Duke Energy Corporation (Holding Company) · NYSE:DUK
Duke Energy Corporation (Holding Company) — Investor Day (February 2004)
75 slides from Duke Energy Corporation (Holding Company)'s investor day presentation, Feb 3, 2004
Slide 1: New York Analyst Meeting
New York Analyst Meeting Insert Photo Here February 3, 2004
Slide 2: Safe Harbor Statement
Safe Harbor Statement Under the Private Securities Litigation Act of 1995 This document contains forward looking information which is subject to risks and uncertainties, including, but not limited to, changes in the utility regulatory environment, the impact of competition from other energy supplier
Slide 3: Regulation G
Regulation G This document may include certain non-GAAP financial measures as defined under SEC Regulation G. In such an event, a reconciliation of those measures to the most directly comparable GAAP measures is included in the appendix of this presentation and can be downloaded from our investor re
Slide 4: Duke Energy
Duke Energy Insert Photo Here Paul M. Anderson Chairman and CEO
Slide 5: Charter
We are Duke Energy, a leading energy company located CHARTER in the Americas with an affiliated real estate operation. Our purpose is to create superior value for our customers, employees, communities and investors through the production, conversion, delivery and sale of energy and energy services.
Slide 6: Franchised Electric
Franchised Picture(s) here Insert Photo Here Electric Ruth Shaw President Duke Power
Slide 7: Service Territory
Franchised Electric Service Territory Eden Walnut Cove 77 85 Winston-Salem Greensboro Burlington 40 High Point Chapel Hill Durham Lenoir Morganton Salisbury Hickory BUCK North Carolina Asheville MCGUIRE 85 h Brevard Shelby Gastonia CATAWBACharlotte 100 years of service… Greenville Rock Hill Spartanb
Slide 8: Near Term Strategy
Near Term Strategy ■ Deliver on financial plan and win-win regulatory policy ■ Operate assets with superior safety, reliability and efficiency ■ Improve customer satisfaction and deliver valued products and services ■ Create and realize opportunities for sustainable sales growth ■ Earn trust and bui
Slide 9: Solid Market Environment
Franchised Electric Solid Market Environment Carolinas economy positioned for recovery ■ Positive leading Duke Power Rates vs National Averages indicators 10 ■ Increasing business 8 diversity Cents / KWh 6 ■ Competitive electric 4 rates 2 ■ Expanded efforts in 0 economic development Total Retail Res
Slide 10: Positive State Regulatory Relationships
Franchised Electric Positive State Regulatory Relationships ■ Solid relationships with NC/SC Commissions ● NC Clean Air Initiative – rate freeze through 2007 ● December 2002 Storm Audit results ● South Carolina rate rider in 2003 9
Slide 11: Solid Operational Performance
Franchised Electric Solid Operational Performance ■ Diverse fuel mix Combustion Coal-fired ■ Superior generation Turbine 7,699 MW 2,424 MW performance 12% 44% ■ Long-term stability from 16% Hydro nuclear relicensing and 2,806 MW 28% NC Clean Air implementation Nuclear * PERFORMANCE Year-end 5,020 MW
Slide 12: Reliable and Customer-Focused Service
Franchised Electric Reliable and Customer-Focused Service ■ Reliable service delivery ● Reliability rate of 99.9% 2003 EEI award for ice storm response ■ Customer service and satisfaction ● Rated second among electric utilities on the American Customer Satisfaction Index ● Additional efforts launche
Slide 13: Rate Base Review
Franchised Electric Rate Base Review $9 - $10 billion Net Rate Base (2/3 NC, 1/3 SC) Deemed Capital Structure 50 – 55% Equity 12.50% in NC Return on Equity 12.25% in SC EBIT $1.4 billion 12
Slide 14: Distribution of 2003 Revenues
Franchised Electric Distribution of 2003 Revenues Other 2003 Revenues Industrial Wholesale $4.9 billion Textile 16% 11% 7% 36% 30% Commercial Residential • Weather Sensitivities • Economy • Wholesale market prices 13
Slide 15: Distribution of 2003 Expenses
Franchised Electric Distribution of 2003 Expenses Regulatory 2003 Expenses General Amortization $3.5 billion Depreciation Taxes 8% 9% 18% 25% 36% 4% Fuel * Purchased O&M Power Sensitivities • Storms • Generating unit performance * Fuel costs are passed through to customers via annual fuel clause pro
Slide 16: Delivering Results
Franchised Electric Delivering Results Well positioned for the future… ■ Medium-term EBIT growth: CAGR – Flat to 2% ■ Stable earnings and strong cash flows ■ Diversified service territory with growth opportunities ■ Favorable regulatory position ■ Superior operational performance 15
Slide 17: Natural Gas Transmission
Natural Gas Insert Photo Here Transmission Tom O’Connor President Duke Energy Gas Transmission
Slide 18: Duke Energy Gas Transmission System
Duke Energy Gas Transmission System BC Pipeline & Field Services Union Gas Service Area Maritimes & Northeast Algonquin Texas Eastern Storage Capacity more than 250 Bcf Miles of Transmission Pipe more than 17,500 Miles of Distribution Main 21,000 Miles of Distribution Service 12,000 East Tennessee S
Slide 19: Near-Term Strategy
Natural Gas Transmission Near-Term Strategy Produce superior financial results through increased productivity and balanced growth ● Provide superior customer service ● Optimize existing asset portfolio ● Capture efficiencies and control cost ● Develop new high-return expansion projects 18
Slide 20: 2004 Portfolio of Businesses
Natural Gas Transmission 2004 Portfolio of Businesses 2004 EBIT Distribution Union Sensitivities M&NE BC Pipes • Weather & FS (14 yrs.) (4 yrs.) • Firm contracts Other • Throughput MHP • Exchange rate ETNG AGT TETLP (8 yrs.) (9 yrs.) (9 yrs.) Average Contract Life shown in parentheses 19
Slide 21: Union Gas: Regulated Distribution, Storage & Transportation
Natural Gas Transmission Union Gas: Regulated Distribution, Storage & Transportation ■ 1.3 million retail customers ■ More than 150 Bcf of gas storage ■ Cost of service regulation ■ Canadian debt component different than U.S. TransCanada Pipeline Cumulative Distribution Customer CANADA Additions Sin
Slide 22: Build-Outs Completed In 2003
Natural Gas Transmission Build-Outs Completed In 2003 BC Pipeline & Field Services Fort Fort Nelson Nelson Fort Fort Nelson Nelson Plant Plant Mainline Mainline Union Gas T-South Kwoen Kwoen // Service Area T-South Grizzly Expansion Expansion Grizzly Maritimes M&NE Extension Union Algonquin Gas Adde
Slide 23: Growth Opportunities / Top Ten Days
Natural Gas Transmission Growth Opportunities / Top Ten Days TETLP Market Area DEGT’s strategy and continued 4,500 4,250 high-capacity utilization will MMcf/d 4,000 produce solid EBIT growth of 3,750 3,500 3 – 5% per year 1 2 3 4 5 6 7 8 9 10 99/00 00/01 01/02 02/03 03/04 Algonquin Capital efficient
Slide 24: Expansion In the Northeast
Natural Gas Transmission Expansion In the Northeast Islander Dominion East Capacity 223 Mdth/d 285 Mdth/d In–Service 2004 2005 NY Ownership 100% 50% 50 miles of CT 24-inch pipeline 10,000 Horsepower MA PA Pittsburgh OH es of 34 mil e - i nch pipelin 36 Philadelphia Texas Eastern NJ MD Algonquin Isla
Slide 25: Gulfstream Extension
Natural Gas Transmission Gulfstream Extension Gulfstream Provides: • Transportation competition GA ● FPL to build • Supply reliability additional • Capacity for future growth 1,900 MW FL for 2005 ● 23-year firm transportation agreement / 350 Mdth/d ● 110-mile mainline Gulfstream extension to Manatee
Slide 26: Storage Expansion
Natural Gas Transmission Storage Expansion Dawn Dawn Hub Hub Current Current Capacity Capacity 150 150 Bcf Bcf Maritimes Saltville Saltville Current Current Capacity Capacity 11 Bcf Bcf Algonquin Planned Planned Capacity Capacity 99 Bcf Bcf Ownership Ownership 50% 50% Texas Moss Moss Bluff Bluff Eas
Slide 27: Conclusion
Natural Gas Transmission Conclusion DEGT’s strategy will provide predictable growth with increasing cash flow. DEGT possesses: ● Exceptional assets attached to high-value markets ● Flexible supply access for choice and reliability ● A portfolio that increases opportunities / reduces risk ● High-retu
Slide 28: Duke Energy Gas Transmission System
Duke Energy Gas Transmission System Storage Capacity more than 250 Bcf Miles of Transmission Pipe more than 17,500 Miles of Distribution Main 21,000 Miles of Distribution Service 12,000 Storage Union Gas Service Area 27
Slide 29: International Energy
Picture(s) here International Energy Insert Photo Here Bobby Evans President Duke Energy Americas
Slide 30: Discussion Topics
International Energy Discussion Topics ■ Overview of Latin America portfolio ■ Latin America portfolio characteristics ■ Latin America business environment and market overview ■ Financial information and performance drivers ■ 2004 strategic priorities 29
Slide 31: Latin America Portfolio Overview
International Energy Latin America Portfolio Overview Guatemala 333 MW – 168 MW: bunker & diesel Mexico: CNC & CSCC – 165 MW: bunker & orimulsion Processing Capacity: 1.45 Bcf/day DEC Ownership: 99% Product: nitrogen Supply Market Share: 16.3% DEC Ownership: 30% & 50% Demand Growth: 6.3% Houston El
Slide 32: Latin America Portfolio Characteristics
International Energy Latin America Portfolio Characteristics ■ Focused on wholesale energy business – energy and capacity sales ■ High percentage of generating capacity contracted or receiving capacity payments ■ Predominantly hydro/baseload generation fleet ■ Significant diversity within Latin Amer
Slide 33: Business Environment & Market Summary
International Energy Business Environment & Market Summary Competitive Environment • Limited/no new players • State-owned generation • Market power of incumbents Supply/Demand Regulatory Environment • Vertical and horizontal integration • Brazil: Demand beginning to • Brazil: uncertainty around the
Slide 34: Financial Summary
International Energy Financial Summary ● Anticipated CAGR of 2 - 3% over planning period ending 2006, assuming no divestitures of remaining assets ($ in millions) 2003 2006 EBIT from continuing operations (1) $ 210 CAGR 2 - 3% (1) Includes earnings from Latin American portfolio and National Methanol
Slide 35: Primary Performance Drivers for Planning Period
International Energy Primary Performance Drivers for Planning Period ■ Brazil ● FX sensitivities ● Impact of market fundamentals and regulatory structure on recontracting rates ■ Peru ● Contracting position relative to spot prices, hydrology, and demand ■ Central America ● Orimulsion conversion ● Co
Slide 36: 2004 Strategic Priorities
International Energy 2004 Strategic Priorities ■ Complete exit of European region ■ Sell / IPO Australia assets ■ Increase returns for Latin America through continued emphasis on: ● Organic growth ● Asset optimization ● Cost reduction ● Portfolio/balance sheet management ■ Develop long-term strategy
Slide 37: Duke Energy North America
Duke Energy Picture(s) here Insert Photo Here North America Bobby Evans President Duke Energy Americas
Slide 38: 2003 Key Events
Duke Energy North America 2003 Key Events ■ Major reorganization ● Consolidation of Houston, Salt Lake and Calgary offices ● Significant staff reductions ● New management team and organizational structure ■ DETM wind-down ■ Pre-tax charges of $3.3B in 2003 related to Special Items ■ Normal weather b
Slide 39: 2004 Focus
Duke Energy North America 2004 Focus ■ Selectively reduce merchant energy exposure – Southeast and West regions ■ Rationalize natural gas transportation and storage business around generation assets ■ Increase profitability of base business as market recovers ■ Retain option for future regional grow
Slide 40: DENA Summary – EBIT
Duke Energy North America DENA Summary – EBIT ($ in millions) 2003 2004 Actuals Forecast Low Risk Gross Margin 590 320 Other Sources Gross Margin 63 100 TOTAL Gross Margin 653 420 Plant O&M (322) (382) Depreciation (237) (187) G&A and Other (210) (155) Minority Interest 47 4 Special Items (3,272) -
Slide 41: Gas & Power Price Sensitivity
Duke Energy North America Gas & Power Price Sensitivity 2004 DENA Generation Incremental Gross Margin 2.50 2.00 +295 +108 -49 1.50 1.00 Gas 0.50 Price Change 0.00 +84 Base +281 -0.50 -1.00 +35 +148 +823 -1.50 -2.00 -2.50 -15 -10 -5 0 5 10 15 * Generation, spark and hedge sensitivity; excludes Power
Slide 42: DENA – Reduced Scope and Cost Structure
Duke Energy North America DENA – Reduced Scope and Cost Structure Reductions in Headcount and G&A 1000 $600 900 $500 800 700 $400 600 500 $300 400 $200 300 200 $100 100 0 $0 '98 '99 '00 '01 '02 '03 '04 Year End Numbers Head Count (# of Employees)** Normalized G&A ($MM)* * G&A represents G&A excludin
Slide 43: Smaller, More Focused Merchant Business
Duke Energy North America Smaller, More Focused Merchant Business ■ Continuously seek cost reductions, maximize revenue streams, and decrease volatility of returns ■ Selectively reduce overall merchant exposure ● Exit Southeast region ● Sell and/or solicit funding for completion of West deferred pla
Slide 44: DENA Appendix
DENA Insert Photo Here Appendix
Slide 45: DENA Southeast Asset Position
DENA Southeast Asset Position DENA PLANTS Combined Cycle (CC) Peaker (SC) Marshall TVA VACAR Net MW* Combined Cycle Simple Cycle Southaven SERC Hot Spring 620 - Entergy Murray New Albany Marshall - 640 Hot Spring Sandersville Southaven - 640 Hinds Southern Enterprise New Albany - 385 Enterprise - 64
Slide 46: DENA Western Generation Positions
DENA Western Generation Positions McMahon Net MW Combined Cycle Simple Cycle McMahon 58 - Oakland - 165 Moss Landing 2,538 - Mid-C Grays Harbor Morro Bay 1,002 - South Bay 700 - Griffith 300 - Arlington Valley 570 - NP15 TOTAL Operating 5,168 165 Oakland Grays Harbor 620 Moss Landing Moapa 1,220 SP1
Slide 47: DENA North Asset Position
DENA North Asset Position Maritime Ontario Quebec Bayside NPCC Maine ISO New England Combined Simple NERC Region Plant Cycle Cycle New York NPCC Bayside 195 - ECAR Bridgeport Maine Ind. 520 - MAAC Bridgeport 327 - Lee Fayette Vermillion Ft. Frances 110 - MAIN Washington MAAC Fayette 620 - Hanging Ro
Slide 48: Field Services
Field Services Insert Photo Here Fred Fowler President and COO Duke Energy Corporation
Slide 49: Leading Industry Position
Field Services Leading Industry Position NGLs (MBbls/d) Top NGL Producers 2002 500 392 400 300 200 178 135 122 103 90 100 73 0 DEFS BP Williams El Paso Dynegy ExxonMobil Enterprise Source: Gas Processors Report - November 17, 2003 48
Slide 50: "Must Run" Industry
Field Services “Must Run” Industry Wellhead Pipeline Quality 6% 6% 1% 7% 4% 3% 3% 2% 75% 93% Methane Heavier NGLS Ethane Carbon Dioxide & Nitrogen Propane Hydrogen Sulfide Source: Merrill Lynch Estimate 49
Slide 51: NGL Demand by End-Use
Field Services NGL Demand by End-Use 15% 7% 19% 3% 1% Chemical Refinery Residential/Commercial 55% Industrial & Other Agriculture Source: Petral Consulting Motor Fuel 50
Slide 52: U.S. Rig Count
Field Services U.S. Rig Count 1,200 980 1,000 Total Gas Rigs Number of U.S. Rigs 800 600 400 145 200 Total Oil Rigs 0 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Source: Baker-Hughes 51
Slide 53: DEFS Growth Record
Acquire $2.6 B DEFS Growth Record ■ Mitchell - 1994 ■ ■ Snyder - 1995 Mobil - 1996 Build ■ Transok - 1996 1.3 Bcf/d ■ Roberts Ranch - 1996 ■ Minden - 1998 Canrock - 1999 DEFS ■ ■ SE Texas - 1998 ■ UPF - 1999 ■ Wilcox - 1999 Koch/S. Texas - 1999 Growth ■ ■ Mobile Bay – 1999 ■ Conoco/Mitchell - 1999 ■
Slide 54: Strategically Located
Field Services Strategically Located 57,000 miles of pipelines ■ Growth/Acquisitions 65 plants; 15 fractionators ● Processing Plants 7 BRITISH 5 offices COLUMBIA ALBERTA ● Processed Volumes 0.4 Bcf/d 8 propane terminals ● NGL Production 8 MBbl/d SASKATCHEWAN 365 MBbl/d NGL production Calgary 5.6 Bcf
Slide 55: Gathering & Processing Economics
Field Services Gathering & Processing Economics Percentage of Fee Based Proceeds Keep Whole Description: Fixed fee for Retain a fixed Pay producer for gathering and percentage of both Btu equivalent of processing residue gas and extracted NGLs NGLs produced and and keep all NGLs return remainder to
Slide 56: Commodity Exposure
Field Services Commodity Exposure 2004 Annual 2003 Margin Unhedged Price Sensitivity Operating Income Fee Commodity NGLs ±$0.01 gal = ±$18 MM 25% 75% Natural Gas +/-$0.10 MMBtu = -/+$1 MM 55
Slide 57: TEPPCO: Business Diversification and Growth
TEPPCO: Business Diversification and Growth TEPPCO Upstream Downstream Midstream • Crude oil • Refined products • Natural gas gathering transportation, and LPG • NGL transportation marketing and transportation, storage • 42% of EBITDA terminaling and terminaling • 20% of EBITDA • Petrochemicals Jona
Slide 58: DEFS Strategy
DEFS Strategy ■ Capitalize on size and focus of our existing operations ■ Be a top-3 player in every producing region we have assets ■ Optimize / rationalize the asset base ■ Focus on operational / commercial excellence ■ Maintain our strong financial position / self-funding status ■ Grow TEPPCO ■ T
Slide 59: Crescent Resources
Crescent Resources Insert Photo Here Fred Fowler President and COO Duke Energy Corporation
Slide 60: Management Philosophy
Crescent Resources Management Philosophy ■ Build / develop and sell – turn capital ● Diversify by region and product type ● Market and opportunity driven ■ Rely on experienced development team ● Seasoned to the ups and downs of real estate cycles ● Reputation for quality, integrity, honesty and exce
Slide 61: Locations by Product Type
Crescent Resources Locations by Product Type Residential: Commercial - Retail: ■■ Charlotte; Charlotte; Hilton Hilton Head; Head; Atlanta; Atlanta; Austin, Austin, ■■ Charlotte; Charlotte; Durham, Durham, NC; NC; Anderson, Anderson, SC; SC; Payson, Payson, AZ; AZ; Jacksonville, Jacksonville, FL; FL;
Slide 62: Not Just a Liquidator of Land, We Create Value
Crescent Resources Not Just a Liquidator of Land, We Create Value ($ ($ in in millions) millions) Revenues $700 $600 Multi-family Residential $500 Commercial Land Management $400 $300 $200 $100 $0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 61
Slide 63: Proven Business Plan
Crescent Resources Proven Business Plan Crescent Resources delivers disciplined earnings growth through focus on existing business lines and execution of a proven development strategy without significantly increasing our risk profile. While opportunity-driven, Crescent Resources manages risk and is
Slide 64: Financial Review
Financial Picture(s) here Insert Photo Here Review David Hauser Group Vice President and CFO Duke Energy Corporation
Slide 65: Mandatory Convertible Equity Units
Mandatory Convertible Equity Units The equity units are comprised of (1) a forward purchase contract for Duke Energy common stock and (2) Duke Capital senior debt. 2001 2001 - 2004 2004 ($ in billions) Issuance Holding Period Remarketing Debt + $1.625 No change Cash No change proceeds will be used E
Slide 66: 2004 Cash Flow
2004 Cash Flow ($ in millions) Duke Duke Primary Sources: Energy Capital Net income $ 1,100 $ 450 Depreciation & amortization 2,075 1,050 NBV of ongoing Crescent inventory sales 550 550 NBV of energy asset sales 1,500 1,500 Deferred income taxes 450 475 Other sources/(uses), net (225) 25 Subtotal $
Slide 67: Duke Energy Corporation Benefit of Debt Reduction Beyond 2004
Duke Energy Corporation Benefit of Debt Reduction Beyond 2004 2003 – 2004 debt reduction Approx. $6 billion * Annualized interest savings Approx. $300 million ($ in billions) Actual Projected 2003 2004 2005 Interest expense $1.4 $1.3 $1.1 * Excludes the effect of changes in foreign currency 66
Slide 68: Duke Capital Corporation Benefit of Debt Reduction Beyond 2004
Duke Capital Corporation Benefit of Debt Reduction Beyond 2004 2003 – 2004 debt reduction Approx. $6.5 billion * Annualized interest savings Approx. $300 million ($ in billions) Actual Projected 2003 2004 2005 Interest expense $1.1 $1.0 $0.8 * Excludes the effect of changes in foreign currency 67
Slide 69: Appendix
APPENDIX
Slide 70: 2003 EBIT
2003 EBIT ($ in millions) Franchised Natural Gas Field Services International Crescent Electric Transmission * (Cont Ops) (Cont Ops) 2003 EBIT $1,403 $1,226 $192 $210 $150 Natural Gas Transmission Reported EBIT * $1,317 Gains/(losses) on asset sales 96 Severance and related costs -29 Total Special I
Slide 71: Debt Reduction Reconciliation
Debt Reduction Reconciliation ($ in millions) Duke Energy Corporation Issuances of long-term debt $ 3,009 Payments for the redemption of long-term debt, guaranteed (4,839) preferred beneficial interests and preferred member interests and net paydown of commercial paper and notes payable Assumed debt
Slide 72: Duke Energy Field Services Gas Volume / Margin by Contract Type
DUKE ENERGY FIELD SERVICES GAS VOLUME / MARGIN BY CONTRACT TYPE BASIS OF PRESENTATION: Margins for POP (Percentage of Proceeds) and Keepwhole contracts are stated on the basis of the natural gas feedstock used in our processing activity. 2003 2003 2003 2003 2002 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4 CONTRAC
Slide 73: Reg G Reconciliation: Crescent and Natural Gas Transmission EBIT
Duke Energy Corporation Reg G reconciliation Crescent EBIT Full Year 2003 (in millions) Crescent EBIT, per presentation $150 Rounding 2 Less discontinued operations (18) Crescent EBIT from continuing operations 134 Remaining portion of "Other Operations"(1) 19 "Other Operations" EBIT from continuing
Slide 74: Cash Flow Reconciliation Required by SEC Regulation G
Duke Energy Corporation Consolidated and Duke Capital Corporation Consolidated Cash Flow Reconciliation Required by SEC Regulation G ($ in Millions) 2004 Duke Energy Duke Capital Excerpts from Duke Energy Corporation Analyst Call (January 7, 2004) Primary Sources of Cash per Presentation: Net income
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