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| North American Nonregulated Generation and Marketing |  Print |
The merger with Cinergy gives our nonregulated generation and trading and marketing businesses a fresh start. CG&E’s coal-fired merchant generation portfolio gains fuel diversity and reliability with the addition of DENA’s Midwest fleet of new and efficient natural gas-fired plants. Now that the exit from DENA’s legacy trading business is nearly complete, we are moving to Cinergy’s commercial business model which focuses on transactions with contract terms of less than one year — a stronger platform for growth.
Ongoing segment EBIT for North American Nonregulated Generation and Marketing in 2006 is expected to be approximately $325 million.
Cinergy’s commercial businesses contributed approximately $443 million in adjusted EBIT in 2005, compared to approximately $345 million in 2004. Power Operations, the group responsible for operating and maintaining Cinergy’s nonregulated power generation assets, set records for generation, productivity and safety last year. The 26,608,001 megawatt-hours (MWH) of generation and an average 40,503 MWH generated per employee beat previous Cinergy records set in 2000. Power Operations employees and contractors also achieved their best-ever safety incident rate and logged the lowest number of recordable incidents in company history.
The Power Trading and Portfolio Optimization groups each benefited from market conditions to deliver a solid year. Power Trading gross margins were up $46 million from the prior year. Portfolio Optimization sold emission allowances no longer needed to meet future non-retail commitments, which increased emission allowance gross margins by $121 million.
Cinergy’s commercial businesses also realized a $37 million increase in retail margins, primarily resulting from implementation of our rate stabilization plan in Ohio.
Cinergy Solutions implemented new efficiency measures for Procter & Gamble manufacturing plants, and was engaged to design, build, own and operate a new steam generating plant for Dow Chemical’s Union Carbide subsidiary.
Duke Energy put most of Duke Energy North America’s (DENA) assets up for sale in September 2005, and announced in November the transfer of virtually all of DENA’s trading book of outstanding gas and power derivative contracts to Barclays Bank. That move essentially eliminated all credit, collateral, market and legal risk associated with DENA’s derivative trading positions.
In January 2006, Duke Energy announced an agreement to sell DENA’s 6,200 megawatts of power generation in the western and northeastern United States to LS Power Equity Partners for approximately $1.5 billion. DENA’s remaining 3,600 megawatts of generation in the Midwest are being combined with Cinergy’s commercial operations.
(Note: For 2005, approximately $120 million of ongoing EBIT losses for DENA’s continuing operations were included in Other, and its discontinued results are reported in Discontinued Operations.)
