Harvey J. Padewer, Group President, Energy Services, Duke Energy
Fact: The world is constantly changing. It’s inevitable.
In the energy industry, change is happening at a dramatic pace. It’s the unmistakable global transition from highly regulated economies with government sponsored monopolies to more market-based economies with private ownership and less regulation. Change is also represented by our world’s rapidly increasing demand for energy, which is expected to triple by 2050.
Fact: In order to excel in today’s global market, you must anticipate change, recognise opportun
Strategic analysis is crucial and precise timing is invaluable. But given the fast pace of change, how do you anticipate it? How do you remain nimble and able to meet the growing demands?
At Duke Energy, we embrace change. Over the last three years, we’ve transformed from a utility in the Carolinas to a pre-eminent global energy company. Today, we have businesses around the world that produce, transport and trade energy and associated commodities.
Our Energy Services groupwhich comprises most of the non-regulated energy businessesis the growth engine for Duke Energy. By concentrating investments in these businessesparticularly Duke Energy North America (DENA) and Duke Energy International (DEI)we have increased the percentage of earnings from our non-regulated businesses.
In 1997, Energy Services accounted for only two per cent of our earnings before interest and taxes (EBIT). Its contribution to EBIT for the first six months of 2000 grew to 23 per cent. At the currently anticipated growth rate, we expect it to reach 50 per cent by 2004, given favourable market conditions. Unfortunately, anticipating change and recognising opportunity is not enough. An organization must be able to offer solutions that meet the unique needs of a region.
Easier said than done. For some companies … right. For Duke Energy … wrong.
Duke Energy’s capabilities and internal synergies allow us to capture value along the entire energy chain. Integration of our network of energy businesses is the key to our success. We’ve developed a strategy for entering liberalizing markets around the world, by diversifying across different regions and across energy commodities.
We make energy. We move it. We manage it. We market it.
However, integration is tough to replicate. It must be a calculated and disciplined approachone that permeates through everything you do. Nevertheless, I have proof that it works.
We engage Duke/Fluor Daniel’s skill in designing, constructing and operating plants. We call upon Duke Engineering and Services to provide engineering and support such as permitting and electric interconnection. Duke Energy Field Services provides gas interconnections. Pipeline gas and expertise are provided by Duke Energy Gas Transmission. All of these resources strengthen DENA and DEI, which develop, own and manage merchant facilities, and trade and sell natural gas and power.
This integration enables us to keep costs low in asset development, operations and optimization, creating value for our customers and shareholders. Drawing upon these advantages, we are better able to act at the right moment and offer unique solutions.
For example, in the North American power markets, we know there is a current shortfall of 70 000 MW and projections call for an additional 200 000 MW over the next 12 years. In this case, it’s easy to recognise that there is value in building generation capacity.
By utilizing our internal synergies, DENA was able to deliver four new merchant plant facilities to market during the second quarter of this year. No other company has ever delivered four facilities within that timeframe. In 2001, we will bring on six new facilities. In 2002 and 2003, we will deliver 10 to 11 facilities.
This resourcefulness has clear results. DENA is growing faster than its competitors, with a compound annual growth rate from 1997 to 1999 of 168 per cent. DENA is the second largest gas and power trading company in North America, trading 320 million m3 of gas per day in the second quarter of 2000, and 57 738 GW of power.
We’re replicating our domestic success in three key international regions: Latin America, Asia Pacific and Europewhere we see an increasing demand for energy and a regulatory framework that promotes open, competitive markets.
Duke Energy International has invested almost $2 billion in Latin America and close to $1 billion in Asia Pacific. Our investments have been based on our strategy to diversify across regions and commodities. The application of this strategy also relies on using local management to run our regional businesses.
The results have been extraordinary across DEI. From 1997 to 1999, DEI saw an annual growth rate of 60 per cent, and growth of more than 4000 per cent for the first six months of 2000 compared to the same period in 1999.
There are advantages to having a variety of energy alternatives available to meet the needs of different circumstances.
We have developed our strategy for unlocking value in a changing world, and will continue to follow it as we implement our network of businesses around the globe. That’s the essence of our regional approach and integrated strategy; and success is at hand. We embrace change and are a part of the new solution.