada. New Jersey Natural Gas had about 512,300 customers at 9/30/15 in Monmouth and Ocean counties, and other N.J. counties. Fiscal 2015 volume: 341 bill. cu. ft. (14% interruptible, 21% residential and commercial and electric utility, 65% incentive programs). N.J. Natural Energy subsidiary provides unregulated retail/wholesale natural gas and related energy svcs. 2015 dep. rate: 2.5%. Has 991 empls. Off./dir. own about 1.4% of common (12/15 Proxy). Additional Company Information from Website: NEW JERSEY RESOURCES (NYSE: NJR) is a Fortune 1000 company that, through its subsidiaries, provides safe and reliable natural gas and clean energy services, including transportation, distribution, asset management and home services. NJR is comprised of five primary businesses: NEW JERSEY NATURAL GAS, NJR’s principal subsidiary, operates and maintains over 7,300 miles of natural gas transportation and distribution infrastructure to serve over half a million customers in New Jersey’s Monmouth, Ocean and parts of Morris, Middlesex and Burlington counties. NJR ENERGY SERVICES manages a diversified portfolio of natural gas transportation and storage assets and provides physical natural gas services and customized energy solutions to its customers across North America. NJR CLEAN ENERGY VENTURES invests in, owns and operates solar and onshore wind projects with a total capacity of nearly 240 MW, providing residential and commercial customers with low-carbon solutions. NJR MIDSTREAM serves customers from local distributors and producers to electric generators and wholesale marketers through its 50 percent equity ownership in the Steckman Ridge natural gas storage facility and its stake in Dominion Midstream Partners, L.P., as well as its 20 percent equity interest in the PennEast Pipeline Project. NJR HOME SERVICES provides service contracts as well as heating, central air conditioning, water heaters, standby generators, solar and other indoor and outdoor comfort products to residential homes throughout New Jersey. NJR and its more than 1,000 employees are committed to helping customers save energy and money by promoting conservation and encouraging efficiency through Conserve to Preserve® and initiatives such as The SAVEGREEN Project® and The Sunlight Advantage®.73 Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing. NiSource, Inc. Company Summary from Value Line: NiSource Inc. is a holding company for Northern Indiana Public Service Company (NIPSCO), which supplies electricity and gas to the northern third of Indiana. Customers: 461,000 electric in Indiana, 3.4 million gas in Indiana, Ohio, Pennsylvania, Kentucky, Virginia, Maryland, Massachusetts through its Columbia subsidiaries. Revenue breakdown, 2015: electrical, 34%; gas, 66%; other, less than 1%. Generating sources, 2015: coal, 77.3%; purchased & other, 22.7%. 2015 reported depreciation rates: 3.0% electric, 1.8% gas. Has 7,596 employees.

73 http://files.shareholder.com/downloads/NJR/1656564592x0x921029/97855792-93C0-4575-9FB758999EBDDA53/NJR_AR_2016_FINAL_W_10K.PDF, accessed 12/22/2016

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Additional Company Information from Website: NiSource (NYSE: NI) helps energize the lives of its nearly 4 million natural gas and electric customers across seven states. Our local utilities – Columbia Gas and NIPSCO – ensure that customers receive safe, reliable and affordable natural gas and electric service each and every day. Our business plan is focused on proactively investing in our energy infrastructure – approximately $1.4 billion a year – to ensure we meet and improve upon our customer commitments for the next 100 years. We employ more than 7,000 of our neighbors who are actively engaged in the communities we’re privileged to serve, making them great places to live and call home. NiSource is headquartered in Merrillville, Indiana – about 35 miles from Chicago – and we maintain a significant corporate presence in Columbus, Ohio.74 Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing. Northwest Natural Gas Company Company Summary from Value Line: Northwest Natural Gas Co. distributes natural gas to 90 communities, 704,000 customers, in Oregon (89% of customers) and in southwest Washington state. Principal cities served: Portland and Eugene, OR; Vancouver, WA. Service area population: 2.5 mill. (77% in OR). Company buys gas supply from Canadian and U.S. producers; has transportation rights on Northwest Pipeline system. Owns local underground storage. Rev. breakdown: residential, 35%; commercial, 22%; industrial, gas transportation, and other, 43%. Employs 1,092. BlackRock Inc. owns 10.0% of shares; officers and directors, 2.1% (4/16 proxy). Additional Company Information from Website: NW Natural (NYSE:NWN) is a 157-year-old natural gas local distribution and storage company headquartered in Portland, Oregon, and provides natural gas service to more than 718,000 residential, commercial, and industrial customers through 14,000 miles of mains and service lines in western Oregon and southwestern Washington. It is the largest independent natural gas utility in the Pacific Northwest with $2.9 billion in total assets. NW Natural and its subsidiaries currently own and operate underground gas storage facilities with designed storage capacity of approximately 31 Bcf in Oregon and California. 75 Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing. RGC Resources, Inc. Company Summary from Value Line: RGC Resources, Inc. is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 60,000 residential, commercial, and industrial customers in Roanoke, Virginia and the surrounding localities through its Roanoke Gas Company and RGC Midstream LLC subsidiaries. The principal service of Roanoke Gas is the distribution and sale of natural gas to residential, commercial and industrial customers. Roanoke Gas’ regulated natural gas distribution business accounted for approximately 98% of Resources total revenues for fiscal years ending September 30, 2015, 2014, and 2013. The company operates approximately 1,125 miles of transmission and distribution pipeline; and a liquefied natural gas storage facility located in Botetourt County that has the capacity to store up to 220,000 DTH of natural gas. In November 2016, Roanoke completed its 25-year pipeline renewal program in Roanoke. Has 125 employees.

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Additional Company Information from Website: RGC Resources, Inc. ("Resources" or the "Company") was incorporated in the state of Virginia on July 31, 1998, for the primary purpose of becoming the holding company for Roanoke Gas Company (“Roanoke Gas”) and its subsidiaries. Effective July 1, 1999, Roanoke Gas and its subsidiaries were reorganized into the holding company structure. Resources is currently composed of the following subsidiaries: Roanoke Gas, Diversified Energy Company and RGC Midstream, LLC. Roanoke Gas was organized as a public service corporation under the laws of the Commonwealth of Virginia in 1912. The principal service of Roanoke Gas is the distribution and sale of natural gas to residential, commercial and industrial customers within its service territory in Roanoke, Virginia and the surrounding localities. Roanoke Gas also provides certain non-regulated services which account for most of the non-gas utility revenue of Resources. In July 2015, the Company formed RGC Midstream, LLC, a limited liability company established for the purpose of becoming a 1% investor in Mountain Valley Pipeline, LLC. Mountain Valley Pipeline, LLC was created for the purpose of constructing a natural gas pipeline in West Virginia and Virginia. Additional information regarding this investment is provided under Note 3 of the Company's annual consolidated financial statements and under the Equity Investment in Mountain Valley Pipeline section of Item 7. In March 2016, Resources dissolved its subsidiary, RGC Ventures of Virginia, Inc. ("Ventures"). Ventures contained the operations of Application Resources, Inc., which provided information technology consulting services, and The Utility Consultants, which provided utility and regulatory consulting services to other utilities. Both of these operations were insignificant when compared to the overall activities of Resources and represented less than 0.2% of total revenues and less than 6% of other non-utility revenues. Diversified Energy Company currently has no active operations. 76 Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing. South Jersey Industries, Inc. Company Summary from Value Line: South Jersey Industries, Inc. is a holding company. Its subsidiary, South Jersey Gas Co., distributes natural gas to 373,100 customers in New Jersey’s southern counties. Gas revenue mix ’15: residential, 45%; commercial, 22%; cogeneration and electric generation, 12%; industrial, 21%. Non-utility operations include: South Jersey Energy, South Jersey Resources Group, South Jersey Exploration, Marina Energy, South Jersey Energy Service Plus, and SJI Midstream. Has about 720 employees. Off./dir. Own less than 1% of common shares; BlackRock, Inc., 10.5%; The Vanguard Group, Inc., 7.7% (3/16 proxy). Additional Company Information from Website: South Jersey Industries (NYSE: SJI), an energy services holding company based in Folsom, NJ, operates its business through two primary subsidiaries. South Jersey Gas, one of the fastest growing natural gas utilities in the nation, strongly advocates the efficient use of energy while safely and reliably delivering natural gas in southern New Jersey. South Jersey Energy Solutions, the parent of SJI’s non-regulated businesses, provides innovative, environmentally-friendly energy solutions that help customers control energy costs. South Jersey Energy acquires and markets natural gas and electricity for retail customers throughout New Jersey and also offers businesses energy-related services to reduce their energy costs. Marina Energy develops and operates onsite energy projects including thermal facilities, serving hot and chilled water for casinos, cogeneration plants, solar system installations and landfill gas to electricity facilities. South Jersey Resources Group provides wholesale commodity marketing and risk management services in the mid-Atlantic region and also oversees the

http://www.rgcresources.com/financials/Annual%20Report%202016.pdf, accessed 12/27/2016

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company’s activities in the Marcellus Shale. South Jersey Energy Service Plus services heating, air conditioning and water heating equipment in addition to performing energy audits.77 Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing. WGL Holdings, Inc. Company Summary from Value Line: WGL Holdings, Inc. is the parent of Washington Gas Light, a natural gas distributor in Washington, D.C. and adjacent areas of VA and MD to resident’l and comm’l users (1,129,865 meters). Hampshire Gas, a federally regulated sub., operates an underground gas-storage facility in WV. Non-regulated subs.: Wash. Gas Energy Svcs. sells and delivers natural gas and provides energy-related products in the D.C. metro area; Wash. Gas Energy Sys. designs/installs comm’l heating, ventilating, and air cond. systems. BlackRock, Inc. owns 8.7% of common stock; Off./dir. less than 1% (1/16 proxy). Additional Company Information from Website: WGL Holdings, Inc. is a public utility holding company serving the Washington, D.C. metropolitan region. Washington Gas, our leading subsidiary, has provided safe, reliable natural gas service to customers in the D.C. area for over 160 years and, today, serves more than one million customers in the District of Columbia, Maryland and Virginia. Our unregulated subsidiaries provide energy-related services to residential and commercial customers, including government organizations. Whether we are distributing clean natural gas safely to a customer’s home, providing electric power through renewable wind energy, or installing energyefficient systems for the federal government, our vision is consistent and clear throughout our business: to be the preferred source of clean and efficient energy solutions.78 Why was the company included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing.

Companies Not Included in the Gas Distribution Market Segments Adams Resources and Energy, Inc. Company Summary from Value Line: Adams Resources & Energy, Inc. engages in marketing crude oil, natural gas, and petroleum products. It purchases crude oil and arranges sales and deliveries to refiners and other customers in Texas and Louisiana with additional operations in Michigan and New Mexico; purchases, distributes, and markets natural gas; offers value added services by providing access to common carrier pipelines and handling daily volume balancing requirements, as well as risk management services. The company also markets branded and unbranded refined petroleum products, such as motor fuels and lubricants. In addition, it transports liquid chemicals on a for-hire basis in the continental United States and Canada, as well as engages in the exploration and development of domestic oil and natural gas properties, primarily in Texas and the south central region of the United States. Adams Resources holds interests in 513 producing wells of which 26 are company operated. Has 809 employees.

77 78

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Additional Company Information from Website: The operations of Adams Resources & Energy, Inc. were originally founded by K. S. "Bud" Adams Jr. in 1947 as a private concern. The Company completed its initial public offering in 1974. The Company and its subsidiaries presently have over 700 employees. The Company's GulfMark Energy, Inc. subsidiary purchases crude oil and arranges sales and deliveries to refiners and other customers. Crude oil is acquired from independent producers primarily in Texas, Louisiana, and Michigan. GulfMark purchases approximately 65,000 barrels per day at the wellhead. In connection with its purchases of crude oil, the Company operates 75 tractortrailer units and maintains over 50 pipeline inventory locations or injection points. GulfMark also has the ability to barge oil from nine oil storage facilities along the intercoastal waterway of Texas and Louisiana and maintains 200,000 barrels of storage capacity at certain dock facilities in order to access waterborne markets for its products. The company's Service Transport subsidiary transports liquid chemicals on a "for hire" basis throughout the continental United States and Canada. With a fleet of 300+ of the most advanced tractors available plus more than 450 trailer units, constant satellite communication capabilities and a comprehensive, integrated package of operations management software, Service Transport Company has emerged as a leading service provider to the bulk chemical industry. The Company's Adams Resources Exploration Corporation subsidiary is actively engaged in the exploration and development of domestic oil and gas properties primarily along the Gulf Coast of Texas and Louisiana.79 Why was the company not included? The company’s main business segments market crude oil, natural gas, and petroleum products. AGL Resources, Inc. Company Summary from Value Line: Not Available. Additional Company Information from Website: Southern Company (NYSE: SO) and AGL Resources announced July 1, 2016 the completion of a merger creating one of America's leading energy providers. AGL Resources has become a wholly owned subsidiary of Southern Company, which now has 11 electric and natural gas utilities with operations across the U.S.80 Why was the company not included? This company is no longer publically traded due to merger. AmeriGas Partners, L.P. Company Summary from Value Line: AmeriGas Partners, LP, through its subsidiary, AmeriGas Propane, LP, is a retail and wholesale distributor of propane gas. It serves about two million residential, commercial, industrial, agricultural, and motor fuel customers in 50 states through 2,000 propane distribution locations. The company also sells, installs, and services propane appliances, including heating systems. It markets propane primarily under the ‘‘AmeriGas’’ and ‘‘America’s Propane Co.’’ names. The propane is used for home heating, water heating, and cooking purposes; to fire furnaces, as a cutting gas, and in other process applications; as a supplemental fuel and motor fuel; and for tobacco curing, chicken brooding, and crop drying applications. UGI Corp., through subsidiaries, is the sole general partner and owns 26% of AmeriGas Partners, while the public owns the remaining 74%. AmeriGas Partners, L.P. was founded in 1994 and is based in King of Prussia, Pennsylvania. Has about 8000 employees.

79 80

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Additional Company Information from Website: AmeriGas Partners, L.P. is a publicly traded master limited partnership (NYSE: APU). We are the nation's largest retail propane marketer, serving approximately 2 million customers in all 50 states from approximately 2,100 distribution locations. We conduct our business principally through our subsidiary AmeriGas Propane, L.P. UGI Corporation, through subsidiaries, is the sole General Partner and owns 26% of the Partnership. For more information regarding UGI Corporation, please visit www.ugicorp.com81 Why was the company not included? This company operates as a retail and wholesale distributor of propane gas. Niska Gas Storage Partners, LLC. Company Summary from Value Line: Not available. Additional Company Information from Website: Niska Gas Storage Partners was acquired on July 19, 2016 by Brookfield Infrastructure Group and is a private entity. We are the largest independent owner and operator of natural gas storage in North America, with strategically located assets in key natural gas producing and consuming regions. Niska owns and operates three facilities, including the AECO Hub™ (comprised of the Countess and Suffield facilities) – 154 Bcf in Alberta, Canada; Wild Goose – 75 Bcf in Northern California; and Salt Plains – 13 Bcf in Oklahoma. Niska also contracts 3 Bcf of gas storage capacity on the Natural Gas Pipeline Company of America pipeline system. In total, Niska owns, operates and contracts approximately 245 Bcf of working gas storage capacity.82 Why was the company not included? This company was acquired by Brookfield Infrastructure Group and is a private entity. Piedmont Natural Gas Company Company Summary from Value Line: Not Available. Additional Company Information from Website:

Piedmont Natural Gas is a pure-play LDC operating in the southeastern United States. Effective Oct. 3, 2016, Piedmont Natural Gas was acquired by Duke Energy (NYSE: DUK).83

Why was the company not included? This company was acquired by Duke Energy on October 3, 2016.84 Southwest Gas Holdings, Inc. Company Summary from Value Line: Southwest Gas Corporation is a regulated gas distributor serving approximately 2.0 million customers in sections of Arizona, Nevada, and California. Comprised of two business segments: natural gas operations and construction services. 2015 margin mix: residential and small commercial, 85%; large commercial and industrial, 4%; transportation, 11%. Total throughput: 2.1 billion therms. Has 5,876 employees. Officers & http://investors.amerigas.com/investor-relations/ir-home/default.aspx, accessed 12/22/2016 https://www.niskapartners.com/, accessed 12/22/2016 83 https://news.duke-energy.com/releases/duke-energy-completes-acquisition-of-piedmont-natural-gas, accessed 12/21/2016 84 https://news.duke-energy.com/releases/duke-energy-completes-acquisition-of-piedmont-natural-gas, accessed on 12/21/2016 81 82

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directors own 1.3% of common stock; BlackRock Inc., 9.6%; The Vanguard Group, Inc., 7.4%; GAMCO Investors, Inc., 6.4% (3/16 Proxy). Additional Company Information from Website: Southwest Gas Corporation (“Southwest Gas” or “Company”), headquartered in Las Vegas, NV, provides natural gas service to over 1.9 million customers in Arizona, Nevada, and California. Centuri Construction Group, Inc. (“Centuri”), a subsidiary, is a full-service underground piping contractor that primarily provides utility companies with trenching and installation, replacement, and maintenance services for energy distribution systems, and develops industrial construction solutions. Centuri operates in 20 major markets in the United States (primarily under the NPL Construction Co. [“NPL”] name) and in two major markets in Canada (under the Link-Line Contractors Ltd. and W.S. Nicholls Construction Inc. names).85 Southwest Gas Holdings, Inc. (NYSE: SWX) ("SWG Holdings") and Southwest Gas Corporation ("Southwest") today [January 3, 2017] announced that, effective January 1, 2017, they completed the previously announced reorganization of Southwest into a holding company structure. SWG Holdings is now the parent holding company of Southwest, Centuri Construction Group, and their respective subsidiaries.86 Why was the company not included? This company is similar to the Gas Distribution Companies that the State Assessed Section is responsible for valuing. This company recently reorganized. This company will be considered for future studies. Star Gas Partners, L.P. Company Summary from Value Line: Star Gas Partners, LP is a full-service provider specializing in the sale of home heating products and services to approximately 446,000 full-service residential and commercial customers to heat their homes and buildings. It also services and sells heating and air conditioning equipment to home heating oil and propane customers and, to a lesser extent, provides these offerings to customers outside of its home heating oil and propane customer base. In certain marketing areas, Star provides home security and plumbing services, primarily to its home heating oil and propane customer base. The company also sells diesel fuel, gasoline, and home heating oil to approximately 74,000 customers on a delivery-only basis. Star is the nation’s largest retail distributor of home heating oil, based upon sales volume, operating throughout the northeast and mid- Atlantic. Kestrel Heat, LLC is the general partner of the company. Has 3101 employees. Additional Company Information from Website: Star Gas Partners is a full service energy provider specializing in the sale of home heating products and services to residential and commercial customers. The Partnership also services and sells heating and air conditioning equipment and, in certain areas, provides home security and plumbing services. In addition, Star sells diesel fuel, gasoline and home heating oil on a delivery-only basis. Star is the nation's largest retail distributor of home heating oil, based upon sales volume, operating throughout the Northeast and Mid-Atlantic. Star Gas is a publicly traded master limited partnership. Common units, representing limited partner interests in the Partnership, are listed and trade on the New York Stock Exchange, Inc. ("NYSE") under the symbol "SGU." As a master limited partnership our unitholders are required to report for federal income tax purposes their allocable share of our income, gains, losses, deductions and credits, regardless of whether we make cash distributions. We

85 http://investors.southwestgas.com/phoenix.zhtml?c=117697&p=irol-reportsannual, 2015 Annual Report, Page 2, accessed 12/27/2016 86 http://www.prnewswire.com/news-releases/southwest-gas-completes-holding-company-reorganization-300384317.html, accessed 1/12/2017

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expect that an investor will be allocated taxable income (mostly dividend income) regardless of whether a cash distribution has been paid.87 Why was the company not included? This company’s business segments include sale of home heating products and services to residential and commercial customers. UGI Corporation Company Summary from Value Line: UGI Corp. operates six business segments: AmeriGas Propane (accounted for 21.7% of net income in 2015), UGI International (18.8%), Gas Utility (41.2%), Midstream & Marketing (38.8%), and Corp. & Other -21%. UGI Utilities distributes natural gas and electricity to over 617,000 customers mainly in Pennsylvania; 27%owned AmeriGas Partners is the largest U.S. propane marketer, serving about 1.3 million users in 50 states. Acquired remaining 80% interest in Antargaz (3/04); Energy Transfer Partners (1/12). Wellington Management Co. holds 9.6% of stock; officers/dir., about 3% (12/15 proxy). Has 8,500 empls. Additional Company Information from Website: UGI Corporation is a holding company that, through subsidiaries, distributes, stores, transports and markets energy products and related services. We are a domestic and international retail distributor of propane and butane (which are liquefied petroleum gases (“LPG”)); a provider of natural gas and electric service through regulated local distribution utilities; a generator of electricity; a regional marketer of energy commodities; an owner and manager of midstream assets; and a regional provider of heating, ventilation, air conditioning, refrigeration and electrical contracting services.88 Why was the company not included? This company’s non-gas utility segments accounted for almost 59% of net income in 2015. Their gas utility segment only accounted for 41 % of their net income.

Market Segment: Gas Transmission Pipeline and Fluid Transportation Pipeline Companies Included in the Gas Transmission Pipeline Market Segment Boardwalk Pipeline Partners, L.P. Company Summary from Value Line: Boardwalk Pipeline Partners, L.P. engages in the transportation, gathering, and storage of natural gas in the United States. Customers include local gas distributors, interstate and intrastate pipelines, direct industrial users, electric power generators, marketers, and producers. Owns and operates 14,525 miles of natural gas and NGL pipelines. Storage capacity of 205 Bcf (natural gas) and 24 MMbls (NGLS). Of 2015 revenues, 79% derived from firm contacts, 12% from volumes actually transported and 9% from interruptible services. Boardwalk GP, L.P. is the general partner. Loews Corp. owns 51.6% of equity. Has 1,260 emplys. Additional Company Information from Website: Boardwalk Pipeline Partners, LP (NYSE: BWP) is a midstream master limited partnership that provides transportation, storage, gathering and processing of natural gas and liquids for our customers. Through our subsidiaries, we own and operate approximately 14,090 miles of interconnected natural gas pipelines, directly 87 88

http://www.star-gas.com/, accessed 12/27/2016 http://www.ugicorp.com/about-us/default.aspx, accessed 12/27/2016

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serving customers in thirteen states and indirectly serving customers throughout the northeastern and southeastern United States through numerous interconnections with unaffiliated pipelines. We also own and operate more than 435 miles of natural gas liquids (“NGLs”) pipelines in Louisiana and Texas. In 2015, our pipeline systems transported approximately 2.4 trillion cubic feet (Tcf) of natural gas and approximately 46.6 MMBbls of NGLs. Average daily throughput on our natural gas pipeline system during 2015 was approximately 6.7 Bcf. Our natural gas storage facilities are comprised of 14 underground storage fields located in four states with an aggregate working gas capacity of approximately 205 Bcf, and our NGLs storage facilities consist of nine salt-dome caverns located in Louisiana with an aggregate storage capacity of 24 MMBbls. We also own three salt-dome caverns and a brine pond for use in providing brine supply services and to support the NGLs storage operations.89 Why was the company included? This company is similar to the Gas Transmission Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the transportation, gathering, and storage of natural gas. Enterprise Products Partners Company Summary from Value Line: Enterprise Products Partners, LP, is a leading integrated provider of natural gas and natural gas liquids (NGLs) processing, fractionation, transportation, and storage services in the U.S. and Canada. Acquired GulfTerra Energy 9/04; TEPPCO, L.P. 10/09; M2 Midsteam, 5/10; Enterprise GP, 11/10; Oiltanking Partner, 2/15. Assets include 49,000 miles of pipelines, 250 MMBbls of storage capacity for liquids and 14 Bcf for natural gas. Four segments: NGL Pipeline (48% of 2015 revenues); Crude Oil Pipelines, (26%); Petrochemical & Refined Products, (15%); Natural Gas Pipelines, (11%); Employs 6,900. Additional Company Information from Website: Enterprise Products Partners L.P. is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals. Our services include: natural gas gathering, treating, processing, transportation and storage; NGL transportation, fractionation, storage and import and export terminals; crude oil gathering, transportation, storage and terminals; petrochemical and refined products transportation, storage and terminals; and a marine transportation business that operates primarily on the United States inland and Intracoastal Waterway systems.90 Why was the company included? This company is similar to the Gas Transmission Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the transportation, gathering, and storage of natural gas. Kinder Morgan, Inc. Company Summary from Value Line: Kinder Morgan, Inc. owns the general partner and limited partner interests in both Kinder Morgan Energy Partners, L.P. (KMP) and El Paso Pipeline Partners, L.P. (EPB). With more than 80,000 miles of pipelines and 180 terminals, it is the largest domestic transporter of petroleum products, natural gas, and carbon dioxide. Kinder also owns the only pipeline that serves the West Coast of Canada. The company employs more than 11,535 individuals. Chairman & CEO: Richard D. Kinder. CFO: Kimberly Dang. Officers/directors own 14.0% of the common stock; The Vanguard Group, 5.2% (4/16 proxy).

89 90

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Additional Company Information from Website: Kinder Morgan is the largest energy infrastructure company in America. We own an interest in or operate approximately 84,000 miles of pipelines and approximately 180 terminals. Our pipelines transport natural gas, gasoline, crude oil, carbon dioxide (CO2) and more. Our terminals store and handle petroleum products, chemicals and other products. The revolutionary shale plays across the United States are creating a tremendous need for more energy infrastructure, which bodes well for us. We invest billions of dollars each year to grow the company by building new and expanding existing assets to help ensure that a variety of energy products get delivered into the marketplace. In most of our businesses we operate like a giant toll road and receive a fee for our services, generally avoiding commodity price risk. Our customers include major oil companies, energy producers and shippers, local distribution companies and businesses across many industries.91 Why was the company included? This company is similar to the Gas Transmission Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the transportation natural gas as well as operates terminals and storage facilities. ONEOK Partners, L.P. Company Summary from Value Line: ONEOK Partners, L.P. gathers, processes, stores, and transports natural gas (NG). Its NG G&P segment focuses on NG from crude oil and NG wells in the Mid-Continent region. The NG Pipelines unit owns & operates regulated transmission pipelines, storage facilities, and gathering systems for non-processed gas. Also provides interstate NG transp. and storage. The NG Liquids unit gathers, fractionates, and treats natural gas liquids (NGLs), and stores NGL products. Its general partner is a wholly owned subsidiary of ONEOK, Inc., a diversified energy company. Has no direct empls. Off./dir. own less than 1% of units out. (’15 10k). Additional Company Information from Website: ONEOK Partners, L.P. (NYSE: OKS) is one of the largest publicly traded master limited partnerships and owns one of the nation’s premier natural gas liquids (NGL) systems, connecting NGL supply in the Mid-Continent, Permian and Rocky Mountain regions with key market centers and is a leader in the gathering, processing, storage and transportation of natural gas in the U.S. Our general partner, ONEOK Partners GP, L.L.C., is a subsidiary of ONEOK, Inc. (NYSE: OKE), a diversified energy company, which owns 41.2 percent of the partnership as of August 21, 2015. ONEOK Partners operations are conducted through the following three business segments: Natural Gas Gathering and Processing, Natural Gas Pipelines, Natural Gas Liquids. 92 Why was the company included? This company is similar to the Gas Transmission Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the transportation, gathering, and storage of natural gas. TC PipeLines, L.P. Company Summary from Value Line: TC PipeLines, LP, a wholly-owned subsidiary of TransCanada Corp., acquires, owns, and participates in the management of energy infrastructure assets in North America. The company owns interests in six natural gas interstate pipeline systems, through which it transports approximately 9.1 billion cubic feet of natural gas per day from producing regions and import facilities to market hubs and consuming markets, primarily in the western and midwestern United States. It serves large utilities, local distribution companies, and natural gas marketers and producing companies. Also, the company invests in longterm critical energy infrastructure that provides reliable delivery of energy to customers in the United States; develops or acquires assets that provide stable cash 91 92

http://www.kindermorgan.com/, accessed 12/28/2016 http://www.oneokpartners.com/en/About, accessed 12/28/2016

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distributions and opportunities for new capital additions; and maximize the utilization of pipeline systems, with a commitment to safe and reliable operations. Additional Company Information from Website: TC PipeLines, LP is a United States limited partnership with a long history of stable and growing cash distributions which has delivered value to its investors while maintaining a solid cash distribution coverage ratio. Through its disciplined investment philosophy, TC PipeLines now has investments in seven critical FERC regulated, low-risk energy infrastructure pipelines, capable of moving 9.1 billion cubic feet per day of natural gas. Revenues from these assets are derived almost entirely from fee-based charges. With access to new gas supplies through support from its sponsor, TransCanada Corporation, who also operates our assets on our behalf, TC PipeLines’ assets are primarily connected to one of the largest supply basins in North America that is positioned to recover and grow over the next decade. With a strong and conservative balance sheet, a low general partner cash take and an ample amount of available liquidity, we are well positioned for growth.93 Why was the company included? Yes, this company is similar to the Gas Transmission Pipeline Companies that the State Assessed Section is responsible for valuing. The company owns and actively participates in the management of natural gas pipelines and related assets. Williams Partners, L.P. Company Summary from Value Line: Williams Partners L.P. is a master limited partnership providing oil, natural gas, and natural gas liquids processing, fractionation, transportation, and storage services. Acquired by Access Midland Partners on 1/1/15 in a stock swap. Access Partners continued to operate under the name of Williams Partners L.P. As of 1/16, has five operating segments: Central; Northeast Gathering & Processing; Atlantic-Gulf; West; NGL and Petrochemicals Services. Williams Partners GP, LLC is the company’s general partner. Employs 6,578. The Williams Companies (WMB) owns WPZ’s general partner and 73% of common units. Additional Company Information from Website: Demand for natural gas is tremendous and continues to grow because gas is cleaner, less expensive and more efficient than other fuels capable of meeting around-the-clock energy demand. Williams (NYSE: WMB) and Williams Partners (NYSE: WPZ) own and operate premier energy infrastructure across the United States, including the largest volume and fastest growing interstate pipeline system in the U.S., connecting the best supplies of natural gas and natural gas products to the best markets.94 Why was the company included? Energy Transfer Equity announced merger on 9/28/2015 with the Williams Companies.95 The Williams Companies owns Williams Partners, L.P. general partner and 73% of common units. This company’s parent, Energy Transfer Equity, announced a merger on 9/28/2015 with the Williams Companies.96 Mergers can make analysts’ opinions of the company unreliable if they are considering the proposed merger.

http://www.tcpipelineslp.com/, accessed 12/28/2016 http://investor.williams.com/, accessed 1/3/2017 95 Press Release Energy Transfer to Combine with Williams, 9/28/815, Business Wire. http://ir.energytransfer.com/phoenix.zhtml?c=106094&p=irol-newsArticle_print&ID=2090796 93 94

96 Press Release Energy Transfer to Combine with Williams, 9/28/815, Business Wire. http://ir.energytransfer.com/phoenix.zhtml?c=106094&p=irol-newsArticle_print&ID=2090796

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2017 Capitalization Rate Study

Companies Included in the Fluid Transportation Pipeline Market Segment Buckeye Partners, L.P. Company Summary from Value Line: Buckeye Partners, L.P., is a master limited partnership engaged in common carriage transportation of refined petroleum products, including gasoline (50% of ’15 volume), jet fuel (25%), distillates (23%), and other (2%). Its subsidiaries own and operate 6,000 miles of pipeline mostly in the Northeast and upper Midwest. The L.P. also owns 117 liquid petro. product terminals. Marine terminal Buckeye Bahamas Hub (formerly BORCO), is one of the world’s largest. Acquired 80% Buckeye Texas Partners, 9/14; storage assets from Hess Corp., 12/13. Off./Dir. own 0.4% of outstanding units; Tortoise Cap., 9.6%; ALPS Adv., 6.5% (4/16 proxy). Additional Company Information from Website: Buckeye Partners, L.P. (NYSE: BPL) is a publicly traded master limited partnership and owns and operates a diversified network of integrated assets providing midstream logistic solutions, primarily consisting of the transportation, storage, and marketing of liquid petroleum products. Buckeye is one of the largest independent liquid petroleum products pipeline operators in the United States in terms of volumes delivered, with approximately 6,000 miles of pipeline. Buckeye also uses its service expertise to operate and/or maintain thirdparty pipelines and perform certain engineering and construction services for its customers. Additionally, Buckeye is one of the largest independent terminalling and storage operators in the United States in terms of capacity available for service.97 Why was the company not included? This company is similar to the Fluid Transportation Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the common transportation of refined petroleum products. Holly Energy Partners, L.P. Company Summary from Value Line: Holly Energy Partners, L.P. provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HollyFrontier Corporation subsidiaries. The Partnership owns and operates petroleum product and crude gathering pipelines, tankage and terminals in Texas, New Mexico, Arizona, Washington, Idaho, Oklahoma, Utah, Wyoming and Kansas as well as refinery processing units in Kansas. In addition, the Partnership owns a 75% interest in UNEV Pipeline, LLC, the owner of a Holly Energy operated refined products pipeline running from Woods Cross, Utah to Nevada, and related product terminals; a 50% interest in Osage Pipe Line Company, LLC, which owns a 135-mile crude oil pipeline from Cushing, Oklahoma to Kansas; a 50% interest in Frontier Pipeline Company, which owns a 289-mile crude oil pipeline from Wyoming to Utah; and a 25% interest in SLC Pipeline LLC, which owns a 95-mile intrastate pipeline system serving refineries in Utah. Holly Energy Partners, LP provides petroleum product and crude oil transportation, tankage, and terminal services to the petroleum industry, including Holly Frontier Corp., which currently owns a 39% interest (including a 2% general partner interest), in the partnership. It owns and operates petroleum product and crude pipelines, tankage, terminals and loading facilities in Arizona, Idaho, Kansas, New Mexico, Oklahoma, Texas, Utah, Washington, and Wyoming. In addition, it owns a 75% interest in UNEV Pipeline, LLC, the owner of Holly Energy, which operates refined products pipeline running from Salt Lake City, Utah to Las Vegas, Nevada, and related product terminals; a 50% interest in Frontier Pipeline Co.; a 296-mile crude oil pipeline running from Casper, Wyoming to Frontier Station, Utah; and a 25% interest in SLC Pipeline LLC, a 95-mile

http://www.buckeye.com/AboutUs/tabid/54/Default.aspx, accessed 12/27/2016

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intrastate pipeline system. In September 2015, Holly Energy acquired 50% interest in Frontier Pipeline Co. from an affiliate of Enbridge, Inc. Additional Company Information from Website: Holly Energy Partners, L.P. ("HEP") is a Delaware limited partnership formed in early 2004 by HollyFrontier and is headquartered in Dallas, Texas. HEP provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HollyFrontier Corporation subsidiaries. The Partnership, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude gathering pipelines, tankage and terminals in Texas, New Mexico, Arizona, Washington, Idaho, Oklahoma, Utah, Nevada, Wyoming and Kansas as well as refinery processing units in Kansas and Utah.98 Why was the company not included? This company is similar to the Fluid Transportation Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the common transportation of refined petroleum products. Magellan Midstream Partners, L.P. Company Summary from Value Line: Magellan Midstream Partners, L.P., engages in the transportation, storage, and distribution of hydrocarbons and related products, largely in the U.S. Gulf coast and upper midwest regions. Segments: Refined products (73% of ’15 Revs., 61% of operating income) has 9,500 miles of pipeline and 52 terminals; Crude oil (19%, 32%) has 1,700 miles of pipeline and storage capacity of 22 million barrels; Marine storage (8%, 7%) has storage capacity of 26 million barrels. Acquired Longhorn Pipeline, 7/09; storage and pipeline from BP, 9/10. Employs 1,640. Offs./dirs. own 0.3% of outstanding shares; Tortoise Cap. 7.0% (2/16 proxy). Additional Company Information from Website: Magellan Midstream Partners, L.P. is a publicly traded oil pipeline, storage and transportation company based in Tulsa, Okla. Formerly a part of Williams Companies, Magellan began trading as Williams Energy Partners in February 2001. In September 2003, we changed our name to Magellan Midstream Partners and began trading under the stock ticker MMP. In 2004, Magellan purchased significant assets from Shell, including more than 3,000 miles of refined product pipelines as well as terminals and storage capacity. In 2007, another acquisition expanded Magellan’s footprint again with increased capabilities in Texas. In 2009, we bought the Longhorn Pipeline running from Houston to El Paso. The reversal of this line has played a key part in Magellan’s growth the last few years. In 2010, Magellan purchased another 100 miles of pipeline and 7.8 million barrels of storage from BP. In 2013, Magellan acquired approximately 800 miles of refined petroleum products pipeline, four terminals and 1.7 million barrels of storage from Plains All American Pipeline. This purchase added assets in Colorado, New Mexico, South Dakota and Wyoming. Today, Magellan has 9,700-mile refined products pipeline system with 53 connected terminals as well as 27 independent terminals not connected to our pipeline system and our 1,100-mile ammonia pipeline system. In addition, we own approximately 2,100 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of about 23 million barrels, of which 15 million are used for leased storage. We also operate five marine terminals located along coastal waterways with an aggregate storage capacity of approximately 26 million barrels.99 Why was the company not included? This company is similar to, and is one of, the Fluid Transportation Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the common transportation of refined petroleum products. 98 99

http://www.hollyenergy.com/about-us/corporate-structure/default.aspx, accessed 12/28/2016 https://www.magellanlp.com/AboutUs/Default.aspx, accessed 12/28/2016

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2017 Capitalization Rate Study

NuStar Energy, L.P. Company Summary from Value Line: NuStar Energy, LP, through its subsidiaries, engages in the transportation, terminalling, and storage of crude oil and refined products. The company operates through three segments: Storage, Pipeline, and Fuels Marketing. The Storage segment provides storage and handling services on a fee basis for petroleum products, specialty chemicals and other liquids, including crude oil and other feedstocks. Its Pipeline segment owns common carrier refined product pipelines in Colorado, Iowa, Kansas, Minnesota, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, and Texas covering approximately 5,500 miles, consisting of the Central West System, the East Pipeline, and the North Pipeline. Within its Fuels Marketing operations, the company purchases crude oil and refined petroleum products for resale. NuStar currently has 8,700 miles of pipeline and 79 terminal and storage facilities that store and distribute crude oil, refined products, and specialty liquids. Has 1644 employees. Additional Company Information from Website: Since it went public in 2001, NuStar Energy L.P. has grown from 160 employees to about 1,600 today; from $387 million in assets to $5.1 billion; and from $100 million in revenues to $2.1 billion. As a result of its growth, NuStar currently has approximately 8,700 miles of pipeline and 79 terminal and storage facilities that store and distribute crude oil, refined products and specialty liquids. The partnership’s combined system has approximately 94 million barrels of storage capacity at its facilities around the world, and NuStar has operations in the United States, Canada, Mexico, the Netherlands, including St. Eustatius in the Caribbean, and the United Kingdom.100 SAN ANTONIO--(BUSINESS WIRE)--Oct. 21, 2016-- NuStar Energy L.P. (NYSE: NS) today announced that it has signed an agreement to purchase crude oil and refined product storage assets in the Port of Corpus Christi from Martin Midstream Partners L.P. (Nasdaq: MMLP) for a net $93 million. The acquisition, which is expected to close by the end of the fourth quarter of 2016, is expected to be immediately accretive to NuStar’s earnings based on the terminal’s current, actual volumes. It also reflects an approximate seven times multiple based on the forecasted four-year average earnings before interest, taxes, depreciation and amortization (EBITDA) attributable to the assets of $13.5 million annually. When combined with NuStar’s existing terminal operations in Corpus Christi, the acquisition will give NuStar over 3.6 million barrels of total storage in the Port of Corpus Christi, including 3.1 million barrels of crude oil storage and 577,000 barrels of refined product storage. The terminal NuStar is acquiring includes 1.15 million barrels of total storage, which is comprised of 900,000 barrels of crude oil storage and 250,000 barrels of refined product storage. The terminal has direct connectivity to Eagle Ford crude oil production and receives crude oil and condensate via its connection to the Harvest Pipeline and through its six-bay truck rack. The terminal has access to two of the port’s deep-water crude oil docks, including exclusive use of the port’s new crude oil dock, and a barge dock. The terminal is located on 25 acres, and has room for further expansion. NuStar also expects to achieve significant operational synergies between its existing North Beach Terminal and the Martin terminal, which are located adjacent to each other in the Port of Corpus Christi.101 Why was the company included? This company is aligned with, and is one of, the fluid transportation companies that the State Assessed Section is responsible for valuing.

100 101

http://nustarenergy.com/en-us/Company/Pages/CompanyMain.aspx, accessed 12/28/2016 http://investor.nustarenergy.com/phoenix.zhtml?c=123440&p=irol-newsArticle_Print&ID=2213695, accessed 1/3/2017

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Plains All American Pipeline, L.P. Company Summary from Value Line: Plains All American Pipeline, L.P., is a publicly traded master limited partnership which operates through various subsidiaries. It engages in the transportation, storage, terminaling, and marketing of crude oil, refined products, and liquefied petroleum gas. The company owns or leases approximately 18,144 miles of active pipelines and gathering systems. Storage capacity 25 million barrels of natural gas liquids (NGL) storage facilities; approximately 80 million barrels of crude oil and refined products; 97 Bcf natural gas. Has a 50% ownership in PAA/Vulcan Gas Storage LLC. Has 5,400 employees. Additional Company Information from Website: Plains All American Pipeline is one of the largest and most admired midstream energy companies in North America. Plains All American Pipeline (Plains) is a publicly-traded master limited partnership that owns and operates midstream energy infrastructure and provides logistics services for crude oil, natural gas liquids (NGL), natural gas, and refined products. We own an extensive network of pipeline transportation, terminalling, storage and gathering assets in key crude oil and NGL producing basins and transportation corridors, and at major market hubs in the United States and Canada. On average, PAA handles over 4.6 million barrels per day of crude oil and NGL in its Transportation segment. The company is headquartered in Houston, Texas.102 Why was the company not included? This company is similar to the Fluid Transportation Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the common transportation of refined petroleum products.

Companies Not Included in the Gas Transmission Pipeline or Fluid Transportation Market Segments American Midstream Partners, L.P. Company Summary from Value Line: American Midstream Partners, LP is engaged in the business of gathering, treating, processing, and transporting natural gas; gathering, transporting, storing, treating, and fractionating NGLs; gathering, storing, and transporting crude oil and condensates; and storing specialty chemical products, all through ownership and operation of 13 gathering systems, five processing facilities, three fractionation facilities, three interstate pipelines, five intrastate pipelines, three marine terminal sites and one crude oil pipeline. In October 2016, American Midstream and JP Energy Partners LP executed a merger agreement to create a combined midstream platform. American Midstream will acquire 100% of JP Energy in a unit-for-unit merger. In conjunction with the transaction, ArcLight Capital Partners, LLC, the sponsor of both American Midstream and JP Energy, will combine the general partners of the two companies. American Midstream Partners, LP was formed as a limited partnership for the purpose of operating, developing, and acquiring a diversified portfolio of midstream energy assets. It provides natural gas gathering, treating, processing, fractionating, marketing, and transportation services primarily in the Gulf Coast and Southeast regions of the US through its ownership and operation of 12 gathering systems, five processing facilities, three fractionation facilities, four marine terminal sites, three interstate pipelines, five intrastate pipelines, and one oil pipeline. It operates more than 3,000 miles of pipelines that gather and transport over one Bcf/d of natural gas. In October 2015, American Midstream acquired a minority interest in Delta House from an affiliate of ArcLight Capital Partners, LLC, which controls the general partner of the partnership, for total consideration of $162 million. It acquired 25% of ArcLight’s 51.7% controlling interest in Delta House.

102

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Additional Company Information from Website: We are a growth-oriented Delaware limited partnership that was formed in August 2009 to own, operate, develop, and acquire a diversified portfolio of midstream energy assets. We are engaged in the business of gathering, treating, processing, and transporting natural gas and oil, fractionating NGLs and storing specialty chemical products through our ownership and operation of twelve gathering systems, five processing facilities, three fractionation facilities, three interstate pipelines, five intrastate pipelines, one oil pipeline and four marine terminal sites. We own a 50% undivided, non-operating interest in a natural gas processing plant located in southern Louisiana, a 67% non-operating interest in an offshore oil pipeline, and a 46% non-operated interest in Mesquite, an off-spec condensate fractionation project in the Permian. We are also an owner, developer, and operator of petroleum, agricultural, and chemical-liquid terminal storage facilities through our ownership of four marine terminal sites. Our assets, which are strategically located in Alabama, Georgia, Louisiana, Maryland, Mississippi, North Dakota, Tennessee, and Texas, provide critical infrastructure that links producers of natural gas, NGLs, condensate and specialty chemicals to numerous intermediate and end-use markets. We currently operate more than 3,000 miles of pipelines that gather and transport over 1 Bcf/d of natural gas and operate approximately 1.7 million barrels of above-ground storage capacity.103 Why was the company not included? This company is mainly located in the Gulf Coast. The Gulf Coast is a different market than the market of the companies for which the State Assessed Section is responsible for valuing. Also, this company engages in gathering, treating, processing, fractionating, storing specialty chemical products, etc. Also, American Midstream and JP Energy Partners executed a merger agreement to create a combined midstream platform. Antero Midstream Partners, L.P. Company Summary from Value Line: Antero Midstream Partners, LP (the partnership) is a growth-oriented limited partnership formed by Antero Resources Corporation (Antero) to own, operate, and develop midstream energy assets to service Antero’s increasing production. The partnership’s assets consist of gathering pipelines, compressor stations, and water handling and treatment assets, through which it provides midstream services to Antero under long-term, fixedfee contracts. Its assets are located in the southwestern core of the Marcellus Shale in northwest West Virginia and the core of the Utica Shale in southern Ohio. In September 2016, Antero Midstream priced its private placement to eligible purchasers of $650 million in aggregate principal amount of 5.375% senior unsecured notes due 2024 at par. The estimates net proceeds of approximately $640 million is intended to use to repay a portion of the outstanding borrowings under its credit facility. Additional Company Information from Website: Headquartered in Denver, Colorado, Antero Midstream Partners LP (NYSE:AM) is a growth-oriented limited partnership formed by Antero Resources Corporation (NYSE:AR) to own, operate and develop midstream energy assets to service Antero Resources’ rapidly increasing production. Our assets consist of gathering pipelines and compressor stations, through which we provide midstream services to Antero Resources under long-term, fixed-fee contracts. Our assets are located in the rapidly developing liquids-rich southwestern core of the Marcellus Shale in northwest West Virginia and liquids-rich core of the Utica Shale in southern Ohio.104 Why was the company not included? This company is mainly provides gathering services and water for hydro fracturing. These business segments are not similar to the main business segments of the companies the State Assessed Section is responsible for valuing.

103 104

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ARC Logistics Partners Company Summary from Value Line: Arc Logistics Partners, LP is a fee-based, growth-oriented limited partnership formed by Lightfoot Capital Partners, LP and its general partner, Lightfoot Capital Partners GP, LLC, to own, operate, develop, and acquire a diversified portfolio of complementary energy logistics assets. It is principally engaged in the terminalling, storage, throughput, and transloading of crude oil and petroleum products. As of September 30, 2016, the partnership’s assets consisted of: 21 terminals in 12 states in the East Coast, Gulf Coast, Midwest, Rocky Mountains, and West Coast regions of the US with approximately 7.8 million barrels of crude oil and petroleum product storage capacity; four rail transloading facilities with about 126,000 bpd of throughput capacity; and the LNG Interest in connection with the LNG Facility, which has 320,000 cubic meter of LNG storage, 1.5 bcf/d natural gas sendout capacity, and interconnects to major natural gas pipeline networks. Has 111 employees. Additional Company Information from Website: Arc Logistics Partners LP (NYSE: ARCX) logistics assets are strategically located along the East Coast, West Coast, Gulf Coast, and Midwest regions of the United States to receive and supply a diverse group of third-party customers, including major oil and gas companies, independent refiners, crude oil and petroleum product marketers, distributors and various industrial manufacturers. The location of our assets, combined with our connectivity to major U.S. energy infrastructure, allows us to meet the evolving needs of our customers. We provide customers with storage alternatives to handle a wide array of products including gasoline, distillates, aviation gas, asphalt, fuel oil, crude oil, ethanol, bio-diesel, methanol and crude tall oil. Many of our facilities manage multiple products and offer additional capacity to support the changing needs of our customers. Our customer-focused business model, combined with a diverse asset base, provides us with the opportunity to attract new customers and expand services to our existing customers.105 Why was the company not included? This company’s operations focus mainly on storage and a wide variety of products. These business segments are not similar to the main business segments of the companies the State Assessed Section is responsible for valuing. Archroc, Inc. Company Summary from Value Line: Archrock, Inc. is a pure play natural gas contract operations services business and the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the US and a leading supplier of aftermarket services to customers that own compression equipment in the US. The company operates in two business segments. As of December 31, 2015, its contract operations business was largely comprised of its significant equity investment in Archrock Partners, L.P. and its subsidiaries, in addition to the company’s owned fleet of natural gas compression equipment that it uses to provide operations services to its customers. Archrock’s aftermarket services business provides a full range of services to support the compression needs of customers. The company sells parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression equipment. Has about 2200 employees. Additional Company Information from Website: HOUSTON, Nov. 21, 2016 (GLOBE NEWSWIRE) -- Archrock, Inc. (AROC) and Archrock Partners, L.P. (APLP) today announced that Archrock Partners has completed its previously announced acquisition of compression assets from Archrock, Inc. The acquired assets include customer contracts serving 63 customers together with approximately 260 compressor units used to provide compression services under those contracts. These compressor units represent approximately 147,000 horsepower of compression and approximately 4 percent (by available horsepower) of the combined contract operations business of Archrock, Inc. and Archrock 105

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Partners. Archrock Partners financed the acquisition entirely with the issuance of 5,482,581 common units and 111,040 general partner units to affiliates of Archrock, Inc. Archrock, Inc. (AROC) is a pure-play U.S. natural gas contract compression services business and a leading supplier of aftermarket services to customers that own compression equipment in the United States. Archrock, Inc. holds interests in Archrock Partners, L.P. (APLP), a master limited partnership and the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the United States. Archrock, Inc. is headquartered in Houston, Texas, operating in the major oil and gas producing regions in the United States, with approximately 1,700 employees. Archrock Partners, L.P., a master limited partnership, is the leading provider of natural gas contract compression services to customers throughout the United States. Archrock, Inc. owns an equity interest in Archrock Partners, including all of the general partner interest.106 On November 4, 2015, Exterran Holdings, Inc. separated its international contract operations, international aftermarket services and global fabrication businesses into a standalone, publicly traded company (Exterran Corporation), resulting in two independent companies. The remaining company, now known as Archrock, Inc., is a pure-play U.S. compression services business, and it owns and operates the former Exterran U.S. contract operations and U.S. aftermarket services businesses, including equity interest in Archrock Partners. Visit www.exterran.com to reach the Exterran Corporation (NYSE:EXTN) website.107 Why was the company not included? This company provides compression services. This business segment is not similar to the main business segments of the companies the State Assessed Section is responsible for valuing. Archrock Partners, L.P. Company Summary from Value Line: Archrock Partners, LP, a Delaware limited partnership formed in June 2006, is the leading provider of natural gas contract compression services. Its contract operations services primarily include designing, sourcing, owning, installing, operating, servicing, repairing, and maintaining equipment to provide natural gas compression services to customers. Archrock, Inc. owns an equity interest in Archrock Partners, including all of the general partner interest. In October 2016, Archrock Partners agreed to acquire assets from Archrock, Inc. including customer contracts serving 63 customers together with about 270 compressor units used to provide compression services under those contracts, for consideration of approximately $85 million. The consideration to be paid to Archrock, Inc.’s affiliates will consist entirely of newly issued Archrock Partners common units and general partner units. Additional Company Information from Website: Archrock Partners, L.P. (NASDAQ:APLP), a master limited partnership, is the leading provider of natural gas contract compression services to clients throughout the United States. An equity interest in the company is owned by Archrock, Inc. (AROC), a pure-play U.S. natural gas contract compression services leader.108 Exterran Partners, L.P. (Nasdaq: EXLP), renamed Archrock Partners, L.P.109 On November 4, 2015, Exterran Holdings, Inc. separated its international contract operations, international aftermarket services and global fabrication businesses into a standalone, publicly traded company (Exterran Corporation), resulting in two independent companies. The remaining company, now known as Archrock, Inc., is a pure-play U.S. compression services business, and it owns and operates the former Exterran U.S. contract http://www.archrock.com/aroc/news/article/2224916, accessed 1/3/2017 http://www.archrock.com/aplp, accessed 1/3/2017 108 http://www.archrock.com/aplp/news, accessed 12/27/2016 109 http://www.bizjournals.com/houston/morning_call/2015/07/houston-energy-company-sets-date-for-spinoff-name.html, accessed 12/27/2016 106 107

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operations and U.S. aftermarket services businesses, including equity interest in Archrock Partners. Visit www.exterran.com to reach the Exterran Corporation (NYSE:EXTN) website.110 Why was the company not included? This company provides compression services. This business segment is not similar to the main business segments of the companies the State Assessed Section is responsible for valuing. Azure Midstream Partners, L.P. Company Summary from Value Line: Azure Midstream Partners, LP is a limited partnership formed to develop, own, operate, and acquire midstream energy assets. It currently provides natural gas gathering, transportation, treating and processing services, NGL transportation services, and crude oil transloading services. The partnerships assets include: one natural gas processing facility located in Panola County, Texas with an approximate design capacity of 125 MMcf/d; an idle natural gas processing facility located in Tyler County, Texas with an approximate design capacity of 80 MMcf/d; high- and low-pressure gathering lines that currently serve approximately 100,000 dedicated acres and have access to seven major downstream markets, Panola County processing plants, and three third-party processing plants; and two NGL transportation pipelines with an approximate design capacity of 20,000 Bbls/d that connect its Panola County and Tyler County processing facilities to third party NGL pipelines. Has 111 employees. Additional Company Information from Website: Azure Midstream Partners, LP, headquartered in Dallas, Texas, is a fee-based, growth-oriented limited partnership formed to develop, operate, and acquire midstream energy assets. The Partnership provides natural gas gathering, transportation, and processing services; as well as NGL transportation and crude oil logistics services. The Partnership's assets include 963 miles of gathering lines in the Shelby Trough sub-play of the Haynesville Shale and the horizontal Cotton Valley play located in east Texas and north Louisiana that are capable of gathering 1.9 Bcf/d. The Partnership also has three natural gas processing facilities with 210 MMcf/d of cumulative processing capacity located in the Panola, San Augustine and Tyler Counties of Texas, two NGL transportation pipelines that connect its Panola County and Tyler County processing facilities to third party NGL pipelines capable of transporting 20,000 barrels per day, and three crude oil transloading facilities containing six crude oil transloaders with a combined capacity of 31,200 Bbls/d.111 Why was the company not included? This company provides gathering and processing services. These business segments are not similar to the main business segments of the companies the State Assessed Section is responsible for valuing. Blueknight Energy Partners, L.P. Company Summary from Value Line: Blueknight Energy Partners, LP (BKEP) owns and operates a diversified portfolio of complementary midstream energy assets consisting of roughly 7.4 million barrels of crude oil storage in Oklahoma and Texas, 985 miles of crude oil pipeline primarily in Oklahoma and Texas, 240 crude oil transportation and oilfield services vehicles deployed in Kansas, Colorado, New Mexico, Oklahoma, and Texas, and 8.2 million barrels of combined asphalt product and residual fuel oil storage located at 45 terminals. In October 2016, BKEP announced that Ergon Asphalt & Emulsions, Inc. acquired the entity that owns the general partner of BKEP. Ergon also contributed nine asphalt terminals it owned plus $22.1 million of cash to BKEP for an aggregate of 18,312,968 series A preferred units; and acquired 847,457 common units for about $5.0 million. In addition,

110 111

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BKEP repurchased 13,335,390 of its series A preferred units owned by Blueknight Energy Holding, Inc. and CB-Blueknight, LLC for $95.3 million. Has 480 employees. Additional Company Information from Website: Blueknight Energy Partners, L.P. is a publicly traded master limited partnership formed in July 2007. BKEP owns and operates a diversified portfolio of complementary midstream energy assets. The depth of our experience in the midstream energy business is second to none. Our strategically located assets allow us to be a leading provider of mid-stream services in the energy industry. We provide services to our customers by focusing on three operational areas: Crude Oil Terminalling and Storage; Crude Oil Gathering and Transportation Services; Asphalt Terminalling, Storage and Processing Services. Our general partner, Blueknight Energy Partners GP., L.L.C., is owned by affiliates of Ergon, Inc., based in Jackson, Mississippi. Ergon, Inc. is a privately held company formed in 1954 with over 2,500 employees globally. Ergon and its subsidiaries are engaged in a wide range of operations. Ergon is an exceptional company with a solid track record and a like-minded disciplined approach to management. We know the importance of optimizing commercial opportunities for our customers, starting with the consistent delivery of safe and reliable solutions. Our customers include independent oil and gas producers, petroleum product wholesalers and distributors, refiners and energy traders.112 Why was the company not included? This company focuses on three operational areas, crude oil terminalling and storage; crude oil gathering and transportation; and asphalt terminalling, storage and processing services. Also, in October 2016, BKEP announced that Ergon Asphalt & Emulsions, Inc. acquired the entity that owns the general partner of BKEP. Cheniere Energy, Inc. Company Summary from Value Line:

Cheniere Energy, Inc. engages in the liquefied natural gas (LNG) business and related natural gas pipelines in the Gulf Coast of the U.S. It operates the Sabine Pass LNG terminal in western Louisiana on the Sabine Pass Channel, and is developing Corpus Christi LNG near Corpus Christi, Texas; and Creole Trail LNG at the Calcasieu Channel in Louisiana. It operates the Creole Trail Pipeline, consisting of 94 miles of pipeline connecting the Sabine Pass LNG terminal to various existing interstate natural gas pipelines in southwest Louisiana. Has 642 employees.

Additional Company Information from Website: Cheniere Energy, Inc. (NYSE MKT: LNG) (Cheniere), is a Houston-based energy company primarily engaged in LNG-related businesses. We own and operate the Sabine Pass LNG receiving terminal and Creole Trail Pipeline located in Louisiana, through our general partner ownership interest in and management agreements with Cheniere Energy Partners, L.P. (NYSE MKT: CQP) (Cheniere Partners) and our partial ownership interest in Cheniere Energy Partners LP Holdings, LLC (NYSE MKT: CQH). Cheniere Partners is developing, constructing and operating a liquefaction project at the Sabine Pass LNG terminal (the "SPL Project") adjacent to the existing regasification facilities for up to six trains, with expected aggregate nominal production capacity of approximately 27.0 mtpa of LNG. Train 1 commenced operations in May 2016 and Train 2 commenced operations in September 2016. Train 3 is in commissioning and Trains 4-5 are currently under construction. All regulatory approvals have been received to construct and operate Train 6, and FID is expected to be reached upon obtaining an EPC contract, commercial contracts and financing sufficient to support construction. Cheniere is developing and constructing additional liquefaction facilities near Corpus Christi, Texas (the "Corpus Christi LNG terminal"). The Corpus Christi LNG terminal is being designed for up to five trains, with expected aggregate nominal production capacity of approximately 22.5 mtpa of LNG, three LNG storage tanks with capacity of approximately 13.5 Bcfe and two marine berths. Construction began on the first two trains in May 112

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2016. All regulatory approvals have been received to construct and operate Train 3, and FID is expected to be reached upon obtaining commercial contracts and financing sufficient enough to support construction. Cheniere has also filed the NEPA pre-filing to commence the regulatory process on Train 4 and 5. Cheniere is also engaged in LNG marketing and trading operations. Through its subsidiary, Cheniere Marketing, it is offering LNG on an FOB or DAT basis to customers interested in purchasing LNG in the short and mid-term markets. Cheniere Marketing LLC and its subsidiaries (Cheniere Marketing) has access to all excess nominal production capacity not sold under long-term sale and purchase agreements to third parties. Cheniere continues to evaluate the energy markets for additional development and/or marketing opportunities that would leverage the existing platform and strategically fit within the Cheniere organization.113 Why was the company not included? This company is mainly located in the Gulf Coast. The Gulf Coast is a different market than the market of the companies for which the State Assessed Section is responsible for valuing. Cheniere Energy Partners, L.P. Company Summary from Value Line: Cheniere Energy Partners, LP (Cheniere Partners) is a limited partnership formed by Cheniere Energy, Inc. to own and operate the Sabine Pass liquefied natural gas (LNG) terminal on the Sabine Pass deep-water shipping channel less than four miles from the Gulf Coast. The Sabine Pass LNG terminal has regasification facilities owned by its wholly owned subsidiary, Sabine Pass LNG, LP, that include existing infrastructure of five LNG storage tanks with capacity of 16.9 Bcfe, two marine berths that can accommodate vessels of up to 266,000 cubic meters, and vaporizers with regasification capacity of roughly 4.0 Bcf/d. Cheniere develops and constructs natural gas liquefaction facilities at the Sabine Pass LNG terminal adjacent to the existing regasification facilities through Sabine Pass Liquefaction. The company is developing and constructing natural gas liquefaction facilities at the Sabine Pass LNG terminal adjacent to the existing regasification facilities through its wholly owned subsidiary, SPL. Additional Company Information from Website: Cheniere Energy, Inc. (NYSE MKT: LNG) (Cheniere), is a Houston-based energy company primarily engaged in LNG-related businesses. We own and operate the Sabine Pass LNG receiving terminal and Creole Trail Pipeline located in Louisiana, through our general partner ownership interest in and management agreements with Cheniere Energy Partners, L.P. (NYSE MKT: CQP) (Cheniere Partners) and our partial ownership interest in Cheniere Energy Partners LP Holdings, LLC (NYSE MKT: CQH). Cheniere Partners is developing, constructing and operating a liquefaction project at the Sabine Pass LNG terminal (the "SPL Project") adjacent to the existing regasification facilities for up to six trains, with expected aggregate nominal production capacity of approximately 27.0 mtpa of LNG. Train 1 commenced operations in May 2016 and Train 2 commenced operations in September 2016. Train 3 is in commissioning and Trains 4-5 are currently under construction. All regulatory approvals have been received to construct and operate Train 6, and FID is expected to be reached upon obtaining an EPC contract, commercial contracts and financing sufficient to support construction. Cheniere is developing and constructing additional liquefaction facilities near Corpus Christi, Texas (the "Corpus Christi LNG terminal"). The Corpus Christi LNG terminal is being designed for up to five trains, with expected aggregate nominal production capacity of approximately 22.5 mtpa of LNG, three LNG storage tanks with capacity of approximately 13.5 Bcfe and two marine berths. Construction began on the first two trains in May 2016. All regulatory approvals have been received to construct and operate Train 3, and FID is expected to be reached upon obtaining commercial contracts and financing sufficient enough to support construction. Cheniere has also filed the NEPA pre-filing to commence the regulatory process on Train 4 and 5. Cheniere is also 113

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engaged in LNG marketing and trading operations. Through its subsidiary, Cheniere Marketing, it is offering LNG on an FOB or DAT basis to customers interested in purchasing LNG in the short and mid-term markets. Cheniere Marketing LLC and its subsidiaries (Cheniere Marketing) has access to all excess nominal production capacity not sold under long-term sale and purchase agreements to third parties. Cheniere continues to evaluate the energy markets for additional development and/or marketing opportunities that would leverage the existing platform and strategically fit within the Cheniere organization.114 Why was the company not included? This company is mainly located in the Gulf Coast. The Gulf Coast is a different market than the market of the companies for which the State Assessed Section is responsible for valuing. Clean Energy Fuels Corp Company Summary from Value Line: Clean Energy Fuels Corp. provides natural gas as an alternative fuel for vehicle fleets in the United States and Canada. It designs, builds, finances, and operates fueling stations and supplies compressed natural gas and liquefied natural gas. It serves about 650 fleet customers operating over 30,600 natural gas vehicles in various markets, including public transit, refuse hauling, airports, taxis, and trucking. It owns, operates, and supplies about 224 natural gas fueling stations. The company also constructs fueling stations and sells or leases the stations to customers. Has about 710 employees. Additional Company Information from Website: Clean Energy is changing the way the world fuels its vehicles. Energy independence is an undisputed goal for our nation, and we at Clean Energy know just how realistic and attainable that goal is with natural gas fuel. Moving forward in our thinking as well as in our vehicles means a safer, healthier planet for all of us. This change is already happening. Natural gas is abundant and domestically available and is already used as a cleaner source of energy around the world.115 Why was the company not included? This company provides natural gas an alternative fuel for vehicle fleets. This business segment is not similar to the main business segments of the companies the State Assessed Section is responsible for valuing. Columbia Pipeline Partners, L.P. Company Summary from Value Line: On November 1, 2016, Columbia Pipeline Partners LP (partnership) entered into a definitive agreement and plan of merger with Columbia Pipeline Group, Inc. (Columbia) pursuant to which Columbia will acquire, for cash, all of the outstanding common units of the partnership, at $17.00 per common unit for an aggregate transaction value of approximately $915 million. Due to this news, the company’s ranks were suspended. Columbia Pipeline Partners, LP is engaged in regulated interstate gas transportation and storage services for local distribution companies, marketers, producers, and industrial and commercial customers located in northeastern, mid-Atlantic, midwestern, and southern states and the District of Columbia along with unregulated businesses such as midstream services, including gathering, treating, conditioning, processing, compression and liquids handling, and development of mineral rights positions. Additional Company Information from Website: Columbia Pipeline Partners LP is a Delaware master limited partnership with interests in three regulated U.S. natural gas pipelines which serve markets extending from New York to the Gulf of Mexico, as well as storage and related midstream assets. The Partnership’s general partner became an indirect, wholly-owned subsidiary of 114 115

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TransCanada Corporation (NYSE:TRP) on July 1, 2016, and as a result, the Partnership is effectively managed by TransCanada.116 Why was the company not included? This company has mostly natural gas interstate pipelines from New York to the Gulf and also underground storage. The location of the markets is not similar enough to the markets of the companies for which the State Assessed Section is responsible for valuing. Also, Partnership’s general partner became an indirect, whollyowned subsidiary of TransCanada Corporation (NYSE:TRP) on July 1, 2016, and as a result, the Partnership is effectively managed by TransCanada. Cone Midstream Partners, L.P. Company Summary from Value Line: CONE Midstream Partners is a master limited partnership formed by CONSOL Energy, Inc. and Noble Energy, Inc. (sponsors) to own, operate, develop, and acquire natural gas gathering and other midstream energy assets to service sponsors’ production in the Marcellus Shale in Pennsylvania and West Virginia. Its assets include natural gas gathering pipelines, compression and dehydration facilities, and condensate gathering, collection, separation and stabilization facilities. Its Anchor Systems include its midstream systems that generate the substantial majority of current cash flows; and the Growth Systems comprise of high-growth, developing gathering systems that will require substantial expansion capital expenditures over the next several years. In October 2016, CONSOL Energy and Noble Energy agreed to separate their Marcellus Shale 50-50 joint venture. In November 2016, CONE agreed to acquire an additional 25% ownership interest in CONE Midstream DevCo I LP for about $248 million. Additional Company Information from Website: CONE Midstream Partners (NYSE:CNNX) is a fee-based, growth-oriented master limited partnership that owns, operates, develops and acquires natural gas gathering and other midstream energy assets to service the rapidly growing production in the Marcellus Shale in Pennsylvania and West Virginia. Our assets include natural gas gathering pipelines and compression and dehydration facilities, as well as condensate gathering, collection, separation and stabilization facilities. We generate all of our revenues under long-term, fixed-fee gathering agreements that are intended to mitigate our direct commodity price exposure and enhance the stability of our cash flows. Our gathering agreements also include substantial acreage dedications currently totaling approximately 496,000 net acres in the Marcellus Shale. CONE Midstream was formed by CONSOL Energy Inc. (NYSE: CNX) and Noble Energy, Inc. (NYSE: NBL), whom we refer to as our Sponsors. Each of our Sponsors is a large, independent oil and natural gas exploration and production company with a substantial resource base and a history of growing production in its areas of operation. Through an upstream joint venture formed in September 2011, our Sponsors established a joint development plan for one of the largest aggregate acreage positions in the Marcellus Shale, which is widely viewed as a premier North American shale play due to its significant hydrocarbon resources in place, consistent and predictable geology, high well recoveries relative to drilling and completion costs and proximity to high-demand metropolitan markets in the northeastern United States. We believe that our strategically located assets, our relationship with our Sponsors and our Sponsors’ intention to use us as their primary midstream services company in the Marcellus Shale position us to become a leading midstream energy company.117

116 117

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Why was the company not included? This company is mainly involved in natural gas gathering services. This business segments are not similar to the main business segments of the companies the State Assessed Section is responsible for valuing. Crestwood Equity Partners, L.P. Company Summary from Value Line:

Crestwood Equity Partners, LP (CEQP) develops, acquires, owns or controls, and operates primarily fee-based assets and operations within the energy midstream sector. It offers infrastructure solutions across the value chain to service premier liquids-rich natural gas and crude oil shale plays across the US. CEQP owns and operates a diversified portfolio of crude oil and natural gas gathering, processing, storage and transportation assets, and connects essential energy supply with energy demand across North America. CEQP is a holding company and all of its consolidated operating assets are owned through its subsidiary, Crestwood Midstream. In October 2016, CEQP and Williams Partners LP, as 50/50 joint venture partners in the Bucking Horse natural gas processing plant and Jackalope Gas Gathering System, signed an agreement with Chesapeake Energy Corp. to restructure natural gas gathering and processing services in Wyoming’s Powder River Basin. Has about 1300 employees.

Additional Company Information from Website:

Crestwood Equity Partners LP (NYSE: CEQP) is a publicly traded master limited partnership that owns and operates midstream assets located primarily in the Marcellus Shale, Bakken Shale, Delaware Permian Basin, PRB Niobrara Shale, Barnett Shale, Fayetteville Shale and Haynesville Shale. Our operations and financial results are divided into three segments that include Gathering & Processing, Storage & Transportation and Marketing, Supply & Logistics. Across our three segments Crestwood is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; storage, transportation, terminalling and marketing of NGLs; gathering, storage, transportation, terminalling and marketing of crude oil.118

Why was the company not included? This company is involved in three business segments: gathering and processing; storage and transportation; and marketing, supply, and logistics. The company’s transportation services are small lines in key areas. The business segments are not closely related to the companies the State Assessed Section is responsible for valuing. CrossAmerica Partners, L.P. Company Summary from Value Line: CrossAmerica Partners, LP is a wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. Its general partner, CrossAmerica GP LLC, is a wholly owned subsidiary of CST Brands, Inc., one of the largest independent retailers of motor fuels and convenience merchandise in North America. Formed in 2012, CrossAmerica Partners is a distributor of branded and unbranded petroleum for motor vehicles in the US and distributes fuel to more than 1,190 locations and owns or leases more than 800 sites. With a geographic footprint covering 29 states, it has relationships with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, Citgo, and Phillips 66. In September 2016, CrossAmerica closed on the previously announced purchase of certain assets of State Oil Company in the Chicago, IL market for total consideration of $43.1 million. Has 1052 employees. Additional Company Information from Website: Formed in 2012, CrossAmerica Partners is a publicly traded master limited partnership that is engaged in the wholesale distribution of motor fuels, consisting of gasoline and diesel fuel, and owns and leases real estate used in the retail distribution of motor fuels. Our units are traded on the New York Stock Exchange under the symbol "CAPL." With a focus on metropolitan and urban markets, CrossAmerica Partners distributes fuel to more than 1,190 locations and owns or leases more than 800 sites. Our geographic footprint covers 29 states: Arizona, 118

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Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Virginia, West Virginia and Wisconsin. CrossAmerica Partners is headquartered in Allentown, Pennsylvania. Its downtown location plays an integral part in the revitalization of the Lehigh Valley region's largest city.119 Why was the company not included? This company is a wholesale distributor of motor fuels. Also, owner and lessee of real estate used in the retail distribution of motor fuels. These business segments are not similar to the main business segments of the companies the State Assessed Section is responsible for valuing. DCP Midstream Partners, L.P. Company Summary from Value Line: DCP Midstream Partners, L.P. owns, operates, acquires, and develops a portfolio of midstream energy assets. The Natural Gas Services segment (85% of ’15 revenues) operates about 11,500 pipeline miles and 15 billion cubic feet of storage capacity. The NGL (Natural Gas Liquids) Logistics Segment (4%) operates about 1,500 miles of pipelines and seven million barrels of storage capacity. The Wholesale Propane Logistics segment (11%) owns/leases propane terminals, with total capacity of 975 thousand barrels. Off./dir. own less than 1% of units; DCP Midstream, LLC, 21.1%; four institutions, 30.3% (3/16 proxy). Additional Company Information from Website: We are a must-run sector that gathers, compresses, treats, processes, transports, stores, and sells natural gas, as well as produces, fractionates, transports, stores and sells natural gas liquids and condensate, and transports, stores and sells propane in wholesale markets. The Partnership’s operations are organized into three business segments: Natural Gas Services, NGL Logistics, and Wholesale Propane Logistics.120 Why was the company not included? This company is involved in many business functions, organized into three business segments, natural gas services, natural gas liquids logistics, and wholesale propane logistics. These business segments are not similar to the main business segments of the companies the State Assessed Section is responsible for valuing. Delek Logistics Partners, L.P. Company Summary from Value Line: Delek Logistics Partners, LP owns and operates logistics and marketing assets for crude oil, and intermediate and refined products in the United States. The company consists of assets, including pipelines and trucks and ancillary assets that provide crude oil gathering and crude oil, intermediate and finished products transportation, and storage services primarily in support of the Tyler and El Dorado refineries, as well as offers crude oil and other products transportation services to third parties. It operates approximately 400 miles of crude oil transportation pipelines; 124 miles of refined product pipelines; and approximately 600 miles of crude oil gathering and trunk lines with an aggregate of approximately 6.9 million barrels of active shell capacity. The company provides marketing, transporting, storing, and terminalling refined products and services to independent third parties. Delek Logistics Partners, LP was founded in 2012 and is headquartered in Brentwood. Additional Company Information from Website: Delek Logistics Partners LP (NYSE: DKL), headquartered in Brentwood, Tennessee, is a growth-oriented publicly traded master limited partnership (MLP) formed by Delek US Holdings in 2012 to own, operate, acquire, and construct crude oil and refined products logistics and marketing assets. A substantial majority of our 119 120

http://www.crossamericapartners.com/about-us/about-lehigh-gas-partners/page.aspx?id=1002, accessed 12/28/2016 http://www.dcppartners.com/our-business-segments

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existing assets are integral to the success of Delek’s refining and marketing operations. We gather, transport and store crude oil and market, distribute, transport and store refined products in select regions of the southeastern United States and west Texas for Delek and third parties, primarily in support of Delek’s refineries in Tyler, Texas and El Dorado, Arkansas.121 Why was the company not included? This company is mainly located in the Gulf Coast. The Gulf Coast is a different market than the market of the companies for which the State Assessed Section is responsible for valuing. Dominion Midstream Partners, L.P. Company Summary from Value Line: Dominion Midstream Partners, LP is a growth-oriented Delaware limited partnership formed by Dominion Resources, Inc. in March 2014, to own, operate, develop, and acquire natural gas import, storage, regasification, transportation, and related assets. Its ongoing principal sources of liquidity may include distributions received from Cove Point, from its preferred equity interest, borrowings under credit facility with Dominion Resources, and issuances of debt and equity securities. The initial asset owned by Dominion Midstream is a preferred equity interest in the Cove Point LNG facility. Cove Point’s operations currently consist of LNG import and storage services at the Cove Point LNG Facility and the transportation of domestic natural gas and regasified LNG to Mid-Atlantic markets via the Cove Point Pipeline. In October 2016, Dominion Midstream agreed to acquire Questar Pipeline, LLC, from Dominion for consideration of approximately $1.725 billion. Additional Company Information from Website: Cove Point’s operations currently consist of LNG import and storage serves at the Cove Pont LNG Facility and the transportation of domestic natural gas and regasified LNG to Mid-Atlantic markets via the Cove Point Pipeline. The Cove Point LNG Facility includes an offshore pier, LNG storage tanks, regasification facilities and associated equipment required to (1) receive imported LNG from tankers, (2) store LNG in storage tanks, (3) regasify LNG and (4) deliver regasified LNG to the Cove Point Pipeline. Cove Point is in the process of constructing the Liquefaction Project, which will consist of one LNG train with a design nameplate outlet capacity of 5.25 Mtpa. Under normal operating conditions and after accounting for maintenance downtime and other losses, the firm contracted capacity for LNG loading onto ships, will be approximately 4.6 Mtpa (0.66 Bcfe/d). Headquartered in Columbia, S.C., Dominion Carolina Gas Transmission (DCGT) is an interstate natural gas transportation company delivering natural gas to wholesale and direct industrial customers throughout South Carolina. The current DCGT system consists of ~1,500 miles of FERC-regulated interstate transmission pipelines with approximately 770 Mmcf/day. Headquartered in Columbia, S.C., Dominion Carolina Gas Transmission (DCGT) is an interstate natural gas transportation company delivering natural gas to wholesale and direct industrial customers throughout South Carolina. The current DCGT system consists of ~1,500 miles of FERC-regulated interstate transmission pipelines with approximately 770 Mmcf/day. Questar Pipeline transports and stores natural gas. Questar's pipelines interconnect with major regional pipelines, and its system is strategically located to serve major gas-producing basins in the Rockies.122 Why was the company not included? This company’s main business segments include importing natural gas and storage. These business segments are not similar to the main business segments of the companies the State Assessed Section is responsible for valuing.

121 122

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Emerge Energy Service, L.P. Company Summary from Value Line: Emerge Energy Services, LP is a Delaware limited partnership formed by management and affiliates of Insight Equity to own, operate, acquire, and develop a diversified portfolio of energy service assets. It is engaged in the business of mining, producing, and distributing silica sand that is a key input for the hydraulic fracturing of oil and gas wells. The Sand business conducts mining and processing operations from facilities in Wisconsin and Texas. In addition, this business segment sells its product for use in building products and foundry operations. The Fuel business operates transmix processing facilities in the Dallas-Fort Worth area and in Birmingham, AL. The Fuel business also offered third-party bulk motor fuel storage and terminal services, biodiesel refining, sale and distribution of wholesale motor fuels, reclamation services (which consists primarily of cleaning bulk storage tanks used by other petroleum terminal and others) and blending of renewable fuels. Has 998 employees. Additional Company Information from Website: Emerge Energy Services is a growth-oriented diversified energy services company. Our operations are strategically located to provide us with direct access to all major resource plays in North America, and also to the major fuel markets of Dallas/Fort Worth and Birmingham, AL. Emerge Energy Services’ sand subsidiary produces silica sand that is a key input for the hydraulic fracturing of oil and gas wells. While the Company is able to produce sand suited for the stimulation of both oil and gas wells, the Company has developed a strong reputation in the industry for producing sand that meets the strict requirements for use in oil wells. Our sand facilities are located in New Auburn, WI, Barron County, WI and Kosse, TX, with headquarters in Fort Worth, TX.123 Why was the company not included? This company’s main business segments are mining, producing, and distributing silica sand for hydraulic fracturing. These business segments are not similar to the main business segments of the companies the State Assessed Section is responsible for valuing. Enable Midstream Partners, L.P. Company Summary from Value Line: Enable Midstream Partners, LP owns natural gas and crude oil infrastructure assets. It has two segments: Gathering & Processing and Transportation & Storage. Enable’s assets include 12,400 miles of gathering pipelines, 14 major processing plants with 2.5 billion cubic feet per day of capacity, 7,900 miles of interstate pipelines, 2,200 miles of intrastate pipelines, and eight storage facilities. 2015 depr. rate: 2.8%. Has 1,640 employees. CenterPoint Energy owns 55.4% of shares out.; OGE Energy, 26.3%; ArcLight Cap’l. Partners, 11.3%; off. and dir., less than 1% (2015 10-K). Enable Midstream Partners, LP owns, operates and develops strategically located natural gas and crude oil infrastructure assets. The partnership’s assets and operations are organized into two reportable segments: Gathering and Processing, which primarily provides natural gas gathering, processing and fractionation services and crude oil gathering for its producer customers, and Transportation and Storage, which provides interstate and intrastate natural gas pipeline transportation and storage service primarily to natural gas producers, utilities and industrial customers. The natural gas gathering and processing assets are located in five states and serve natural gas production in the Anadarko, Arkoma and Ark-La-Tex basins. This segment also includes a crude oil gathering business in the Bakken Shale formation, principally located in the Williston basin. Effective January 1, 2016, Rodney J. Sailor will become president, CEO, and member of the board of directors. Has 3 employees.

123

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Additional Company Information from Website: Enable Midstream Partners, LP is a publicly traded Master Limited Partnership (MLP) where approximately 1,900 employees focus on providing customers timely, reliable and affordable solutions. We were formed as a joint venture by affiliates of CenterPoint Energy, Inc., OGE Energy Corp and ArcLight Capital Partners, LLC in May 2013. Our general partner is equally controlled by CenterPoint Energy and OGE.124 Enable Midstream Partners’ assets include approximately 12,400 miles of gathering lines, 14 major processing plants with approximately 2.5 billion cubic feet per day with construction on one new plant underway, approximately 7,900 miles of interstate pipelines with 8.4 billion cubic feet per day of transport capacity, approximately 2,300 miles of interstate pipelines, and approximately 85.0 billion cubic feet of natural gas storage.125 Why was the company not included? This company began trading on April 11, 2014. We would consider this company in the future. As of January 2, 2017, the company has less than three full years of financials. However, this company performs a lot of gathering and processing functions. Enbridge Energy, Inc. Company Summary from Value Line: Enbridge Inc., a Canadian company, is a leader in energy transportation and distribution in North America and internationally. As a transporter of energy, it operates the world’s longest crude oil and liquids pipeline system. The company also has international operations and a growing involvement in the natural gas transmission and midstream businesses. As a distributor of energy, it owns and operates Canada’s largest natural gas distribution company, and provides services in Ontario, Quebec, New Brunswick, and New York State. Owns 38.9% of Noverco. Employs about 8,600. Additional Company Information from Website: Enbridge Inc., headquartered in Calgary, Alberta, manages and has a 91.9 per cent overall interest in Enbridge Income Fund and a 21.1 per cent overall ownership in Enbridge Energy Partners, L.P., which is headquartered in Houston. We have a workforce of approximately 10,000 people, primarily in Canada and the United States. Enbridge manages several investment options that trade on the New York and/or Toronto stock exchanges, including Enbridge Inc. (ENB), Enbridge Energy Partners, L.P. (EEP), Enbridge Energy Management, L.L.C. (EEQ), and Enbridge Income Fund (ENF).126 Enbridge has a unique advantage through its family of public entities that make up the Enbridge Group of Companies: Enbridge Income Fund Holdings (ENF), Enbridge Energy Partners (EEP), Enbridge Energy Management (EEQ) and Midcoast Energy Partners (MEP). These companies offer a variety of attractive investment options and enhance the value of our existing assets. In addition, our sponsored vehicle strategy is expected to further enhance the value of our capital program by providing access to diversified sources of lowcost funding.127 Why was the company included? This company was not included because we would use Enbridge Energy Partners, L.P.

http://www.enablemidstream.com/html/pages/p001-homepage.html, accessed 12/28/2016 http://www.enablemidstream.com/html/pages/p002-about.html, accessed 12/28/2016 126 http://www.enbridge.com/About-Us/Our-Company.aspx, accessed 1/3/2017 127 http://www.enbridge.com/investment-center/enbridge-companies, accessed 1/3/2017 124 125

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Enbridge Energy Partners, L.P. Company Summary from Value Line: Enbridge Energy Partners, LP owns and operates crude oil and liquid petroleum transportation and storage assets, natural gas gathering, treating, processing, transmission and marketing assets in the US. The company’s activities include interstate pipeline transportation and storage of crude oil, liquid petroleum, natural gas and NGLs. EEP has no direct employees. The majority of EEP is owned by its parent holding companies Enbridge Inc., Enbridge Energy and Enbridge Energy Management. The remaining 44.5% is publicly traded. The parent company, Enbridge Inc., recently announced a definitive merger agreement with Spectra Energy (SE). Under the deal, Spectra shareholders would receive 0.984 shares of the combined entity, or about $40.33 based on ENB’s price prior to the announcement. Additional Company Information from Website: Enbridge Energy Partners, L.P., (EEP), an Enbridge company, is a leader in the safe and reliable delivery of energy in North America. We transport, generate and distribute energy, operating the world’s longest, most sophisticated crude oil and liquids transportation system.128 Spectra Energy Corp and Enbridge Inc. will combine to create North America’s largest energy infrastructure company. This transaction creates the largest energy infrastructure company in North America with an enterprise value of approximately C$165 billion (US$127 billion), a C$74 billion (US$57 billion) inventory of current and potential growth projects and anticipated annual dividend growth of 10-12 percent through 2024. The combined company will be exceedingly well positioned to invest in critical infrastructure to meet the needs of our customers and create value for our shareholders.129 Why was the company included? This company is similar to, and is one of, the Fluid Transportation Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the common transportation of refined petroleum products. However, the Spectra Energy Partners, L.P.’s general partner, Spectra Energy Corp, announced a merger with Enbridge, Inc., the parent of Enbridge Energy Partners, L.P., which could affect the financial information for the current year for all companies involved. Energy Transfer Partners, L.P. Company Summary from Value Line: Energy Transfer Partners, L.P., the third-largest master limited partnership in the U.S., gathers, processes, stores, and transports natural gas, natural gas liquids, and oil; and wholesales and retails gasoline; owns about 47,000 miles of pipelines. 2015 operating profits: intrastate transportation and storage, 7%; interstate gas trans., 42%; midstream and NGL, -5%; investment in Sunoco Logistics, 5%; retail and other, 51%. Sold propane ops, 1/12; acquired Sunoco, 10/12. About 25,682 employees. ETP insiders control Energy Transfer Equity, L.P., which owns .5% of the common units (’15 10-K). Additional Company Information from Website: Energy Transfer Partners, L.P. (NYSE:ETP) is a master limited partnership that owns and operates one of the largest and most diversified portfolios of energy assets in the United States. ETP's subsidiaries include Panhandle Eastern Pipe Line Company, LP (the successor of Southern Union Company) and Lone Star NGL LLC, which owns and operates natural gas liquids storage, fractionation and transportation assets. In total, ETP currently owns and operates approximately 62,500 miles of natural gas and natural gas liquids pipelines. ETP 128 129

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also owns the general partner, 100% of the incentive distribution rights, and 67.1 million common units of Sunoco Logistics Partners L.P. (NYSE:SXL), which operates a geographically diverse portfolio of complementary crude oil, refined products, and natural gas liquids pipeline, terminalling acquisition and marketing assets which are used to facilitate the purchase and sale of crude oil, natural gas liquids, and refined products. ETP's general partner is owned by Energy Transfer Equity, L.P. (NYSE:ETE).130 Nov. 21, 2016-- Sunoco Logistics Partners L.P. (NYSE: SXL) and Energy Transfer Partners, L.P. (NYSE: ETP) today announced that they have entered into a merger agreement providing for the acquisition of ETP by SXL in a unit-for-unit transaction. The transaction was approved by the boards of directors and conflicts committees of both partnerships and is expected to close in the first quarter of 2017, subject to receipt of ETP unitholder approval and other customary closing conditions.131 Why was the company included? This company is similar to the Gas Transmission Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the transportation, gathering, and storage of natural gas. However, this company is currently entered in an agreement for its acquisition by Sunoco Logistics Partners, L.P. Energy Transfer Equity, L.P. Company Summary from Value Line: Energy Transfer Equity, LP is a master limited partnership that owns the general partner and 100% of the incentive distribution rights (IDRs) of Energy Transfer Partners, LP (ETP), and Sunoco, LP, (SUN). The company also owns approximately 2.6 ETP million common units and approximately 81.0 million ETP class H units, which track 90% of the underlying economics of the general partner interest and IDRs of Sunoco Logistics Partners, LP. On a consolidated basis, the ETE family owns and operates approximately 71,000 miles of natural gas pipeline. Has about 30,000 employees. Additional Company Information from Website: Energy Transfer Equity, L.P. (NYSE:ETE) is a master limited partnership that owns the general partner and 100% of the incentive distribution rights (IDRs) of Energy Transfer Partners, L.P. (NYSE:ETP) and Sunoco LP (NYSE:SUN). ETE also owns approximately 2.6 million ETP common units and approximately 81.0 million ETP Class H Units, which track 90% of the underlying economics of the general partner interest and IDRs of Sunoco Logistics Partners L.P. (NYSE:SXL). On a consolidated basis, the ETE family owns and operates approximately 71,000 miles of natural gas, natural gas liquids, refined products, and crude oil pipelines.132 Nov. 21, 2016-- Sunoco Logistics Partners L.P. (NYSE: SXL) and Energy Transfer Partners, L.P. (NYSE: ETP) today announced that they have entered into a merger agreement providing for the acquisition of ETP by SXL in a unit-for-unit transaction. The transaction was approved by the boards of directors and conflicts committees of both partnerships and is expected to close in the first quarter of 2017, subject to receipt of ETP unitholder approval and other customary closing conditions.133

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Why was the company included? This company owns the general partner and 100% of the incentive distribution rights of Energy Transfer Partners, L.P. and Sunoco, L.P. Energy Transfer Partners, L.P. is currently entered in an agreement for its acquisition by Sunoco Logistics Partners, L.P. EnLink Midstream Partners, L.P. Company Summary from Value Line: EnLink Midstream Partners L.P., formerly Crosstex Energy, L.P., is a master limited partnership (MLP) that provides midstream energy services, including gathering, transmission, processing, fractionation, and marketing, to producers of natural gas, natural gas liquids (NGLs), crude oil, and condensate. Has five segments: Texas (23% of ’15 revenues, 49% of gross operating margin); Louisiana (41%, 22%); Oklahoma (4%, 14%); Crude & Condensate (34%, 14%); and Corporate (-2%, 1%). Has 1,432 employees. Devon Energy Corp. owns 48% of total units; Enfield Holdings, L.P, 13%; Off./dir., less than 1% (’15 10-K). Additional Company Information from Website: Our expansive gathering, processing, fractionation, transportation, and logistics assets are located in the most prolific oil and gas regions in North America, including the Gulf Coast, Permian, STACK, SCOOP, C-NOW, Cana-Woodford, Arkoma-Woodford, North Texas, Haynesville, Utica, Marcellus, and Eagle Ford. With approximately 10,000 miles of gathering and transportation pipelines, 19 processing plants with 3.9 billion cubic feet of net processing capacity, and seven fractionators with 284,000 barrels per day of net fractionation capacity, as well as barge and rail terminals, product storage facilities, product storage facilities, purchase and marketing capabilities, brine disposal wells, an extensive crude oil trucking fleet, and equity investments in certain private midstream companies, we are able to aggressively pursue system expansions and develop new projects to better serve our customers.134 Why was the company not included? Most of this company’s operations are located in Texas and Oklahoma. This is a different market than the market of the companies for which the State Assessed Section is responsible for valuing. EQT MidStream Partners, L.P. Company Summary from Value Line: EQT Midstream Partners, LP is a growth-oriented limited partnership formed by EQT Corp. to own, operate, acquire, and develop midstream assets in the Appalachian Basin of Pennsylvania, West Virginia and Ohio. The partnership provides substantially all of its natural gas transmission, storage, and gathering services under contracts with long-term, firm reservation and/or usage fees. EQT Corp. accounted for approximately 73% of Partnership revenues for the year ended December 31, 2015. EQT Midstream Svcs., LLC serves as the general partner of the company. Additional Company Information from Website: EQT Midstream Partners, LP is a growth-oriented limited partnership formed by EQT Corporation to own, operate, acquire and develop midstream assets in the Appalachian Basin. The Partnership provides substantially all of its natural gas transmission, storage and gathering services under contracts with long-term, firm reservation and/or usage fees. This contract structure enhances the stability of the Partnership’s cash flows and limits its direct exposure to commodity price risk. The Partnership’s operations are primarily focused in southwestern Pennsylvania, northern West Virginia, and southeastern Ohio, a strategic location in the core of the rapidly developing natural gas Marcellus and Utica shale plays. This same region is also the core operating area of EQT, the Partnership’s largest customer that accounted for approximately 73% of the Partnership’s revenues generated for the year ended December 31, 2015. The Partnership provides midstream services to EQT and multiple third 134

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parties across 24 counties in Pennsylvania, West Virginia, and Ohio through its two primary assets: the transmission and storage system, which serves as a header system transmission pipeline, and the gathering system, which delivers natural gas from wells and other receipt points to transmission pipelines. The Partnership believes that its strategically located assets, combined with its working relationship with EQT, position it as a leading Appalachian Basin midstream energy company.135 Why was the company not included? This company’s operations are located in the Appalachian Basin, which is a different market than the market of the companies for with the State Assessed Section is responsible for valuing. Ferrellgas Partners, L.P. Company Summary from Value Line: Ferrellgas Partners, LP is engaged in the retail distribution of propane and related equipment sales; and midstream operations, which is comprised of the following crude oil logistics segment and water solutions segment. It is the sole limited partner of Ferrellgas, LP with an approximate 99% limited partner interest. Ferrellgas Partners serve residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all 50 states, the District of Columbia, and Puerto Rico. In the residential and industrial/commercial markets, propane is primarily used for space heating, water heating, cooking and other propane fueled appliances. In the portable tank exchange market, propane is used primarily for outdoor cooking using gas grills. In the agricultural market, propane is primarily used for crop drying, space heating, irrigation and weed control. Additional Company Information from Website: Reliable, flexible, capable — that’s what you get when you do business with Ferrellgas. Throughout our history, we’ve prided ourselves on being not only propane industry leaders, but good neighbors to the approximately 1 million customers we serve nationwide. For nearly 80 years, Americans have depended on Ferrellgas, their hometown propane provider. Our nationwide supply network means you have propane when and where you need it. No matter how you use propane, or where you use it, Ferrellgas has you covered.136 Why was the company not included? This company’s main business segment is propane, which is a different business segment of the companies for with the State Assessed Section is responsible for valuing. Genesis Energy, L.P. Company Summary from Value Line: Genesis Energy, LP is focused on the midstream segment of the oil and gas industry in the Gulf Coast region of the US, primarily Alabama, Arkansas, Florida, Louisiana, Mississippi, Texas, Wyoming, and in the Gulf of Mexico. It has diverse portfolio of assets, including pipelines, offshore hub and junction platforms, storage tanks and terminals, and rail loading and unloading facilities. Genesis operates through five divisions: onshore pipeline transportation of crude oil and carbon dioxide (CO 2); offshore pipeline transportation and processing of crude oil and natural gas; refinery services involving processing of high sulfur gas streams for refineries to remove the sulfur, and selling the related by-product, sodium hydrosulfide (NaHS); marine transportation to provide waterborne transportation of petroleum products and crude oil; and supply and logistics services, which include terminaling, blending, storing, marketing, and transporting crude oil and petroleum products. Has about 1400 employees.

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Additional Company Information from Website: Genesis Energy, L.P., is a growth-oriented master limited partnership headquartered in Houston, Texas. Through our five divisions: onshore pipeline transportation, offshore pipeline transportation, refinery services, marine transportation and supply and logistics, we provide an integrated suite of services to refineries, oil producers, and industrial and commercial enterprises. Our operations are primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida, Wyoming and the Gulf of Mexico. Our business activities are primarily focused on providing services around and within refinery complexes. Upstream of refineries, we provide gathering and transportation of crude oil. Within refineries, we provide services to assist in their sulfur balancing requirements. Downstream of refineries, we provide transportation services as well as market outlets for the finished refined products. We have a diverse portfolio of customers, operations and assets, including pipelines, refinery-related plants, storage tanks and terminals, railcars, rail loading and unloading facilities, barges and trucks. We also have interests in pipelines offshore in the Gulf of Mexico. That business includes over 2,500 miles of offshore crude oil and natural gas pipelines and six offshore hub platforms that serve some of the most active drilling and development regions in the United States, including deepwater production fields in the Gulf of Mexico offshore of Texas, Louisiana, Mississippi, and Alabama.137 Why was the company not included? This company is mainly located in the Gulf Coast. The Gulf Coast is a different market than the market of the companies for which the State Assessed Section is responsible for valuing. Global Partners, L.P. Company Summary from Value Line: Global Partners, LP is engaged in the purchasing, selling, and logistics of transporting petroleum and related products, including domestic and Canadian crude oil, gasoline and gasoline blendstocks (such as ethanol and naphtha), distillates (such as home heating oil, diesel, and kerosene), residual oil, renewable fuels, natural gas and propane. It also receives revenue from convenience store sales and gasoline station rental income. Global owns, controls, or has access to one of the largest terminal networks of refined petroleum products and renewable fuels in the northeast. It owns transload and storage terminals in North Dakota and Oregon that extend its origin-to-destination capabilities from the mid-continent region of the US and Canada to the east and west coasts. As of September 30, 2016, the partnership had a portfolio of 1,472 owned, leased and/or supplied gasoline stations, including 257 directly operated convenience stores, in the Northeast, Maryland and Virginia. Has 1890 employees. Additional Company Information from Website: A publicly traded master limited partnership, Global is a midstream logistics and marketing company that owns, controls or has access to one of the largest terminal networks of petroleum products and renewable fuels in the Northeast. Global also is one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in New England and New York. The Partnership is engaged in the transportation of crude oil and other products by rail from the mid-continental U.S. and Canada to the East and West Coasts for distribution to refiners and others. With approximately 1,500 locations, primarily in the Northeast, Global also is one of the largest independent owners, suppliers and operators of gasoline stations and convenience stores.138 Why was the company not included? This company is one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers, and commercial customers in New England and New York. This type of business segment

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is different than the business segments of the companies for which the State Assessed Section is responsible for valuing. JP Energy Partners, L.P. Company Summary from Value Line: JP Energy Partners, LP is a publicly traded, growth-oriented limited partnership that formed in May 2010 by members of management and further capitalized by ArcLight Capital Partners, LLC to own, operate, develop, and acquire a diversified portfolio of midstream energy assets. The company’s operations currently consist of crude oil pipelines and storage; refined products terminals and storage; and NGL distribution and sales, which together provide midstream infrastructure solutions for the growing supply of crude oil, refined products and NGLs in the United States. Its operations currently consist of three business segments: (i) crude oil pipelines and storage, (ii) refined products terminals and storage and (iii) NGL distribution and sales. The company conducts business through fee-based and margin-based arrangements. Additional Company Information from Website: JP Energy (NYSE: JPEP) is a master limited partnership focused on the gathering, storage and movement of crude oil, refined products and natural gas liquids from production in key basins to consumer end markets. We provide infrastructure solutions to producers, marketers and refiners of hydrocarbons and consumers in diverse markets, helping navigate changing product flows and customer needs. Through our network of midstream assets, we provide a means of connecting suppliers to customers through a full range of midstream services, including supply and logistics, terminalling and storage.139 Why was the company not included? This company operates one of the largest portable propane cylinder exchange businesses in the US. This business segment is not similar to the business segments of the companies in which the State Assessed Section is responsible for valuing. Also, American Midstream and JP Energy Partners executed a merger agreement to create a combined midstream platform Martin Midstream Partners, L.P. Company Summary from Value Line: Martin Midstream Partners, LP provides terminaling and storage services for petroleum products and by products. Its four primary business lines include: natural gas services, including liquids transportation and distribution services and natural gas storage; terminalling and storage services for petroleum products and byproducts including the refining of naphthenic crude oil, blending and packaging of finished lubricants; sulfur and sulfur-based products processing, manufacturing, marketing and distribution; and marine transportation services for petroleum products and by-products. The petroleum products and by-products the company collects, transports, stores and markets are produced mainly by oil and gas companies. In October 2016, the company entered into a definitive agreement with NuStar Logistics, L.P. to sell certain of its terminalling assets located in Corpus Christi, Texas for gross consideration of $107 million plus the reimbursement of certain capital expenditures and prepaid items. Additional Company Information from Website: Martin Midstream Partners L.P. is a publicly traded limited partnership with a diverse set of operations focused primarily in the United States Gulf Coast region. Our four primary business lines include: Terminalling, storage and packaging services for petroleum products and by-products including refining, blending and packaging of finished lubricants; Natural gas liquids transportation and distribution services and natural gas storage; Sulfur and sulfur-based products gathering, processing, manufacturing, marketing and distribution including fertilizer manufacturing and distribution; Marine transportation services for petroleum products and by-products. The 139

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petroleum products and by-products we collect, transport, store and distribute are produced primarily by the independent oil and gas companies who often turn to third parties, such as us, for the transportation and disposition of these products. In addition to these major and independent oil and gas companies, our primary customers include independent refiners, large chemical companies, fertilizer manufacturers and other wholesale purchasers of these products. We operate primarily in the Gulf Coast region of the U.S., which is a major hub for petroleum refining, natural gas gathering and processing and support services for the exploration and production industry. Our diversified asset base enables us to offer our customers an integrated distribution network consisting of transportation terminalling, distribution and midstream logistical services.140 SAN ANTONIO--(BUSINESS WIRE)--Oct. 21, 2016-- NuStar Energy L.P. (NYSE: NS) today announced that it has signed an agreement to purchase crude oil and refined product storage assets in the Port of Corpus Christi from Martin Midstream Partners L.P. (Nasdaq: MMLP) for a net $93 million. The acquisition, which is expected to close by the end of the fourth quarter of 2016, is expected to be immediately accretive to NuStar’s earnings based on the terminal’s current, actual volumes. It also reflects an approximate seven times multiple based on the forecasted four-year average earnings before interest, taxes, depreciation and amortization (EBITDA) attributable to the assets of $13.5 million annually. When combined with NuStar’s existing terminal operations in Corpus Christi, the acquisition will give NuStar over 3.6 million barrels of total storage in the Port of Corpus Christi, including 3.1 million barrels of crude oil storage and 577,000 barrels of refined product storage. The terminal NuStar is acquiring includes 1.15 million barrels of total storage, which is comprised of 900,000 barrels of crude oil storage and 250,000 barrels of refined product storage. The terminal has direct connectivity to Eagle Ford crude oil production and receives crude oil and condensate via its connection to the Harvest Pipeline and through its six-bay truck rack. The terminal has access to two of the port’s deep-water crude oil docks, including exclusive use of the port’s new crude oil dock, and a barge dock. The terminal is located on 25 acres, and has room for further expansion. NuStar also expects to achieve significant operational synergies between its existing North Beach Terminal and the Martin terminal, which are located adjacent to each other in the Port of Corpus Christi.141 Why was the company not included? This company is mainly located in the Gulf Coast. The Gulf Coast is a different market than the market of the companies for which the State Assessed Section is responsible for valuing. Midcoast Energy Partners, L.P. Company Summary from Value Line: Midcoast Energy Partners, LP is a limited partnership formed by Enbridge Partners to serve as Enbridge Partners’ primary vehicle for owning and growing its natural gas and natural gas liquids (NGLs) midstream business in the United States. The company’s assets consist of a 51.6% controlling interest in Midcoast Operating, LP, a Texas limited partnership that owns a network of natural gas and NGL gathering and transportation systems, natural gas processing and treating facilities, and NGL fractionation facilities primarily located in Texas and Oklahoma. Midcoast Operating also owns and operates natural gas, condensate, and NGL logistics and marketing assets that primarily support its gathering, processing, and transportation business. This also includes approximately 11,100 miles of natural gas gathering and transportation lines, and approximately 233 miles of NGL gathering and transportation lines. Midcoast Energy Partners, LP is a limited partnership formed by Enbridge Partners to serve as Enbridge Partners’ primary vehicle for owning and growing its natural gas and natural gas liquids (NGLs) midstream 140 141

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business in the United States. The company’s assets consist of a 51.6% controlling interest in Midcoast Operating, LP, a Texas limited partnership that owns a network of natural gas and NGL gathering and transportation systems, natural gas processing and treating facilities, and NGL fractionation facilities primarily located in Texas and Oklahoma. Midcoast Operating also owns and operates natural gas, condensate, and NGL logistics and marketing assets that primarily support its gathering, processing, and transportation business. This also includes approximately 11,100 miles of natural gas gathering and transportation lines, and approximately 233 miles of NGL gathering and transportation lines. Additional Company Information from Website: Midcoast Energy Partners, L.P., (MEP) is a full-service natural gas and natural gas liquid (NGL) midstream business. We're a growth-oriented limited partnership, formed by Enbridge Energy Partners, L.P. (EEP) to serve as EEP's primary vehicle for owning and growing its natural gas and NGL midstream business in the United States. MEP and EEP are part of the Enbridge Inc. family of companies. We remain focused on executing our strategic objectives to grow the business by increasing our scale, expanding our scope, extending our reach and enhancing our capabilities to deliver sustainable value to our unitholders over the long term. Our assets consist of a 51.6 percent controlling interest in Midcoast Operating, a Texas limited partnership that owns a network of natural gas and NGL gathering and transportation systems, natural gas processing and treating facilities and NGL fractionation facilities primarily located in Texas and Oklahoma, which we refer to as the gathering, processing and transportation business. Midcoast Operating also owns and operates natural gas, condensate and NGL logistics and marketing assets, referred to as the Logistics and Marketing business, that supports its Gathering, Processing and Transportation business. Through our ownership of Midcoast Operating’s general partner, we control, manage and operate these systems. EEP has retained a 48.4 percent non-controlling interest in Midcoast Operating. The Gathering, Processing and Transportation business primarily consists of gathering unprocessed and untreated natural gas from wellhead locations and other receipt points on our systems, processing the natural gas to remove NGLs and impurities at our processing and treating facilities, and transporting the processed natural gas and NGLs to intrastate and interstate pipelines for transportation to various customers and market outlets. The Logistics and Marketing business markets natural gas, NGLs and condensate received from the gathering, processing and transportation business to wholesale customers. Midcoast Energy Partners, L.P. is headquartered in Houston, Texas.142 Why was the company not included? This company is mainly located in Texas and Oklahoma. The market in Texas and Oklahoma is a different market than the market of the companies for which the State Assessed Section is responsible for valuing. MPLX, L.P. Company Summary from Value Line: MPLX, LP is a diversified, growth-oriented master limited partnership (MLP) formed in 2012 by Marathon Petroleum Corporation to own, operate, develop and acquire midstream energy infrastructure assets. It is engaged in the gathering, processing, storage marketing, and transportation of natural gas, crude oil, and other refined petroleum products. MPLX’s assets consist of a network of common carrier crude oil and products pipelines located in the Midwest and Gulf Coast regions of the US. Has no direct employees. Officers/directors own less than 1.0% of common units (12/15 10-k). Additional Company Information from Website: MPLX LP (MPLX) is a diversified, growth-oriented master limited partnership formed in 2012 by Marathon Petroleum Corporation (MPC) to own, operate, develop and acquire midstream energy infrastructure assets. In 2015, MPLX merged with MarkWest, whereby MarkWest became a wholly owned subsidiary of 142

http://www.midcoastpartners.com/About-Us/Company-Overview.aspx, accessed 1/3/2017

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MPLX. MPLX is engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of natural gas liquids (NGLs); and the gathering, transportation and storage of crude oil and refined petroleum products. MPLX provides services in the midstream sector across the hydrocarbon value chain through its Logistics and Storage and Gathering and Processing segments.143 Why was the company not included?

This company has some common carrier pipelines that transport crude oil and refined products in the midwest. However, the company also has extensive natural gas gathering systems in six states. This company also engages in the marketing of natural gas liquids.

NuStar GP Holdings, LLC Company Summary from Value Line: NuStar GP Holdings, LLC is a publicly traded limited liability company that owns the two percent general partner interest, an approximate 13% limited partner interest and the incentive distribution rights in NuStar Energy L.P., one of the largest independent liquids terminal and pipeline operators in the nation. Its only cash generating assets are its ownership interests in NuStar Energy L.P. It has no independent operations. NuStar Energy is engaged in the transportation of petroleum products and anhydrous ammonia, the terminalling and storage of petroleum products and the marketing of petroleum products. NuStar Energy has terminal and storage facilities in the United States, Canada, Mexico, the Netherlands, including St. Eustatius in the Caribbean, and the United Kingdom. The company was formed in 2000. Has 1251 employees. Additional Company Information from Website: NuStar GP Holdings, LLC owns general partner and limited partner interests in NuStar Energy L.P. that engages in the transportation of petroleum products and anhydrous ammonia, the terminalling and storage of petroleum products and the marketing of petroleum products. It holds a 2% general partner interest, 13.0% limited partner interest, and 100% of the incentive distribution rights in NuStar Energy L.P. The company, through NuStar Energy L.P., has interests in 79 terminal and storage facilities with approximately 93 million barrels of storage capacity; and approximately 8,700 miles of crude oil and refined product pipelines. The company has operations in the United States; Canada; Mexico; the Netherlands, including St. Eustatius in the Caribbean; and the United Kingdom. NuStar GP Holdings, LLC was founded in 2000 and is based in San Antonio, Texas.144 Why was the company not included? This company was not included because we used NuStar Energy L.P. ONEOK, Inc. Company Summary from Value Line: ONEOK, Inc. is the sole general partner of, and owns a 41.2% total interest in, ONEOK Partners. ONEOK Partners is a publicly traded master limited partnership that gathers, processes, fractionates, transports, stores, markets, and distributes natural gas and natural gas liquids. Sold gathering and processing, natural gas liquids, and pipelines and storage assets to ONEOK Partners, 4/06. Completed separation of natural gas distribution business, 2/14. Has 2,364 employees. The Vanguard Group, Inc. owns 8.9% of common stock; BlackRock, Inc., 8.7%; officers and directors, less than 1.0% (4/16 Proxy). Additional Company Information from Website: ONEOK, Inc. (pronounced ONE-OAK) (NYSE: OKE) is the general partner and, as of March 31, 2016, owns 41.2 percent of ONEOK Partners, L.P. (NYSE: OKS), one of the largest publicly traded master limited 143 144

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partnerships, which owns one of the nation's premier natural gas liquids (NGL) systems, connecting NGL supply in the Mid-Continent, Permian and Rocky Mountain regions with key market centers and is a leader in the gathering, processing, storage and transportation of natural gas in the U.S. ONEOK is a FORTUNE 500 company and is included in Standard & Poor's (S&P) 500 Stock Index.145 Why was the company not included? This company was not included because we used ONEOK Partners, L.P. PBF Logistics, L.P. Company Summary from Value Line: PBF Logistics, LP is a fee-based, growth oriented master limited partnership formed by PBF Energy, Inc. to own or lease, operate, develop and acquire crude oil and refined petroleum products terminals, pipelines, storage facilities, and similar logistics assets. The company operates in two segments: Transportation and Terminaling, and Storage. The transportation and terminaling segment consists of the DCR Rail Terminal, which serves PBF Holding’s Delaware City and Paulsboro refineries; the DCR West Rack, which serves PBF Holding’s Delaware City refinery; the Toledo Truck Terminal, which serves PBF Holding’s Toledo refinery, comprised of LACT units; a propane truck loading facility, located within the Toledo Storage Facility, the Delaware City Products Pipeline, and the Delaware City Truck Rack, which consists of a truck loading rack utilized to distribute gasoline. The storage segment consists of the Toledo Storage Facility Additional Company Information from Website: PBFX is a fee-based, growth-oriented, Delaware master limited partnership formed in February 2013 by subsidiaries of PBF Energy Inc. and its indirect subsidiary, PBF Logistics GP LLC (“PBF GP”), our general partner, to own or lease, operate, develop and acquire crude oil and refined petroleum products terminals, pipelines, storage facilities and similar logistics assets. PBF GP is our general partner and is wholly-owned by PBF Energy Company LLC (“PBF LLC”). PBF Energy Inc. is the sole managing member of PBF LLC and as of December 31, 2015 owned 95.1% of the total economic interest in PBF LLC. We refer you to “Organizational Structure” below for an illustration of our relationship with PBF Energy Inc.146 Why was the company not included? This company’s market segments are terminaling and storage. A main business segment of the companies the State Assessed Section is responsible for valuing is fluid transportation pipeline services or gas transmission pipeline services. Pembina Pipeline Corporation Company Summary from Value Line: Pembina Pipeline Corp. gathers, processes, and transports oil and natural gas in Western Canada. It owns and operates an integrated system of pipelines, gas gathering and processing facilities, and an oil and NGL infrastructure and logistics line. 2015 net revenues (operating income): Conventional Pipelines: 42% (36%); Oil Sands & Heavy Oil: 14% (13%); Midstream: 30% (38%); Gas Services: 14% (13%). Daily 2015 liquids throughput: 1.72 mill. barrels; Oil Sands & Heavy Oil, 51%; Conventional Pipelines, 36%; Midstream NGLs, 7%; Gas Services, 6%. Acq’d Provident Energy, 4/12. Has 1,111 employees. Additional Company Information from Website: We are Calgary-based, and own and operate pipelines that transport conventional and synthetic crude oil and natural gas liquids produced in western Canada; oil sands and heavy oil pipelines; gas gathering and processing http://www.oneok.com/, accessed 1/3/2017 http://otp.investis.com/clients/us/pbf_logistics1/SEC/secshow.aspx?FilingId=11198826&Cik=0001582568&Type=PDF&hasPdf=1, accessed 1/3/2017 145 146

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facilities; and, an oil and natural gas liquids infrastructure and logistics business. With facilities strategically located in western Canada and in natural gas liquids markets in eastern Canada and the U.S., Pembina also offers a full spectrum of midstream and marketing services that span across our operations. Our integrated assets and commercial operations enable us to offer services needed by the energy sector along the hydrocarbon value chain.147 Why was the company not included? This company is not traded on an American Stock Exchange. Phillips 66 Partners, L.P. Company Summary from Value Line: Phillips 66 Partners, LP owns, operates, develops, and acquires primarily fee-based crude oil, refined petroleum product, and natural gas liquids pipelines and terminals, and other transportation and midstream assets. Its assets include the Clifton Ridge crude oil pipeline, terminal, and storage system in Louisiana; the Sweeny to Pasadena refined petroleum product pipeline, terminal, and storage system in Texas; two refinery-grade propylene storage spheres in Medford, Oklahoma; a refined petroleum product pipeline system (Gold Line) that runs from the Phillips 66 jointly owned and operated refinery in Borger, Texas, to Cahokia, Illinois; and the Hartford Connector refined petroleum product pipeline, terminal, and storage system in Illinois. In October 2016, Phillips 66 Partners, LP reached an agreement with Phillips 66 (PSX) to acquire 30 crude, refined products and natural gas liquids (NGL) logistics assets for total consideration of $1.3 billion. Has 1313 employees. Additional Company Information from Website: Phillips 66 Partners (NYSE: PSXP) began trading on the New York Stock Exchange on July 23, 2013. Headquartered in Houston, Texas, Phillips 66 Partners is a growth-oriented master limited partnership formed by Phillips 66 to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum product and natural gas liquids (“NGL”) pipelines and terminals and other transportation and midstream assets.148 Why was the company not included? This company began trading publicly on July 23, 2013. We would consider this company for the 2018 or 2019 Capitalization Rate Studies. Plains GP Holdings, L.P. Company Summary from Value Line: Plains GP Holdings, LP was formed to own an interest in the general partner and incentive distribution rights of Plains All American Pipeline, LP, which owns and operates midstream energy infrastructure and provides logistics services for crude oil, natural gas liquids (NGL), natural gas, and refined products in the US and Canada. The company is involved in transporting crude oil and NGL on pipelines, gathering systems, trucks, and barges. It provides storage, terminalling, and throughput services for crude oil, refined products, NGL, and natural gas; NGL fractionation and isomerization services; and natural gas and condensate processing services. It is involved in merchant-related activities, such as purchase of crude oil, cargos, and NGL; storage of inventory and NGL; and resell or exchange, and transport of crude oil and NGL. At September 2016, it owned 13 million barrels of crude oil and NGL line fill; 990 trucks and 1,100 trailers; and 10,100 crude oil and NGL railcars. Has about 5400 employees. Additional Company Information from Website: Plains GP Holdings owns an interest in PAA's [Plains All American Pipeline, L.P.] general partner, which owns the 2% general partner interest and incentive distribution rights of PAA. PAGP makes quarterly distributions of 147 148

http://www.pembina.com/, accessed 1/3/2017 http://www.phillips66partners.com/EN/about/Pages/index.aspx, accessed 1/3/2017

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its available cash to Shareholders of record. PAGP completed its initial public offering in October 2013 and its shares are traded on the New York Stock Exchange under the symbol “PAGP.” Investors in PAGP receive a 1099, versus a K-1.149 Why was the company not included? This company was not included because we used Plains All American Pipeline, L.P. Rose Rock Midstream, L.P. Company Summary from Value Line: Not available. Additional Company Information from Website: Rose Rock Midstream specializes in crude oil gathering, transportation, storage and marketing in some of the best resource plays in North America. We serve areas that are experiencing strong production growth and drilling activity through our exposure to the: Bakken Shale in North Dakota and Montana; Denver-Julesburg (DJ) Basin and the Niobrara Shale in the Rocky Mountain region; Eagle Ford Formation, Granite Wash and Mississippian oil trend in the Mid-Continent region; and Utica Basin in Ohio. We own and operate a network of more than 1,900 miles of crude oil pipelines and 10.1 million barrels of crude storage. The majority of our assets are strategically located in or connected to the Cushing, Oklahoma crude oil marketing hub, the designated point of delivery specified in all NYMEX crude oil futures contracts and one of the largest crude oil marketing hubs in the United States. Our midstream services are further extended with our Field Services trucking division. Our fleet of more than 250 trucks follow the drilling, acting as mobile extensions of our operations. Together, our assets offer the connectivity and flexibility needed to support the growing demand for midstream services throughout the U.S.150 9/30/2016 TULSA, Okla., Sept. 30, 2016 (GLOBE NEWSWIRE) -- SemGroup® Corporation (NYSE:SEMG) today announced that it has completed the acquisition of all of the outstanding common units of Rose Rock Midstream®, L.P. (NYSE:RRMS) not already owned by the company.151 Why was the company not included? Rose Rock Midstream, L.P. was acquired by SemGroup® Corporation on 9/30/2016. SemGroup Corporation Company Summary from Value Line: Not available. Additional Company Information from Website: SemGroup Corporation is a growth-oriented midstream company that specializes in moving energy. We own, operate, develop and acquire a diversified portfolio of midstream energy assets in the United States, Canada, Mexico and the United Kingdom. Our assets are strategically located in growing oil and gas producing areas and interconnected with key markets and logistics centers. Through our subsidiaries, our expanding footprint reaches across multiple shale and natural resource plays including: the Bakken Shale, DJ/Niobrara, Eagle Ford, Mississippi Lime Play, Montney/Duvernay and Utica Basin. Our key operations include: Transporting, storing,

https://www.plainsallamerican.com/investor-relations, accessed 1/4/2017 http://www.semgroupcorp.com/Operations/RoseRock.aspx, accessed 1/4/2017 151 http://ir.semgroupcorp.com/press-releases/press-release-details/2016/SemGroup-Corporation-Announces-Closing-ofAcquisition-of-Rose-Rock-Midstream-LP/default.aspx, accessed 1/4/2017 149 150

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terminaling and trucking crude oil; Gathering, compressing, treating, processing and selling natural gas; Storing and terminaling refined petroleum products; Supplying and applying liquid asphalt cement in Mexico.152 9/30/2016 TULSA, Okla., Sept. 30, 2016 (GLOBE NEWSWIRE) -- SemGroup® Corporation (NYSE:SEMG) today announced that it has completed the acquisition of all of the outstanding common units of Rose Rock Midstream®, L.P. (NYSE:RRMS) not already owned by the company.153 Why was the company not included? This company’s assets are not closely related to the assets of company’s that the State Assessed Property Section is responsible for valuing. Only a portion of this company’s assets include fluid transportation pipeline services. Shell Midstream Partners, L.P. Company Summary from Value Line: Shell Midstream Partners, LP is a growth oriented master limited partnership formed by Shell Pipeline Co. LP to own, operate, develop and acquire pipelines and other midstream assets. As of September 2016, it owned interests in three crude oil pipeline systems and two refined products systems. The crude oil pipeline systems, which are held by Zydeco Pipeline Co. LLC, Mars Oil Pipeline Co., and Poseidon Oil Pipeline Co., LLC, are located along the Texas and Louisiana Gulf Coast and in the Gulf of Mexico. These systems link major onshore and offshore production areas with key refining markets. The refined products pipeline systems, which are held by Bengal Pipeline Co. and Colonial Pipeline Co., connect Gulf Coast and southeastern US refineries to major demand centers from Alabama to New York. In September 2016, the company agreed to acquire from Shell an additional 20% equity interest in Mars Oil Pipeline Company and a 49% equity interest in Odyssey Pipeline, LLC for $350 million. Additional Company Information from Website: We are a fee-based, growth-oriented master limited partnership recently formed by Shell to own, operate, develop and acquire pipelines and other midstream assets. Our initial assets consist of interests in entities that own crude oil and refined products pipelines serving as key infrastructure to transport growing onshore and offshore crude oil production to Gulf Coast refining markets and to deliver refined products from those markets to major demand centers.154 Why was the company not included? This company is mainly services the Gulf Coast (including offshore assets), the Gulf Coast to New York City, and the Gulf Coast to the Midwest. The Explorer pipeline system from the Gulf Coast to the Midwest transports gasoline, diesel, fuel oil, and jet fuel from the US Gulf Coast to Hammon, IL. The Explorer pipeline system is the company’s only asset that is similar to the companies the State Assessed Property Section is responsible for valuing. The Explorer pipeline system is not a large enough portion of the company’s overall business segments. Also, this company was formed on March 19, 2014. Southcross Energy Partners, L.P. Company Summary from Value Line: Southcross Energy Partners, LP provides natural gas gathering, processing, treating, compression, and transportation services in the United States. The company operations provide a full range of complementary services extending from wellhead to market, including gathering natural gas at the wellhead, treating natural gas to meet downstream pipeline and customer quality standards, processing natural gas to separate NGLs (natural gas liquids) from the natural gas, fractionating the resulting NGLs into the various components and selling or http://www.semgroupcorp.com/About.aspx, accessed 1/4/2017 http://ir.semgroupcorp.com/press-releases/press-release-details/2016/SemGroup-Corporation-Announces-Closing-ofAcquisition-of-Rose-Rock-Midstream-LP/default.aspx, accessed 1/4/2017 154 http://www.shellmidstreampartners.com/index.cfm 152 153

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delivering pipeline quality natural gas and NGLs to various industrial and energy markets, as well as large pipeline systems. The company operates four gas processing plants, two fractionation plants, and approximately 3,138 miles of pipeline in south Texas, Mississippi, and Alabama. The company was founded in 2009 and is headquartered in Dallas, Texas. Southcross Energy Partners, LP is a subsidiary of Southcross Holdings Borrower, LP. Additional Company Information from Website: Southcross Energy Partners, L.P. (“Southcross”) is a master limited partnership that provides natural gas gathering, processing, treating, compression and transportation services and NGL fractionation and transportation services. It also sources, purchases, transports and sells natural gas and NGLs. Its assets are located in South Texas, Mississippi and Alabama and include four gas processing plants, two fractionation plants and approximately 3,100 miles of pipeline. The South Texas assets are located in or near the Eagle Ford shale region. Southcross is headquartered in Dallas, Texas Our integrated operations provide a full range of complementary services extending from wellhead to market, including gathering natural gas at the wellhead, treating natural gas to meet downstream pipeline and customer quality standards, processing natural gas to separate NGLs from the natural gas, fractionating the resulting NGLs into the various components and selling or delivering pipeline quality natural gas and NGLs to various industrial and energy markets as well as large pipeline systems. Through our network of pipelines, we provide the means of connecting our suppliers of natural gas to our customers, which include industrial, commercial and power generation customers and local distribution companies.155 Why was the company not included? This company is located in Texas, Mississippi, and Alabama. Those locations are in a different market than the market of the companies for which the State Assessed Section is responsible for valuing. Spectra Energy Corporation Company Summary from Value Line: Spectra Energy Corp gathers, processes, transmits, stores, and distributes natural gas in North America. The company was spun off from Duke Energy (1/07). Spectra operates approximately 21,000 miles of transmission pipeline and around 300 billion cubic feet of storage capacity in the U.S. and Canada. Its crude oil pipeline, Express-Platte consists of over 1,700 miles. 2015 revenues: Spectra Energy Partners, 46%; Distribution, 29%; Western Canada Transmission & Processing, 25%; Field Services, NMF. Has about 6,000 employees. Off./dir. own less than 1% of stock, BlackRock, 6.2%; Vanguard, 6.2% (4/16 proxy). Additional Company Information from Website: Spectra Energy Corp (NYSE: SE), a FORTUNE 500 company, is one of North America's leading pipeline and midstream companies. Based in Houston, Texas, the company's operations in the United States and Canada include approximately 21,000 miles of natural gas and crude oil pipelines; approximately 300 billion cubic feet (Bcf) of natural gas storage; 4.8 million barrels of crude oil storage; as well as natural gas gathering, processing, and local distribution operations. 156 December 15, 2016 HOUSTON – Spectra Energy Corp (NYSE: SE) (“Spectra Energy”) announced that during a special stockholder meeting held earlier today, Spectra Energy stockholders voted overwhelmingly to approve the previously announced combination of Spectra Energy with Enbridge Inc. (TSX, NYSE: ENB) (“Enbridge”) in a stock-for-stock merger transaction. Approximately 73 percent of the total outstanding shares of Spectra Energy common stock, and approximately 98 percent of the total shares voted at the meeting, were voted in 155 156

http://www.southcrossenergy.com/about/, accessed 1/4/2017 http://investors.spectraenergy.com/phoenix.zhtml?c=204494&p=irol-irhome, accessed 1/4/2017

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favor of the transaction. Once the transaction is completed, the combination will create the largest energy infrastructure company in North America and one of the largest globally, with a pro-forma enterprise value of approximately C$165 billion (US$127 billion).157 Why was the company not included? This company was not included because we would use Spectra Energy Partners, L.P.

Spectra Energy Partners, L.P. Company Summary from Value Line: Spectra Energy Partners, LP is engaged in the transportation and gathering of natural gas. The company operates in the United States and Canada and has more than 22,000 miles of natural gas, natural gas liquids, and crude oil pipelines; approximately 300 billion cubic feet (Bcf) of natural gas storage; 4.8 million barrels of crude oil storage; and natural gas gathering, processing, and local distribution operations. Spectra Energy is the general partner of Spectra Energy Partners, one of the largest pipeline master limited partnerships in the United States and owner of the natural gas, natural gas liquids, and crude oil assets in Spectra Energy’s US portfolio. In October 2015, Spectra Energy Corp. and Spectra Energy Partners, LP executed an agreement for the acquisition by Spectra Energy of Spectra Energy Partners’ one-third ownership interests in the Sand Hills and Southern Hills natural gas liquids (NGL) pipelines. Additional Company Information from Website: Spectra Energy Partners, LP (NYSE: SEP) is a Houston-based master limited partnership, formed by Spectra Energy Corp (NYSE: SE). SEP is one of the largest pipeline MLPs in the United States and connects growing supply areas to high-demand markets for natural gas and crude oil. These assets include more than 15,000 miles of transmission and gathering pipelines, approximately 170 billion cubic feet of natural gas storage, and approximately 4.8 million barrels of crude oil storage.158 Spectra Energy Corp and Enbridge Inc. will combine to create North America’s largest energy infrastructure company. This transaction creates the largest energy infrastructure company in North America with an enterprise value of approximately C$165 billion (US$127 billion), a C$74 billion (US$57 billion) inventory of current and potential growth projects and anticipated annual dividend growth of 10-12 percent through 2024. The combined company will be exceedingly well positioned to invest in critical infrastructure to meet the needs of our customers and create value for our shareholders.159 Why was the company not included? This company is similar to the Gas Transmission Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the transportation, gathering, and storage of natural gas. However, the Spectra Energy Partners, L.P.’s general partner, Spectra Energy Corp, announced a merger with Enbridge, Inc., the parent of Enbridge Energy Partners, L.P., which could affect the financial information for the current year for all companies involved.

http://www.spectraenergy.com/Newsroom/News-Archive/Spectra-Energy-Stockholders-Overwhelmingly-ApproveMerger-With-Enbridge/, accessed 1/4/2017 158 http://phx.corporate-ir.net/phoenix.zhtml?c=211014&p=irol-IRHome, accessed 12/28/2016 159 http://www.spectraenergy.com/Transaction/, accessed 12/28/2016 157

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Sprague Resources, L.P. Company Summary from Value Line: Sprague Resources, LP engages in the purchase, storage, distribution, and sale of refined petroleum products and natural gas in the United States. The company purchases and sells various refined products, such as heating oil, diesel fuel, residual fuel oil, kerosene, jet fuel, gasoline, and asphalt to wholesale and commercial customers. It purchases, sells, and distributes natural gas to approximately 14,000 commercial and industrial customer locations across 13 states in the northeast and Mid-Atlantic. It offloads, stores, and prepares for delivery of customer owned products, including asphalt, clay slurry, salt, gypsum, coal, petroleum coke, caustic soda, tallow, pulp, and heavy equipment. The company engages in the marketing and distribution of coal; commercial trucking; and heating equipment service activities. It owns and/or operates a network of 19 refined products and materials handling terminals located throughout the northeast United States and Quebec, Canada. Has 590 employees. Additional Company Information from Website: Founded in 1870 as the Charles H. Sprague Company, Sprague Resources LP is one of the largest independent wholesale suppliers of energy and materials handling services in the Northeast. Sprague Resources LP offers an extensive range of liquid distillate (e.g., heating oil and diesel), gasoline and residual fuel products and services as well as competitive natural gas supply and materials handling capabilities. Sprague Resources LP's customers benefit from its extensive network of owned and operated terminals throughout the Northeast and the company’s investment in customized products and solutions. Sprague Resources LP offers a diversity of offerings that is unmatched in its service territories and it is constantly searching for ways to expand its capabilities.160 Why was the company not included? This company purchases and sells various refined products and purchases, sells and distributes natural gas. The company also offloads, stores, and prepares for delivery of customer owned products. The company engages in the marketing and distribution of coal. These specializations are not the same market segments as the companies in which the State Assessed Section is responsible for valuing. Suburban Propane Partners, L.P. Company Summary from Value Line: Suburban Propane Partners, L.P., is a master limited partnership (MLP) that markets and distributes propane, fuel oil, and other refined fuels in the U.S., operating in Propane; Fuel Oil and Refined Fuels; Natural Gas and Electricity; and Heating, Ventilation, and Air Conditioning (HVAC). As of 9/26/15, serves about 973,000 active propane customers through more than 750 locations in 41 states, concentrated on the east and west coasts of the United States. Sold approximately 530.7 million gallons of propane and 49.1 million gallons of fuel oil in fiscal 2015. Has 3,933 employees. Additional Company Information from Website: Suburban Propane Partners (NYSE: SPH) has been in the customer service business since 1928. A Master Limited Partnership since 1996, Suburban is a value-oriented company managed for long-term, consistent performance. Headquartered in Whippany, New Jersey, Suburban is a nationwide marketer and distributor of a diverse array of products to meet the energy needs of our customers, specializing in fuel oil and refined fuels, as well as the marketing of natural gas and electricity in deregulated markets. With nearly 3,800 full-time employees, Suburban maintains business operations in 41 states, providing prompt, reliable service to

160

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approximately 1.1 million residential, commercial, industrial and agricultural customers through 675 locations.161 Why was the company not included? This company specializes in marketing and distributing fuel oil and refined fuels as well as the marketing of natural gas and electricity in deregulated markets. These specializations are not the same market segments as the companies in which the State Assessed Section is responsible for valuing. Summit Midstream Partners, L.P. Company Summary from Value Line: Summit Midstream Partners, LP is a growth oriented limited partnership focused on developing, owning, and operating midstream energy infrastructure assets that are situated in the core producing areas of unconventional resource basins, primarily shale formations, in North America. It currently provides natural gas, crude oil and produced water gathering services pursuant to long-term and fee-based gathering and processing agreements with customers and counterparties in four unconventional resource basins: the Appalachian Basin (Marcellus Shale formation in northern West Virginia); the Williston Basin (Bakken and Three Forks shale formations in northwestern North Dakota); the Fort Worth Basin (Barnett Shale formation in north-central Texas); and the Piceance Basin (Mesaverde formation and the Mancos and Niobrara shale formations in western Colorado and eastern Utah). Summit owns and operates more than 2,600 miles of pipeline. Additional Company Information from Website: Summit Midstream Partners, LP (NYSE: SMLP) is a growth-oriented master limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in the continental United States. SMLP currently provides natural gas, crude oil and produced water gathering services pursuant to primarily long-term and fee-based gathering and processing agreements with our customers and counterparties in five unconventional resource basins: The Appalachian Basin, which includes the Marcellus and Utica shale formations in West Virginia and Ohio; The Williston Basin, which includes the Bakken and Three Forks shale formations in North Dakota; The Fort Worth Basin, which includes the Barnett Shale formation in Texas; The Piceance Basin, which includes the Mesaverde formation as well as the Mancos and Niobrara shale formations in Colorado and Utah; The Denver-Julesburg Basin, which includes the Niobrara and Codell shale formations in Colorado. SMLP also owns substantially all of a 40% ownership interest in Ohio Gathering, which is developing natural gas gathering and condensate stabilization infrastructure in the Utica Shale in Ohio. SMLP is headquartered in The Woodlands, Texas, with regional corporate offices in Denver, Colorado and Atlanta, Georgia.162 Why was the company not included? This company’s main business segments are natural gas gathering, treating and compression services, which are not the same main business segments of the companies in which the State Assessed Section is responsible for valuing. Sunoco Logistics Partners, L.P. Company Summary from Value Line: Sunoco Logistics Partners, L.P. owns and operates a logistics business that consists of a portfolio of energy assets. The Crude Oil Pipelines segment has about 5,900 miles of crude oil pipelines. Its crude oil terminalling services have storage capacity of roughly 28 million barrels. The Natural Gas Liquids (NGLs) segment contains 161 162

https://suburbanpropane.com/about/about-suburban-propane.php, accessed 1/4/2017 http://www.summitmidstream.com/, accessed 1/4/2017

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about 900 miles of NGLs pipelines, primarily in the northeast and southwest United States. The Refined Products Pipelines segment has about 1,800 pipeline miles. In October 2012, became a consolidated subsidiary of Energy Transfer Partners, LP. No employees. Additional Company Information from Website: Sunoco Logistics Partners L.P. (NYSE: SXL) is a master limited partnership that owns and operates a logistics business consisting of a geographically diverse portfolio of complementary crude oil, natural gas liquids, and refined products pipeline, terminalling and acquisition and marketing assets which are used to facilitate the purchase and sale of crude oil, natural gas liquids, and refined products. SXL’s general partner is a consolidated subsidiary of Energy Transfer Partners, L.P. (NYSE: ETP). Our business is characterized by extensive industry and safety experience, strong financial fundamentals, and operational flexibility. Collectively, a strong asset base and the successful execution of our business strategies have consistently delivered substantial returns to unitholders.163 Nov. 21, 2016-- Sunoco Logistics Partners L.P. (NYSE: SXL) and Energy Transfer Partners, L.P. (NYSE: ETP) today announced that they have entered into a merger agreement providing for the acquisition of ETP by SXL in a unit-for-unit transaction. The transaction was approved by the boards of directors and conflicts committees of both partnerships and is expected to close in the first quarter of 2017, subject to receipt of ETP unitholder approval and other customary closing conditions.164 Why was the company not included? This company is similar to the Gas Transmission Pipeline Companies that the State Assessed Section is responsible for valuing. The company engages in the transportation, gathering, and storage of natural gas. However, this company is currently entered in an agreement to acquire by Energy Transfer Partners, L.P. Tallgrass Energy GP, L.P. Company Summary from Value Line:

Tallgrass Energy GP, LP (TEGP) is a limited partnership that has elected to be treated as a corporation for United States federal income tax purposes. TEGP owns a controlling membership interest in Tallgrass Equity, LLC through its role as the sole managing member. Tallgrass Equity, LLC owns, both directly and through its ownership of the general partner of Tallgrass Energy Partners, LP, (TEP), all of TEP’s incentive distribution rights, 100 % of the general partner interest in TEP and 20,000,000 TEP common units. It provides natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions. It performs water business services in Colorado and Texas through BNNWater Solutions, LLC. Its operations are located in and provide services to certain main US hydrocarbon basins, including the Denver-Julesburg, Powder River, Wind River, Permian and Hugoton-Anadarko Basins and the Niobrara, Mississippi Lime, Eagle Ford, and Bakken shale formations. Has 9 employees.

Additional Company Information from Website: Tallgrass Energy GP, LP (NYSE: TEGP) is a limited partnership that has elected to be treated as a corporation for U.S. federal income tax purposes. TEGP owns a controlling membership interest in Tallgrass Equity, LLC through its role as the sole managing member. Tallgrass Equity, LLC owns, both directly and through its ownership of the general partner of TEP, all of TEP's incentive distribution rights, 100 percent of the general partner interest in TEP and 20,000,000 TEP Common Units.165

http://www.sunocologistics.com/, accessed 12/28/2016 http://ir.energytransfer.com/phoenix.zhtml?c=106094&p=irol-newsArticle&ID=2224891, accessed 12/28/2016 165 http://ir-tep.tallgrassenergylp.com/, accessed 1/4/2017 163 164

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Why was the company not included? This company was not included because we would use Tallgrass Energy Partners, L.P. Tallgrass Energy Partners, L.P. Company Summary from Value Line: Tallgrass Energy Partners, LP acquires, owns, develops, and operates various midstream energy assets in North America. The company operates in two segments, Gas Transportation and Storage, and Processing. The Gas Transportation and Storage segment owns and operates natural gas pipelines and integrated natural gas storage facilities with approximately 4,645 miles of transportation pipelines in Wyoming, Colorado, Kansas, Missouri, and Nebraska. This segment provides services primarily to third-party local distribution companies, industrial users, and other shippers. The Processing segment owns and operates natural gas processing, treatment, and fractionation facilities that produces natural gas liquids and residue gases, which are sold in local wholesale markets or delivered into pipelines for transportation to additional end markets. This segment serves retail propane dealers and oil refiners. Additional Company Information from Website: Tallgrass Energy is a family of companies formed to own, operate, acquire and develop midstream energy assets in North America. The Tallgrass Energy family is comprised of Tallgrass Energy Partners, LP, a publicly traded master limited partnership (NYSE: TEP), and Tallgrass Development, LP. Through those two holding companies, we currently provide natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the United States through our pipelines and natural gas processing assets.166 Tallgrass Energy Partners, LP (NYSE: TEP) is a publicly traded, growth-oriented limited partnership formed to own, operate, acquire and develop midstream energy assets in North America. We currently provide crude oil transportation to customers in Wyoming, Colorado, and the surrounding regions through Tallgrass Pony Express Pipeline, LLC, which owns a crude oil pipeline commencing in Guernsey, Wyoming and terminating in Cushing, Oklahoma that includes a lateral in Northeast Colorado that commences in Weld County, Colorado, and interconnects with the pipeline just east of Sterling, Colorado. We provide natural gas transportation and storage services for customers in the Rocky Mountain, Midwest and Appalachian regions of the United States through: (1) our 25% membership interest in Rockies Express Pipeline LLC, a Delaware limited liability company which owns the Rockies Express Pipeline, a FERC-regulated natural gas pipeline system extending from Opal, Wyoming and Meeker, Colorado to Clarington, Ohio, (2) the Tallgrass Interstate Gas Transmission system, a FERC-regulated natural gas transportation and storage system located in Colorado, Kansas, Missouri, Nebraska and Wyoming, and (3) the Trailblazer Pipeline system, a FERC-regulated natural gas pipeline system extending from the Colorado and Wyoming border to Beatrice, Nebraska. We also provide services for customers in Wyoming at the Casper and Douglas natural gas processing facilities and the West Frenchie Draw natural gas treating facility, and NGL transportation services in Northeast Colorado. We perform water business services in Colorado and Texas through BNN Water Solutions, LLC. Our operations are strategically located in and provide services to certain key United States hydrocarbon basins, including the Denver-Julesburg, Powder River, Wind River, Permian and Hugoton-Anadarko Basins and the Niobrara, Mississippi Lime, Eagle Ford, Bakken, Marcellus and Utica shale formations. 167 Why was the company not included? This company was formed in 2013. Consider using for the 2018 or 2019 Capitalization Rate Study.

166 167

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Targa Resources Corporation Company Summary from Value Line: Targa Resources is a leading provider of midstream services and is one of the largest independent midstream energy companies in N.A. It operates a diversified portfolio of midstream energy assets. Targa is engaged in the business of gathering, compressing, treating, processing, and selling natural gas, along with storing, fractionating, treating, transporting, and selling NGLs. Plant natural gas inlet 3,432.9 MMcf/d; Gross NGL production, 305.4 MBbl/d; Crude oil gathered 105.7 MBbl/d (all as of 9/30/16). 2015 depr. rate: 5.8%. Has 1,870 employees. Additional Company Information from Website: Targa is a leading provider of midstream services and is one of the largest independent midstream energy companies in North America. We own, operate, acquire, and develop a diversified portfolio of complementary midstream energy assets. We are primarily engaged in the business of: gathering, compressing, treating, processing, and selling natural gas; storing, fractionating, treating, transporting, and selling NGLs and NGL products, including services to LPG exporters; gathering, storing, and terminaling crude oil; storing, terminaling, and selling refined petroleum products. We believe our growth will be driven by continued organic growth investments across our diversified asset footprint. Our assets are not easily replicated and are strategically located in some of the most attractive basins in the U.S., and interconnected with key NGL markets and logistics centers. Our gathering and processing assets are across multiple shale and natural resource plays, including the Permian Basin, Barnett Shale, Bakken Shale, Eagle Ford Shale, Anadarko Basin, Arkoma Basin, onshore Louisiana and the Gulf of Mexico. We have a leading position at Mont Belvieu, the NGL hub of North America. We have the second largest fractionation ownership position at Mont Belvieu and world class LPG export facilities on the Gulf Coast at our Galena Park Marine Terminal, which is interconnected to Mont Belvieu. On February 17, 2016 Targa Resources Corp. (NYSE: TRGP) acquired all of the outstanding common units of Targa Resources Partners LP (NYSE: NGLS) that it did not already own.168 Why was the company not included? This company’s business segments include marketing & distribution, logistic centers, gathering lines, gas Plants, etc. The company has minimal pipeline transportation services. Also, Targa Resources Partners, L.P. has been fully acquired by Targa Resources Corp as of February 17, 2016.166 Targa Resources Partners, L.P. Company Summary from Value Line: Not Available Additional Company Information from Website: On February 17, 2016 Targa Resources Corp. (NYSE: TRGP) acquired all of the outstanding common units of Targa Resources Partners LP (NYSE: NGLS) that it did not already own.169 Why was the company not included? Targa Resources Partners, L.P. has been fully acquired by Targa Resources Corp as of February 17, 2016. Tesoro Logistics, L.P. Company Summary from Value Line: Tesoro Logistics, LP owns, operates, develops, and acquires logistics assets related to crude oil and refined products in the United States. The company consists of a crude oil gathering system in the Bakken 168 169

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2017 Capitalization Rate Study

Shale/Williston Basin area of North Dakota and Montana, which gathers and transports crude oil from various production locations. It owns and operates the northwest products pipeline and a jet fuel pipeline; 20 crude oil and refined products terminals and storage facilities in the western and midwestern US; four marine terminals in California; a rail-car unloading facility in Washington; a petroleum coke handling and storage facility in Los Angeles; and other pipelines, which transport products and crude oil from refineries to nearby facilities in Salt Lake City and Los Angeles. In September 2016, Tesoro Logistics, LP acquired the refined products terminals in Anchorage and Fairbanks, Alaska, with combined storage capacity of over 600,000 barrels. Additional Company Information from Website: Tesoro Logistics has capabilities in gathering, processing, fractionation, stabilization, storage, terminalling and transportation for inbound and outbound logistics needs. We handle crude oil, natural gas, natural gas liquids, refined product and water. Our operations include pipeline, rail, marine and trucking. Built from Tesoro’s proven heritage, Tesoro Logistics has invested in and developed this complete set of skills and range of assets to better meet the needs of our customers, serve the American energy market and position ourselves for continued growth. We combine midstream experience in key basins, like the Bakken and Uinta, with detailed knowledge of transportation networks from the mid-continent to the west coast. We understand what it takes to operate in changing, challenging environments and are primed for new business. Tesoro Logistics offers cost efficient services for a full suite of petroleum products across the supply chain.170 Why was the company not included? This company is more aligned with the fluid transportation companies that the State Assessed Section is responsible for valuing. However, this company’s pipeline transportation business segment appears to be a smaller part of its overall operations. TransCanada Corporation Company Summary from Value Line: TransCanada Corp. operates the most extensive natural gas pipeline system in Canada, transporting natural gas from the Alberta border to Ontario, Quebec, and the U.S. with more than 41,900 mi. of natural gas pipelines, and 2,640 mi. of liquids pipeline (Keystone Oil). Its three major segments are natural gas pipelines (48% of ’15 rev.), oil pipelines (17%), and energy (35%). It has interests in 13,100 mw of power generation assets, and has 250 Bcf of nonregulated gas storage. Acq. ANR 2/07. Has more than 5,500 employees. Off./dir. own less than 1% of stock. Additional Company Information from Website: We build and operate the energy infrastructure that North America needs. Experts in our field, known for our solid financial track record, for our integrity and high standards of corporate governance and business ethics, we are committed to being a good neighbour. With more than 65 years experience, TransCanada is a leader in the responsible development and reliable and safe operation of North American energy infrastructure. Our network of wholly owned and affiliated pipelines taps into virtually all major natural gas supply basins in North America. TransCanada leads the North American pipeline industry and the world in system integrity. We’ve demonstrated an exceptional record of system reliability and safety. With increasing production from oil sands in Alberta, and growing demand for secure, reliable sources of energy, TransCanada has identified opportunities to develop oil pipeline capacity, complementing our natural gas transmission business, drawing on our extensive pipelines experience and offering an efficient way to maximize the value of our current pipeline assets. TransCanada is

170

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one of the continent’s largest providers of gas storage and related services. A growing independent power producer, TransCanada owns or has interests in over 10,700 megawatts of power generation.171 Why was the company not included? This company was not included because we use TC PipeLines, L.P. TransMontaigne Partners, L.P. Company Summary from Value Line: TransMontaigne Partners, LP is a terminaling and transportation company with operations in the US along the Gulf Coast, in the Midwest, in Houston and Brownsville, TX, along the Mississippi and Ohio Rivers, and in the southeast. It offers integrated terminaling, storage, transportation, and related services for customers engaged in the distribution and marketing of light refined petroleum products (including gasolines, diesel fuels, heating oil, and jet fuels); heavy refined petroleum products such as residual fuel oils and asphalt; crude oil, chemicals, fertilizers; and other liquid products. It operates 7.1 million barrel terminal facility on the Houston Ship Channel; eight refined product terminals in Florida with about 6.9 million barrels of aggregate active storage capacity; and a 67-mile interstate refined products pipeline between Missouri and Arkansas, and two refined product terminals in Missouri and Arkansas with an aggregate active storage capacity of about 421,000 barrels. Has 510 employees. Additional Company Information from Website: TransMontaigne Partners L.P. (NYSE: TLP) is a terminaling and transportation master limited partnership providing integrated terminaling, storage, transportation and related services for customers engaged in the distribution and marketing of petroleum products, crude oil, chemicals, fertilizers and other liquid products.172 Why was the company not included? This company’s main business segments are terminaling and storage. A main business segment of the companies the State Assessed Section is responsible for valuing is a fluid transportation pipeline services or gas transmission pipeline services. Valero Energy Partners, L.P. Company Summary from Value Line: Valero Energy Partners, LP is a fee-based, traditional master limited partnership formed by Valero Energy Corp. to own, operate, develop, and acquire crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets. With headquarters in San Antonio, the partnership’s assets include crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States. The systems are integral to the operations of Valero’s refinery in Port Arthur, Texas, its McKee refinery in Sunray, Texas, and its refinery in Memphis, Tennessee. Valero subsidiaries employ approximately 10,000 people, and its assets include 15 petroleum refineries with a combined throughput capacity of approximately 3.0 million barrels per day, 11 ethanol plants with a combined production capacity of 1.3 billion gallons per year, a 50-megawatt wind farm, and renewable diesel production from a joint venture. Additional Company Information from Website: Valero Energy Partners LP (NYSE: VLP) began trading on the New York Stock Exchange on Dec. 11, 2013. Headquartered in San Antonio, Texas, Valero Energy Partners is a fee-based, growth-oriented, traditional master limited partnership formed by Valero Energy Corporation to own, operate, develop and acquire crude oil and refined petroleum products pipelines, terminals and other transportation and logistics assets. The partnership serves as Valero’s primary vehicle to expand the transportation and logistics assets supporting its business. 171 172

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Assets consist of crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States, which are integral to the operations of Valero’s refineries located in Port Arthur, Sunray (McKee refinery), Houston, Three Rivers and Corpus Christi (Bill Greehey refineries), Texas; Meraux and Norco (St. Charles refinery), La.; Memphis, Tenn.; and Ardmore, Okla. The Port Arthur Logistics System includes the Lucas Crude System and the Port Arthur Products System. The McKee Logistics System consists of the McKee Crude System, the McKee Products System and the McKee Terminal. The Memphis Logistics System includes the Collierville Crude System and the Memphis Products System. The Wynnewood Products System is the primary distribution outlet for the Ardmore refinery. The Three Rivers Logistics System includes the Three Rivers Crude System, which connects domestically produced crude oil to the Three Rivers refinery, and the Three Rivers Terminal. The Houston Terminal is a crude oil, intermediates and refined petroleum products terminal that supports the Houston refinery. The St. Charles Terminal is a crude oil, intermediates and refined petroleum products terminal serving the St. Charles refinery. The Corpus Christi Terminals operate crude oil, intermediates and refined petroleum products terminals that support the Bill Greehey refineries east and west plants. The Meraux Terminal is a crude oil, intermediates and refined petroleum products terminal supporting the Meraux refinery.173 Why was the company not included? This company’s main business segments include refineries and terminalling. A main business segment of the companies the State Assessed Section is responsible for valuing is a fluid transportation pipeline services or gas transmission pipeline services. Vanguard Natural Resources Company Summary from Value Line: Vanguard Natural Resources, LLC, through its subsidiaries, is focused on the acquisition, production, and development of natural gas and oil properties. The company’s assets consist primarily of producing and nonproducing natural gas, and oil reserves in the southern portion of the Appalachian Basin, the Permian Basin, south Texas, and Mississippi. Vanguard owns a 100% controlling interest in properties and oil and natural gas reserves in four operating areas: the Permian Basin in west Texas and New Mexico; south Texas; the southern portion of the Appalachian Basin, primarily in southeast Kentucky and northeast Tennessee; and Mississippi. As of December 31, 2015, the company owned properties and oil and natural gas reserves primarily located in ten operating basins. Vanguard Natural Resources, LLC was founded in 2006 and is headquartered in Houston, Texas. Has 381 employees. Additional Company Information from Website: We are a publicly traded limited liability company focused on the acquisition and development of mature, longlived oil and natural gas properties in the United States. Our primary business objective is to generate stable cash flows allowing us to make monthly cash distributions to our unitholders and, over time, increase our monthly cash distributions through the acquisition of additional mature, long-lived oil and natural gas properties. Through our operating subsidiaries, as of December 31, 2015, we own properties and oil and natural gas reserves primarily located in ten operating basins: the Green River Basin in Wyoming; the Permian Basin in West Texas and New Mexico; the Gulf Coast Basin in Texas, Louisiana, Mississippi and Alabama; the Anadarko Basin in Oklahoma and North Texas; the Piceance Basin in Colorado; the Big Horn Basin in Wyoming and Montana; the Arkoma Basin in Arkansas and Oklahoma; the Williston Basin in North Dakota and Montana; the Wind River Basin in Wyoming; and the Powder River Basin in Wyoming.174

173 174

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2017 Capitalization Rate Study

Why was the company not included? This company’s main business segments are producing and nonproducing natural gas and oil reserves. A main business segment of the companies the State Assessed Section is responsible for valuing is a fluid transportation pipeline services or gas transmission pipeline services. Western Gas Equity Partners, L.P. Company Summary from Value Line: Western Gas Equity Partners, LP (WGP) is a Delaware master limited partnership formed in September 2012 to own three types of partnership interests in Western Gas Partners, LP (WES), which includes the general partner interest in WES, held through WES GP; 100% of the incentive distribution rights in WES, which entitle WGP to receive increasing percentages, up to the maximum level of 48% of any incremental cash distributed by WES as certain target distribution levels are reached in any quarter; and a significant limited partner interest in WES. WES was formed by Anadarko Petroleum Corp. in 2007 to acquire, own, develop, and operate midstream energy assets. With midstream assets located in the Rocky Mountains, the Mid-Continent, north-central Pennsylvania and Texas, WES is engaged in the business of gathering, processing, compressing, treating, and transporting natural gas, condensate, natural gas liquids, and crude oil for Anadarko, as well as for other producers and customers. Additional Company Information from Website: Western Gas Equity Partners, LP is a Delaware master limited partnership formed by Anadarko to own WES’s general partner, all of WES’s incentive distribution rights, and a substantial limited partner interest in WES. Through its ownership of WES’s general partner, WGP manages and controls WES. The incentive distribution rights entitle WGP to increasing percentages, up to a maximum level of 48.0%, of any incremental cash distributed by WES as certain target distribution levels are reached with respect to any quarter.175 Why was the company not included? This company’s main business segments include gathering and treating. A main business segment of the companies the State Assessed Section is responsible for valuing is a fluid transportation pipeline services or gas transmission pipeline services. Western Gas Partners, L.P. Company Summary from Value Line: Western Gas Partners, LP engages in the acquisition, ownership, and operation of midstream energy assets in East and West Texas, the Rocky Mountains, and the Mid-Continent. It is involved in the gathering, compressing, treating, and transporting of natural gas for its ultimate parent, Anadarko Petroleum Corporation, and third-party producers and customers. The company’s assets consist of gathering systems, natural gas treating facilities, processing facilities, pipelines, and interests accounted for under the equity method. Western Gas Holdings, LLC serves as the general partner. Additional Company Information from Website: Western Gas Partners, LP is a growth-oriented Delaware master limited partnership formed by Anadarko to own, operate, acquire and develop midstream energy assets. WES’s assets are located in East, West and South Texas, the Rocky Mountains (Colorado, Utah and Wyoming), North-Central Pennsylvania and the Mid-Continent (Kansas and Oklahoma), and WES is engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, natural gas liquids and crude oil for Anadarko, as well as third-party producers and customers.176

175 176

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2017 Capitalization Rate Study

Why was the company not included? This company’s main business segments include gathering and treating. A main business segment of the companies the State Assessed Section is responsible for valuing is a fluid transportation pipeline services or gas transmission pipeline services. Western Refining Logistics, L.P. Company Summary from Value Line: Western Refining Logistics, LP is engaged in the ownership, acquisition, development, and operation of terminals, storage tanks, pipelines, and other logistics assets in the southwestern United States. The company has pipeline and gathering assets, including approximately 300 miles of crude oil pipelines and gathering systems, and approximately 685,000 barrels of active crude oil storage located primarily in the Delaware Basin. It has terminaling, transportation, and storage assets comprising terminals and storage assets located at El Paso and Gallup refineries, and refined products terminals located in Bloomfield and Albuquerque, New Mexico that consist of 8.2 million barrels of active storage capacity, which receive, store, and distribute crude oil, feedstock, and refined products; and asphalt plant and terminal that provides asphalt terminaling and processing services in El Paso. The company also distributes gasoline, diesel fuel, and lubricant products. Has 780 employees. Additional Company Information from Website: Western Refining Logistics, LP (NYSE: WNRL) is principally a fee-based, growth-oriented master limited partnership formed by Western Refining, Inc. (NYSE: WNR) to own, operate, develop and acquire terminals, storage tanks, pipelines and other logistics assets related to the terminalling, transportation and storage of crude oil and refined products. Headquartered in El Paso, Texas, Western Refining Logistics, LP's assets include approximately 685 miles of pipelines, approximately 8.2 million barrels of active storage capacity, distribution of wholesale petroleum products and crude oil trucking. WNRL began trading on the New York Stock Exchange on October 10, 2013. Our pipeline and gathering assets are positioned to support crude oil supply options for Western’s El Paso, Gallup and St. Paul Park refineries as well as third parties and consist of crude oil pipelines and gathering assets located primarily in the Delaware Basin and in the Four Corners area of Northwestern New Mexico, and the Bakken Formation in North Dakota. These systems gather and transport crude oil by pipeline from various production locations to Western’s refineries utilizing approximately 685 miles of pipeline, crude oil storage tanks with a total combined active shell storage capacity of 828,000 barrels, truck loading and unloading locations and pump stations. Western’s St. Paul Park refinery in Minnesota is strategically located with direct access, primarily via the Minnesota Pipeline, to what the Company believes are abundant supplies of advantaged crude oils. The complexity of refinery operations allows it to process a variety of light, heavy, sweet and sour crudes into higher value refined products. Our terminalling, transportation and storage assets support crude oil supply and refined product distribution for Western’s El Paso, Gallup and St. Paul Park refineries as well as third parties and primarily consist of storage tanks, terminals, transportation and other assets located in El Paso, Texas; Gallup, Bloomfield and Albuquerque, New Mexico; and Phoenix and Tucson, Arizona. These assets include crude oil, feedstock, blendstock, refined product and asphalt storage tanks with a total combined shell storage capacity of 7.4 million barrels; truck loading racks; railcar loading racks; pump stations and pipeline and related logistics assets to service Western’s operations. WNRL's wholesale business includes the operations of several lubricant and bulk petroleum distribution plants and a fleet of crude oil, refined product, asphalt and lubricant delivery trucks. WNRL distributes commercial wholesale petroleum products primarily in Arizona, Colorado, Nevada, New Mexico and Texas. WNRL purchases petroleum fuels and lubricants from WNR's refining segment and from third-party suppliers. WNRL provides logistical services to WNR's refineries in the Southwest and operates several lubricant and bulk Page | G - 84

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2017 Capitalization Rate Study

petroleum distribution plants and a fleet of crude oil and refined product delivery trucks. WNRL distributes wholesale petroleum products primarily in Arizona, Colorado, Nevada, New Mexico and Texas.177 Why was the company not included? This company has many business segments and the main business segments do not include pipeline transportation services. A main business segment of the companies the State Assessed Section is responsible for valuing is a fluid transportation pipeline services or gas transmission pipeline services. Williams Companies, Inc. Company Summary from Value Line: The Williams Companies, Inc., gathers, processes, and transports natural gas throughout the United States. It also performs gas marketing services. Acquired Access Midstream Partners, 7/14; Barrett Resources, 8/01; MAPCO, 3/98. Sold Texas Gas Pipeline, 5/03; Kern River Pipeline, 3/02. Spun off Williams Communications, 4/01; WPX Energy, 1/12. Initial public offering for Williams Partners L.P., 8/05; Williams Pipeline Partners L.P., 1/08. Has about 4,910 employees. Off./dir. own less than 8.9% of common shares; Corvex Management LP/Soroban Master Fund LP, 8.4%; The Vanguard Group, 5.8% (4/16 Proxy). Additional Company Information from Website: Williams, including its assets held through Williams Partners L.P., is an energy infrastructure company focused on connecting North America’s significant hydrocarbon resource plays to growing markets for natural gas, natural gas liquids (NGLs) and olefins. Williams’ operations span from the deepwater Gulf of Mexico. Williams owns and operates midstream gathering and processing assets, and interstate natural gas pipelines. In addition, Williams produces olefins for petrochemical feedstocks. Williams’ headquarters are located in Tulsa, Okla. Other major offices are in Houston, Pittsburgh, Oklahoma City and Salt Lake City. Founded in 1908, Williams employs more than 5,600 people and is an equal opportunity employer. The Company does not discriminate in any employer/employee relations based on race, color, religion, sex, sexual orientation, gender identity and expression, national origin, age, marital status, disability, military status, genetic information or any other basis protected by applicable discrimination laws. Williams common stock (WMB) and Williams Partners units (WPZ) are listed on the New York Exchange.178 Why was the company not included? This company was not included because we would use Williams Partners, L.P. World Fuel Services Corp. Company Summary from Value Line: World Fuel Services Corp., a leading global fuel logistics company, is engaged in the worldwide marketing and sale of marine, aviation, and land fuel products and related services. Its Marine segment offers fuel and related services to maritime customers, including international container and tanker fleets among others. The Aviation segment provides aviation fuel to commercial airlines, and others. The Land segment provides fuel and related services to petroleum distributors among others. Has 2,758 employees. Officers/Directors own 2.3% of shares (4/16 proxy). Additional Company Information from Website: World Fuel Services Corporation (NYSE: INT) is a Fortune 100 company providing aviation, marine and land energy, logistics, and technology solutions to customers and suppliers around the world. Our global team of local professionals delivers innovative products and services at more than 8,000 global locations.179 http://www.wnrl.com/, accessed 1/4/2017 http://co.williams.com/our-company/, accessed 1/4/2017 179 https://www.wfscorp.com/about-wfs, accessed 1/4/2017 177 178

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2017 Capitalization Rate Study

Why was the company not included? This company is a global fuel distributor. A main business segment of the companies the State Assessed Section is responsible for valuing is a fluid transportation pipeline services or gas transmission pipeline services. World Point Terminals, L.P. Company Summary from Value Line: World Point Terminals, LP owns, operates, develops, and acquires terminals and other assets for the storage of light refined products, heavy refined products, and crude oil in the east coast, gulf coast, and Midwest regions of the US. The company stores gasoline, distillates, and jet fuel light refined products; residual fuel oils and liquid asphalt heavy refined products; and crude oil. The company owns 15.3 million barrels of storage capacity at 17 strategically located terminals. The company also provides storage services to distributors, marketers, and traders that require access to large, strategically located storage capacity with efficient access to transportation infrastructure and in close proximity to refineries, demand markets or export hubs. The company’s storage terminals are strategically located in the East Coast, Gulf Coast, and midwest regions of the US. WPT GP, LLC operates as a general partner of the company. The company is headquartered in St. Louis, Missouri. Has 157 employees. Additional Company Information from Website: World Point Terminals, LP is a fee-based, growth-oriented limited partnership formed to own, operate, develop and acquire terminal assets relating to the storage of light refined products, heavy refined products and crude oil. Our storage facilities are strategically located in the East Coast, Gulf Coast and Midwest regions of the United States. Refiners typically use our terminals because they prefer to subcontract terminaling and storage services or their facilities do not have adequate storage capacity or dock infrastructure or do not meet specialized handling requirements for a particular product. We also provide storage services to distributors, marketers and traders that require access to large, strategically located storage capacity with efficient access to transportation infrastructure and in close proximity to refineries, demand markets or export hubs. Our combination of geographic location, efficient and well-maintained storage assets and access to multiple modes of transportation gives us the flexibility to meet the evolving demands of our existing customers, as well as the demands of prospective customers. Our primary business objective are to generate stable cash flows to enable us to pay quarterly cash distributions to our unit holders and to increase our quarterly distributions over time. We intend to achieve these objectives by anticipating long-term infrastructure needs in the areas we serve and by growing our storage terminal network through acquisitions of complementary assets from our sponsors, expansion of our existing facilities, the construction of new terminals in existing or new markets and strategic acquisitions from third parties.180 Why was the company not included? This company’s main business segments are terminals and storage. A main business segment of the companies the State Assessed Section is responsible for valuing is a fluid transportation pipeline services or gas transmission pipeline services.

180

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2017 Capitalization Rate Study

Market Segment: Railroad, Class I and Other Railroads Companies Included in the Railroad Market Segment Canadian National Railway Company Company Summary from Value Line: Canadian National Railway operates Canada’s largest railroad system with 20,000 route miles spanning EastWest across Canada and North-South to the Gulf of Mexico through the U.S. Midwest. Acquired Wisconsin Central 10/01; BC Rail and GLT mid- ’04; EJ&E 1/09. Petroleum & Chemicals, 19% of ’15 revenues; Metals & Minerals, 11%; Forest Products, 14%; Intermodal, 23%; Coal, 5%; Grain & Fertilizer, 16%; Automotive, 6%; Other, 6%. 2015 labor costs: 19% of revenue. 2015 operating ratio: 58.2%. Has about 23,170 employees. Offs./dirs. own or control 0.2% of stock (2015 40-F). Additional Company Information from Website: CN [Canadian National] is engaged in the rail and related transportation business. CN’s network of approximately 20,000 route miles of track spans Canada and mid-America, uniquely connecting three coasts: the Atlantic, the Pacific and the Gulf of Mexico. CN’s extensive network and efficient connections to all Class I railroads provide CN customers access to all three North American Free Trade Agreement (NAFTA) nations. A true backbone of the economy, CN handles over $250 billion worth of goods annually and carries more than 300 million tons of cargo, serving exporters, importers, retailers, farmers and manufacturers. CN’s freight revenues are derived from seven commodity groups representing a diversified and balanced portfolio of goods transported between a wide range of origins and destinations. This product and geographic diversity better positions the Company to face economic fluctuations and enhances its potential for growth opportunities. In 2015, no individual commodity group accounted for more than 23% of total revenues. From a geographic standpoint, 18% of revenues relate to United States (U.S.) domestic traffic, 33% transborder traffic, 18% Canadian domestic traffic and 31% overseas traffic. The Company is the originating carrier for approximately 85% of traffic moving along its network, which allows it both to capitalize on service advantages and build on opportunities to efficiently use assets.181 Why was the company included? This company is similar to (and is the parent of) the railroad companies that the State Assessed Section is responsible for valuing. The company engages in railroad transportation services. Canadian Pacific Railway Limited Company Summary from Value Line: Canadian Pacific Railway Limited provides rail and intermodal freight transportation services over a 12,500-mile network from Montreal to Vancouver. It extends into the U.S. midwest and northeast via Soo Line, Delaware & Hudson, and DM&E (purchased 10/4/07) subsidiaries. Alliances with other carriers extend market reach beyond its owned network. Grain shipments 24%, of 2015 freight revenue; intermodal, 21%; coal, 10%; other, 45%. Operating ratio in 2015: 61.0%. Employs 12,900 as of 12/31/15. T. Rowe Price Assoc. owns 10.8% of common (2016 proxy). Pershing Square sold its 9.1% stake over the summer of 2016. Additional Company Information from Website: Canadian Pacific Railway Limited (“CPRL”), together with its subsidiaries (“CP” or the “Company”), operates a transcontinental railway in Canada and the United States (“U.S.”). CP’s diverse business mix includes bulk commodities, merchandise freight and intermodal traffic over a network of approximately 12,500 miles, serving

181

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Class I and Other Railroads

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2017 Capitalization Rate Study

the principal business centres of Canada from Montreal, Quebec, to Vancouver, British Columbia, and the U.S. Northeast and Midwest regions.182 Why was the company included? This company is similar to (and is the parent of) the Railroad Companies that the State Assessed Section is responsible for valuing. The company engages in railroad transportation services. CSX Corporation Company Summary from Value Line: CSX Corporation provides rail, intermodal transportation, and rail-to-truck transload services. Has about 21,000 route miles in 23 states and two Canadian provinces, with links to more than 240 short-line railroads. Connects the Northeast, Midwest, and Canada with the Southeast. Principal freight: coal, fertilizer, chemicals, automobiles & parts, agricultural products, and intermodal cargo. Sold CSX Lines 2/03; CSX World Terminals 2/05. 2015 rail operating ratio: 69.7%. Ave. employee count in Q4 2015: 29,760. Capital Research owns 8.7% of common; Vanguard Group 6.2%; offs/dirs less than 1% (3/16 proxy). Additional Company Information from Website: CSX Corporation, together with its subsidiaries based in Jacksonville, Fla., is one of the nation's leading transportation suppliers. The company’s rail and intermodal businesses provide rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers. Overall, the CSX Transportation network encompasses about 21,000 route miles of track in 23 states, the District of Columbia and the Canadian provinces of Ontario and Quebec. Our transportation network serves some of the largest population centers in the nation. Nearly two-thirds of Americans live within CSX’s service territory. Our transportation network serves some of the largest population centers in the nation. Nearly two-thirds of Americans live within CSX’s service territory. CSX serves major markets in the eastern United States and has access to over 70 ocean, river and lake port terminals along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St. Lawrence Seaway. The company also has access to Pacific ports through alliances with western railroads. CSX moves a broad portfolio of products across the country in a way that minimizes the effect on the environment, takes traffic off an already congested highway system, and minimizes fuel consumption and transportation costs.183 Why was the company included? This company is similar to the Railroad Companies that the State Assessed Section is responsible for valuing. The company engages in railroad transportation services. Genesee & Wyoming, Inc. Company Summary from Value Line: Genesee & Wyoming owns and operates 63 short line and regional freight railroads. Also performs contract coal loading and railcar switching for industrial customers. Has operations in North America (62% of ’15 revenue), Australia (12%), and U.K./Europe (26%). ’15 freight revenue mix: Pulp & Paper, 12%; Coal, 10%; Minerals & Stone, 12%; Metals, 11%; Other, 55%. Has 7,500 employees. ’15 operating ratio: 80.8%. Off. & dir. own 2.4% of class A and 99.9% of class B shares outstanding (representing 14.2% of total voting rights); FMR, 10.7% of class A; Wellington Man., 10.2%; Vanguard, 6.6% (4/16 proxy). Additional Company Information from Website: Genesee & Wyoming Inc. owns or leases 122 freight railroads worldwide (collectively "G&W" or the "company")* that are organized into 10 operating regions with approximately 7,300 employees and more than 182 183

http://www.cpr.ca/en/investors-site/Lists/FinancialReports/cp-ar-2015.pdf, accessed 1/4/2017 (page 32) https://www.csx.com/index.cfm/about-us/company-overview/, accessed 1/4/2017

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Guideline Companies

2017 Capitalization Rate Study

2,800 customers. G&W’s eight North American regions serve 41 U.S. states and four Canadian provinces and include 115 short line and regional freight railroads with more than 13,000 track-miles. G&W’s Australia Region provides rail freight services in New South Wales, including in the Hunter Valley coal supply chain, and in the Northern Territory and South Australia, including operating the 1,400-mile Tarcoola-to-Darwin rail line. The Australia Region is 51% owned by G&W and 49% owned by a consortium of funds and clients managed by Macquarie Infrastructure and Real Assets. G&W’s U.K./Europe Region is led by Freightliner, the U.K.’s largest rail maritime intermodal operator and second-largest rail freight company. Operations also include heavy-haul in Poland and Germany and cross-border intermodal services connecting Northern European seaports with key industrial regions throughout the continent. G&W subsidiaries provide rail service at more than 40 major ports in North America, Australia and Europe and perform contract coal loading and railcar switching for industrial customers.184 Why was the company included? This company is similar to (and is the parent of) the Railroad Companies that the State Assessed Section is responsible for valuing. The company engages in railroad transportation services. Kansas City Southern Company Summary from Value Line: Kansas City Southern, Inc. is a holding company that has railroad investments in the U.S., Mexico, and Panama. Kansas City Southern, its primary holding, serves the central and south central U.S. Kansas City Southern de Mexico serves northeastern and central Mexico, as well as the port cities of Lazaro Cardenas, Tampico, and Veracruz. Panama Canal Railway (50% stake) provides ocean-to-ocean service along the Panama Canal. Spun off Stilwell Fin’l to shareholders, 7/00. 2015 rail operating ratio: 66.4%. Has 6,260 employees. Officers & directors own 1.5% of common stock; BlackRock, 6.7%; T. Rowe Price, 5.2% (4/16 Proxy). Kansas City Southern, Inc. is a holding company that has railroad investments in the U.S., Mexico, and Panama. Additional Company Information from Website: KCS is a complete network of capabilities, possibilities and advantages for businesses and shippers of all sizes. You produce it or need it and we can ship it. From accordions to zippers, KCS can ship your cargo. We are a full-service railroad capable of shipping anything from the tiniest plastic pieces to the largest machinery. Liquid or metal. Large or small. Finished or Unfinished. We've got your shipment needs covered.185 Why was the company included? This company is similar to the Railroad Companies that the State Assessed Section is responsible for valuing. The company engages in railroad transportation services. Norfolk Southern Corporation Company Summary from Value Line: Norfolk Southern Corp. is the holding company formed by the merger of Norfolk & Western Railway and Southern Railway on 6/1/82. Its Norfolk Southern Railway subsidiary operates approximately 21,000 route miles of track in 22 eastern and southern states, plus the District of Columbia. Also owns a 58% stake in Conrail. ’15 freight revenue mix: coal, 17%; intermodal, 23%; agriculture/ consumer prod./gov’t, 14%; metals/construction, 12%; other, 34%. ’15 labor costs: about 28% of revenue. ’15 operating ratio: 72.6%. Has 30,456 employees; Off. & Dir. own 1% of common stock (3/16 Proxy).

184 185

https://www.gwrr.com/about_us, accessed 1/4/2017 http://www.kcsouthern.com/en-us/why-choose-kcs/what-we-ship, accessed 1/4/2017

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Guideline Companies

2017 Capitalization Rate Study

Additional Company Information from Website: Norfolk Southern Corporation is one of the nation’s premier transportation companies. Its Norfolk Southern Railway subsidiary operates approximately 20,000 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products.186 Why was the company included? This company is similar to the Railroad Companies that the State Assessed Section is responsible for valuing. The company engages in railroad transportation services. Union Pacific Corporation Company Summary from Value Line: Union Pacific Corporation owns Union Pacific Railroad, the largest railroad in the U.S. in both track miles and total revenues, with nearly 31,974 route miles serving the western two thirds of the United States. ’15 RR revenue mix: Coal, 16%; Intermodal, 20%; Agricultural, 17%; Industrial, 19%; Chemicals, 17%; Automotive, 11%. Spun off UP Resources 9/96. Acq’d Southern Pacific 9/96. Sold Overnite Transport. 11/03. ’15 RR operating ratio: 63.1%. Has 47,457 employees. Officers/directors own less than 1% of stock; Capital Research Investors, 6.7%; BlackRock, 6.1%; Vanguard, 5.8% (4/16 proxy). Additional Company Information from Website: Union Pacific Corporation (NYSE:UNP) is one of America's leading transportation companies. Its principal operating company, Union Pacific Railroad, is North America's premier railroad franchise, covering 23 states across the western two-thirds of the United States.187 Why was the company included? This company is one of the Railroad Companies that the State Assessed Section is responsible for valuing. The company engages in railroad transportation services.

Companies Not Included in the Railroad Market Segment American Railcar Industries, Inc. Company Summary from Value Line: American Railcar Industries, Inc. designs and manufactures hopper (used to transport dry bulk products) and tank railcars. The company’s operations are divided into three segments: Manufacturing (accounted for 79% of 2015 total revenues); Railcar leasing (13%); and Railcar Services (8%). At 12/31/15, its backlog exceeded 7,081 railcars of which 80% are for direct sale and 70% are scheduled for delivery in 2016. It has more than 2,407 employees. Officers/directors own 60.8% of the common stock; Dimensional Fund Advisors, 7.1% (4/16 proxy). Additional Company Information from Website: ARI [American Railcar Industries] is a leading North American designer and manufacturer of hopper and tank railcars. ARI provides its railcar customers with integrated solutions through a comprehensive set of high quality products and related services. ARI manufactures and sells railcars, custom designed railcar parts, and other industrial products. ARI and its subsidiaries also lease railcars manufactured by the company to certain markets. In addition, ARI provides railcar services through its various repair facilities, including mini-shops and mobile

186 187

http://www.nscorp.com/content/nscorp/en/about-ns/corporate-profile.html, accessed 1/4/2017 http://www.up.com/aboutup/corporate_info/uprrover/index.htm, accessed 1/4/2017

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Class I and Other Railroads

Guideline Companies

2017 Capitalization Rate Study

units, offering a range of services from full to light repair. We partner in two separate and distinct joint ventures: Axis, LLC, and Ohio Castings Company, LLC.188 Why was the company not included? This company designs and manufactures railcars. Berkshire Hathaway, Inc. Company Summary from Value Line: Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in property and casualty insurance on a direct and reinsurance basis through GEICO, General Re and Berkshire Reinsurance. Other business activities include electric utilities, railroads, flight training services, candy manufacturing, ice cream, building products, newspapers, retailing, fine jewelry, etc. Also, fractional ownership programs for general aviation (NetJets), energy (Mid-American Energy). Has approximately 361,270 employees. Officers & directors control 23.4% of voting power (3/16 proxy). Additional Company Information from Website: Berkshire Hathaway Inc. (“Berkshire,” “Company” or “Registrant”) is a holding company owning subsidiaries engaged in a number of diverse business activities. The most important of these are insurance businesses conducted on both a primary basis and a reinsurance basis, a freight rail transportation business and a group of utility and energy generation and distribution businesses. Berkshire also owns and operates a large number of other businesses engaged in a variety of activities, as identified herein. Berkshire is domiciled in the state of Delaware, and its corporate headquarters are located in Omaha, Nebraska. Berkshire’s operating businesses are managed on an unusually decentralized basis. There are essentially no centralized or integrated business functions (such as sales, marketing, purchasing, legal or human resources) and there is minimal involvement by Berkshire’s corporate headquarters in the day-to-day business activities of the operating businesses. Berkshire’s corporate office senior management participates in and is ultimately responsible for significant capital allocation decisions, investment activities and the selection of the Chief Executive to head each of the operating businesses. It also is responsible for establishing and monitoring Berkshire’s corporate governance practices, including, but not limited to, communicating the appropriate “tone at the top” messages to its employees and associates, monitoring governance efforts, including those at the operating businesses, and participating in the resolution of governance-related issues as needed. Berkshire and its consolidated subsidiaries employed approximately 331,000 people world-wide at the end of 2015. Berkshire’s corporate headquarters has 25 employees.189 Why was the company not included? We reviewed Berkshire Hathaway, Inc. because the company is the parent of BNSF Railway, which operates in Minnesota. However, BNSF Railway is not the majority business segment of Berkshire Hathaway, Inc. GATX Corporation Company Summary from Value Line: GATX Corp. specializes in tank car, freight car, and locomotive leasing. The company owns or has an interest in 154,096 railcars, and manages 2,143 railcars for third-party owners. Specialty unit finances marine and industrial equipment. American Steamship unit operates a fleet of vessels on the Great Lakes, providing waterborne transportation of dry bulk commodities. Invests in joint ventures that complement existing businesses. Has about 2,200 employees. Off. & dir. own 2.9% of common; State Farm, 15.6%; GAMCO, 12.1%; Wellington, 10.1%; Dimensional Fund Advisors, 9.1%; BlackRock, 7.1% (3/16 Proxy).

188 189

http://www.americanrailcar.com/Home/About, accessed 1/4/2017 http://www.berkshirehathaway.com/2015ar/201510-K.pdf, accessed 1/4/2017

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Class I and Other Railroads

Guideline Companies

2017 Capitalization Rate Study

Additional Company Information from Website: GATX Corporation, founded in 1898, is the leading global railcar lessor. We strive to be recognized as the finest railcar leasing company in the world by our customers, our shareholders, our employees, and the communities where we operate. We own railcar fleets in North America, Europe, and Asia. In addition, we operate the largest fleet of US-flagged vessels on the Great Lakes and own and manage other long-lived, widely-used assets. We operate through four primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”), and Portfolio Management.190 Why was the company not included? This company’s business segments include substantial non railroad investments, including financing marine and industrial equipment. Greenbrier Companies, Inc. Company Summary from Value Line: The Greenbrier Companies, Inc. designs, manufactures, repairs, and markets railroad freight cars and related equipment in North America and Europe. It also manufactures oceangoing marine barges. The company operates in three business segments: Manufacturing (78% of 2016 revenues); Wheel Services, Refurbishment & Parts (12%); Leasing & Services (10%). Inc.: OR. At 8/31/16, its backlog consisted of 27,500 railcars. Has about 10,000 employees. President, Chairman, and CEO: William A. Furman. Officers/directors. own 4.6% of common stock; The Vanguard Group, 15.5%; BlackRock, 10.3%; Dimensional Fund, 6.9% (11/16 proxy). Additional Company Information from Website: Greenbrier designs, builds and markets freight railcars in North America and Europe, we build freight railcars and rail castings in Brazil through a strategic partnership, and build and market marine barges in North America. Recently, through our European manufacturing operations, we also began delivery of US-designed tank cars in Saudi Arabia. In October 2016, we entered into an agreement with Astra Rail Management GmbH to form a new company, Greenbrier-Astra Rail, which will create an end-to-end, Europe-based freight railcar manufacturing, engineering and repair business. We expect this combination will be completed during 2017. We are a leading provider of wheel services, parts, leasing and other services to the railroad and related transportation industries in North America and a provider of freight railcar repair, refurbishment and retrofitting services in North America through a joint venture partnership with Watco Companies, LLC. Through other joint ventures we produce rail castings, tank heads and other railcar components. Greenbrier owns a lease fleet of over 9,000 railcars and performs management services for over 268,000 railcars.191 Why was the company not included? This company designs, manufactures, repairs, and markets railroad freight cars and related equipment. Packaging Corporation of America Company Summary from Value Line: Packaging Corporation of America is the fourth-largest producer of containerboard and corrugated products in the United States in terms of production capacity. Revenue breakdown; Packaging (78% of 2015 sales), Paper (20%), and Corporate and Other and Eliminations (2%). In 2015, it produced 3.7 million tons of containerboard at its mills. Corrugated products manufacturing plants sold about 48.9 billion square feet. Has 13,000 employees. Acquired Boise (10/13). Off/dirs. own 1.1% of common stock; Black- Rock, 9.0%; The Vanguard Group, 7.4% (3/16 proxy).

190 191

http://www.gatx.com/wps/wcm/connect/GATX/GATX_SITE/Home/About/, accessed 1/4/2017 http://www.gbrx.com/about-us/, accessed 1/4/2017

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Class I and Other Railroads

Guideline Companies

2017 Capitalization Rate Study

Additional Company Information from Website: At PCA [Packaging Corporation of America], we think of ourselves as more than a box manufacturer. We are an ideas and solutions company. We seek to be the leader in helping our customers — large and small — package, transport and display products of all kinds. It just happens to be that corrugated products are our area of expertise. So a partnership with PCA isn’t just about buying boxes. It’s about building a relationship with a knowledgeable, trusted, committed source; adding value to your business; and actively contributing to your success in the marketplace. Whether you are looking for conventional shipping containers, custom-printed corrugated boxes, custom packaging or eye-catching retail visual displays, PCA is here to deliver the right packaging solution on time and on budget. At PCA, our people are as sharp at posing questions as they are at providing answers. With good reason… We realize that the key to offering responsive customer service is never taking our customers for granted. That’s why at the same time you’re learning about our products and how we do business, we’re learning about yours. So don’t be surprised if PCA people collaborate more than you’re used to, or engage you in conversations that go beyond flute profiles and stacking strength. For PCA people, it’s all about understanding customer service — doing our very best to give you the ideas and products that support your needs.192 Why was the company not included? We reviewed Packaging Corporation of America because the company is the parent of Boise Paper, which is the parent of Minnesota, Dakota & Western Railroad. Minnesota, Dakota & Western Railroad operates in Minnesota. However, Minnesota, Dakota & Western Railroad is not the majority business segment Packaging Corporation of America. Trinity Industries, Inc. Company Summary from Value Line: Trinity Industries, Inc. manufactures a variety of metal products for many industries. Its five principal operating segments are: Rail (railcars and component parts), Construction Products (highway safety products, concrete, and aggregate), Inland Barge (barges and related products), Energy Equipment (wind towers), and Railcar Leasing and Management. Acquired Thrall 10/01. ’15 depr. rate: 3.4%. Has about 21,900 employees. Officers & directors own 1.8% of common stock; Vanguard Group, 8.3%; BlackRock, 7.0%; Southern Sun Asset. Man., 5.4% (4/16 Proxy). Additional Company Information from Website: Trinity Industries, Inc. is a diversified industrial company that owns market-leading businesses providing products and services to the energy, transportation, chemical, and construction sectors. Trinity reports its financial results in five principal business segments: the Rail Group, the Railcar Leasing and Management Services Group, the Inland Barge Group, the Construction Products Group and the Energy Equipment Group. Our common stock is traded on the New York Stock Exchange under the symbol TRN. Trinity’s businesses provide industrial products and services ranging from barges, storage and distribution containers, aggregates, and highway products to wind tower and utility structures, railcars, railcar parts, and railcar leasing, management, and maintenance services. Our businesses play an important role in the overall economy by supplying essential infrastructure-related products and services.193 Why was the company not included? This company manufactures metal products for many industries.

192 193

https://www.packagingcorp.com/our-company, accessed 1/4/2017 http://www.trin.net/aboutus/default.html, accessed 1/4/2017

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Class I and Other Railroads

Appendix H ‐ Summary of Studies Completed by Others

Cap Rate Study Comparison - Electric January 2, 2017 Assessment

2017 Capitalization Rate Study

Yield Capitalization Rates for Electric Author MN Department of Revenue California State Board of Equalization Colorado Department of Revenue Idaho State Tax Commission Kansas Department of Revenue Missouri State Tax Commission Montana Department of Revenue AT Oklahoma Tax Commission Oregon Department of Revenue AT Oregon Department of Revenue South Dakota Department of Revenue Utah State Tax Commission Washington Department of Revenue AT Wyoming Department of Revenue Xcel Energy Damodaran WACC AT

Selected Yield Rate

Cost of Debt

7.13% 7.71% ‐ 9.82%

4.79% FC

7.55% 7.54% FC 8.40% FC 7.75% 5.40% AT 7.90%

Cost of Equity 8.44%

4.40% ‐ 4.80% 10.73% ‐ 14.06%

8.71% FC N/A 6.51% AT 8.30% 8.30% FC 3.47% AT

4.44% 4.59% 4.79% 4.50% 2.60% AT 4.68% 2.85% AT 4.60% 4.83% FC 4.79% 2.92% AT 4.97% 4.50% 1.83% AT

Selected Direct Rate

Cost of Debt

Cost of Equity

5.20% 5.00% 5.30% 9.00% 4.60% AT 8.20% AT 4.10% AT 4.70%

4.79% 4.57% 4.95% 4.95% 3.07% AT 3.07% AT 2.79% AT 4.50%

5.43% 5.24% 5.50% 11.60% 5.50% 11.60% 4.90% 4.90%

6.40%, 6.80% AT 7.10% ‐ 7.50%

9.23% 8.89% 10.00% 9.50% 7.20% 9.90% 8.80% ‐ 9.50% 8.80% ‐ 9.50%

10.80% FC 8.43% 8.90% 10.50% 9.90% 4.59%

Capital Structure (Debt)

Capital Structure (Equity)

36.00%

64.00%

43% ‐ 47%

52% ‐ 57%

35.00% 36.00% 35.00% 36.00% 40.00% 38.29% 40.00% 40.00% 35.00% 35.00% 40.00% 40.00% 36.00% 40.61%

65.00% 64.00% 65.00% 64.00% 60.00% 61.71% 60.00% 60.00% 65.00% 65.00% 60.00% 60.00% 64.00% 59.39%

6.42%, 6.84% 7.12%, 7.54%

Capital Structure (Debt)

Capital Structure (Equity)

Composite Rate

Comments

36.00% 36.00% 40.00% 40.00% 40.00% 40.00% 40.00% 40.00%

64.00% 64.00% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00%

5.20% 5.00% 5.28% 8.94% 4.53% 8.19% 4.06% 4.74%

See Comment (6) See Comment (7) See Comment (6) See Comment (7)

Composite Rate 7.13% N/A 7.55% 7.34% 8.18% 7.70% 5.36% 7.90%

8.71% 7.16% 6.51% 8.29% 7.96% 3.47%

Comments

See Comment (1)

See Comment (2)

See Comment (3) See Comment (4) See Comment (5)

Direct Capitalization Rates for Electric

Author MN Department of Revenue Missouri State Tax Commission Montana Department of Revenue Montana Department of Revenue Montana Department of Revenue AT Montana Department of Revenue AT Oregon Department of Revenue AT Oregon Department of Revenue AT

= After‐Tax FC = Flotation Cost Component

Page | H-1

Cap Rate Study Comparison

Cap Rate Study Comparison - Electric January 2, 2017 Assessment

Appendix H ‐ Summary of Studies Completed by Others

2017 Capitalization Rate Study

Comments (1) California calculates a range of cap rates determined by a specific company's bond rating within each industry ‐ Include electric and gas companies in guideline company selection ‐ Lowest COE figure does not include preferred equity rates (2) Cost of Equity is size adjusted for Mid‐cap and Small‐Cap (3) An estimated average Cost of Debt is implied from the Market Value of Debt (Public Utility Baa) used in capital structure table (4) Unable to confirm guideline companies used. Used the group from study titled "Investor‐Owned and G and T's" (5) Rates selected from industry name "Utility (General)" (6) NOI After‐tax Direct Cap Rate (7) Gross Cash Flow Direct Cap Rate

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Cap Rate Study Comparison

Cap Rate Study Comparison - Gas Distribution January 2, 2017 Assessment

2017 Capitalization Rate Study

Yield Capitalization Rates for Gas Distribution

Author MN Department of Revenue California State Board of Equalization Colorado Department of Revenue Idaho State Tax Commission Kansas Department of Revenue Missouri State Tax Commission Oklahoma Tax Commission Oregon Department of Revenue AT Oregon Department of Revenue South Dakota Department of Revenue Utah State Tax Commission Washington Department of Revenue AT Wyoming Department of Revenue Damodaran WACC AT

Selected Yield Rate

Cost of Debt

6.81% 7.62% ‐ 11.19%

4.53% FC

8.24% 6.90% 9.47% FC 11.25% 8.08% 6.40% AT 7.00% 9.26% FC N/A 6.42% AT 9.90% 3.47% AT

Cost of Equity 7.61%

4.40% ‐ 6.11% 10.52% ‐14.58%

4.60% 4.04% 4.79% 8.00% 4.68% 2.79% AT 4.50% 4.83% FC 4.79% 2.73% AT 4.55% 1.83% AT

9.52% 7.81% 11.25% 13.00% 9.80% 8.00% 8.00% 10.74% FC 7.80% 8.00% 11.78% 4.59%

Capital Structure (Debt)

Capital Structure (Equity)

26.00%

74.00%

40% ‐ 46%

54% ‐ 60%

26.00% 24.00% 32.00% 35.00% 33.65% 30.00% 30.00% 25.00% 35.00% 30.00% 26.00% 40.61%

74.00% 76.00% 68.00% 65.00% 66.35% 70.00% 70.00% 75.00% 65.00% 70.00% 74.00% 59.39%

Capital Structure (Debt)

Capital Structure (Equity)

Composite Rate

26.00% 35.00% 30.00% 30.00%

74.00% 65.00% 70.00% 70.00%

4.70% 3.04% 4.02% 4.50%

Composite Rate 6.81% N/A 8.24% 6.91% 9.18% 11.25% 8.08% 6.44% 6.95% 9.26% 6.75% 6.42% 9.90% 3.47%

Comments

See Comment (1)

See Comment (2)

See Comment (3)

See Comment (4)

Direct Capitalization Rates for Gas Distribution

Author

Selected Direct Rate

Cost of Debt

Cost of Equity

4.70% 3.00% 4.00% AT 4.50%

4.53% 4.27% 2.65% AT 4.28%

4.76% 2.38% 4.60% 4.60%

MN Department of Revenue Missouri State Tax Commission Oregon Department of Revenue AT Oregon Department of Revenue

Comments

= After‐Tax FC = Flotation Cost Component

Page | H-3

Cap Rate Study Comparison

Cap Rate Study Comparison - Gas Distribution January 2, 2017 Assessment

2017 Capitalization Rate Study

Comments (1) California calculates a range of cap rates determined by a specific company's bond rating within each industry ‐ Include both electric and gas in guideline company selection (2) Guideline companies used are ValueLine's "Natural Gas (Diversified)" companies (3) An estimated average Cost of Debt is implied from the Market Value of Debt (Public Utility Baa) used in capital structure table (4) Rates selected from industry name "Utility (General)"

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Cap Rate Study Comparison

Cap Rate Study Comparison - Gas Transmission Pipeline January 2, 2017 Assessment

2017 Capitalization Rate Study

Yield Capitalization Rates for Gas Transmission Pipeline

Author MN Department of Revenue California State Board of Equalization Colorado Department of Revenue Idaho State Tax Commission Kansas Department of Revenue Missouri State Tax Commission Montana Department of Revenue AT Oklahoma Tax Commission Oregon Department of Revenue AT Oregon Department of Revenue South Dakota Department of Revenue Utah State Tax Commission Washington Department of Revenue AT Wyoming Department of Revenue Tegarden Cap Rate Study Damodaran WACC AT

Selected Yield Rate 8.96% 10.37% FC 11.23% 10.30% 10.79% FC 11.00% 7.90% AT 10.53% 8.90%, 11.00% AT 9.60%, 11.70%

11.39% FC N/A 8.59% AT 13.00% 10.70% 6.19% AT

Cost of Cost of Debt Equity 4.85% 4.77% 5.56% 5.50% 4.79% 6.25% 3.04% AT 4.75% 2.79% AT 4.50% 6.64% FC 4.83% 3.47% AT 5.89% 5.63% 2.22% AT

11.59% 12.24% 14.71% 13.00% 13.95% 13.00% 11.00% 12.50% 13%, 16.42% 13%, 16.42%

13.94% FC 11.81% 12.00% 17.57% 12.90% 9.25%

Capital Structure (Debt)

Capital Structure (Equity)

39.00% 25.00% 38.00% 36.00% 38.00% 28.00% 40.00% 25.36% 40.00% 40.00% 35.00% 45.00% 40.00% 39.00% 30.00% 43.52%

61.00% 75.00% 62.00% 64.00% 62.00% 72.00% 60.00% 74.64% 60.00% 60.00% 65.00% 55.00% 60.00% 61.00% 70.00% 56.48%

Capital Structure (Debt)

Capital Structure (Equity)

Composite Rate

39.00% 28.00% 40.00% 40.00% 40.00% 40.00%

61.00% 72.00% 60.00% 60.00% 60.00% 60.00%

7.08% 6.82% 4.36% 7.18% 3.63% 4.38%

Composite Rate 8.96% 10.37% 11.23% 10.30% 10.47% 11.11% 7.82% 10.53% 8.92%, 10.97% 9.60%, 11.65%

11.39% 8.67% 8.59% 13.01% 10.72% 6.19%

Comments

See Comment (1)

See Comment (2)

See Comment (3)

See Comment (4) See Comment (5)

See Comment (6)

Direct Capitalization Rates for Gas Transmission Pipeline

Author

Selected Direct Rate

MN Department of Revenue Missouri State Tax Commission Montana Department of Revenue AT Montana Department of Revenue AT Oregon Department of Revenue AT Oregon Department of Revenue

7.08% 6.75% 4.40% AT 7.20% AT 3.60% AT 4.40%

Cost of Cost of Debt Equity 4.79% 4.58% 3.41% AT 3.41% AT 3.08% AT 4.96%

8.55% 7.69% 5.00% 9.70% 4.00% 4.00%

Comments

See Comment (7) See Comment (8) See Comment (9) See Comment (9)

= After‐Tax FC = Flotation Cost Component

Page | H-5

Cap Rate Study Comparison

Cap Rate Study Comparison - Gas Transmission Pipeline January 2, 2017 Assessment Comments

2017 Capitalization Rate Study

(1) California calculates a range of cap rates determined by a specific company's bond rating within each industry (2) Same rates for Liquid Pipeline industry (3) Size adjusted Cost of Equity, and same rates used for Liquid Pipeline (4) An estimated average Cost of Debt is implied from the Market Value of Debt (Corporate Baa) used in capital structure table (5) Same rates for Liquid Pipeline industry (6) Rates selected from industry name "Oil/Gas Distribution", which include companies within Gas Transmission industry (7) Gross Cash Flow Direct Cap Rate (8) NOI After‐tax Direct Cap Rate (9) Same rates for Liquid Pipeline Industry

Page | H-6

Cap Rate Study Comparison

Cap Rate Study Comparison - Fluid Transportation Pipeline January 2, 2017 Assessment

2017 Capitalization Rate Study

Yield Capitalization Rates for Fluid Tansportation Pipeline Author MN Department of Revenue California State Board of Equalization Colorado Department of Revenue Idaho State Tax Commission Kansas Department of Revenue Missouri State Tax Commission Montana Department of Revenue AT Oklahoma Tax Commission Oregon Department of Revenue AT Oregon Department of Revenue South Dakota Department of Revenue Utah State Tax Commission Washington Department of Revenue AT Wyoming Department of Revenue Duff & Phelps ‐ Pipeline Industry Enterprise Products Partners Damodaran WACC AT

Selected Yield Rate 10.08%

Cost of Debt 5.79%

Cost of Equity 12.49%

10.04% ‐ 11.39% FC 4.80% ‐ 5.81% 13.54% ‐ 15.10%

11.17% 10.34% 11.60% FC 11.00% 7.20% AT 10.25% 8.90%, 11.00% AT 9.60%, 11.70%

11.19% FC N/A 8.59% AT 13.00% 11.15% FC 12.40% ‐ 12.60% FC

6.19%

5.27% 4.67% 4.79% 6.25% 2.91% AT 4.75% 2.79% AT 4.50% 6.64% FC 4.83% 3.47% AT 5.89% 5.40% 5.45% 2.22% AT

14.49% 11.93% 14.00% 13.00% 10.00% 13.80% 13%, 16.42% 13%, 16.42%

13.94% FC 12.31% 12.00% 17.57% 13.35% 15.20% ‐ 15.50%

9.25%

Capital Structure (Debt)

Capital Structure (Equity)

36.00% 40.00% 36.00% 30.00% 30.00% 28.00% 40.00% 39.24% 40.00% 40.00% 35.00% 40.00% 40.00% 39.00% 31.00% 34.00% 43.52%

64.00% 60.00% 64.00% 70.00% 70.00% 72.00% 60.00% 60.76% 60.00% 60.00% 65.00% 60.00% 60.00% 61.00% 69.00% 66.00% 56.48%

Capital Structure (Debt)

Capital Structure (Equity)

Composite Rate

Comments

36.00% 28.00% 40.00% 40.00% 40.00% 40.00%

64.00% 72.00% 60.00% 60.00% 60.00% 60.00%

7.20% 6.82% 4.56% 6.21% 3.63% 4.38%

See Comment (8) See Comment (9)

Composite Rate 10.08% N/A 11.17% 9.75% 11.24% 11.11% 7.16% 10.25% 8.92%, 10.97% 9.60%, 11.65%

11.39% 9.32% 8.59% 13.01% 10.89% N/A 6.19%

Comments

See Comment (1)

See Comment (2)

See Comment (3)

See Comment (4) See Comment (5)

See Comment (6) See Comment (7)

Direct Capitalization Rates for Fluid Transportation Pipeline Author

Selected Direct Rate

Cost of Debt

Cost of Equity

7.20% 6.75% 4.60% AT 6.30% AT 3.60% AT 4.40%

5.76% 4.58% 3.53% AT 3.53% AT 3.08% AT 4.96%

8.01% 7.69% 5.25% 8.00% 4.00% 4.00%

MN Department of Revenue Missouri State Tax Commission Montana Department of Revenue AT Montana Department of Revenue AT Oregon Department of Revenue AT Oregon Department of Revenue AT

= After‐Tax FC = Flotation Cost Component

Page | H-7

Cap Rate Study Comparison

Cap Rate Study Comparison - Fluid Transportation Pipeline January 2, 2017 Assessment Comments

2017 Capitalization Rate Study

(1) California calculates a range of cap rates determined by a specific company's bond rating within each industry (2) Range of rates determined from Small, Medium and Large guideline companies, used rates from Lage Cap segment above (3) Size adjusted Cost of Equity, and same rates as Gas Transmission Pipeline (4) An estimated average Cost of Debt is implied from the Market Value of Debt (Corporate Baa) used in capital structure table (5) Same rates for Gas Transmission industry (6) The range in Cost of Equity and Selected Cost of Capital are due to variations of Size Premium calculations based on market capitalization (7) Rates selected from industry name "Oil/Gas Distribution", which include companies within the Fluid Transportation Pipeline industry (8) NOI After‐tax Direct Cap Rate (9) Gross Cash Flow Direct Cap Rate

Page | H-8

Cap Rate Study Comparison

Cap Rate Study Comparison - Class 1 Railroads January 2, 2017 Assessment

2017 Capitalization Rate Study

Yield Capitalization Rates for Class 1 Railroads Author Minnesota Department of Revenue California State Board of Equalization Colorado Department of Revenue Idaho State Tax Commission Kansas Department of Revenue Missouri State Tax Commission Montana Department of Revenue AT Oklahoma Tax Commission Oregon Department of Revenue AT Oregon Department of Revenue South Dakota Department of Revenue Utah State Tax Commission Washington Department of Revenue AT Wyoming Department of Revenue Union Pacific Railroad Company Damodaran WACC AT

Selected Yield Rate

Cost of Debt

9.16% 11.17 FC 11.02% 9.63% 12.38% FC 11.25% 7.90% AT 11.76% 8.80% AT 8.30% 11.43% FC N/A 9.70% AT 11.30%

4.85% 4.80% 4.47% 4.67% 4.85% 4.75% 2.54% AT 4.75% 4.64% AT 2.88% 4.88% FC 4.83% 2.95% AT 5.66%

10.31% 12.76% 12.65% 10.87% 13.75% 13.00% 9.80% 13.20% 10.15% 10.15% 13.06% FC 11.08% 11.75% 12.88%

11.41%, 11.58% FC

4.72%, 4.74%

13.40%, 13.62%

Cost of Equity

6.92%

Selected Direct Rate

Cost of Debt

Cost of Equity

5.38% 5.25% 4.90% AT 7.50% AT 4.50% AT 5.00%

4.85% 3.26% 3.10% AT 3.10% AT 2.98% AT 4.80%

5.52% 5.65% 5.50% 9.00% 5.00% 5.00%

5.87%

2.10%

Capital Structure (Debt)

Capital Structure (Equity)

21.00% 20.00% 20.00% 20.00% 20.00% 21.00% 27.00% 17.03% 25.00% 25.00% 20.00% 20.00% 23.00% 22.00% 23.00% 21.84%

79.00% 80.00% 80.00% 80.00% 80.00% 79.00% 73.00% 82.97% 75.00% 75.00% 80.00% 80.00% 77.00% 78.00% 77.00% 78.16%

Capital Structure (Debt)

Capital Structure (Equity)

Composite Rate

Comments

21.00% 21.00% 27.00% 27.00% 25.00% 25.00%

79.00% 79.00% 73.00% 73.00% 75.00% 75.00%

5.38% 5.15% 4.85% 7.41% 4.49% 4.95%

See Comment (6) See Comment (7)

Composite Rate 9.16% 11.17% 11.01% 9.63% 11.97% 11.27% 7.84% 11.76% 8.77% 8.33% 11.42% 9.83% 9.73% 11.29% 11.41%, 11.58%

5.87%

Comments

See Comment (1)

See Comment (2) See Comment (3) See Comment (4) See Comment (5)

Direct Capitalization Rates for Class 1 Railroads Author MN Department of Revenue Missouri State Tax Commission Montana Department of Revenue AT Montana Department of Revenue AT Oregon Department of Revenue AT Oregon Department of Revenue AT

= After‐Tax FC = Flotation Cost Component

Page | H-9

Cap Rate Study Comparison

Cap Rate Study Comparison - Class 1 Railroads January 2, 2017 Assessment Comments

2017 Capitalization Rate Study

(1) California calculates a range of cap rates determined by a specific company's bond rating within each industry. The rates used above are based on two guideline companies only (BNSF Railway Company and Union Pacific Railroad Company), due to no other Class 1 Railroads listed in their study (2) An estimated average Cost of Debt is implied from the Market Value of Debt (Corporate Baa) used in capital structure table (4) Rates above reference a cost of capital calculation without and with a flotation cost adjustment (5) Debt rate used is after‐tax (6) NOI After‐tax Direct Cap Rate (7) Gross Cash Flow Direct Cap Rate

Page | H-10

Cap Rate Study Comparison

Cap Rate Study Comparison - Other Railroads January 2, 2017 Assessment

2017 Capitalization Rate Study

Yield Capitalization Rates for Other Railroads

Author Minnesota Department of Revenue California State Board of Equalization Kansas Department of Revenue Missouri State Tax Commission Oregon Department of Revenue AT Oregon Department of Revenue South Dakota Department of Revenue Utah State Tax Commission

Selected Yield Rate 9.78% 11.43 ‐ 12.00% FC

13.68% 11.25% 10.30% AT 10.20% 14.44% FC N/A

Cost of Debt 7.21%

Cost of Equity 10.93%

6.32% ‐ 7.34% 14.84% ‐ 15.10%

4.85% 4.75% 2.88% AT 4.64% 4.88% FC 4.83%

16.50% 13.75% 12.00% 12.00% 16.84% FC 11.23%

Capital Structure (Debt)

Capital Structure (Equity)

Composite Rate

31.00% 40.00% 28.00% 27.00% 25.00% 25.00% 20.00% 25.00%

69.00% 60.00% 72.00% 73.00% 75.00% 75.00% 80.00% 75.00%

9.78% N/A 13.24% 11.32% 9.72% 10.16% 14.45% 9.63%

Capital Structure (Debt)

Capital Structure (Equity)

Composite Rate

31.00% 27.00% 25.00% 25.00%

69.00% 73.00% 75.00% 75.00%

6.00% 6.05% 6.07% 6.53%

Comments

See Comment (1)

See Comment (2)

Direct Capitalization Rates for Other Railroads

Author

Selected Direct Rate

Cost of Debt

Cost of Equity

6.00% 6.00% 6.10% AT 6.50%

7.21% 3.10% 2.98% AT 4.80%

5.46% 7.14% 7.10% 7.10%

MN Department of Revenue Missouri State Tax Commission Oregon Department of Revenue AT Oregon Department of Revenue

Comments

= After‐Tax FC = Flotation Cost Component

Comments (1) California calculates a range of cap rates determined by a specific company's bond rating within each industry (2) An estimated average Cost of Debt is implied from the Market Value of Debt (Corporate Baa) used in capital structure table

Page | H-11

Cap Rate Study Comparison