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  1. 1. Chnging minds. Chnging hbits. 2006 summary annual report Duke energy 2006 summary annual report
  2. 2. In thIs report about the cover 1 Introduction — the new energy eqution liqin Jing is lod forecst nlyst. ech dy, she uses temperture, humidity, wind nd other key metrics to forecst 3 Chirmn’s letter to stkeholders customer power demnd for Duke energy’s midwest opertions for 4 2006 achievements nd 2007 gols the next seven to 10 dys. she must be s precise s possible to 9 2007 Duke energy Chrter ensure tht dequte supplies of power re vilble to meet tht 11 2006 Finncil Highlights demnd. Her nlyses re just one exmple of how the Duke 13 Duke energy t glnce energy tem works ech dy to blnce — nd ultimtely to solve 15 Defining the new energy eqution — the new energy eqution. 21 solving the new energy eqution 27 Chllenging Conventionl Wisdom 30 Consolidted Finncil sttements 35 Bord of Directors 37 executive mngement 38 non‑gaap Finncil mesures 40 Investor Informtion 41 sustinbility t Duke energy Forward‑lookIng statement this report includes sttements tht do not directly or exclusively relte to historicl fcts. such sttements re “forwrd‑looking sttements” within the mening of section 27a of the securities act of 1933 nd section 21e of the securities exchnge act of 1934. one cn typiclly identify forwrd‑ looking sttements by the use of forwrd‑looking words such s: my, will, could, project, believe, expect, estimte, continue, potentil, pln, forecst nd other similr words. those sttements represent Duke energy’s intentions, plns, expecttions, ssumptions nd beliefs bout future events nd re subject to risks, uncertinties nd other fctors, mny of which re outside Duke energy’s control nd could cuse ctul results to differ mterilly from the results expressed or implied by those forwrd‑looking sttements. those fctors include: stte, federl nd foreign legisltive nd regultory inititives tht ffect cost nd investment recovery, hve n impct on rte structures, nd ffect the speed t nd degree to which competition enters the electric nd nturl gs industries; the outcomes of litigtion nd regultory investigtions, proceedings or inquiries; industril, commercil nd residentil growth in Duke energy’s service territories; dditionl competition in Duke energy’s mrkets nd continued industry consolidtion; the influence of wether on compny opertions, including the economic, opertionl nd other effects of hurricnes, torndos or other nturl phenomen; the timing nd extent of chnges in commodity prices, interest rtes nd foreign currency exchnge rtes; generl economic conditions, including ny potentil effects rising from terrorist ttcks nd ny consequentil hostilities; chnges in environmentl nd other lws nd regultions to which Duke energy nd its subsidiries re subject; the results of finncing efforts, including Duke energy’s bility to obtin finncing on fvorble terms, which cn be ffected by vrious fctors, including Duke energy’s credit rtings nd generl economic conditions; declines in the mrket prices of equity securities nd resultnt csh funding requirements for Duke energy’s defined benefit pension plns; the level of creditworthiness of counterprties to Duke energy’s trnsctions; the mount of collterl required to be posted from time to time in Duke energy’s trnsctions; growth in opportunities for Duke energy’s business units, including the timing nd success of efforts to develop domestic nd interntionl power; the performnce of electric genertion fcilities; the effect of ccounting pronouncements issued periodiclly by ccounting stndrd‑setting bodies; the bility to successfully complete merger, cquisition or divestiture plns, including the prices t which Duke energy is ble to sell ssets; nd the success of the business following merger, cquisition or divestiture. In light of these risks, uncertinties nd ssumptions, the events described in the forwrd‑looking sttements might not occur or might occur to different extent or t different time thn Duke energy hs described. Duke energy undertkes no obligtion to publicly updte or revise ny forwrd‑ looking sttements, whether s result of new informtion, future events or otherwise. Informtion contined in this report is unudited, nd is subject to chnge.
  3. 3. … to solve the new energy eqution. We face a new energy equation with many variables. Increasing demand for energy is a key driver of rising energy prices. As a result, there is a renewed focus on renewable energy and energy efficiency — “save-a-watts” vs. megawatts. There is mounting concern about global climate change and further reducing air emissions. And, we must continue to grow earnings and dividends. These variables present both challenges and opportunities. We believe we can solve this new equation with our sustainability focus. This means working to balance the needs of all of our stakeholders. These efforts will keep our prices affordable and our service reliable as we continue to work to reduce our environmental footprint and earn superior returns. This delicate balancing act requires us to challenge conventional wisdom with new thinking and innovation. It means changing our own minds and habits and those of our stakeholders. We must still generate megawatts, but we believe we can produce significant save-a-watts as well. In 2006, we repositioned Duke Energy to do just that. Read on … 1 Duke energy 2006 summary annual report
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  5. 5. chaIrman’s letter to stakeholders dear fellow investors, customers, employees and all who have a vested interest in our success — our partners, suppliers, policymakers, regulators and communities: I want to thank the entire Duke Energy team for accomplishing both a merger and a spinoff last year. Never before in my career have I seen people work so hard to resolve so many complex issues. Our many financial, operational and policy accomplishments in 2006 were the result of your dedication and support. For our other stakeholders, let me summarize our key accomplishments simply by saying that we did what we said we would do in our 2006 Charter. 2006 ongoing diluted earnings per share of $1.81 exceeded 2005 ongoing diluted earnings per share of $1.73. Duke Energy’s total shareholder return for 2006, before the spinoff of Spectra Energy in early 2007, was 26.3 percent. We outperformed both the Philadelphia Stock Exchange Utility Sector Index (20 percent) and the SP 500 Index (15.8 percent). The strategic steps we took last year positioned the company for growth in 2007 and beyond. We established an industry-leading electric power platform through the successful execution of the merger with Cinergy — and we did it in 11 months. (left) James e. RogeRs, ChaiRman, PResident and Chief exeCutive offiCeR 3 Duke energy 2006 summary annual report
  6. 6. looking bck. looking forwrd. 2006 was a transformational year for Duke Energy. By taking decisive actions, we lowered our risk profile and repositioned the company. As a leading pure-play electric company with a strong balance sheet, we are in a favorable position to achieve our 2007 goals, which will drive earnings and dividend growth over the long term. 2006 Major Achievements Goals for 2007* ✔ merged with Cinergy to increse the scle estblish the identity nd culture of the new nd scope of our power business. Duke energy, unifying our people, vlues, strtegy, processes nd systems. ✔ reduced our risk profile by selling our unregulted optimize our opertions by focusing on power plnts outside the midwest nd by selling sfety, simplicity, ccountbility, inclusion, our Commercil mrketing nd trding business. customer stisfction, cost mngement ✔ Formed joint venture with morgn stnley nd employee development. rel estte Fund for Crescent resources. achieve public policy, regultory nd legisltive ✔ outcomes tht blnce our customers’ needs repurchsed $500 million of stock. for relible energy t competitive prices with our ✔ acquired, filed for certificte, or nnounced our shreholders’ expecttion of superior returns. intent to build new genertion ssets throughout Invest in energy infrstructure tht meets rising our five sttes. We estimte tht we will need to customer demnds for relible energy in n increse our generting cpcity by pproximtely efficient nd environmentlly sound mnner. 6,400 megwtts over the next 10 yers. achieve 2007 finncil objectives nd position ✔ announced numerous expnsions of the compny to meet future growth trgets. our gs trnsmission system. ✔ *See the 2007 Duke Energy Charter on page 9. achieved our 2006 employee incentive trget. ✔ spun off spectr energy on Jn. 2, 2007. 4
  7. 7. We reduced our ernings voltility nd business risk by In this eqution, we must meet our customers’ needs selling our commercil mrketing nd trding opertions, for ffordble nd relible electric power while meeting nd effectively hlf of our rel estte development compny, more stringent environmentl rules tht will inevitbly Crescent resources. these trnsctions rised lmost increse costs. $2 billion in fter‑tx csh, most of which will be invested We must rise cpitl for long‑term investments in more in our lower‑risk, energy infrstructure businesses. environmentlly friendly genertion cpcity, renewble In customer stisfction, we hve consistently rnked in the energy nd energy efficiency. and we must ressure investors who my be wry of long‑term cpitl top qurtile in severl independent utility studies. lst yer, construction progrms. our utility compnies in the south nd midwest finished in the top 10 ntionlly in the key account Benchmrk study. Blncing these fctors nd solving the new energy equ‑ In ddition, we rnked first in the south nd best in the tion will require new pproch to utility regultion. It ntion mong smll nd mid‑sized business customers, will require us to chnge minds nd chnge hbits. It will ccording to J.D. power nd assocites. require us to see nd understnd the gols of ech of our stkeholder groups. this letter nd the rest of this report We provided ledership on industry issues. I currently serve will detil our plns to do tht. s chirmn of edison electric Institute nd I co‑chir the ntionl action pln on energy efficiency nd the allince to sve energy. other members of the Duke energy what Investors can expect In 2007 ledership tem lso help to shpe the stte nd federl and beyond policy decisions tht ffect our business. our strtegy to increse ernings nd dividends in the We continued to build high‑performnce, sustinbility‑ long term is strightforwrd: focused culture chrcterized by diversity, inclusion, stedily improve our sles growth employee development nd ledership. and we estblished ■ ern solid returns on our significnt cpitl investments, new sfety incentives for 2007 to reinforce our concern ■ for ech other nd our customers. nd Continue chieving dditionl cost reductions from the ■ merger nd from our continuous improvement efforts. so why dId we choose to get larger and then get smaller? these three drivers — sles, investments nd cost Very simply, scle nd focus. svings — re essentil to chieving both our 2007 finncil objectives nd long‑term growth. our merger with Cinergy in april 2006 gve our electric business the scle it needed to stnd lone. to unlock even you cn red ll of our 2007 objectives in our Chrter on greter vlue, three months lter we nnounced tht we pge 9. our 2007 employee incentive trget of $1.15 per would seprte our nturl gs business nd our electric shre is bsed on ongoing diluted ernings. the $1.15 business into two strong pure‑ply compnies: spectr serves s the bsis for 4 to 6 percent nnul ernings growth through the end of 2009. We expect dividend energy for gs nd Duke energy for electric power. We growth to be in line with ernings growth. completed the spinoff of spectr energy in Jnury 2007. tody Duke energy is one of the top five electric compnies our business pln projects qurterly dividend increse in the united sttes in mrket cpitliztion. of $0.01 beginning in the third qurter of 2007. this dividend increse — to be decided by the bord of Hving the strtegic focus of pure‑ply electric compny directors — would be in line with our expecttion to will help us meet the chllenges nd seize the opportuni‑ ties to solve wht we cll the new energy eqution. increse dividends consistent with 70 to 75 percent pyout trget. 5 Duke energy 2006 summary annual report
  8. 8. solvIng the new energy eQuatIon: forecsts for customer power demnd nd study ll vible changIng mInds and changIng habIts nd economicl options to meet tht demnd. In the pst, we hve been successful in meeting our customer growth our ctions in 2006 put us in strong position to grow by operting our power plnts efficiently, by purchsing s we ddress the vribles of the new energy eqution: peking power plnts nd by buying power on the whole‑ Building new power plnts to meet stedily sle mrket s needed. ■ incresing demnd tody’s growth projections suggest tht we will need using diverse mix of fuels nd technologies t ■ to increse our generting cpcity by pproximtely our new plnts to limit our future price, relibility 6,400 megwtts over the next 10 yers. most of this nd environmentl risks new cpcity will be in the Crolins, nd the reminder Deploying new technologies to modernize our in Indin. ■ trnsmission nd distribution grids to boost even now, we need nerly 1,500 megwtts of new gener‑ efficiency nd relibility, nd to support new tion in ohio to meet existing demnd. We pln to build or energy efficiency inititives buy new genertion there if the stte encts legisltion tht obtining legisltion nd regultory tretment tht ■ will llow utilities to own genertion fcilities. will let us recover our finncing costs s we build new nd more efficient power plnts (megwtts) nd s our newest bse lod plnts — those designed to operte we promote energy efficiency (“sve‑‑wtts”) with round the clock — were completed in 1986 in the new inititives on both sides of the meter Crolins nd in 1991 in the midwest. It tkes six to 10 yers to pln, permit nd construct such plnts. We relizing the efficiencies nd cost svings from the ■ re seeking permits now for plnts tht we’ll need in merger while mintining our opertionl excellence, nd 2011, when we expect to hve more thn 250,000 shping new federl rules tht limit crbon emissions ■ dditionl customers. to ensure our customers nd other stkeholders re firly treted. We nticipte nnul cpitl expenditures of pproximtely $3.5 billion from 2007 through 2009 for expnsion of our We will solve the new energy eqution by chllenging genertion cpcity, environmentl retrofits, nucler fuel, conventionl wisdom. We will invest in new technology. mintennce nd other expenses. Included in this mount We will blnce the vribles by working collbortively is expnsion cpitl for: with ll stkeholders to find the best nd firest solutions. expnding genertion in north Crolin ■ let me briefly highlight ech vrible nd spell out our plnning new clener‑col integrted gsifiction ■ strtegy for ddressing it. this will lso give you good combined cycle (IgCC) plnt in Indin, nd overview of our ner‑term nd long‑term growth strtegies. exploring the development of new nucler plnt in ■ south Crolin. building new power plants to meet steadily increasing demand. In the Crolins, we re dding between 40,000 We expect tht new genertion nd other infrstructure nd 60,000 new customers nnully. In Indin, kentucky investments over the next three yers will increse the nd ohio, we re dding 11,000 to 16,000 new custom‑ totl rte bse in our five sttes by bout 25 percent from ers ech yer. For the next three yers, we expect nnul the current $16 billion to $20 billion (less deprecition kilowtt‑hour sles growth of bout 1.5 percent in the nd mortiztion). the returns generted from growing Crolins nd bout 1 percent in the midwest. rte bse will ultimtely trnslte into long‑term ernings growth — nd we expect our rtes to remin below the We re required by lw to meet the electric power needs ntionl verge. of our customers s economiclly nd relibly s possible. ech yer, we perform n extensive nlysis to updte our 6
  9. 9. comparIson oF 2006 total return comparIson oF FIve‑year cumulatIve total return oveR a five-yeaR PeRiod beginning deCembeR 31, 2001, duke eneRgy’s total shaReholdeR RetuRn (tsR) has lagged both the sP 500 index and the PhiladelPhia stoCk exChange utility index. but, in 2006, investoRs ResPonded favoRably to the deCisive aCtions we took to loweR ouR Risk PRofile and RePosition duke eneRgy as a leading PuRe-Play eleCtRiC ComPany. duke eneRgy’s tsR foR 2006 (PRe-sPinoff of sPeCtRa eneRgy) was 26.3 PeRCent, whiCh exCeeded the PhiladelPhia stoCk exChange utility seCtoR index (20 PeRCent) and the sP 500 index (15.8 PeRCent). using a diverse mix of fuels and technologies at our our cost estimtes were bsed on two units, nd we still new plants to limit our future price, reliability and need n ir permit for this project. so s you red this, environmental risks. one of the resons our verge we re studying the Cliffside project to determine how to price for electricity is below the ntionl verge is tht proceed. We won’t mke decision until we hve clerer 98 percent of our energy is generted from col nd understnding of the overll costs s well s the conditions nucler power. of the ir permit. We re lso evluting the possibility of enhncing nd ccelerting nturl gs‑fired plnts For our Cliffside sttion, we proposed building two new in our portfolio. 800‑megwtt units using supercriticl col technology. In Indin, we continue to explore development of new this is the most environmentlly efficient pulverized col 630‑megwtt IgCC plnt. IgCC technology is less proven, technology vilble tody. Becuse of their incresed efficiencies, these plnts typiclly burn 10 percent less but hs the potentil to significntly reduce emissions. col thn conventionl units nd emit significntly less additionlly, the geology of the plnt loction is conducive sulfur dioxide nd nitrogen oxide. to underground storge of cptured crbon emissions. We believe tht investing in this next genertion of col‑ as I ws finishing this letter, we received notice of deci‑ plnt technology is n importnt prt of meeting our sion from the north Crolin utilities Commission (nCuC), environmentl commitments. which uthorized building one of the two units. the com‑ mission lso ccepted our commitment to invest 1 percent Becuse the Cliffside nd IgCC projects use more of our revenues in the Crolins for energy efficiency, environmentlly friendly technologies, they were uthorized subject to pproprite regultory tretment, nd our for significnt federl tx credits by the u.s. Deprtment pln to retire older, less efficient units. of energy upon their completion. this is further evidence tht Duke energy is on the forefront of new clener col technology. 7 Duke energy 2006 summary annual report
  10. 10. We re lso proposing to build new nucler plnt reduces our printing nd miling costs. you need to in south Crolin. new nucler plnts will encounter sign up only once, nd you cn do so t this Web link: chllenges, including used fuel storge, cost recovery https://www.icsdelivery.com/duk/index.html. nd new licensing process. But nucler energy hs one big dvntge: It produces no greenhouse gs emissions, obtaining legislation and regulatory treatment that will nd we believe tht will help offset the other chllenges. let us recover our financing costs as we build new and more efficient power plants (megawatts) and as we deploying new technologies to modernize our promote energy efficiency (save‑a‑watts) with new transmission and distribution grids to boost efficiency initiatives on both sides of the meter. We re working and reliability, and to support new energy efficiency this yer to crete regultory frmework tht blnces the initiatives. Complementing our cpitl investments in new needs of our customers, our investors nd our environment. genertion is our renewed commitment to energy efficiency. allowing us to recover finncing costs s we incur them our job is to educte nd support our customers — to would lower the overll cost of projects s well s llow us chnge minds nd hbits — to help them better mnge to spred out rte increses over the course of the building their energy use to reduce both pek nd overll demnd. cycle, voiding lrge one‑time increses. energy efficiency cn be mesured in sve‑‑wtts, the We re pursuing such legisltion in the Crolins tht number of megwtts we don’t need to supply when would cover both the Cliffside sttion in north Crolin nd proposed new nucler sttion in south Crolin. We customers re being smrt bout their energy consumption. re lso seeking to recover our upfront development costs efficient energy prctices re just s importnt s col, for the nucler plnt. We hve been cler tht we will not nucler, nturl gs nd renewble energy. tht’s why we think of efficiency s the “fifth fuel.” move forwrd with nucler plnt unless we know tht we cn recover our finncing costs in rtes s we build. With our strong customer reltionships nd bck office systems, we re well positioned to mke energy efficiency In ohio, we re pursuing two‑prt regultory strtegy: significnt prt of our portfolio. Duke energy hs First, we filed request to extend the rte stbiliztion pln ppointed vice president of energy efficiency, chief through 2010. second, we re lso promoting legisltion technology officer nd vice president of regultory tht would llow regulted distribution compny the strtegy. you will meet them in the pges tht follow. choice of whether to build or to purchse new genertion. We believe tht their focused pproch will mke energy success on this front depends on our bility to chnge efficiency new sset for ll of our stkeholders, especilly minds. We need to persude legisltors nd regultors to our customers nd investors. give energy efficiency investments the sme weight s energy efficiency is the core of our commitment to building new genertion investments. Conventionl wisdom sys sustinble business model. We intend to mnge tht regultors rewrd us for selling more of our product, finncil, environmentl nd socil opportunities nd not less. We wnt to chnge the prdigm, by persuding risks effectively, so we’ll still be doing business mny them tht utilities should be rewrded for energy efficiency yers from now. s well s sles. If we cn ern lmost s much for sving wtt s for mking wtt, everyone will benefit. With you cn be prt of our commitment to sustinbility leder‑ this kind of economic imprtility, we cn provide relible ship, too. We re gin offering to mke $1 dontion to service, conserve precious resources nd reduce emissions the nture Conservncy for every shreholder who signs while still delivering fir return to our investors. up for electronic delivery of our nnul report, proxy stte‑ ment nd our other finncil informtion. Currently, more We believe we cn succeed with our regultory gend. thn 80,000 of you hve chosen electronic delivery, nd We re seeking consensus on policies tht blnce we intend to mke n equivlent dontion in dollrs to the the needs of ll of our stkeholders. this collbortive nture Conservncy. electronic delivery helps us in two pproch hs produced constructive regultory outcomes wys: It preserves our nturl resources, nd it significntly for our stkeholders before. 8
  11. 11. 2007 Duke energy Chrter We are Duke Energy, a leading energy company focused on electric power and gas distribution operations in the Americas. We energize our communities and enhance the quality of life for the people who live there. Our purpose is to create superior and sustainable value for our customers, employees, communities and investors through the production, delivery and sale of energy and energy services. to be successful in 2007 and beyond, we must: estblish the identity nd culture of the new Duke energy, unifying our people, vlues, strtegy, processes nd systems. optimize our opertions by focusing on sfety, simplicity, ccountbility, inclusion, customer stisfction, cost mngement nd employee development. achieve public policy, regultory nd legisltive outcomes tht blnce our customers’ needs for relible energy t competitive prices with our shreholders’ expecttion of superior returns. Invest in energy infrstructure tht meets rising customer demnds for relible energy in n energy efficient nd environmentlly sound mnner. achieve 2007 finncil objectives nd position the compny to meet future growth trgets. In conducting our business, we value: Stewardship — a commitment to helth, sfety, environmentl responsibility nd our communities. Integrity — ethiclly nd honestly doing wht we sy we will do. Safety — a relentless commitment to working sfely nd looking out for the sfety of our co‑workers nd others with whom we do business. RespectfortheIndividual — embrcing diversity nd inclusion, enhnced by openness, shring, trust, temwork nd involvement. HighPerformance — achieving superior business results, stretching our cpbilities nd vluing the contributions of every employee. Win-WinRelationships — Hving reltionships which focus on the cretion of vlue for ll prties. Initiative — Hving the courge, cretivity nd discipline to led chnge nd shpe the future. we will be successful when: our investors relize superior return on their investment over time. our customers, suppliers nd communities benefit from our business reltionships. every employee strts ech dy with sense of purpose, nd ends ech dy sfely with sense of ccomplishment. 9 Duke energy 2006 summary annual report
  12. 12. “Our challenges are as great as our opportunities, but I am confident that by listening to all of our stakeholders and engaging them in our efforts, we will solve the new energy equation — for the benefit of all.” realizing the efficiencies and cost savings from the in prtnership with the u.s. Deprtment of energy, merger while maintaining our operational excellence. we re reserching underground crbon storge t We re on trck to relize $650 million in net svings our est Bend sttion in kentucky. from the Cinergy merger over the first five yers. We re beginning to see the full benefits of those svings s most patIence Is needed to change mInds of the merger‑relted rte reductions expire this yer. In and habIts 2007, we re focusing on continuous improvement. We the strtegies I’ve outlined will position Duke energy to intend to crefully mnge our costs nd simplify our be leder on severl fronts, including new technologies, opertions to deliver our products nd services s relibly energy efficiency, continuous improvement nd sustinbil‑ nd efficiently s possible. ity. our chllenges re s gret s our opportunities, but I m confident tht by listening to ll of our stkeholders shaping new federal rules that limit carbon emissions to nd engging them in our efforts, we will solve the new ensure our customers and other stakeholders are fairly energy eqution — for the benefit of ll. treated. Duke energy is the third‑lrgest consumer of col in the united sttes, so we re mindful of our environmen‑ I gin thnk our employees, mngement nd bord tl responsibilities. a growing body of scientific evidence of directors — both pst nd present — for our mny suggests tht the burning of fossil fuels is chnging our successes in 2006. you chieved our strtegic gend climte. We re committed to mking the best technology while keeping the gs flowing nd the lights on. choices, ones tht will limit our emissions nd optimize our I thnk our investors for your support during the merger investments so tht we cn keep our prices competitive. nd the spinoff. your confidence in us is the best evidence reducing greenhouse gses with dvnced power gener‑ tht the new direction we hve tken to become one of the tion technology will tke decdes nd cost billions of ntion’s premier electric compnies is the right direction. dollrs. the work will continue well into this century. We re energized by the prospects of bright future. We But if we don’t begin to solve the problem now, the costs hve solid investment proposition, nd we re in strong will go even higher. position to chnge minds nd hbits to crete significnt to demonstrte our corporte commitment to tckling this vlue for ll of our stkeholders. From sustinbility issue, in Jnury 2007, Duke energy joined the united stndpoint, I believe tht our grndchildren will be proud sttes Climte action prtnership (usCap). this diverse of how we re ddressing the energy nd environmentl colition of businesses nd environmentl groups includes issues of our dy. alco, Dupont, Cterpillr, generl electric nd other utilities — Fpl group, pge Corp. nd pnm resources — s well s environmentl Defense, nturl resources Defense Council, World resources Institute nd the Jmes e. rogers pew Center on globl Climte Chnge. together, we hve Chirmn, president nd Chief executive officer begun dilogue nd offered recommendtions on ntionl mrch 2, 2007 policies for deling with this pressing issue. additionlly, 10
  13. 13. FInancIal hIghlIghts 2003 c 2006 (In millions, except per‑shre mounts) 2005 2004 2002 statement of operations $ 15,184 operting revenues $ 16,297 $ 19,596 $ 17,623 $ 14,757 12,493 operting expenses 13,416 16,441 16,632 12,313 201 gins on sles of investments in commercil nd multi‑fmily rel estte 191 192 84 106 276 gins (losses) on sles of other ssets nd other, net 534 (416) (199) 32 3,168 operting income 3,606 2,931 876 2,582 1,008 other income nd expenses, net 1,809 304 550 352 1,253 Interest expense 1,066 1,282 1,331 1,116 61 minority interest expense 538 200 62 91 2,862 ernings from continuing opertions before income txes 3,811 1,753 33 1,727 843 Income tx expense (benefit) from continuing opertions 1,282 507 (52) 544 2,019 Income from continuing opertions 2,529 1,246 85 1,183 (156) (loss) income from discontinued opertions, net of tx (701) 244 (1,246) (149) 1,863 Income (loss) before cumultive effect of chnge in ccounting principle 1,828 1,490 (1,161) 1,034 Cumultive effect of chnge in ccounting principle, — net of tx nd minority interest (4) — (162) — 1,863 net income (loss) 1,824 1,490 (1,323) 1,034 — Dividends nd premiums on redemption of preferred nd preference stock 12 9 15 13 $ 1,863 ernings (loss) vilble for common stockholders $ 1,812 $ 1,481 $ (1,338) $ 1,021 ratio of earnings to Fixed charges d b 3.2 4.7 2.3 — 2.0 common stock data shres of common stock outstnding e 1,257 yer‑end 928 957 911 895 1,170 Weighted verge – bsic 934 931 903 836 1,188 Weighted verge – diluted 970 966 904 838 ernings (loss) per shre $ 1.59 Bsic $ 1.94 $ 1.59 $ (1.48) $ 1.22 $ 1.57 Diluted $ 1.88 $ 1.54 $ (1.48) $ 1.22 $ 1.26 Dividends per shre $ 1.17 $ 1.10 $ 1.10 $ 1.10 balance sheet $ 68,700 totl ssets $ 54,723 $ 55,770 $ 57,485 $ 60,122 $ 18,118 long‑term debt including cpitl leses, less current mturities $ 14,547 $ 16,932 $ 20,622 $ 20,221 Cpitliztion 55% Common equity 50% 45% 37% 36% 0% preferred stock 0% 0% 0% 1% 0% trust preferred securities 0% 0% 0% 3% 55% totl common equity nd preferred securities 50% 45% 37% 40% 2% minority interests 2% 4% 5% 5% 43% totl debt 48% 51% 58% 55% a Significant transactions reflected in the results above include: 2006 merger with Cinergy (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”), 2006 Crescent joint venture transaction and subsequent deconsolidation effective September 7, 2006 (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”), 2005 DENA disposition (see Note 13 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Discontinued Operations and Assets Held for Sale”), 2005 deconsolidation of DEFS effective July 1, 2005 (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”), 2005 DEFS sale of TEPPCO (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”) and 2004 DENA sale of the Southeast plants (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”). b Earnings were inadequate to cover fixed charges by $241 million for the year ended December 31, 2003. c As of January 1, 2003, Duke Energy adopted the remaining provisions of Emerging Issues Task Force (EITF) 02-03, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and for Contracts Involved in Energy Trading and Risk Management Activities” (EITF 02-03) and SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). In accordance with the transition guidance for these standards, Duke Energy recorded a net-of-tax and minority interest cumulative effect adjustment for change in accounting principles. (See Note 1 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Summary of Significant Accounting Policies,” for further discussion.) d Includes pre-tax gains of approximately $0.9 billion, net of minority interest, related to the sale of TEPPCO GP and LP in 2005 (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”). e 2006 increase primarily attributable to issuance of approximately 313 million shares in connection with Duke Energy’s merger with Cinergy (see Note 2 to the Consolidated Financial Statements in Duke Energy’s 2006 Form 10-K, “Acquisitions and Dispositions”). see notes to Consolidted Finncil sttements in Duke energy’s 2006 Form 10‑k. 11 Duke energy 2006 summary annual report
  14. 14. duke energy busIness segments U.S. Franchised Electric and Gas Commercial Power u.s. Frnchised electric nd gs, Duke energy’s Commercil power which opertes in north Crolin, south business owns nd opertes unregulted Crolin, Indin, ohio nd kentucky, power plnts, primrily in the midwest. is 2007 EBIT our lrgest businessEBIT 2007 segment nd EBIT almost ll of the results for this business 2007 EBIT 2007 2007 EBIT 2007 EBIT 2007 EBIT 2007 EBIT our primry source of ernings growth. CONTRIBUTION come from sles to retil customers in CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION ohio under tht stte’s rte stbiliztion We expect this segment to represent pln. also in this segment is Duke energy genertion pproximtely 79 percent of forecsted 2007 ongoing services (Degs), which develops, owns nd opertes totl segment ernings before interest nd txes (eBIt).* electric genertion sources tht serve lrge energy It includes: consumers, municiplities, utilities nd industril a $16 billion retil rte bse ■ fcilities. We expect this segment to represent pproxi‑ 3.9 million electric customers ■ mtely 7 percent of forecsted 2007 ongoing totl segment eBIt.* It includes: 500,000 gs customers in ohio nd kentucky ■ 8,100 megwtts of unregulted genertion, most 47,000 squre miles of service territory ■ ■ of which is dedicted to regulted customers. 28,000 megwtts of regulted genertion. ■ Duke Energy International Crescent Resources Duke energy’s interntionl electric Formed more thn 40 yers go by genertion opertions re locted in Duke energy, Crescent resources Centrl nd south americ. We expect this mnges lnd holdings nd develops segment2007represent pproximtely to EBIT high‑qulity commercil, residentil 2007 EBIT 2007 EBIT 2007 EBIT 2007 EBIT 2007 EBIT 2007 EBIT 11 percent of forecsted CONTRIBUTION 2007 ongoing CONTRIBUTION nd multi‑fmily rel estte projects. CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION CONTRIBUTION totl segment eBIt.* It includes: We expect this segment to represent pproximtely 3 percent of forecsted 2007 ongoing approximtely 4,000 megwtts of genertion, ■ totl segment eBIt.* In 2006, Duke energy worked primrily hydroelectric power, in six countries: with morgn stnley rel estte Fund to crete n argentin, Brzil, ecudor, el slvdor, effective 50/50 joint venture. guteml nd peru. Crescent resources is in 10 sttes, primrily in ■ the southestern nd southwestern united sttes. tking the u.s. Frnchised electric nd gs nd Commercil power segments together, we expect more thn 85 percent of Duke energy’s forecsted 2007 ongoing totl segment eBIt will come from sles to regulted customers. *2007 forecasted ongoing total segment EBIT excludes results for the operations labeled Other. 12
  15. 15. duke energy at a glance: repositioning our business In January 2007, Duke Energy Corporation became one of the largest pure-play electric power holding companies in the United States. Our utility companies supply and deliver energy to 3.9 million U.S. customers. We have about 37,000 megawatts of electric generating capacity in the Midwest and the Carolinas, natural gas distribution services in Ohio and Kentucky, and approximately 4,000 megawatts of electric generation in Latin America. Duke Energy is also a joint-venture partner in a U.S. real estate company. gianna manes is senioR viCe PResident of Regulated PoRtfolio oPtimization and fuels at duke eneRgy’s u.s. fRanChised eleCtRiC and gas business. the oRganization she leads buys and sells eleCtRiCity in the wholesale maRket and PuRChases Coal and natuRal gas foR the geneRation fleet. 13
  16. 16. Changing minds by thinking differently Over the next three years, Duke Energy’s regulated We are working with policymakers to find the businesses plan to invest more than $9 billion to best way to address the timely recovery of these strengthen customer service and reliability, and to investments. We believe that recovering financing meet steadily growing demand. Besides investing costs as we build and implementing a regulatory in additional megawatt-hours from new plants, we framework that encourages investments in energy are supporting a “save-a-watt” business model efficiency will result in smaller, more manageable focused on energy efficiency to offset the need for rate increases. This is a win-win proposition for more plants, even as demand continues to grow. our customers and our investors. We also believe With this new model, energy efficiency becomes that investments in energy efficiency should be put a sustainable system resource that plays a more on an equal footing with investments in new gen- significant role in our plans to meet customers’ eration. With comparable earnings on investments, increasing demand for electricity. we would be economically impartial to meeting our customers’ growing demand for electricity with investments in energy efficiency or new generation. beveRly maRshall (left), viCe PResident foR fedeRal PoliCy and goveRnment affaiRs at duke eneRgy, and Julie gRiffith, viCe PResident foR state goveRnment affaiRs at duke eneRgy indiana, aRe two key membeRs of duke eneRgy’s PubliC PoliCy team. 14
  17. 17. Defining the new energy eqution For more than a century, we have supplied our customers with affordable and reliable electricity. Our product is considered an essential service. It has also made possible many innovative technologies that enhance our customers’ standard of living. And it has helped keep our local and state economies competitive in the global marketplace. Providing adequate power was once as simple as balancing supply and demand. Although that is still the core of what we do, times have changed. Today, we face the unprecedented challenge of solving a new energy equation. During a time of rising and volatile fuel prices, historic environmental challenges and industry restructuring, the demand for electricity continues to grow. With our commitment to sustainability, we must balance the growing demand for power with the investments needed to supply it — while reducing our environmental impact and keeping prices affordable. This requires new thinking on both the policy and technology fronts. 15 Duke energy 2006 summary annual report
  18. 18. polIcy leadershIp to meet the growing demnd for power, we re investing in new genertion of highly efficient nd environmentlly our stkeholders, prticulrly our customers, investors nd dvnced power plnts, new environmentl controls for communities, expect us to ply leding role in shping existing plnts, nd trnsmission nd distribution system ntionl policy tht ddresses this ntionl nd globl upgrdes. our emphsis on new energy efficiency progrms chllenge. We tke tht responsibility seriously. our gol is nd technologies will help meet growing demnd. policy tht will slow the growth of greenhouse gses nd then begin to reduce them — while protecting the economy We cll energy efficiency the “fifth fuel” becuse it comple‑ ments col, nucler power, nturl gs nd renewble nd our customers from price shocks. energy, the four primry sources of electric power for the another vrible is the prospect of mndtory renewble future. We see it s one of our most promising solutions, portfolio stndrds (rps) t both the federl nd stte level. becuse the most environmentlly sound, inexpensive nd twenty‑two sttes currently hve such stndrds, which relible kilowtt‑hour is the one we don’t hve to produce. require electric utilities to generte nywhere from 5 to generting “sve‑‑wtts” is just one prt of the eqution 20 percent of their power from “climte‑friendly” renewble tht requires our customers to chnge how they use elec‑ energy sources such s solr, wind, geotherml nd gri‑ tricity. We re looking t wys to help them do tht. culturl wste, over vrying periods of time. Congress is evluting legisltive proposls for ntionl rps. understandIng the varIables as compny focused on sustinbility, we hve invested solving the new energy eqution mens understnding ll in pilot projects involving wind nd griculturl wste so of its vribles. one of the most significnt nd unpredict‑ tht we cn gin n understnding of the technologies ble vribles is future environmentl regultion. tody’s nd costs tht would be required on lrger scle before irregulr ptchwork of federl nd stte environmentl mndtory stndrds re put in plce. tody, we re lso requirements hs lredy prompted substntil investments. the second‑lrgest genertor of renewble hydroelectric power in the united sttes. recognition of globl wrming s serious problem hs incresed the cll for regultion of greenhouse gses, like ny other publicly trded compny, we hve primrily crbon. mndtory crbon dioxide (Co2) responsibility to meet our customers’ needs while emission reductions re being considered in Congress. recovering our investments nd erning good return When legisltion psses, utilities will need to mke on those investments for our shreholders. to solve the substntil investments to comply. It is criticl tht ny new energy eqution, we must use nucler, col, nturl such crbon regultions be phsed in to void cusing gs, renewble energy nd energy efficiency. our strtegy economic disruption nd tht the ffected compnies for doing so is outlined on the following pges. receive emission llownces to defry the cost of complince. 16
  19. 19. Balancing supply and demand When you flip tht light switch, djust your ir conditioning, turn your television on or boot up your computer, you expect power. But do you think bout where it comes from? Duke energy genertes electricity from vriety of fuels: col, nturl gs, nucler nd renewble hydroelectric sources. energy efficiency, the “fifth fuel,” is lso prt of the mix. this diversity mens tht we’re not overly dependent on ny single fuel, nd it helps us ddress fuel price fluctutions nd environmentl risks. We must lso keep our fuel mix in blnce to meet stedily growing demnd. this is ll prt of the compny’s Integrted resource pln, which determines the best options to meet our customers’ electricity needs over the next 20 yers. using input from mny stkeholders, we updte the pln periodiclly with the gol of finding the most efficient nd economicl resources — both in power genertion nd in energy efficiency — to meet future demnd. JaniCe hageR is managing diReCtoR of integRated ResouRCe Planning foR duke eneRgy. heR team ensuRes that duke eneRgy’s suPPly of eleCtRiCity keePs PaCe with gRowing CustomeR demand while ComPlying with enviRonmental RequiRements. 17 Duke energy 2006 summary annual report
  20. 20. Balancing regulated and non-regulated assets When electric genertion ws deregulted in ohio in 2001, mny people expected fully competitive mrket to develop in the first five yers. But tht didn’t hppen. as the end of tht five‑yer period drew ner, regultors, utilities nd customers relized tht n immedite shift to mrket‑bsed rtes in 2006 would probbly result in lrge price increses over short time, s hd occurred in other sttes. to minimize rte shock nd to permit grdul trnsition to mrket‑bsed rtes, stte regultors worked with ohio’s electric utilities, including Duke energy ohio, to develop rte stbiliztion plns (rsps). these plns provide customers with stble, predictble rtes for number of yers — in Duke energy’s cse, from 2006 through 2008. In lte 2006, Duke energy ohio sked regultors to extend its rsp by n dditionl two yers, through 2010. under the proposed extension, which is being reviewed, the utility’s unregulted generting ssets in ohio would continue to serve the stte’s retil customers. the pln supports continued electric system relibility nd sends cler price signls to customers, while helping to mintin stble revenue strem for the compny. dave Celona, viCe PResident foR goveRnment and RegulatoRy affaiRs at duke eneRgy ohio, is woRking to PRovide stability to ohio’s eleCtRiC industRy by PRomoting the extension of the ComPany’s Rate stabilization Plan. 18
  21. 21. Balancing reliability and cost Just s demnd for electric power is incresing, so is the demnd for even greter relibility of tht power supply. this is primrily driven by our incresingly digitl society. more nd more pplinces nd equipment — from plsm televisions to utomted ssembly lines — re using more kilowtt‑hours to power more digitl circuits. a power interruption of even few seconds is not only inconvenient, but it cn hve mjor economic impct s well. at Duke energy, we work round the clock to supply power relibly. one wy we do tht is to ensure tht we operte our supply nd delivery opertions — genertion, trnsmission nd distribution — efficiently nd sfely, nd in wy tht protects the environment. this blnced pproch helps keep our relibility nd customer stisfction high, nd it helps us better mnge our opertion nd mintennce costs, which is importnt to our investors. our power delivery networks ply criticl role in our energy efficiency nd relibility efforts. Investing in smrt grid will help us chieve our “fifth fuel” inititives nd enhnce our service nd relibility. theoPolis holeman is senioR viCe PResident of PoweR deliveRy foR duke eneRgy’s u.s. fRanChised eleCtRiC and gas oPeRations. his team is ResPonsible foR keePing PoweR quality and Reliability high — 24/7. 19 Duke energy 2006 summary annual report
  22. 22. Changing habits with a smarter grid We believe we can change energy habits, includ- Smart meters will also enhance our ability to ing our own, by deploying new energy-saving tech- measure and verify the impacts of our energy effi- nologies. One promising technology available now ciency programs. This is critical for energy efficiency is advanced metering — the replacement of the to become a reliable system resource for meeting simple billing meter with one capable of two-way customer demand for electricity. Remote metering communication over our distribution grid. The day over our network would also let us predict trouble, when all of our customers will be able to log in to pinpoint outages and restore power faster. This our Web site and see their hourly energy use is not solution should be more economical than paying far off. for a new power plant, and most of the smart grid’s cost would be offset by the operational and power With our customers’ permission, these new meters procurement savings. would give us the ability to control high-energy-use appliances and equipment during peak demand Advanced metering is just one of the energy and times, without inconveniencing customers or busi- cost-saving technologies we are exploring to change ness owners, who would also share in the savings. minds and habits. david mohleR (left) is viCe PResident and Chief teChnology offiCeR at duke eneRgy; ted sChultz is viCe PResident foR eneRgy effiCienCy. theiR teams aRe Committed to dePloying the best PRaCtiCes and teChnologies to helP ouR CustomeRs use eneRgy moRe wisely. 20
  23. 23. solving the new energy eqution It is clear that we need to invest in enhanced reliability and in the expansion of our capacity to generate electricity to meet growing customer demand. We know that investments in new state-of-the-art generation, renewables and energy efficiency can be made reasonably with appropriate and timely cost recovery. Historically, regulators have rewarded utilities for selling more of their product, not less. To solve the new energy equation, we need to change minds about the types of investments that should be eligible for recovery through rates. We are especially interested in building public support for investments in energy efficiency — the “fifth fuel,” which lowers overall customer demand and reduces or eliminates greenhouse gases and other emissions. 21 Duke energy 2006 summary annual report
  24. 24. buIldIng a consensus We re working to shift the prdigm in the wy regultors tret the business of energy efficiency nd in the wy to chieve this gol, we re collborting with numerous utilities develop nd deliver such progrms. We believe stkeholder groups. We hope to build consensus tht will utilities re uniquely positioned to provide universl ccess convince lwmkers nd regultors tht everyone wins with to energy efficiency services nd new technologies to their pproprite regultory tretment of investments in efficiency customers. this would drmticlly chnge the wy utilities nd renewble energy. develop nd deliver energy efficiency progrms s prt of our new chief technology officer nd new vice president their stndrd customer offerings. of energy efficiency nd their tems re committed to to crete sustinble “fifth fuel” system resource chieving success on these two fronts. they know tht our ccessible by ll customers, energy efficiency investments customers need innovtive products nd services to help must be on pr with new genertion investments. them better mnge their energy costs nd reduce their own environmentl footprints — while mintining the strIkIng a balance comfort nd conveniences they wnt nd expect. Chnging the regultory prdigm will lso help us void We believe tht this blnced strtegy is winning proposi‑ some of the price jumps tht cn occur when new plnt, tion for ll stkeholders. our customers will sve money, project, inititive or progrm finlly gets up nd running. the environment will be clener nd our investors will ern such constructive regultory tretment would give us nd fir returns on their investments. others in our industry further incentives to explore nd invest in these progrms nd projects. 22
  25. 25. Duke Energy provides the solution the u.s. environmentl protection agency (epa) fcility t reserch tringle prk in north Crolin is the gency’s mjor center for ir pollution reserch nd regultion. With 1.2 million squre feet for lbortories, computing fcilities nd offices, it is the lrgest fcility ever designed nd built by the epa. to led by exmple, the epa designed the complex — which ws completed in 2001 — to operte with sustinble building prctices, including energy efficiency. “the key to energy efficiency is hving the right informtion,” sys sm pgán, the fcility’s energy director. “our plns clled for unified system to monitor nd meter ll of our energy use, nd we tried numerous vendors nd technologies. Duke energy ws the only compny to come up with nd deliver vible solution — Web‑bsed system tht monitors in rel time how much wter, nturl gs, fuel oil nd electricity we re using. We now hve the mechnism to better mnge our nnul energy needs nd sve the epa considerble energy dollrs.” sam Pagán is diReCtoR of the eneRgy management and ConseRvation staff at the ePa’s ReseaRCh tRiangle PaRk faCility in noRth CaRolina. the sPRawling ComPlex of labs, offiCes, and ComPuting faCilities uses an eneRgy-monitoRing solution CReated by duke eneRgy. 23 Duke energy 2006 summary annual report
  26. 26. (fRom left) John boone, business develoPment manageR, tom fenimoRe, manageR of eneRgy management seRviCes, and ken keRnodle, CustomeR Relations manageR, woRked on the duke eneRgy teams that designed, develoPed and deliveRed an eneRgy management solution foR the ePa. 24
  27. 27. advncing the “fifth fuel” — u.s. epa cse study As Sam Pagán of the U.S. Environmental Protection Agency (EPA) notes on a previous page, when the agency needed an energy management and monitoring system for its massive complex of labs, offices and computing facilities in Research Triangle Park in North Carolina, Duke Energy delivered. Three teams from Duke Energy — account management, business development and custom delivery — collaborated with the EPA’s energy management team to get the job done. The first idea was to measure the allocation of electric power and its costs building by building. But it soon became apparent that to achieve the EPA’s objective — to view total energy use in real time and analyze that data — a more comprehensive solution would be needed. The teams worked together to replace ineffective mea- surement and metering systems with a new energy monitoring and reporting system. The new system tracks the use of city water, natural gas, fuel oil, chilled and heated water, and electricity for the whole complex. It collects the data on a secure Web site and makes it available to campus energy management systems. Controllers working from a central office, or from anywhere on campus with a wireless laptop com- puter, can monitor and project the energy needs for individual buildings or for the entire complex. The Duke Energy team also earned the right to install and maintain the system, which may serve as a model for other EPA facilities. As part of the company’s renewed focus on energy efficiency, Duke Energy con- sults with its other large business customers on the benefits of total energy measurement systems. 25 DUKE ENERGy 2006 SUMMARy ANNUAL REPORT
  28. 28. Meeting steadily growing demand Plans to modernize our Cliffside Steam Station in North Carolina will ensure that our customers in the Carolinas have an affordable and reliable supply of power to support the region’s economic growth. Our plan called for replacing four old coal units with two supercritical and highly efficient 800-megawatt coal units using advanced emissions controls. In late February 2007, we received a notice of decision from the North Carolina Utilities Commission, which authorized building one of the two units. The commission also accepted our com- mitment to invest 1 percent of our revenues in the Carolinas for energy efficiency, subject to appropriate regulatory treatment, and our plan to retire older, less efficient units. Our estimates were based on two units, and as this annual report was being published, we still needed an air permit for this project. We are studying the commission’s decision and the project to determine how to proceed. We won’t make a decision until we have a clearer understanding of the overall costs as well as the conditions of the air permit. We are also evaluating the possibility of enhancing and accelerating natural gas-fired plants in our portfolio. Another important element of our generation strategy is the 2,234- megawatt William States Lee nuclear plant we are proposing to build in South Carolina’s Cherokee County. We also continue to explore building an advanced cleaner coal plant in Indiana, and we are pursuing additional energy efficiency programs and renewable technologies. The net result of these initiatives will help us meet steadily increasing customer demand while reducing multiple environ- mental impacts of our operations, including carbon emissions. RiCk RoPeR is geneRal manageR of duke eneRgy’s Cliffside steam station in westeRn noRth CaRolina. the 760-megawatt base load PoweR Plant has been in CommeRCial oPeRation sinCe 1940. 26
  29. 29. Chllenging conventionl wisdom Our customers want us to solve the new energy equation, and our track record gives them confidence that we can do it. They want better information about their own energy use and more options to control it. For Duke Energy, that means not only providing our customers with electricity, but also showing them how to personalize their energy use. That’s our commitment. We will start by digitizing our electric distribution and transmission grids. These huge networks already link meters, transformers, substations and other technologies with a communication and control infrastructure. By taking our mostly analog distribution grid and converting it to a digital network, we can create an information-rich communication system. Our plan is to create the “utility of the future.” 27 Duke energy 2006 summary annual report
  30. 30. utIlIty oF the Future the components of the energy delivery system will be linked through rel time communiction over wires as the electric grid goes digitl, we cn meet our customers’ lredy in plce in every home nd business. growing ppetite for better energy‑efficiency informtion, progrms nd technologies; for plug‑in electric hybrid We hve severl other inititives lredy under wy, vehicles; for distributed genertion, which is power including our brodbnd‑over‑power‑line (Bpl) pilot produced from smller nd more loclized generting progrms in Chrlotte, n.C., nd Cincinnti, ohio. our units, nd for more bse lod power generted from energy monitoring nd metering solution t the epa renewble sources. lbs nd computing center t reserch tringle prk in north Crolin (see pges 23‑25) cn be the pltform for the expnsion of this technology to a new busIness model residentil, commercil nd industril customers. the utility of the future will focus on generting, delivering nd using energy more efficiently. the business model FormIng allIances is bsed on cpturing informtion nd relying it to our customers, who cn use it to mke better energy decisions. our imgintive inititives ren’t limited to smrt this model will lso help us blnce supply nd demnd, metering nd exploring new technologies. to promote nd respond fster to service interruptions. energy efficiency, we re forming new collbortives with our stkeholders, including llinces with retilers nd For exmple, new “smrt meters” will tell customers suppliers, to inform customers — both smll nd lrge — exctly how much electricity they re using t ny given of redily vilble tools nd technologies to reduce time. these meters will lso tell us when, how nd in wht energy use. quntities customers re using power. this will llow us to provide exctly wht they need long the most efficient Duke energy is well positioned to solve energy problems distribution circuits. In essence, the meter becomes n for our customers. We understnd energy use, we hve interctive informtion gtewy, not just pssive billing low cost of cpitl, nd we re working through llinces device. the usge dt we compile will lso help us nd with third prties to implement the best solutions mke better long‑term decisions bout the need for for customers. new trnsmission nd distribution systems. the long‑term gol for the utility of the future is simple: the utility of the future will mke us ll more efficient. to provide greter relibility with less environmentl impct alredy on the drwing bord re designs for new trns‑ t lower cost to our customers. new progrms delivered formers tht will convert voltges with greter efficiency through new chnnels will mke it hppen. for homes nd businesses. new electric wire lloys will let us trnsmit power with less resistnce. all of 28
  31. 31. Balancing customer and shareholder interests our primry gols re to deliver competitively priced, relible energy to our customers while protecting the environment nd erning resonble returns for our investors. In this growing economy, we need to mke mjor investments in new genertion of power plnts, s well s in our trnsmission nd distribution systems, in order to meet incresing customer demnds for energy. given the uncertinties bout future environmentl regultions, we lso wnt to expnd our portfolio to include more energy‑efficient products nd services, nd more renewble energy options. We re convinced tht diverse resource portfolio will be more cost‑effective nd sustinble over the long term. the new chllenges we fce demnd new regultory solutions. too often, trditionl regultory policies pit customer interests ginst shreholder interests. We re committed to finding regultory strtegies tht lign the interests of customers nd shreholders, resulting in benefits to both in ll five sttes where we do business. kay Pashos is viCe PResident foR RegulatoRy stRategy at duke eneRgy. heR team is ResPonsible foR PeRsuading state RegulatoRs to aPPRove the ComPany’s RegulatoRy stRategy, whiCh takes into aCCount the needs of both CustomeRs and shaReholdeRs. 29 Duke energy 2006 summary annual report