Business Strategies
    Business Segmentation                        2007. These developments illustrate the              ...
BuSineSS StRategieS



                                            Business Segmentation — Assets
                        ...
BuSineSS StRategieS



              Revenue Breakdown               2008                                 Revenue Breakdow...
BuSineSS StRategieS



                       Asset Breakdown                                                    Asset Bre...
BuSineSS StRategieS


   Companies that moved into the               Indeed, the primary driving force                   M...
BuSineSS StRategieS


                                                                                                 Cap...
BuSineSS StRategieS


                                                                                               growi...
Mergers & acquisitions announcements                                              updated through December 31, 2008
      ...
30-Jun-00     NS Power                            Bangor hydro                           C   Emera                 10-oct-...
BuSineSS StRategieS


outpaces the national average. The           gation of future rate increases along         Energy an...
BuSineSS StRategieS


per share offer on September 17 for         immediate $1 billion cash investment        2008, and by...
BuSineSS StRategieS


tor in 2008 and almost 60% of the to-       announcements                                        8,0...
BuSineSS StRategieS



                                         New Capacity Online by Fuel Type 2004-2008

         (MW)
...
BuSineSS StRategieS



                                       New Capacity Online by Region 2004-2008
                    ...
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
EEI 2008 Financial Review - Business Strategies
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EEI 2008 Financial Review - Business Strategies

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EEI 2008 Financial Review - Business Strategies

  1. 1. Business Strategies Business Segmentation 2007. These developments illustrate the Natural Gas Distribution revenue overall industry trend toward a more increased by $3.9 billion, or 7.4%, Revenues grew in each of the indus- regulated asset base. during 2008. About one-fourth of the try’s five primary business lines in 2008 increase, $923 million, was driven by and declined in the Other category. As- 2008 Revenues by Segment the Integrys merger (in which WPS sets grew across every category except Regulated Electric segment rev- Resources acquired Peoples Energy and Competitive Energy. Regulated Electric, enue rose by $18.7 billion, or 7.7%, its gas distribution operations). If this which grew to a 61.2% share of the in- to $259.9 billion in 2008 from $241.2 is removed for comparative purposes, dustry’s assets and 57.2% of revenues, billion in 2007.The segment’s share Natural Gas Distribution revenue rose provided most of the industry’s growth of total industry revenue edged up to by $3.0 billion, or 5.9%. in these areas during 2008. Competitive 57.2% in 2008 from 56.7% in 2007, Total regulated revenue—the sum Energy declined 1.3% from year-end well above the 52.1% of 2005. of the Regulated Electric and Natural Business Segmentation — Revenues U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES ($ Millions) 2008 2007r Difference % Change Regulated Electric 259,883 241,219 18,664 7.7% Competitive Energy 113,190 106,799 6,390 6.0% Natural Gas Distribution 56,377 52,496 3,881 7.4% Natural Gas Pipeline 5,342 5,115 228 4.4% Natural Gas and Oil Exploration 1,993 1,530 463 30.3% & Processing Other 17,441 18,616 (1,174) -6.3% Eliminations/Reconciling Items (20,418) (20,398) (20) 0.1% Total Revenues 433,808 405,376 28,432 7.0% r = revised Note: Difference and Percent Change columns may reflect rounding. Totals may reflect rounding. Source: Based on segment reporting from SEC filings of 69 U.S. Shareholder-Owned Electric Utilities EEI 2008 FINANCIAL REVIEW 39
  2. 2. BuSineSS StRategieS Business Segmentation — Assets U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES ($ Millions) 12/31/08 12/31/2007r Difference % Change Regulated Electric 730,555 648,393 82,162 12.7% Competitive Energy 203,348 205,960 (2,611) -1.3% Natural Gas Distribution 98,775 92,546 6,229 6.7% Natural Gas Pipeline 23,853 20,438 3,415 16.7% Natural Gas and Oil Exploration 5,435 4,745 690 14.5% & Processing Other 130,813 119,332 11,481 9.6% Eliminations/Reconciling Items (74,788) (65,345) (9,443) 14.5% Total Assets 1,117,991 1,026,068 91,923 9.0% r = revised Note: Difference and Percent Change columns may reflect rounding. Totals may reflect rounding. Source: Based on segment reporting from SEC filings of 69 U.S. Shareholder-Owned Electric Utilities Gas Distribution segments—increased over the year-end 2007 level. All other Electric segment’s 7.7% revenue increase by $22.5 billion, or 7.7%, to $316.3 categories, except for Competitive En- was spread throughout 2008, with sig- billion during 2008. In comparison, ergy, had solid asset growth but mini- nificant year-to-year growth occurring total regulated revenues increased by mal change in their share of total as- in both the first and second halves of $14.4 billion, or 5.2%, in 2007 rela- sets. Competitive Energy assets fell by the year. A 5% year-to-year increase in tive to 2006. Regulated operations $2.6 billion, or 1.3%. heating degree days helped counteract accounted for nearly 70% of total in- weakening demand from the economic Total regulated assets (Regulated dustry revenue in 2008, just above the recession that developed during the year. Electric plus Natural Gas Distribu- 69.0% and 68.9% levels in 2007 and Although cooling degree days were down tion) accounted for 69.5% of total 2006 respectively, up from 65.3% in 10% given 2007’s very hot summer industry assets at year-end 2008, up 2005. The chart Business Segmenta- months, 2008’s cooling degree days were from 67.9% on December 31, 2007. tion–Revenues presents the industry’s 5% above the norm. This aggregate measure has steadily revenue breakdown by business seg- grown from 61.6% at the end of 2002, In addition to weather, there were ment. Eliminations and reconciling underscoring the significant rate base several other drivers that affected items were added back to total rev- growth in recent years and the fact that Regulated Electric revenues in 2007. enues to arrive at the denominator for several companies sold off non-core Improved pricing, the impact of rate the segment percentage calculations businesses during the period, often us- relief over the past year, and rate base shown in the charts Revenue Break- ing proceeds to pay down debt. growth resulting from system upgrades down 2008 and 2007r. and expansions more than offset the Regulated electric year’s 0.9% decline in output (which 2008 assets by Segment Regulated Electric segment opera- includes all power placed on the grid Regulated Electric assets increased by electric utilities, IPPs and public tions include the generation, transmis- from 59.4% of total industry assets at power authorities). sion and distribution of regulated elec- December 31, 2007 to 61.2% at De- tricity to residential, commercial and During 2007, 72% of the com- cember 31, 2008, as Regulated Electric industrial customers. The Regulated panies increased regulated assets as a assets grew by $82.2 billion, or 12.7%, 40 EEI 2008 FINANCIAL REVIEW
  3. 3. BuSineSS StRategieS Revenue Breakdown 2008 Revenue Breakdown 2007r U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES Competitive Competitive Energy Energy 24.9% 25.1% Natural Gas Natural Gas Distribution Regulated Regulated Distribution 12.4% Electric Electric 12.3% 57.2% 56.6% Natural Gas Natural Gas Pipeline Pipeline 1.2% 1.2% Natural Gas and Natural Gas and Oil Exploration Other Oil Exploration & Processing 3.9% & Processing Other 0.4% 0.4% 4.4% r = revised Source: EEI Finance Department and company annual reports percent of total assets (or maintained Competitive energy of new generation facilities, wholesale a 100% regulated structure). Black energy sales and purchases, commod- Competitive Energy segment rev- Hills increased this ratio from 33.6% ity risk management and trading, and enues rose by 6.0% in 2008, increas- at the end of 2007 to 65.6% at the retail electricity sales to residential and ing by $6.4 billion to $113.2 billion close of 2008. The gain is mostly due business customers, all largely in Texas. from $106.8 billion in 2007. Com- to the company’s completed asset pur- petitive Energy covers the generation chase and merger with Aquila in July natural gas Distribution and/or re-sale of electricity in competi- 2008. Aquila’s natural gas and electric Natural Gas Distribution revenue tive markets, including both wholesale utilities in Colorado, Iowa, Kansas rose by $3.9 billion, or 7.4%, in 2008, and retail transactions. Wholesale buy- and Nebraska were acquired by Black due primarily to colder weather during ers are typically electric utilities seek- Hills. Aquila’s Missouri electric utili- the heating months and partially to the ing to supplement generation capacity, ties, stock and other corporate assets merger that formed Integrys Energy along with regional power pools and were acquired by Great Plains Energy. (formerly WPS Resources). Heating large industrial customers. Competi- Sempra Energy’s regulated mix tive Energy also includes the trading degree days rose by 5% in 2008, but rose to 62% at year-end 2008 from and marketing of natural gas. Of the were 1.0% below normal. The months 49% at year-end 2007. The increase 42 companies with Competitive assets of March and October provided the is largely the result of Sempra’s com- at the beginning of 2008, 20 showed a biggest impact in terms of additional pleted joint venture with Royal Bank year-to-year decline. heating degree days in 2008 relative to of Scotland in April 2008, form- 2007. Integrys was created when WPS Energy Future Holdings (EFH), ing the commodities joint venture acquired Peoples Energy on February formerly TXU, had the industry’s larg- of RBS Sempra Commodities and 21, 2007. Integrys increased its Natu- est amount of Competitive Energy as- greatly reducing the Commodities ral Gas Distribution revenues by $923 sets, $43.1 billion, at year-end 2008. assets that appear as a separate busi- million, or 44%, from $2.1 billion in EFH’s competitive segment engages ness segment for Sempra Energy. 2007 to $3.0 billion in 2008. Over- in electricity generation, construction EEI 2008 FINANCIAL REVIEW 41
  4. 4. BuSineSS StRategieS Asset Breakdown Asset Breakdown As of December 31, 2008 As of December 31, 2007r U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES Competitive Competitive Natural Gas Energy Energy Distribution 17.0% 18.9% 8.3% Natural Gas Distribution Regulated 8.5% Regulated Electric Electric Natural Gas 61.2% 59.4% Pipeline Other Natural Gas 2.0% 11.0% Pipeline Other Natural Gas and 1.9% 10.9% Oil Exploration Natural Gas and & Processing Oil Exploration 0.5% & Processing 0.4% r = revised Source: EEI Finance Department and company annual reports all, 31 of the 35 companies (89%) Natural Gas E&P showed the highest We use assets rather than revenue for that report Natural Gas Distribution revenue growth, at 30.3%, in 2008. determining categories because we think revenues showed year-to-year revenue Of the five companies in our electric assets provide a clearer picture of strate- gains in 2008. utility universe with operations in this gic trends. In recent years, soaring natu- segment, Oklahoma City’s OGE En- ral gas prices impacted revenue so greatly Natural Gas Distribution includes ergy was the largest contributor, with that some companies’ strategic approach the delivery of natural gas to homes, 2008 revenue growth of $254 million, to business segmentation was distorted businesses and industrial customers or 32%. by reliance on revenue data alone. throughout the United States, while the Natural Gas Pipeline business Comparing the list of companies 2007 Year-end List of Companies concentrates on the transmission and from year to year reveals company By Category storage of natural gas for local dis- migrations between categories and tribution companies, marketers and Early each calendar year, we create a indicates the general trend in indus- traders, electric power generators and new list of shareholder-owned electric try business models. We also base our natural gas producers. Added togeth- utility holding companies by business quarterly category financial data dur- er, Natural Gas Distribution, Natu- category based on year-end business ing the year on this list at the previous ral Gas Pipeline, and Exploration & segmentation data presented in 10Ks year end. Processing (E&P) activities produced and supplemented by discussions with The Regulated and Mostly Regu- $63.7 billion of the industry’s rev- parent companies. Our category defi- lated groups totaled 44 and 19 com- enues in 2008, up from $59.1 billion nitions are as follows: Regulated (80% panies, respectively, at year-end 2008, in the year-ago period. In percent- of holding company assets are regulat- the same as at year-end 2007. The Di- age terms, the revenue contribution ed); Mostly Regulated (50%-79% of versified group totaled six companies, from natural gas activities remained holding company assets are regulated); down from seven at year-end 2007, relatively unchanged, rising from Diversified (less than 50% of holding nine at year-end 2006 and 11 at year- 13.9% in 2007 to 14.0% in 2008. company assets are regulated). end 2005. 42 EEI 2008 FINANCIAL REVIEW
  5. 5. BuSineSS StRategieS Companies that moved into the Indeed, the primary driving force Macquarie representative was quoted Regulated category included Alliant on the M&A front in 2008 was the in the energy press in October 2008 Energy and DTE Energy. Aquila was larger global financial crisis. And what as acknowledging that financing for its removed from the Regulated group did not occur was more indicative of acquisition of Puget Energy could not due to its completed acquisition by changing trends than what did. There have been arranged at that point due to Great Plains Energy and Black Hills. were no big strategic blockbuster deals credit market stress following Lehman Companies that moved to the Mostly given sharply lower stock prices and Brothers’ September bankruptcy. Regulated category were Black Hills significantly impaired access to debt While frozen credit markets froze and Sempra Energy from the Diversi- financing. There were no additional much deal activity, the structural forces fied group and MGE Energy from the bids for regulated utilities by private in the utility industry that have driven Regulated Group. The Diversified cat- equity or infrastructure investors, M&A in recent years remained very egory lost two companies and gained who were seen in 2007 as a potential much in place, according to industry PPL from the Mostly Regulated Cate- new source of capital for utilities fac- analysts. Even though near-term capex gory. The movement of companies was ing large capital spending programs. budgets at many utilities were cut late due to strategic business transactions Depressed stock prices made strategic in 2008 due to the credit crisis, the and the fact that some straddled the buyers reluctant to bid with what ap- industry’s long-term capital spending 50% and 80% regulated asset cut-off peared to be undervalued shares and needs will likely pressure the balance points between categories, where small also made targets reluctant to accept sheets of smaller utilities and lead to percentage changes create category what seemed to be undervalued bids. strategic combinations with larger jumps. Two notable moves that were And while beaten down stocks made firms once markets recover. Financially caused by strategic transactions were financial deals all the more attractive, strong European utilities remained in- Black Hills acquisition of Aquila and the inability to raise financing closed terested in the U.S. market and have Sempra Energy’s joint venture with off these possibilities too. In fact, a few M&A options at home due to Royal Bank of Scotland related to its Commodities business. List of Companies by Category at December 31, 2008 Regulated (44) Mergers and acquisitions Allete Great Plains Energy Portland General Electric Alliant Energy Green Mountain Power Progress Energy Ameren IDACORP Puget Energy The pace of utility M&A activity, American Electric Power IPALCO Enterprises Southern Avista Kentucky Utilities TECO Energy when defined as mergers or acquisi- Central Vermont Public Service KeySpan UIL Holdings tions of whole operating companies, CH Energy Group Louisville G&E UniSource appeared to quicken in 2008 with six Cleco Maine and Maritimes Unitil CMS Energy Niagara Mohawk Power Vectren announced deals. Four of these were Consolidated Edison Northeast Utilities Westar Energy completed during the year and two DPL NorthWestern Energy Wisconsin Energy DTE Energy NSTAR Xcel Energy were withdrawn. But the seemingly Duquesne Light Holdings NV Energy robust numbers mask more impor- El Paso Electric PG&E Empire District Electric Pinnacle West Capital tant trends. The deals were generally Energy East PNM Resources tiny—all but one was valued at under Mostly Regulated (19) $500 million. And the largest, Mid- Black Hills FirstEnergy Otter Tail Power CenterPoint Energy FPL Group Pepco Holdings American’s bid for Constellation En- Dominion Resources Integrys Energy Group Public Service Enterprise Group ergy Group (subsequently rejected as Duke Energy MGE Energy SCANA Edison International MidAmerican Energy Holdings Sempra Energy too low), was the product of severe li- Entergy NiSource quidity crisis at Constellation resulting Exelon OGE Energy from its exposure to bankrupt Lehman Diversified (6) Allegheny Energy Hawaiian Electric Brothers and the lack of financing Constellation Energy MDU Resources alternatives in what were essentially Energy Future Holdings PPL shut-down credit markets. EEI 2008 FINANCIAL REVIEW 43
  6. 6. BuSineSS StRategieS Cap Rock Energy (an electric distribu- Status of Mergers & Acquisitions 1993–2008 tion and transmission company serv- U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES (Number of Mergers & Acquisitions) ing approximately 36,000 customers 30 in 28 counties in north, west and cen- tral Texas) for $202.5 million. PNM Completed (91 total) said it would use the net proceeds to 25 Announced (117 total) retire debt, fund future electric capital Withdrawn (28 total) expenditures and for other corporate 20 purposes. The company added that the planned sale of the gas utility is 15 one of several moves to strengthen its financial position during an era of ris- 10 ing costs, growing power demand and significant capital investment needs. Continental terminated the deal on 5 July 22, 2008 and agreed to pay PNM a $15 million termination fee. The sale 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 of PNM’s gas operations proceeded and closed in January 2009 for $640 Source: EEI Finance Department million. PNM also said the sale allows it to focus on generation and delivery of electricity and on obtaining better consolidation there. And it remains nent mergers announced in 2007. On regulatory treatment for its Texas and easier for many utilities that need new July 14, Black Hills and Great Plains New Mexico electric utilities. generation to buy assets rather than Energy closed on their February 2007 build them, given the regulatory and buyouts of Aquila’s assets. On Sep- On December 1, Unitil completed political challenges that often come tember 16, Spanish utility Iberdrola the purchase of Northern Utilities with building new generation, unless it completed its June 2007 announced and Granite State Gas Transmission is renewable generation. State renew- acquisition of Energy East, defying from NiSource, announced on Febru- able mandates are also a potential spur predictions that the deal would fail. ary 19, 2008, after gaining approvals to M&A for companies facing renew- And, while not technically a 2008 clo- from state regulators in Maine, New able portfolio standards and uncer- sure, Macquarie successfully navigated Hampshire and Massachusetts. The tain means of achieving them. Duke’s state regulatory politics in 2008 and acquisition added 52,000 natural gas September 2008 acquisition of wind closed its acquisition of Puget Energy distribution customers to the Unitil energy developer Catamount Energy on February 6, 2009. system, about a 40% increase. The is one example of a deal driven by the purchase price was $160 million, plus desire to boost the renewable portfo- a Year of Small Deals $41.6 million for working capital, in- lio. The potential for more stringent cluding approximately $33.9 million Five deals valued at under $500 mil- environmental regulations and a car- of natural gas storage inventory. There lion were announced in 2008 and four bon regime under the new Obama ad- was no acquisition premium. Unitil’s of these were completed during the year. ministration throw another wild card New Hampshire electric distribution into the mix of potential M&A driv- The year’s first proposed deal was operations share many customers and ers, depending on the eventual shape the only of the five to be withdrawn. communities with Northern and Unit- of regulations. On January 12, PNM Resources an- il described Northern Utilities as a nat- nounced the intention to sell its nat- ural fit. The acquisition underscored Despite the absence of large deal ural gas operations to a subsidiary of Unitil’s commitment to the region, ac- announcements, 2008 did see the Continental Energy Systems for $620 cording to the company. completion of several of the promi- million and to acquire Continental’s 44 EEI 2008 FINANCIAL REVIEW
  7. 7. BuSineSS StRategieS growing its regulated utility. The deal Status of Announced Mergers & Acquisitions closed on October 1. 1993–2008 On July 15, Sempra Energy an- U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES nounced the intent to acquire Mobile, Ala.-based EnergySouth for $510 mil- Year Completed Announced Withdrawn lion in cash. Central to the transaction 1993 2 3 1 1994 0 was Sempra’s interest in the assets of 1 5 1995 2 8 4 EnergySouth’s subsidiary, EnergySouth 1996 1 13 3 Midstream, which included majority 1997 13 11 3 ownership in two large, high-cycle un- 1998 9 10 –– 1999 10 26 2 derground natural gas storage facilities. 2000 23 9 1 When fully developed, these will offer 2001 6 5 4 57 billion cubic feet (Bcf ) of capacity 2002 5 2 3 2003 1 2 1 in the nation’s fastest-growing natural 2004 1 3 1 gas markets. Sempra Energy also ac- 2005 1 3 0 quired Mobile Gas Service Corp., an 2006 3 7 2 2007 6 4 1 Alabama natural gas distribution util- 2008 7 6 2 ity owned by EnergySouth. Mobile Gas serves approximately 93,000 cus- Totals 91 117 28 tomers in southwest Alabama, a region Source: EEI Finance Department that stands to benefit from strong eco- nomic development within its service Duke Energy on June 25 an- an agreement to acquire Intermountain territory. Sempra said the acquisition nounced its intent to acquire Cata- Gas Company, a wholly-owned subsid- supports its natural gas strategy by mount Energy, a transaction designed iary of privately held Intermountain In- expanding its Gulf Coast operations to significantly increase Duke’s wind dustries, Inc. The transaction was valued to key markets where gas demand energy operations and advance its at approximately $328 million carbon emissions reduction plans. including debt. Intermoun- Catamount develops wind projects in tain Gas, headquartered in Merger Impacts 1995–2008 the U.S. and United Kingdom and Boise, Idaho, serves more U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES has approximately 300 megawatts of than 300,000 customers in Date No. of Utilities Change renewable energy in operation, in- 74 communities in Idaho. 12/31/95 98 N/A cluding an interest in the Sweetwater MDU called Intermoun- 12/31/97 96 (2.04%) project in Nolan County, Texas, one of tain’s service territory and 12/31/99 83 (13.54%) the largest wind projects in the world. culture a great long-term 12/31/00 71 (14.46%) Catamount had approximately 1,750 strategic fit. MDU’s regu- 12/31/01 69 (2.82%) megawatts of development interests in lated operations territory 12/31/02 65 (5.80%) several states and the U.K. at the time stretches from Minnesota to 12/31/03 65 – the deal was announced. The transac- the Pacific Northwest while 12/31/04 65 – tion, which included a $240 million Intermountain operates in 12/31/05 65 – purchase price plus $80 million of as- a high-growth area with 12/31/06 64 (1.54%) sumed debt, closed on September 15. recent customer growth 12/31/07 61 (4.69%) 12/31/08 59 (3.28%) of approximately 4.5 per- Two natural gas focused acquisitions Number of Companies Declined by 40% since Dec.’95 cent annually. MDU said were announced in July and each closed Note: Based on completed mergers in the EEI Index group the acquisition advances of electric utilities. on October 1. On July 1, MDU Re- its long-term objective of Source: EEI Finance Department sources Group announced it entered into EEI 2008 FINANCIAL REVIEW 45
  8. 8. Mergers & acquisitions announcements updated through December 31, 2008 U.S. ShAREhoLdER-oWNEd ELECtRIC UtILItIES new Date Months to ann’cd Buyer Seller/acquired/Merged Status Company Completed Complete Bus. terms trans. Val. ($M) 17-Sep-08 Berkshire hathaway Constellation Energy Group Inc. W 17-dec-08 3 PE $1.2 bill cash + $6.0 bill debt + $1.9 bill inventory & post ret. ben. 9,152.5 25-Jul-08 Sempra Energy EnergySouth Inc. C 1-oct-08 3 EG $499 million cash + 283 million debt 771.9 1-Jul-08 MdU Resources Group, Inc. Intermountain Gas Co. C 1-oct-08 3 EG $245 million cash + $82 million debt 327.0 25-Jun-08 duke Energy Catamount Energy Corp. C 12-Sep-08 3 EP $240 million cash + $80 million assumed debt 320.0 15-Feb-08 Unitil Corp. Northern Utilities, Inc./ Granite 1-dec-08 10 EG $160 million cash 160.0 State Gas transmission, Inc. C 12-Jan-08 PNM Resources, Inc. Cap Rock holding Corp. W 22-Jul-08 6 EE 202.5 26-oct-07 Macquarie Consortium Puget Energy P EE $3.5 bill. cash + $3.02 bil. net debt 6,520.2 25-Jun-07 Iberdrola S.A. Energy East Corp. C 16-Sep-08 15 EE $4.5 bill. cash + $4.1 bil. net debt 8,600.0 26-Feb-07 KKR & texas Pacific Group tXU Corp.1 C Energy Future 10-oct-07 8 PE $31.8 bill. cash + $12.1 bill. net debt 43,882.0 holdings Corp. 7-Feb-07 Black hills Corp. Aquila Inc. (Co elec. util. + Co, C EG $940 million cash + working capital and other adjustments 940.0 KS NE, IA gas utils.) 14-Jul-08 17 7-Feb-07 Great Plains Energy Inc. Aquila Inc. (Mo electric util. C EE $1.7 billion cash and stock + $1.0 billion assumed debt 2,700.00 assets) 14-Jul-08 17 8-Jul-06 MdU Resources Group, Inc. Cascade Natural Gas Corp. C 2-Jul-07 12 EG $305.2 mm in cash + ($173.6 in debt - $13.0 in cash equivalents) 465.8 8-Jul-06 WPS Resources Corporation Peoples Energy Corporation C Integrys Energy 21-Feb-07 7 EG $2.47 bill. 2,472.4 5-Jul-06 Macquarie Consortium duquesne Light holdings C 31-May-07 10 EE $1.59 bill. cash + $1.17 bill. total debt 2,766.0 22-Jun-06 Gaz Metro LP Green Mountain Power Corp. C 12-Apr-07 10 EE $187 million in cash + ($100.8 debt - $9.1 mm in cash equivalents) 279.5 11-May-06 ItC holdings Corp Michigan Electric transmission Co. C 10-oct-06 5 EE $485.6 mm cash + $70 mm common stock + $311 mm assumed debt 866.6 25-Apr-06 Babcock and Brown Infrastructure NorthWestern Corp. W 24-Jul-07 EE $2.2 bill. cash 2,200.0 27-Feb-06 National Grid KeySpan Corp. C 24-Aug-07 18 EE $7.4 bill. cash + $4.5 bill. long-term debt 11,877.5 19-dec-05 FPL Group Inc. Constellation Energy Inc. W 25-oct-06 EE $11.3 bill. equity + $4.1 bill. net debt and pension liabilities 15,311.5 24-May-05 MidAmerican Energy holdings Co. Pacificorp C 21-Mar-06 10 EE $5.1 bill. cash + $4.2 bill. net debt and preferred stock 9,300.0 9-May-05 duke Energy Corp. Cinergy Corp. C 3-Apr-06 11 EE $9.1 bill. equity + $5.5 bill. net debt and pension liabilities 14,600.0 20-dec-04 Exelon Corp. Public Service Enterprise Group W 14-Sept-06 EE $12.3 bill. in equity + $13.4 bill. in net debt and pension liabilities 25,700.0 25-Jul-04 PNM Resources tNP Enterprises C 6-Jun-05 12 EE $189 mm cash and equity + $835 mm net debt 1,024.0 3-Feb-04 Ameren Corp Illinois Power1 C 1-oct-04 8 EE $400 mm cash + $1.9 bill. net debt and preferred stock 2,300.0 24-Nov-03 Saguaro Utility Group L.P. UniSource Energy W 30-dec-04 PE $850 mm cash + $2 bill. in debt 2,850.0 3-Nov-03 Exelon Corp. Illinois Power W 22-Nov-03 EE $275 mm cash + $150 mm promissory note + $1.8 bill. in debt 2,225.0 30-Apr-02 Aquila Inc Cogentrix Energy Inc W 2-Aug-02 EIPP $415 mm cash + $1.125 bill. net debt 1,540.0 29-Apr-02 Ameren Corp CILCoRP2 C 31-Jan-03 9 EE $541 mm cash + $41 mm pref. stock + $781 mm net debt 1,363.0 8-oct-01 Northwest Natural Gas Portland General W 16-May-02 GE $1.55 bill. cash + $250 mm equity + $75 mm assumed liab. 1,875.0 20-Sep-01 duke Energy Westcoast Energy C 14-Mar-02 6 EG Equity + cash valued at $27.90 per Westcoast share 8,500.0 10-Sep-01 dominion Resources Louis dreyfus Natural Gas C 1-Nov-01 2 EG $890 mm cash + $900 million stock + $505 mm debt 2,295.0 20-Feb-01 Energy East RGS Energy C 28-Jun-02 16 EE $1.4 bill. cash & equity + $1.0 bill. net debt 2,400.0 12-Feb-01 PEPCo Conectiv C 1-Aug-02 18 EE $2.2 bill. cash & equity + $2.8 bill. net debt 5,000.0 09-Nov-00 PNM Western Resources3 W 8-Jan-02 EE Stock transfer 4,442.0 02-oct-00 NorthWestern Montana Power4 C 15-Feb-02 16 EE $1.1 bill. in cash 1,100.0 5-Sep-00 National Grid Group Niagara Mohawk C 31-Jan-02 16 EE $19 per share 8,900.0 8-Aug-00 FirstEnergy GPU Inc. C 7-Nov-01 15 EE $35.60 per share 12,000.0 31-Jul-00 FPL Group Entergy W 2-Apr-01 EE 1/1 - FPL, 0.585/1 - EtR 27,000.0 17-Jul-00 AES Corporation IPALCo C 27-Mar-01 8 IPPE $25 per share 3,040.0
  9. 9. 30-Jun-00 NS Power Bangor hydro C Emera 10-oct-01 16 EE $26.50 per share 206.0 30-May-00 WPS Resources Wisconsin Fuel and Light C 2-Apr-01 11 EG 1.73 shares of WPSR 55.0 28-Feb-00 PowerGen plc LG&E C 11-dec-00 10 EE $24.85 per share 5,400.0 10-Nov-99 Energy East Berkshire Energy Resources C 01-Sep-00 10 EG $38 per share 136.0 08-Nov-99 Sierra Pacific Resources Portland General W 26-Apr-01 EE $2.1 bill. 3,100.0 04-Nov-99 KeySpan Eastern Enterprises C 09-Nov-00 12 EG $64 per share 2,500.0 25-oct-99 Berkshire hathaway MidAmerican Energy C 14-Mar-00 5 PE $35.05 per share 9,000.0 13-oct-99 Consolidated Edison Northeast Utilities W 15-Mar-01 EE $25 per share 7,500.0 05-oct-99 dtE Energy MCN Energy C 31-May-01 19 EG $28.50 per share 4,600.0 23-Sep-99 Peco Energy Co. Unicom Corp. C Exelon 23-oct-00 13 EE 0.95/1 - UCM, 1/1 - PE 31,800.0 09-Sep-99 Allegheny Energy West Virginia Power C 04-Jan-00 4 EE $75 million 75.0 23-Aug-99 Carolina Power & Light Florida Progress C Progress Energy 30-Nov-00 15 EE $54 per share 8,000.0 30-Jun-99 Energy East CtG Resources C 01-Sep-00 15 EG $41 per share 575.0 28-Jun-99 Wisconsin Energy Corp. Wicor Inc. C 26-Apr-00 10 EG $31.50 per share 1,275.0 15-Jun-99 Energy East CMP Group, Inc. C 01-Sep-00 15 EE $29.50 per share 1,228.0 15-Jun-99 Northeast Utilities Yankee Gas C 01-Mar-00 9 EG $45 per share 679.0 14-Jun-99 dynegy Illinova C 02-Feb-00 7 IPPE 0.69/1 - dYN, 1/1 - ILN 2,000.0 14-Jun-99 Indiana Energy SigCorp C Vectren 31-Mar-00 9 GE 1.33/1 - SIG, 1/1- IEI 1,900.0 07-Jun-99 Nisource Inc. Columbia Energy C 01-Nov-00 17 EG $74 per share 6,200.0 25-May-99 S.W. Acquisition Corp. tNP Corporation C 07-Apr-00 11 PE $74 per share 100.0 17-May-99 oGE Energy transok LLC C 01-Jul-99 2 EG $701 million 701.0 11-May-99 Utilicorp United Empire district Electric W 03-Jan-01 EE $29.50 per share in cash or stock 765.0 23-Apr-99 Energy East Connecticut Energy C 09-Feb-00 9 EG $42 per share, 50% cash and 1.43-1.82/1 - CNE 617.0 25-Mar-99 Northern States Power New Century Energies C Xcel Energy 17-Aug-00 17 EE 1.55/1 - NCE, 1/1 - NSP 6,000.0 05-Mar-99 Utilicorp United St. Joseph Power & Light Co. C 29-dec-00 21 EE $23 per share 277.0 22-Feb-99 dominion Resources Consolidated Natural Gas Co. C 28-Jan-00 11 EG $66.60 per share 6,400.0 17-Feb-99 SCANA Corp PSC of North Carolina C 10-Feb-00 12 EG $33 per share or 1.02-1.45 shares of SCG 9,000.0 01-Feb-99 National Grid USA/NEES Eastern Utilities Associates C 19-Apr-00 14 EE $31 per share in cash 634.0 01-Feb-99 Sempra Energy KN Energy W 01-Jun-99 EG $25 per share 6.0 17-dec-98 Scottish Power Pacificorp C 29-Nov-99 11 EE 0.58 AdRs of SPI 7,900.0 14-dec-98 National Grid Group Plc New England Electric Systems C National Grid USA 22-Mar-00 15 EE $54.207 per share in cash 3,200.0 01-dec-98 BEC Energy Commonwealth Energy System C NStAR 26-Aug-99 9 EE 1.05/1 - CES, 1/1 - BEC 950.0 01-Nov-98 AES Corporation Cilcorp C 18-oct-99 11 IPPE $65 per share in cash 885.0 01-Nov-98 CP&L North Carolina Natural Gas Corp. C 01-Jul-99 9 EG $35 per share in CPL common stock 354.0 Equitable Res. 01-Sep-98 AEP Resources (Mid-stream Gas opr.) C 01-dec-98 4 EG 01-Aug-98 CalEnergy Mid-American Energy C 12-Mar-99 7 IPPE $27.15 per share in cash 2,480.0 01-May-98 Consolidated Edison orange & Rockland Utilities C 08-Jul-99 14 EE $58.50 per share in cash 790.0 01-Apr-98 Sierra Pacific Resources Nevada Power C July-28-99 15 EE 1.44/1 - SRP, 1/1 - NVP 4,000.0 1 4 tXU (now Energy Future holdings Corp.) was acquired by the texas Energy Future holdings PNM purchased Western Resources’ electric operations including generation, Limited Partnership (tEF) on 10/10/2007. transmission, and distribution. C = Completed o = oil tEF was formed by a group of investors led by Kohlberg Kravis Roberts and texas Pacific W = Withdrawn IPP = Independent 5 Group to facilitate the merger. NorthWestern Corporation purchased Montana Power’s electric and natural gas transmission Power Producer and distribution assets. PN = Pending 2 E = Electric P = Privatized Ameren purchased Illinois Power from dynegy Corporation. dynegy Corp acquired Illinois Power in February 2000. G = Gas NA= Acquired company privately held or no data available 3 Ameren purchased CILCoRP from AES Corporation. AES Corp acquired CILCoRP in Source: EEI Finance department and SNL Financial october 1999.
  10. 10. BuSineSS StRategieS outpaces the national average. The gation of future rate increases along Energy and its wholly-owned utility transaction was expected to be slightly with reduced recovery of transaction subsidiary Puget Sound Energy, for accretive to earnings in 2009 and con- costs, which led to the deal’s approval $30 a share. The deal, announced in tribute up to $0.30 per share in 2012. by the Missouri commission in a two October 2007, encountered some re- Sempra Energy funded the transaction to one vote on July 1. sistance from intervenors, including from operating cash flow and debt. the Washington State Attorney Gen- Iberdrola and Energy East also navi- eral’s office, who expressed concern gated at-times turbulent regulatory 2007 Vintage Deals get that high leverage posed too much risk politics to gain New York regulatory ap- Perfect Score for rate payers and questioned whether proval on September 3, 2008 for their Five transactions were announced in Macquarie’s ownership would deliver proposed transaction, which was com- 2007. The largest of these, TXU’s buy- lower financing costs than the utility pleted on September 16. FERC and out by private equity investors, was com- could get on its own. Puget stock fell regulators from Connecticut, Maine and pleted in October 2007. The four oth- $2 on June 19 as word of the testimony New Hampshire approved the deal but ers were navigating regulatory approval spread. Washington State regulators, New York regulators were concerned as 2008 began and all were successfully however, approved the deal in a two to about vertical market power in the state completed in 2008 or early in 2009. one vote on December 31, 2008 and and recommended the transaction be said the merger offered clear benefits to On July 14 Black Hills and Great rejected. The merger, however, received ratepayers and to the region. Indeed, Plains Energy completed their acqui- support from prominent New York poli- on January 16, after both Macquarie sitions of Aquila’s assets, a deal an- ticians including Governor David Patter- and Puget Sound Energy accepted the nounced in February 2007. In the two- son, U.S. Senator Charles Schumer and Washington Utilities and Transporta- part transaction, Black Hills acquired State Senator Joseph Bruno, who were tion Commission merger approval or- Aquila’s electric utility in Colorado pleased with Iberdrola’s goal publicized der, Standard & Poor’s increased PSE’s and Aquila’s four natural gas utilities in in June to invest $2 billion in renewable corporate credit rating to BBB from Colorado, Iowa, Kansas and Nebraska. energy in New York State over the next BBB- and its secured bond rating to A- Great Plains Energy acquired Aquila’s five years if regulators approve the deal. from BBB+. The ratings upgrade pro- outstanding shares along with its Mis- The New York PSC conditionally ap- duced savings for PSE customers due souri electric utility assets. Black Hills proved the merger on September 3, but to reduced borrowing costs. Puget said cited the broadening of its regional only with a long list of provisions that it the transaction will enable it to contin- presence and retail utility base as driv- said were designed to enhance ratepayer ue to make significant investments in ers of its interest in the deal. Great financial benefits, mitigate vertical mar- renewable resources to meet evolving Plains cited improved operational and ket power, protect the utilities’ finan- green energy requirements and in its scale efficiencies resulting from the cial condition, improve transmission natural gas and electricity distribution companies’ adjacent service territories, and distribution system reliability, and system. And at a time of tremendous reduced overhead expenses, more ef- strengthen service quality. The merger’s strain in credit markets, the merger ficient procurement and investments approval process highlighted a trend that enabled PSE to enter into new credit in infrastructure and energy efficiency. appears to be gaining impetus in merger facilities with five-year terms. Macqua- The Great Plains side of the transac- negotiations—the citing of environ- rie also offers the utility access to up to tion encountered some resistance from mental-related benefits as a deal driver, $1 billion a year in new capital for the shareholders and the Missouri Public similar to the cancellation of TXU’s next five years. Service Commission Staff, who recom- coal plant construction plans that led to mended that the PSC reject the deal Texas’ approval of the TXU buyout by Credit Crisis Hits due to concerns that it would hurt the private equity investors in 2007. Constellation energy company’s credit rating and not ben- Australia-based global infrastruc- The year’s only proposed deal that efit rate payers. Great Plains modified ture investor Macquarie Group on envisioned the acquisition of a large, deal terms in February 2008 to include February 6, 2009 completed its $7.4 stand-alone utility holding company— earlier savings to customers and miti- billion merger transaction with Puget MidAmerican’s $4.7 billion or $26.50 48 EEI 2008 FINANCIAL REVIEW
  11. 11. BuSineSS StRategieS per share offer on September 17 for immediate $1 billion cash investment 2008, and by late February 2009 NRG Constellation Energy—was a direct in Constellation, to be credited against shareholders had tendered over 51% of result of the credit crisis and not, like the purchase price, and entered into an the outstanding shares of NRG com- blockbuster deals of previous years, agreement to allow Constellation to mon stock. Exelon subsequently ex- motivated primarily by a strategic vi- sell EDF up to $2 billion in non-nu- tended its offer until June 26, giving it sion of scope, scale and synergies lead- clear generation assets over a two-year time to seek regulatory approval for the ing to increased operating efficiencies period as an insurance against further transaction and solicitation of proxies and a larger footprint in nationwide liquidity pressures. for the election of NRG directors at the energy markets. Constellation’s stock NRG annual meeting, likely in May. had been driven from near $60/share exelon Bids for nRg down to $24 in a matter of days fol- Finally, in another proposed deal, lowing the September bankruptcy Exelon on October 19 offered to ac- Construction of Lehman Brothers due to concerns quire independent power producer about Constellation’s exposure to NRG in an all-stock transaction valued generation Lehman and general fears about li- at $26.43 for each NRG common share quidity at Constellation’s energy trad- New Capacity Online (a 37% premium to NRG’s October ing business. Constellation viewed 17 closing price), representing a total After two years of declining capac- Warren Buffet’s MidAmerican as an equity value of approximately $6.2 bil- ity additions, shareholder-owned elec- ideal suitor who could offer the capi- lion based on Exelon’s $54.50 closing tric utilities brought 8,852 MW of tal strength necessary for immediate price on October 17. Exelon said the new capacity into operation in 2008, financial stability and a track record combination would geographically di- 70% more than in 2007. New plants of successful M&A, evidenced most versify its generation portfolio and cre- accounted for 3,263 MW and expan- recently in MidAmerican’s 2006 acqui- ate immediate earnings and cash flow sions 5,590 MW. The U.S. power in- sition of PacifiCorp. The withdrawal accretion. The proposal, made possible dustry as a whole increased total capac- of Constellation’s planned merger with in part by the decline in NRG’s share ity by only 17% in 2008. FPL Group in March 2006 after a diffi- price from near $40 in late August to Even more than 2007, 2008 was the cult year-long navigation of Maryland the mid-teens by mid-October fol- year of new wind farms. Wind capacity regulatory politics underscored the ap- lowing Lehman’s bankruptcy and the additions broke a new record and, for the peal of PacifiCorp’s successful M&A freezing of credit markets, offered a first time, the entire power sector added record. The proposed merger ran into number of benefits to the combined as much wind capacity as natural gas ca- immediate resistance from sharehold- companies, according to Exelon. These pacity. Wind accounted for 68% of total ers who thought the price underval- included enhanced scope and scale (the megawatts from new plants placed into ued Constellation’s generation assets combination would create the largest operation by shareholder-owned electrics and prompted a $35 per share offer power company in the U.S.), increased and 60% of new plants brought online on September 19 by French nuclear generation efficiency with combined by the broader industry—surpassing, giant EDF Group (owner of 9.5% of nuclear operations, fuel diversifica- in both cases, the relative contribution Constellation’s stock) along with pri- tion for both companies, substantial from all other fuel types. The prolifera- vate equity investors Kohlberg, Kra- operating synergies, and Exelon’s fi- tion of state renewable energy standards vis, Roberts & Co. and TPG Group. nancial strength in support of NRG’s (RES) and wind’s lack of fuel cost have Negotiations continued through the more leveraged balance sheet. NRG helped make it an increasingly popular fall and resulted in a December 17 rejected the proposal, asserting that generation choice in windy parts of the announcement by Constellation that it undervalued the company given its country. it would cancel the planned merger depressed stock price, although NRG with MidAmerican, remain an inde- FPL Group remained the leader acknowledged the logic of a strategic pendent company and sell 49.99% of in new wind investment nationwide. fit between the two companies. Exelon its nuclear-generation operations to FPL was responsible for a third of total brought its exchange offer directly to EDF for $4.5 billion. EDF made an wind additions by the U.S. power sec- NRG shareholders on November 12, EEI 2008 FINANCIAL REVIEW 49
  12. 12. BuSineSS StRategieS tor in 2008 and almost 60% of the to- announcements 8,000 MW in Q2 to 1,700 in Q3 to 1,300 tal added by shareholder-owned elec- MW in Q4. All fuel sources except wind The entire electric industry announced trics. Texas continues to lead all states showed declines. over 113,000 MW of new capacity during in wind capacity, with over 7,500 MW 2008. Not only was this the highest level Shareholder-owned utilities have (7% of the U.S. total) in place and since 2001, but 87,000 MW were renew- traditionally been the nation’s core another 17,500 MW in the proposal able projects (of which 32 GW were hydro suppliers of baseload power and they stage. Iowa has become the state with and 44 GW were wind projects), reflecting built most of the country’s coal-fired, the largest percentage of wind in its en- the rising prominence of renewable gen- combined cycle and nuclear plants. ergy mix, at 18% of installed capacity. eration. Shareholder-owned electrics, how- The pattern seen since late-summer ever, were responsible for only 13% of the 2008, however, shows an almost ex- Cancellations total 113,000 MW, and announced 40% clusive interest in renewable energy by At just under 5,000 MW, cancella- less new capacity in 2008 than in 2007. Af- all segments of the industry. It is too tions by the shareholder-owned utili- ter 2007’s wave of coal cancellations, share- early to tell if this will be a long-term ties in 2008 were one-third the level holder-owned utilities announced only one trend that impacts the way the power in 2007. Unlike 2007, when a large coal project in 2008 (the expansion of an sector ensures reliability for a growing number of coal-fired projects were can- existing AES plant in Oklahoma) which demand base. celled, shareholder-owned electrics did was cancelled in February 2009. In fact, Shareholder-owned utilities have not cancel any major projects last year. new capacity announcements fell dramati- over 90,000 MW of projects in the The coal-fired capacity that was can- cally as the year progressed, from almost pipeline, of which 80,000 MW are celled came largely from three projects —postponements by Pinnacle (1,200 MW in Arizona) and AEP (630 MW New Capacity Online (MW) 2004-2008 in Ohio) and one cancellation by PNM (630 MW in Texas). FPL’s postponed U.S. Shareholder- Owned Electric Entire Tesla natural gas project in California 2008p Utilities Industry accounted for almost all gas-fired ca- New plant 3,263 11,005 pacity cancelled or postponed during Plant expansions 5,590 8,619 the year. The broad industry also fol- Total 8,852 19,624 lowed a similar pattern by cancelling 2007r only about half as much as in 2007. New plant 2,003 11,517 Plant expansions 3,201 5,290 The financial crisis that worsened Total 5,204 16,807 during 2008’s fourth quarter did not appear to have an immediate effect on 2006 additions or cancellations. Some pre- New plant 2,642 6,901 liminary evidence, however, suggested Plant expansions 3,049 6,274 Total 5,691 13,175 that smaller renewable development was being constrained by unavailable 2005 or more expensive financing. And the New plant 3,976 9,396 delays that have affected an increasing Plant expansions 6,309 11,131 Total 10,284 20,526 number of big renewable and fossil- fueled projects seemed driven by re- 2004 ductions in expected electricity de- New plant 6,305 18,986 mand growth in addition to a higher Plant expansions 2,136 7,885 Total 8,441 26,871 cost of capital. Note: Totals may reflect rounding. Historical data subject to revision. Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department 50 EEI 2008 FINANCIAL REVIEW
  13. 13. BuSineSS StRategieS New Capacity Online by Fuel Type 2004-2008 (MW) 30,000 Coal Natural Gas 25,000 Nuclear Wind 20,000 Other 15,000 10,000 5,000 0 Shareholder- Entire Shareholder- Entire Shareholder- Entire Shareholder- Entire Shareholder- Entire Owned Industry Owned Industry Owned Industry Owned Industry Owned Industry 2004 2004 2005 2005 2006 2006 2007 2007 2008p 2008p U.S. Shareholder-Owned Elecric Utilities Entire Industry Fuel Type Online Online Online Online Online Online Online Online Online Online 2004 2005 2006 2007 2008p 2004 2005 2006 2007r 2008p Coal — — 110 479 790 670 329 534 2,091 1,390 Natural Gas 8,054 9,255 4,126 3,483 4,687 25,057 17,774 9,459 7,506 8,946 Nuclear 79 247 350 — 422 79 247 350 1,199 434 Wind 306 781 1,051 1,240 2,857 484 1,924 2,405 5,022 8,319 Other 3 2 54 2 96 581 252 427 989 536 Total 8,441 10,284 5,691 5,204 8,852 26,871 20,526 13,175 16,807 19,624 Note: Other = diesel, fuel oil, landfill gas, pet coke, solar/PV, waste heat, water, wood, biomass, and fuel cells. Entire Industry includes all new capacity placed on the grid by shareholder-owned electric utilities, independent power producers, municipals, co-ops, government authorities and corporations. Data includes expansions and new plants. p = preliminary Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department fueled by coal, gas or uranium. In rela- PPAs with smaller renewable develop- although new nuclear reactors will not tion to the broader industry, the share- ers to buy their electricity production. be immune to controversy and face a holder-owned segment accounts for different set of financial and regulatory Despite the recession-induced slow- 26% of total projects in the pipeline hurdles. In 2008, shareholder-owned down in demand growth likely over and 45% of the coal, gas and nuclear utilities submitted Construction and the short to medium term, additional capacity expected online before 2020. Operating License (COL) applications baseload generation will still be needed This sector has naturally a lesser per- to the Nuclear Regulatory Commis- in many power markets over the long- centage of renewables in their con- sion (NRC) for an additional 19 nu- term. In light of the resistance facing struction plans than the broader indus- clear reactors, which brought the total many announced coal plants, several try, as they tend to enter into LPs and number of reactors pending approval utilities have turned to nuclear power, EEI 2008 FINANCIAL REVIEW 51
  14. 14. BuSineSS StRategieS New Capacity Online by Region 2004-2008 U.S. SHAREHOLDER-OWNED ELECTRIC UTILITIES 2004 2005 2006 2007 2008 Region Online Cancelled Online Cancelled Online Cancelled Online Cancelled Online Cancelled ECAR 1,934 2,054 — 1,736 — — — — — — ERCOT — 500 324 1,100 381 500 551 6,575 1,095 729 FRCC 1,118 — 2,874 2,493 — 188 2,040 2,977 — — MAAC 1,369 — 750 1,161 — — — — — — MAIN 621 3,098 1,329 1,627 — — — — — — MRO 780 — 681 1,049 199 175 561 1,050 2,531 300 NPCC 284 2,885 1,211 635 259 80 — 690 92 — RFC 1,330 1,403 — — 775 867 SERC 1,762 2,440 1,691 5,104 — 3,940 84 2,217 1,134 — SPP — 2,000 107 650 141 640 776 874 670 150 WECC 575 2,420 1,318 4,654 3,380 3,387 1,192 2,194 2,556 2,910 Total 8,441 15,397 10,284 20,209 5,691 10,313 5,204 16,577 8,852 4,956 Note: Data includes new plants and expansions of existing plants, including nuclear uprates. Totals may reflect rounding. ReliabilityFirst Corporation (RFC) began operations on 1/1/06 and includes ECAR, MAAC, and MAIN. Source: Ventyx, Inc., The Velocity Suite and EEI Finance Department New Capacity Online – Regulated vs. Competetive ENTIRE INDUSTRY (MW) 30,000 Competitive 25,000 2004 2005 2006 2007r 2008 Regulated Total Competitive 16,655 7,419 7,205 7,864 12,177 20,000 Total Regulated 10,216 13,108 5,970 8,943 7,447 15,000 Total 26,871 20,526 13,175 16,807 19,624 Source: Ventyx, Inc., The Velocity Suite 10,000 and EEI Finance Department 5,000 0 2004 2005 2006 2007r 2008 at year-end to 24 out of a proposed projects will be the next challenge. The transmission 29. The NRC did not approve any majority of companies already have in- Transmission and Distribution Survey Early Site Permits (ESPs) in 2008, but dicated that without federal incentives, Results Southern Company’s Vogtle project in building a new nuclear plant will not Georgia is expected to be approved in be economically feasible. The 2008 EEI Annual Property & 2009. Despite the increasing number Plant Capital Investment Survey indi- of ESP and COL application submis- cated that shareholder-owned electric sions, approvals do not guarantee that utilities and stand-alone transmission plants will be built. Lining up financ- companies invested a record $7.8 bil- ing to build these capital-intensive lion in the nation’s transmission grid in 52 EEI 2008 FINANCIAL REVIEW

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