SCOTTMADDEN, INC. | 8 MERGERS AND ACQUISITIONS: CONSOLIDATION AND CONVERGENCE Gas and electric utilities continue to look for opportunistic acquisitions, especially in the rate-regulated utility and pipeline space. Many Strategies, One Rationale: Sustainable Growth • Merger activity continued apace into 2016, with 17 transactions totaling more than $37 billion announced through late September (see Fig. 1) • Q2 and Q3 saw buyers shift their focus to peers in search of geographic adjacencies and economies of scale (Great Plains/ Westar) and portfolio diversification (Algonquin/Empire District and NextEra/Oncor) Each buyer expects these deals to be meaningfully accretive The deals allow them to realize the top ends of their forecasted annual EPS growth (~6% to 10%) in addition to expanding their regulated rate bases • As a particularly active player year-to-date, Southern acquired PowerSecure, an unregulated energy services company specializing in managing distributed energy resources, in February and purchased a 50% equity stake in the Southern Natural Gas Pipeline in July • Some players continued to expand their midstream gas capabilities as a core business (Dominion/Questar, DTE Energy/Appalachia) or as a continuation of a convergence play tied to increasing amounts of gas-fired generation and increased midstream participation (Southern) …It’s likely not a coincidence that vertically integrated electric utilities target T&D-only electric or gas utilities as prime acquisition targets. They have only one shot for a large acquisition using their balance sheet capacity, and as such they are likely to pick a utility with the most sustainable business model… –Angie Storozynski, Macquarie Research Some Big Pipeline Mergers in 2016: Betting on a Demand Rebound • In July 2016, Canadian firm TransCanada acquired Columbia Pipeline Group, owner of 15,000 miles of U.S. pipeline, gathering, and processing assets from New York to the Gulf of Mexico, in a transaction valued at more than $12 billion • More recently, in late September, Alberta-based Enbridge announced it was buying U.S. pipeline giant Spectra Energy Group for nearly $43 billion. Spectra owns more than 87,000 miles of gas pipelines • Both reflect positioning for expected increases in gas demand, geographic expansion, and improved access to transport capacity from northeast U.S. (i.e., Marcellus) gas resources