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We’re responding to the current industry slump as we have to previous downturns in our industry and the economy – by focusing on productivity and efficiency throughout our operations, and by safely and reliably meeting customers’ energy needs. My job as chief operating officer is to make sure that we not only maintain our record of operational excellence – we improve it.
In recent months, we’ve taken a hard look at costs across the enterprise. We’ve delayed projects and sold assets, and we’re reducing our workforce by nearly 2,000 to reflect current market realities. Many of those moves have involved our competitive merchant energy business, where market conditions present the greatest challenges.
All indicators – excess supply, narrow spark spreads and difficult credit conditions – point to a slow recovery for merchant energy. Our 20 natural gas-fired merchant power plants are under-used in today’s oversupplied electricity market. But state-of-the-art technology, leveraged with nearly 100 years of power generation experience, puts our merchant generation fleet among the most efficient and well-run in the U.S. – a competitive advantage when the economy recovers and power demand catches up with supply.
Our regulated businesses provide stability going forward.
The strong cash flows and steady growth of our regulated businesses will be the bedrock of our earnings for the foreseeable future. Duke Power and Duke Energy Gas Transmission are focused on maximizing profits by increasing productivity and sales.
Duke Power continues to raise the bar for operational excellence. In 2002, the utility’s nuclear stations generated more electricity for the Carolinas than ever before – producing at more than 95 percent of their capacity, and at the lowest production cost ever. A higher capacity factor reflects fewer and shorter outages, boosting productivity. We do expect a lower nuclear capacity factor in 2003, as a result of planned maintenance and refueling outages.
The utility’s hydroelectric and fossil fleet achieved outstanding commercial availability of 98.3 percent in 2002. Combined with higher nuclear output, that availability helped meet more of the system’s power demand at less cost. The fossil/hydro plants met summer peak power demands, thanks to the company’s careful management of water resources during the Carolinas’ worst drought in 100 years. And through prudent planning, the fleet maintained system reliability while installing the latest environmental technology to reduce emissions at six of the utility’s eight coal-fired stations.
Innovation, commitment to customer service and an unwavering focus on safety and reliability have established Duke Energy Gas Transmission as an industry leader, and we are responding to the needs of our customers with new projects and new ideas. Investment in new technologies and advanced preventive maintenance practices are further enhancing the reliability of our pipelines. Capacity in our wholly owned U.S. pipelines is nearly 95 percent contracted with an average contract life of nine years. Union Gas, our distribution company in Ontario, continues to grow, adding more than 20,000 new customers in 2002. This stable customer base and growing demand for reliable sources of natural gas strengthen our earnings base, cash flow and growth potential.
The sharing of expertise, capabilities and market knowledge among our diverse businesses, within regulatory limits, drives efficiencies to boost our bottom line. Here’s one example: We use small jet-engine-like turbines for both gas compression in our pipelines and gas-fired electric generation in remote areas around the globe. Operating teams from our gas transmission business in Canada and our generation facilities in Ecuador, France and Australia saw a common interest. They worked out a plan to purchase maintenance services and spare parts for the turbines as a fleet, saving an estimated 20 to 25 percent – millions of dollars – over the life of the equipment.
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