Duke Energy Corporation (Holding Company) · NYSE:DUK
Duke Energy Corporation (Holding Company) — Merger or Acquisition (September 2005)
54 slides from Duke Energy Corporation (Holding Company)'s merger presentation, Sep 15, 2005
Slide 1: Analyst Meeting
Analyst Meeting September 15, 2005 Paul Anderson Chairman and CEO, Duke Energy Jim Rogers Chairman and CEO, Cinergy David Hauser Group Vice President and CFO, Duke Energy Tom O’Connor Integration Executive, Duke Energy
Slide 2: Agenda
Agenda Noon Lunch 1:00 p.m. Overview Paul Anderson 1:30 p.m. Power Strategy Jim Rogers 2:30 p.m. Break 2:45 p.m. Financial Objectives David Hauser 3:15 p.m. Integration Efforts Tom O'Connor 3:45 p.m. Q&A 4:45 p.m. Adjourn 2
Slide 3: Forward Looking Statements
Forward Looking Statements This document includes statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
Slide 4: Additional Information and Where to Find It
Additional Information and Where to Find It In connection with the proposed transaction, a registration statement of Duke Energy Holding Corp. (Registration No. 333-126318), which includes a preliminary prospectus and a preliminary joint proxy statement of Duke and Cinergy, and other materials have
Slide 5: Regulation G
Regulation G This document includes certain non-GAAP financial measures as defined under SEC Regulation G. A reconciliation of those measures to the most directly comparable GAAP measures is included in the printed version of these slides which can be downloaded from our investor relations websites
Slide 6: Paul Anderson
Paul Anderson Chairman and CEO Duke Energy
Slide 7: Back on Course
Back on Course ● Sold non-strategic asset positions ● Strengthened the balance sheet ■ Lowered debt balances ■ Stabilized credit outlook ■ Maintained strong cash position ● Reduced regulatory and legal risks ● Mitigated mark-to-market exposure at DENA ● Maintained the dividend ● Delivered on earning
Slide 8: Building on Our Strengths
Building on Our Strengths ● Excellent market position in both natural gas and power ● Strong financial position ● Deep bench of talent ● Long history as portfolio managers 8
Slide 9: Portfolio Strategy
Portfolio Strategy ● Constantly evaluate the asset portfolio with an eye to the future ● Must enhance shareholder value ● Recent history has seen us buying and selling assets ■ Sold Asia-Pacific business ■ Sold Southeast generation assets and deferred plants ■ Sold TEPPCO ■ DEFS joint venture with C
Slide 10: Exiting DENA
Exiting DENA ● Midwest generation portfolio helped by Cinergy and will be unaffected by this decision ● A net charge of approximately $1.3 billion, or 88¢ per basic share, will be recognized in the third quarter 2005 ● Rationale for exiting the remaining business ■ Continued losses in the business ■
Slide 11: Natural Gas Transmission
Natural Gas Transmission BC Pipeline & Field Services Union Gas Empress Service Area Natural Gas Storage Union Gas Service Area Maritimes & BC Field Services Processing Plant Northeast Gas Processing Plant Algonquin Empress Assets Storage Capacity more than 250 Bcf Texas Miles of Transmission Pipe m
Slide 12: Natural Gas Businesses Are Positioned to Supply Increasing Gas Demand
Natural Gas Businesses Are Positioned to Supply Increasing Gas Demand ● Natural Gas Transmission ■ Key eastern markets continue to grow ► 2 – 3% demand growth through 2010 ► 25 – 50% market share in these markets ■ Ability to manage LNG logistics ■ New capacity needed for new sources of supply ■ Inc
Slide 13: Field Services
Field Services Denver 58,000 miles of pipeline 57 plants; 12 fractionators Tulsa 8 propane terminals Midland 4 offices NGL production: 370 MBbl/d Gas volumes processed: 4.9 Bcf/d Storage capacity: 6.0 Bcf Houston 13
Slide 14: Natural Gas Businesses Are Positioned to Supply Increasing Gas Demand
Natural Gas Businesses Are Positioned to Supply Increasing Gas Demand ● Field Services ■ #1 NGL producer in North America ■ Critical mass in key producing basins ■ Overall expansion driven by growing demand for natural gas and natural gas liquids (NGLs) ■ Efficiency gains from asset optimization ■ C
Slide 15: Merger with Cinergy
Merger with Cinergy ● Combines two strong business operations ■ Grows earnings contribution from regulated sources ■ Provides geographic diversity to earnings profile ■ Realizes significant cost savings ● Accretive to Duke Energy’s earnings ● Combines DENA’s Midwest assets with CG&E’s unregulated po
Slide 16: Vision for the Future
Vision for the Future ● Combined operations will deliver… ■ Ongoing $2 per diluted share in 2007 ■ 4 – 6% ongoing EPS growth ● Organic growth opportunities for existing business ● Stand-alone strength of both gas and power businesses ■ Power business will be 4th largest in North America based upon i
Slide 17: Jim Rogers
Jim Rogers Chairman and CEO Cinergy
Slide 18: Multi-Regional Regulated Retail Power and Gas Platform
Multi-Regional Regulated Retail Power and Gas Platform ● Low-cost operations with rates below the national average ● Diverse customer base and generating assets ● Superior customer service ● Major reinvestment opportunities in system growth, reliability and the environment ● Track record for constru
Slide 19: Combined Regulated Operations
Combined Regulated Operations Midwest IN Regulated OH Generation • Indianapolis Coal 5,488 MW • Cincinnati Gas 1,263 MW WV VA Oil 259 MW KY Hydro 45 MW TN NC • Charlotte Southeast Regulated Combined SC Generation Customers GA Nuclear 5,020 MW Electric 3,700,000 Coal 7,754 MW Gas 500,000 Gas 2,446 MW
Slide 20: Balanced Regulated Generation Portfolio
Balanced Regulated Generation Portfolio Combined generating portfolio mirrors overall industry diversity Coal Nuclear Gas/Oil Hydro/Other Industry 50 20 21 9 Diversity Duke-Cinergy 52 19 19 10 Combined 26,735 MW 0 20 40 60 80 100 Percentage Duke: 2004 data reflects proportional ownership of nuclear
Slide 21: Operating Performance of Combined Generation Fleet
Operating Performance of Combined Generation Fleet 2003 Non-Fuel O&M Cost Ranking Large Generators ( >40 TWh) Rank Company $/MWh 1 Cinergy Corp 3.57 2 Allegheny Energy, Inc. 4.34 3 FPL Group, Inc. 4.97 4 Ameren Corp. 5.55 5 Southern Co. 5.67 6 Progress Energy, Inc. 5.84 7 Xcel Energy, Inc. 5.89 8 Am
Slide 22: Diverse Customer Base
Diverse Customer Base Combined Retail Sales by Customer Class 127,300 GWh Sales Commercial Diverse mix of industrial customers 30% from primary industry to retail products Residential Industrial 33% 34% Other 4% Projected Load Growth of 1.5 – 2% 22
Slide 23: Deliver Outstanding Customer Service
Deliver Outstanding Customer Service J.D. Power ● First energy company in the nation to ● Joins Cinergy as the second energy company & Associates have its call centers certified for in the nation to have its call centers certified providing an outstanding customer for providing an outstanding custom
Slide 24: Provide Customers with Competitive Rates
Provide Customers with Competitive Rates Rate Comparison (cents per kWh) 10 8 6 4 2 0 Residential Commercial Industrial NC SC OH IN KY U.S. Average 24
Slide 25: Investing in System Growth, Reliability and the Environment
Investing in System Growth, Reliability and the Environment Rate Base Capital $15.4 Billion Expenditures SC OH Electric 1 $8.1 Billion OH Gas Projected Capex for 3-year period 2006-2008 NC IN KY 2 1 Excludes CG&E generation and includes proposed rate base addition for pending electric distribution b
Slide 26: Enhanced Flexibility for Midwest Commercial Fleet
Enhanced Flexibility for Midwest Commercial Fleet ● Integrated coal-fired, baseload generation and gas-fired, combined cycle and peaking generation ● Modernized fleet with an average age of 19 years ● Well positioned to succeed in evolving competitive supply markets of PJM and MISO ■ Potential for u
Slide 27: Combined Commercial Portfolio Enhances Ability to Serve Competitive Markets
Combined Commercial Portfolio Enhances Ability to Serve Competitive Markets A generation mix capable of serving diverse customer load shapes 1500 MW 2480 MW 7586 MW 939 MW 2667 MW Baseload Coal Mid-merit Coal CCGT Peaking Total 27
Slide 28: Commercial Fleet Positioned to Sell in the Most-Developed Competitive U.S. Markets
Commercial Fleet Positioned to Sell in the Most-Developed Competitive U.S. Markets PJM and MISO are each more than twice the size of the Midwest ISO California market Installed Peak PJM Interconnection capacity load (GW) (GW) MISO 131 119 Commercial Fleet PJM 164 131 CAISO 55 46 Source: RDI Platts 2
Slide 29: Earnings Enhancement from Low-Risk Gas & Power Marketing and Trading Platforms
Earnings Enhancement from Low-Risk Gas & Power Marketing and Trading Platforms ● Low-risk focus ■ Narrow parameters for risk, products and committed capital ■ VaR of $2.4 million (2004 average) ● Near-term focus ■ Power transactions - 97% < 1 year ■ Gas transactions - 98% < 1 year ● Credit quality f
Slide 30: Strong Platform for Long-Term, Stable Earnings Growth
Strong Platform for Long-Term, Stable Earnings Growth ● Organic growth ■ Diversified, franchised business growth ● Investment in operations ■ New generating capacity ■ Environmental investment ■ Modernization of the delivery system ● Cost savings from productivity improvements ■ Merger savings to ac
Slide 31: Regulatory Approval Timeline
Regulatory Approval Timeline ● Regulatory approval filings made by third quarter 2005 ● Shareholder vote anticipated in fourth quarter 2005 ● Federal and state approvals should be completed in first quarter 2006 ● DENA exit not expected to significantly delay approval process ● Closing anticipated i
Slide 32: David Hauser
David Hauser Group Vice President and CFO Duke Energy
Slide 33: Duke Energy
Duke Energy ● 2005 approximate ongoing segment EBIT contributions by ongoing business line International 8% Utility 38% Real Estate 7% Gas EBIT 6% Processing Equity Earnings 5% Pipeline 36% ● Other EBIT ■ $310 million in net expenses, excluding mark-to-market fluctuations related to de-designated he
Slide 34: Duke Energy + Cinergy
Duke Energy + Cinergy ● 2005 approximate ongoing segment EBIT contribution by combined ongoing business line ● Largely balanced between gas and power businesses Utility 46% International 6% Real Estate 5% Commercial Gas EBIT 5% 5% Processing Equity Earnings 4% Pipeline 29% Note: 2006 combined ongoin
Slide 35: Earnings Growth Drivers
Earnings Growth Drivers ● Near-term ongoing EPS growth of 12% annually ■ Addition of Cinergy businesses ■ Synergies ■ Existing business growth ■ Reduced losses at DENA ■ Roll off of hedges at Field Services ■ Flexibility of stronger balance sheet ● Long-term ongoing EPS growth of 4 – 6% annually ■ G
Slide 36: Cash Flow Outlook
Cash Flow Outlook ● Dividend payout of approximately 70% ● Near-term outlook ■ Deploy existing cash associated with costs to achieve synergies ■ Approximate total capital expenditures for 2007 ► Environmental $0.8 billion ► Maintenance $2.1 billion ► Expansion $1.8 billion ● Long-term outlook ■ Soli
Slide 37: Financing Organizational Structure
Financing Organizational Structure All amounts relate to 2007 projections No new debt issued Duke Energy 43% debt/capitalization Financing node Corporation 5.5x FFO interest coverage Duke Capital Duke Power (a) Cinergy BBB-, Baa3 BBB, Baa1 BBB, Baa2 50% debt/cap 48% debt/cap 42% debt/cap Texas Easte
Slide 38: Purchase Accounting
Purchase Accounting ● No change to Duke Energy’s valuations ● Cinergy's non-regulated businesses will be fair valued ● We do not intend to fair value Cinergy’s regulated businesses ● Goodwill increase of approximately $4.2 billion 38
Slide 39: Finance Key Focuses
Finance Key Focuses ● Maintain financial strength ● Balance cash generation with capex requirements and dividend growth ● Make good investment portfolio decisions ● Streamline financial systems 39
Slide 40: Tom O’Connor
Tom O’Connor Integration Executive Duke Energy
Slide 41: Integration Vision
Integration Vision The merger creates an opportunity to integrate, simplify, reduce and standardize processes and activities to create a scalable platform for future growth and the greatest realization of synergies. 41
Slide 42: Integration Objectives
Integration Objectives 1. Reward Shareholders 2. Build a Growth Platform 3. Strengthen the Organization ● Achieve targeted synergies ● Develop scalable platform ● Build the team ● Stretch for excellence ● Maintain focus 42
Slide 43: Integration Structure
Integration Structure Paul Anderson Jim Rogers Steering Committee Fred Fowler Jim Mogg Jim Turner Program Management Integration Executive Office Tom O’Connor Integration Leads Program Managers Functional Teams Support Teams Corporate Human Resources Shared Services Information Technology Regulated
Slide 44: Functional & Support Teams
Functional & Support Teams Functional Teams Corporate Regulated Unregulated Shared Services Other ● Finance & Accounting ● Generation ● Generation ● Corporate Services ● DEGT – Gas ● Human Resources ● Electric T&D ● Trading & Marketing ● Information Technology Transmission ● Legal ● Retail Marketing
Slide 45: Integration Framework and Expectations
Integration Framework and Expectations Framework Implementation Implementation Stages Analysis Design Development Planning Purpose Plan Assess Design Implement Duration ● Thru Sept 14 ● Sept 15–Oct 28 ● Oct 31 – Mar 1 ● Mar 2 on ● 2Q06 Scope ● Plan the effort ● Build the facts ● Define the future ●
Slide 46: Franchised Electric Business Model
Franchised Electric Business Model CEO Duke Energy CEO CEO CEO Franchised Electric Duke Power PSI CGE/ULHP COO • State Rates/Regulatory • State Rates/Regulatory • State Rates/Regulatory • State Legislative • State Legislative • State Legislative • Economic Development • Economic Development • Econom
Slide 47: Fleet Services
Fleet Services Generation Fleet Services Regulated Fossil / Non-Regulated Hydro Generation Fossil Generation Duke / PSI / ULHP DENA / CG&E Outage Management Inventory Engineering Project Management Operations Planning Maintenance Fuel Buying (Non-gas) Supply Chain 47
Slide 48: Cost Savings Distribution (Year 3)
Cost Savings Distribution (Year 3) ($ in millions) Total Total ~$440 ~$440 Corporate Corporate && Non-Regulated Non-Regulated Utility Utility Shared Shared Services Services ~$160 ~$160 ~$80 ~$80 ~$200 ~$200 48
Slide 49: Merger Cost Savings and Distribution
Merger Cost Savings and Distribution ($ in millions, excludes non-regulated) 5-Year Savings Summary Savings Distribution Gross Costs-to- Net Savings Achieve Savings $1,330 ($675) $655 Utility Staffing Corporate ~$280 ~$310 ~$335 Staffing ~$170 ~$235 15% 23% ($40) Supply Chain 17% ($60) ($35) (~$115)
Slide 50: Enterprise-Wide Status Tracking
Enterprise-Wide Status Tracking Proposed initiative Identification of initiatives Initiative implementation Detailed workplan name and/or dependencies and/or implementation start description for the initiative (if that will require a long lead and end dates time for implementation assumptions applic
Slide 51: Measuring Integration Success
Measuring Integration Success 1. Reward Shareholders 2. Build a Growth Platform 3. Strengthen the Organization ● Day 1 readiness ● Realize the synergies ● Scalable platform in place ● High-performance team established 51
Slide 52: Paul Anderson
Paul Anderson Chairman and CEO Duke Energy
Slide 53: We Will Provide Our Shareholders With…
We Will Provide Our Shareholders With… ● Earnings stability ● Dividend growth ● 2007 ongoing EPS of $2 per diluted share ● Annual ongoing EPS growth of 4 – 6% 53
Slide 54: io Duke
io Duke “Energy. CINERGY.