Global Utility White Paper CONFIDENTIAL —_ MSCI world utility vs MSCI world index sl i , Periods of major utility underperformance. ie mt Ve | I ih, A hr eM / | nM Hf y | \ A 7 = | r ff \ h ry N I | ali | ‘| " # | i | iy r n| | I\ 4 rk ra il yl ‘| | | | AN, Wy an [" ny r\ /\ Te poll | em Z | - | j ‘| \ : Wi " , J | j ; Source: Bloomberg “— — Of course, not all investors sold utilities - some were astute buyers. Warren Buffett (at the time, thought to be a bit out of touch with the new economy) acquired $12 billion worth of utility assets between 1999 and 2002, namely MidAmerican ($9 billion), Kern River Gas Transmission (S960 million) and Northern Natural Gas ($1.9 billion). Following the dotcom bust (Mar 00-Sep 01), global utilities staged a sharp catch-up rally over a 1.5- year period, generating +33% outperformance (-5% absolute). During this period, US utilities (which previously were the worst-performing region for utilities during the run-up) outperformed +68% (+37% absolute). But the averages conceal some outsized moves in utility stocks as investors returned to the sector en masse. Early investors realized enormous absolute returns on low-beta US utility stocks (e.g. SO +114%, ETR +114%, FE +99%, AEP +91%, PEG +78%) while the S&P sank -31%. Still, investors were discriminating as several stocks (e.g., CVA -45%, AES -34%, EIX -19%, PCG -16%, NU -3%) suffered absolute declines. In Europe, the UK water utility stocks (among the lowest-beta/volatility stocks in the global sector) were wholly ignored during the dotcom rally despite their improving fundamentals. Following the dotcom bust (Mar 00-Sep 01) they also staged a fierce outperformance rally, and early fundamental investors realized very attractive absolute returns (e.g. Pennon +80%, Severn Trent +52% and United Utilities +21%), and enormous outperformance of the broader market (FTSE 100 Index -33%). This is all the more impressive when you consider that these water utility stocks have betas of approximate