The Lodge at BallantyneCharlotte, North Carolina

February 7, 2007

Generation Planning in an Era of Economic and Environmental Uncertainty

Generation Planning in an Era of Economic and Environmental Uncertainty

NARUC-119th Annual ConventionAnaheim, CaliforniaNovember 12, 2007

Doug EsamannSenior Vice President, Strategy & Planning

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• Franchised electric operations in 5 states

• 47,000 square miles of service area

• 28,000 regulated mw

• 4 million retail electric customers

• 500,000 retail gas customers

• Diverse fuel mix

About Duke Energy

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Generation Capacity by Fuel MixDuke Energy’s diverse fuel mix mirrors the overall industry mix

Regional differences exist

*Source: EIA**Includes DENA Midwest assets, does not include DiscOps assets

33%

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Why Base Load Generation Now?

■ Growth-Obligation to Serve ■ It’s been 25 years since base load was added

■ 1987-Base Load Generation as a percentage of peak = 110%■ 2012-Base Load Generation as a percentage of peak = 65%

■ That also makes what Base Load we have now very old ■ By 2012, Average age of:

■ Base Load Coal 51 years■ Base Load Nuclear 33 years■ Non-Base Load Coal 58 years

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Economic Analysis is Foundation for Resource Plan

■ Demand and Energy Forecasts■ Cost estimates to bring plants on-line■ Fundamental commodity price projections ■ Environmental compliance costs

■ SO2

■ NOx■ Mercury■ And yes, CO2

■ Standards/Requirements (e.g., Renewable Energy)■ Projected Energy Efficiency and Demand Response

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No, No, No…but give me comfort and a plasma TV

■ There’s something not to like about everything■ Coal-GHG emissions; High capital costs and long lead times■ Nuclear-Safety perception; Waste disposal; High capital costs and

long lead times■ Gas-Fuel availability; Fuel price and volatility; Reduces heating

and industrial feedstock■ Renewable Energy-Quantities limited; Higher cost, Reliability,

Availability■ Energy Efficiency-Uncertainty of customer response;

Sustainability■ Hydro-Environmental impact; Quantities limited

■ But demand still grows■ And, existing plants get older

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Don’t Forget…

■ There are also positives with each option■ Coal-Abundant low cost fuel; Low price volatility; emissions

reduction success; ■ Nuclear-Zero GHG emissions; low cost energy■ Gas-Quick to build; better for intermediate and peaking needs■ Renewable Energy-Low emission impact; Efficient■ Energy Efficiency-Zero GHG emissions; lower reserve margin■ Hydro-Zero GHG emissions; low cost energy

■ And, demand still grows■ And existing plants get older

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So the Simple answer is………■ There are no simple answers■ No one technology trumps the other■ GHG Emissions

■ Don’t even know the rules but it will happen■ What’s the best way for society to deal with GHG emissions?■ For now, we model as an environmental cost■ It looks extremely costly now; technological breakthroughs are

needed■ A portfolio approach makes the most sense

■ Diversity across supply options and types■ Maintain options to address future uncertainties■ Recognize that getting out of decisions is generally as hard as

getting into the decisions

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Some Points of View to Ponder

■ Even relatively anemic load growth requires significant additions of new generation sources

■ Best case ETA for new nuclear generation is 2016■ Renewable energy under the most aggressive assumptions

can only account for a small percentage of the need■ Have and have-nots■ Not a base load solution

■ Older plants are getting less economic and will be retired■ New fossil fired generation today replaces older, less

efficient, fossil fired generation of yesterday■ Most economic generation sources today■ Positions for more effective removal of GHG emissions in future

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Some More Points of View to Ponder

■ R&D has never been more important■ Breakthroughs needed to capture and sequester carbon

commercially■ Grid, meter, generation operations haven’t fundamentally changed

for 50 years■ With long lead times for base load options:

■ Shifting the paradigm on energy efficiency to level the playing field with generation options is imperative

■ Getting more out of what generation we have and zero GHG emissions■ Customer: choices-control-back of mind■ Utility improvements via technology to reduce system losses

■ Gas fired generation must fill the resource gaps in the near term■ Costs are going up, maybe significantly

■ Smoothing impacts over time will benefit customers

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Proactively Working Through the Challenges

■ A reliable, reasonable cost supply is the goal■ Our economy needs it■ Our customers demand it

■ Environmental considerations■ Are a must■ Should be managed over time

■ Reward prudent actions to diversify portfolios■ Taking no action is an action■ Options cost a little more but now, more than ever, they’re valuable■ Options don’t stay open forever and an option has value even if it is not struck

■ It is not Business as Usual-Status Quo approaches aren’t the only ones■ In fact, they may not work to solve the issues of today and tomorrow■ We understand the stick….some carrots would be nice as well