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INDUSTRY NOTE

January 15, 2009

ALTERNATIVE ENERGY & INFRASTRUCTURE


52 WEEK TICKER COMV ITRI PWR RATING BUY BUY BUY PRICE $4.78 $58.50 $18.37 PRICE TARGET $8.00 $75 $26 HIGH $24.60 $105.53 $35.22 LOW $2.59 $34.43 $10.72 2007 $(0.46) $2.76 $0.88 EPS 2008E $(1.06) $3.36 2009E $(0.25) $3.74 2008E NM 17.4 P/E 2009E NM 15.6 16.0

$0.98 $1.15 18.7 Source: Lazard Capital Markets estimates

Update
SANJAY SHRESTHA
212-632-2680 sanjay.shrestha@lazardcap.com SARAH MARTIN 212-632-1597 sarah.martin@lazardcap.com JOE BALZANO 212-632-6518 joseph.balzano@lazardcap.com GRAHAM MATTISON 212-632-8212 graham.mattison@lazardcap.com

Alternative Energy Policy Update: Stimulus Package to include tax incentives for renewables, positive for grid
The House Appropriations Committee has just released a draft of the stimulus package, which includes $32 billion in funding for transmission, distribution and smart grid projects, as well as $16 billion for energy efficiency. While there will still be debate on the bill, we think that the final version will include significant support for infrastructure and smart grid projects, which would be positive for Quanta Services, Itron and Comverge. We believe a stimulus bill could be enacted as soon as mid-February, before Congress recesses. Obama officials are also asking Congress to direct about $300 billion for tax breaks in the stimulus package. These tax breaks are distinct from the $500+ billion proposed for government spending on large public works projects. We understand the Senate had been discussing $10 billion worth of renewable credits, which has now increased to $20-$25 billion. We obtained a copy of the draft tax relief provisions included in the current version of the stimulus bill. The renewable energy provisions include long-term extension and modification of the renewable energy production tax credit; temporary election to claim the investment tax credit in lieu of the production tax credit; energy efficiency and conservation tax incentives; plugin credit expansion, renewable energy manufacturing and grid load reduction R&D credit; and extension of the fuels credit to 2010. Timeline for action. We believe the bill could be passed by the House by the end of January, with the Senate following by mid-February. We believe that the administration will also attempt to pass a larger energy bill following the stimulus.

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INVESTMENT SUMMARY Specific language in the stimulus package, also known as the American Recovery and Reinvestment Bill of 2009, pertaining to energy includes Clean, Efficient, American Energy: To put people back to work today and reduce our dependence on foreign oil tomorrow, we will strengthen efforts directed at doubling renewable energy production and renovate public buildings to make them more energy efficient.
$32 billion to transform the nations energy transmission, distribution, and production systems by allowing for a smarter and better grid and focusing investment in renewable technology $16 billion to repair public housing and make key energy efficiency retrofits $6 billion to weatherize modest-income homes

Modernize Roads, Bridges, Transit and Waterways: To build a 21st century economy, we must engage contractors across the nation to create jobs rebuilding our crumbling roads, and bridges, modernize public buildings, and put people to work cleaning our air, water and land.
$31 billion to modernize federal and other public infrastructure with investments that lead to long-term energy cost savings;

Create Jobs with Clean, Efficient, American Energy: To put people back to work today and reduce our dependence on foreign oil tomorrow, we will make investments aimed at doubling renewable energy production and renovate public buildings to make them more energy efficient. Americas energy shortcomings present a huge opportunity to put people to work in ways that will transform our economy.
Reliable, Efficient Electricity Grid: $11 billion for research and development, pilot projects, and federal matching funds for the Smart Grid Investment Program to modernize the electricity grid making it more efficient, secure, and reliable and build new power lines to transmit clean, renewable energy from sources throughout the nation. Renewable Energy Loan Guarantees: $8 billion for loans for renewable energy power generation and transmission projects. GSA Federal Buildings: $6.7 billion for renovations and repairs to federal buildings including at least $6 billion focused on increasing energy efficiency and conservation. Projects are selected based on GSAs ready-to-go priority list. Local Government Energy Efficiency Block Grants: $6.9 billion to help state and local governments make investments that make them more energy efficient and reduce carbon emissions. Energy Efficiency Housing Retrofits: $2.5 billion for a new program to upgrade HUD sponsored low-income housing to increase energy efficiency, including new insulation, windows, and furnaces. Funds will be competitively awarded.

Alternative Energy & Infrastructure

Energy Efficiency and Renewable Energy Research: $2 billion for energy efficiency and renewable energy research, development, demonstration, and deployment activities to foster energy independence, reduce carbon emissions, and cut utility bills. Funds are awarded on a competitive basis to universities, companies, and national laboratories. Advanced Battery Loans and Grants: $2 billion for the Advanced Battery Loan Guarantee and Grants Program, to support U.S. manufacturers of advanced vehicle batteries and battery systems. America should lead the world in transforming the way automobiles are powered. Energy Efficiency Grants and Loans for Institutions: $1.5 billion for energy sustainability and efficiency grants and loans to help school districts, institutes of higher education, local governments, and municipal utilities implement projects that will make them more energy efficient. Home Weatherization: $6.2 billion to help low-income families reduce their energy costs by weatherizing their homes and make our country more energy efficient. Smart Appliances: $300 million to provide consumers with rebates for buying energy efficient Energy Star products to replace old appliances, which will lower energy bills. GSA Federal Fleet: $600 million to replace older vehicles owned by the federal government with alternative fuel automobiles that will save on fuel costs and reduce carbon emissions. Electric Transportation: $200 million for a new grant program to encourage electric vehicle technologies. Cleaning Fossil Energy: $2.4 billion for carbon capture and sequestration technology demonstration projects. This funding will provide valuable information necessary to reduce the amount of carbon dioxide emitted into the atmosphere from industrial facilities and fossil fuel power plants. Department of Defense Research: $350 million for research into using renewable energy to power weapons systems and military bases. Alternative Buses and Trucks: $400 million to help state and local governments purchase efficient alternative fuel vehicles to reduce fuel costs and carbon emissions. Industrial Energy Efficiency: $500 million for energy efficient manufacturing demonstration projects.

ITRON

Valuation: Our $75 PT reflects a mid-teens multiple our 2010E EPS of $4.65. We view Itron as a core holding to participate in the growth of the utility industrys migration toward smart grid. Risks: Lumpiness of revenues from large-scale projects; customer concentration; dependence on the utilities industry; regulation

Alternative Energy & Infrastructure

QUANTA SERVICES

Valuation: Our 12-month price target of $26 reflects a mid-teens multiple on our 2010 cash EPS estimate of $1.60. Given the current market environment, we are reducing our multiple from 20x. Risks: lumpiness in movement on projects, reduction in utility T&D capex spending, adverse weather.

COMVERGE

Valuation: Our $8 price target reflects a sum of the parts valuation. We value the Smart Grid Solutions Group at $3/share. We value the Alternative Energy Resources group at $5/share. We note that the company currently has an EV of about $50 million, with long-term revenue in excess of $400 million under its VPC contracts, as well as $2 in cash per share. Risks include lumpiness of revenues from large-scale projects; customer concentration; dependence on the utilities industry; and regulation.

Alternative Energy & Infrastructure

ANALYST CERTIFICATION All of the recommendations and views about the securities and companies in this report accurately reflect the personal views of the research analyst named on the cover of this report. No part of this research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research report. IMPORTANT DISCLOSURES

Lazard Capital Markets LLC makes a market in COMV, and ITRI securities.

PWR - Current Rating: BUY, Price Target: $26


Mar 16, 07 B : $30
45

May 4, 07 B : $35

Jul 18, 08 B : $45

Oct 20, 08 B : $35

Nov 6, 08 B : $32

Jan 14, 09 B : $26

40 35 30 25

20 15

10

Dec 05

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Sep 07

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Data source: FactSet prices / LCM ratings and target prices

ITRI - Current Rating: BUY, Price Target: $75


May 14, 07 B : $80
120 110 100 90 80 70 60 50 40 30

Aug 2, 07 B : $95

Oct 31, 07 B : $115

Oct 20, 08 B : $80

Jan 13, 09 B : $75

Dec 05

Mar 06

Jun 06

Sep 06

Dec 06

Mar 07

Jun 07

Sep 07

Dec 07

Mar 08

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Data source: FactSet prices / LCM ratings and target prices

Alternative Energy & Infrastructure

COMV - Current Rating: BUY, Price Target: $8.00


Aug 16, 07 B : $37
40 35 30 25 20 15 10 5 0

Mar 26, 08 B : $22

Aug 12, 08 B : $15

Nov 12, 08 B : $8.00

Mar 07

Jun 07

Sep 07

Dec 07

Mar 08

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Data source: FactSet prices / LCM ratings and target prices

BUY 59%

DISTRIBUTION OF INVESTMENT RATINGS (AS OF 01/14/09) OVERALL DISTRIBUTION BANKING CLIENT DISTRIBUTION* HOLD SELL BUY HOLD SELL 39% 2% 9% 7% 0%

* Indicates the percentage of each category in the Overall Distribution that were banking clients of Lazard Frres in the previous 12 months.

RATING BUY HOLD SELL

GUIDELINE (return targets may be modified by risk or liquidity issues) Expected to produce a total return of 15% or better in the next 12 months. Fairly valued; total return in the next 12 months expected to be 10%. Stock is expected to decline by 10% or more in the next 12 months.

Alternative Energy & Infrastructure

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Alternative Energy & Infrastructure

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