The Lodge at Ballantyne Charlotte, North Carolina February 7, 2007 Generation Planning in an Era of Economic and Environmental Uncertainty NARUC-119 th Annual Convention Anaheim, California November 12, 2007 Doug Esamann Senior Vice President, Strategy & Planning

2 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

3 Generation Capacity by Fuel Mix Duke 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%

4 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 Coal51 years ■ Base Load Nuclear33 years ■ Non-Base Load Coal58 years

5 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 ■ SO 2 ■ NOx ■ Mercury ■ And yes, CO 2 ■ Standards/Requirements (e.g., Renewable Energy) ■ Projected Energy Efficiency and Demand Response

6 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

7 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

8 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

9 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

10 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

11 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