Duke Energy - Serving the Energy Value Chain

5th International Symposium on Environmental Geotechnology and Global Sustainable Development
Jim Hendricks
Vice President, Corporate Environment, Health and Safety
Duke Energy

Belo Horizonte, Brazil

Thank you for this opportunity to share with you information on Duke Energy and our thoughts and approach concerning sustainability. As you discuss sustainability, I suggest that it is important for you to understand the makeup of, and the context in which major energy providers such as Duke Energy operate in on a daily basis. Privatization and deregulation are rapidly changing the face of providers.

Our product, energy, is an integral part of the sustainability equation. Today I will share with you information about Duke Energy operations worldwide and how we add value along the energy value chain. As I discuss this energy value chain, I will address what we do to contribute to sustainability, and how we help others contribute as well. I will also share with you the Duke Energy Environment, Health and Safety management system that we use across the globe to guide and continuously improve our operations. Finally, by sharing a few examples of our environmental, health and safety practices here in Latin America, I will illustrate how we address the move toward sustainability and add value to the communities in which we do business.

Duke Energy, a global energy services company, serves customers and creates shareholder value through an integrated network of energy assets and experts. As market leaders in their respective fields, Duke Energy businesses manage a multi-national portfolio of energy supply, delivery and trading assets valued at approximately $30 billion.

Duke Energy provides comprehensive energy and energy-related services.

• Duke Energy’s diverse businesses develop, own and operate natural gas and electric assets worldwide.
• We develop energy facilities to serve a single customer or integrated gas and electric projects to serve an entire region.
• Our engineering, construction and operations skills serve energy producers and consumers around the world. Our engineering and environmental services extend to more than 50 countries.
• Energy marketers provide multi-energy services, including trading, supply, risk management and financial trading - from point of production to the customer.
• Today there is a new global standard for delivering energy and energy related services—that is serving the broad energy value chain. Value is added along each step of the chain, from the fuel exploration and gathering phase to the customer’s energy use. At Duke Energy, we not only add value to the end product, energy, along this chain, but also add value across the energy chain through integrated energy, engineering, and environmental services, and trading and marketing capabilities. Along with our financial strength, this brings a whole new level of efficiency, integration and value for our customers, wherever we serve them along this chain.

Here is a simplified model that represents this value chain. Fuel is produced, moved along to electric generating facilities, and transported and distributed to customers. Duke Energy is involved every step of the way from making energy, moving energy, managing energy to marketing energy.

WE MAKE ENERGY

We are one of the world’s largest producers of natural gas liquids, propane, and butane. We bring comprehensive capabilities in the development of energy-related facilities - from power generation to energy transmission to natural gas processing. Duke Energy has the capability to develop completely integrated gas/electric projects.

Duke Energy companies operate nuclear, oil, coal and gas-fueled, hydroelectric and other renewable power generation facilities. Whether base load or peaking, or co-generation plants, we achieve high standards of efficiency, reliability and environmental excellence for our customers.

WE MOVE ENERGY

Our natural gas transmission system combines pipelines and storage to deliver natural gas to markets across North America, Australia, and Latin America. Pipeline expansions and flexible service options continue to enhance service integration between major markets. We transport refined products, natural gas liquids and crude oil. Customers consistently rank our electric transmission system among the best in the world.

WE MANAGE ENERGY

Along the energy value chain, Duke Energy offers energy solutions, delivering operational and financial benefits to our customers. Energy audits, equipment retrofits, performance contracting and other services can be combined with asset ownership, energy procurement, financing and risk management.

WE MARKET ENERGY

Duke Energy markets multiple forms of energy, including electricity, natural gas, natural gas liquids and crude oil. Our customers benefit from our comprehensive services, through which we manage risk, ensure supply and offer customers choices as to the form and delivery of energy.

Our Duke Energy operations span the globe. For the people at Duke Energy, the energy needs of a single customer stand alongside those of nations, governments and industries in importance to us. Although we have spread around the world to develop and offer an ever wider array of energy services, we always come home to this important principle: Energy is most powerful when delivered with service. And service is most powerful when it is built on strong, mutually beneficial relationships with the customer.

So what does all this have to do with sustainability?

By almost any definition, energy is an integral part of the sustainability equation.

On one hand, how energy is produced impacts the earth. Natural resources are used for fuel, water is used for cooling, land is needed to build power plants, and emissions to the land, water and air are all factors that impact the environment to produce energy.

On the other hand, energy is needed to address the growing population needs as well as the desire for improved living standards around the world. And energy needs are growing rapidly.

World energy demand is forecasted to triple by 2050. To keep up, the world’s energy capacity must grow 400 percent to keep pace with growth, and to replace older, less efficient energy facilities. Ten trillion U.S. dollars will be spent on energy technology around the world over the next two decades.

We are entering an era for which the demand for a better standard of living, including comforts such as refrigeration, medical service or the Internet, are becoming a huge global driving force in political, social and technological arenas. And energy is essential to meet the demand for an improved quality of life for all people in our move towards sustainability.

What resources will play a role? Certainly new forms of energy will be developed such as renewables that can help in the journey towards sustainability. People in this room today are among those leading the way to develop these new forms of energy. Perhaps in the next 50 years, we will perfect a way of producing electricity that is lower cost and cleaner than those we use today, and relies very little on natural resources. But I also know that it takes 20 to 30 years to commercialize a new technology, bringing it from the laboratory to the markets.

So, although I am optimistic about new forms of energy, I believe that we must be concerned with what we have at our disposal today—coal, petroleum, hydro, natural gas, nuclear and renewables. And I believe that the geotechnical aspects of managing risks associated with these fuel forms are extremely important.

At Duke Energy, we believe there are advantages to having a selection of energy sources available to meet the needs of people in various circumstances worldwide. As a global energy leader, we bring the resources, the knowledge and know-how, and the desire to understand and work within a community to meet their energy and energy services requirements. We believe that the access to adequate energy supplies is a critical issue, especially for developing nations and their people and for the sustainability movement.

Given this growing demand for energy, how can we meet the demand? What is Duke Energy doing along the energy value chain on this journey to move toward a sustainable future?

FUEL:

Duke Energy is helping supply natural gas to address growing energy needs of customers and to provide this option as a cleaner fuel.

Duke Energy is utilizing a diverse fuel mix based on the available fuel supplies to meet the energy and energy services requirement of our customers. We understand how to operate efficiently using a variety of fuels, and I will touch on that later.

Duke Energy is helping apply new technologies such as renewables into the energy mix. We have helped fund research on new technologies, and play a role in marketing and testing some of these new technologies. For example,

• Duke Energy is a partner in five waste-to-energy facilities that together generate 361 megawatts of electricity from biomass.
• Duke Energy helped design, build and operate a renewable energy - bagasse plant - in Mauritius where sugarcane residue is used as fuel to make electricity. (2,000 miles northeast of South Africa on the Indian Ocean.)
• Duke Energy is marketing the POWER ROOF, a patented solar thermal process.

POWER GENERATION:

We at Duke Energy operate our plants in the most efficient manner possible. And we have the know-how to make that happen.

• Duke Power, a Duke Energy business in the U.S., has been recognized by the Electric Light and Power Magazine as operating the most fuel-efficient coal-fired generating facilities, every year, for the past 25 years.
• Today, we are installing turbines in our natural gas power plants which are twice as efficient as they were ten years ago. The next generation of gas turbines will be thirty percent more efficient.

TRANSMISSION AND DISTRIBUTION:

When installing pipes and wires to deliver energy to customers, Duke Energy uses environmentally sensitive siting practices that have received accolades across the globe.

• In Australia, Duke Energy managed the construction of the Eastern Gas pipeline which set new standards in construction and environmental management for the pipeline industry. Duke Energy sought to select the most appropriate alignment for the pipeline to minimize the impact on the environment. Approximately 95% of the pipeline route is in previously disturbed land such as electric transmission areas, telecommunications, road or rail easements or agricultural land. Preserving Aboriginal cultural heritage along the pipeline route was paramount in the route selection.
• In Peru, we worked closely with the Peruvian government, local communities and other non-governmental organizations to minimize the Aguaytia project’s environmental impact. Gas pipelines and electric transmission lines were constructed along existing roads to avoid unnecessary disturbance of forested areas.
• In North America, the Maritimes and Northeast pipeline construction project received several state and federal level awards for the sensitive construction used. The project utilized a protective crossing method for the numerous cold water fisheries streams along the pipeline route.

CUSTOMER SERVICE:

We provide energy and its related values - heating, cooling, and use of appliance and tools.

We help customers save energy

• Duke Solutions, a Duke Energy business, offers integrated energy services for end-use customers. Duke Solutions identifies, designs and implements resource conservation solutions.

We help create efficient markets

• Duke Energy provides low-cost and reliable energy at prices that are competitive on a world scale. We benchmark ourselves against the best in the world in energy price and reliability. We help our customers grow by providing energy at competitive prices. We help the countries in which we operate to grow a robust economy.

Just as we add value to our product along the energy value chain, we also add value to the environment and communities in which we serve. Recognizing that our operations and communities are very diverse in nature, and that we needed consistency in our approach, we decided that a core set of standards along with a systematic approach would be valuable tool for continuously improving our EHS operations worldwide. We established an environmental, health and safety management system that is a common framework connecting business planning, implementation, and measurement and performance improvement. This system guides our businesses worldwide in systematically managing the EHS aspects of their operations. How the standards are met varies as each business strives to integrate the methods and procedures that work best within a given culture and community.

This Environmental, Health and Safety management system is a familiar Plan-Do-Check-Act cycle and is composed of nine elements:

First, in the business-planning phase, roles and responsibilities are defined, top risks identified, and emergency plans put into place.

During the implementation phase, the focus is on maintaining and improving compliance programs, relationships with suppliers, contractors, partners, and the community.

In the measurement phase, goal setting and implementation and tracking of business plans are utilized to improve environmental health and safety results and achieve expectations.

Finally, in the performance improvement phase, processes are utilized for incident reporting and investigation as well as assessment and management system review.

When we build, acquire or operate new assets, we begin implementing this system. This system is used on assets that we have had in place for decades as well. This systematic approach helps us to continuously improve our operations—- whether it is making major enhancements at a newly acquired facility with little infrastructure, or refining established programs based on new knowledge we have acquired. I think that this is one of the keys to sustainable performance - planning, implementation, checking, and then acting on the gaps.

Persistence and management support in carrying out this plan is extremely important. Some of our newly acquired businesses are at the beginning phases of this system. Other well-established Duke Energy businesses are refining their more mature programs. That is the nature of the process. With many diverse businesses, as well as diverse cultures, we understand that there are many different ways to achieve good environmental, health and safety results and move toward sustainability. Our commitment is to work to continuously improve the EHS aspects of our operations - no matter what the starting point.

Now let me take this management system diagram down, and share with you some real life examples of what we are doing here in Latin America to continuously improve operations, and contribute to good, sustainable social and environmental practices. Specifically, lets look at the Duke Energy operations in Peru.

Duke Energy is bringing much needed energy to Peru and works hard to create a safe work place, help maintain the environment and contribute to the community. I will share how we are addressing sustainability issues at three of our operations in Peru—Aguaytia, Canyon del Pato, and Carhuaquero.

With several partners, Duke Energy International developed the Aguaytia Integrated Energy Project in Peru to provide reliable electricity at competitive prices. This integrated energy project includes gas production, gas processing and fractionation and natural gas liquid sales, gas transportation, 155 MW simple-cycle gas turbine electric generation facility, and a 250-mile electric transmission system.

The project owners worked closely with the Peruvian government, local communities and other non-governmental organizations to minimize the project’s environmental impact. As I said earlier, Gas pipelines and electric transmission lines were constructed along existing roads to avoid unnecessary disturbance of forested areas. A comprehensive program of environmental monitoring ensures minimal impact on the environment.

Community involvement is a hallmark of our projects. Employees of the Aguaytia Integrated Energy Project helped provide 4,000 school children in the Andes and the central jungle of Peru with a full complement of school supplies. They also volunteered their weekends to help with a program, conducted in cooperation with Peru’s Ministry of Health, which hired medical professionals to vaccinate children against yellow fever.

Another example of how we are addressing sustainability in our Peru Operations is at Duke Energy International’s company, Egenor that operates the Canyon del Pato Hydroelectric Generation Facility located in northwestern Peru.

The Rio Santa, a major river system that drains a large area of northwestern Peru, has been used for years as a place to deposit municipal and industrial wastes. The largest contributor of waste in the area of the facility is the city of Huaraz that is located approximately 150 km upstream of the project.

A considerable amount of solid waste accumulates on the dam face and intakes or is captured in the turbines. In addition to the environmental implications, this situation leads to unfavorable operating conditions and increased facility maintenance activities.

Egenor has embarked on a program with the goal of substantially reducing river-borne waste. Key program elements include increasing community awareness of waste management issues and helping establish local infrastructure improvements.

Egenor contributes personnel time and financial resources in support of local educational programs focusing on enhanced waste management practices (including recycling). The company has also assisted in the construction of several engineered sanitary landfills designed to receive local domestic waste. The area had no such facilities previously.

These efforts to find a sustainable solution with the community have resulted in a reduction of the amount of waste contributed to the Rio Santa, increased stakeholder and community involvement, and favorably impacted operational costs at the Ca¤on del Pato facility.

Another environmental problem in Peru that Duke Energy is working with the community to solve long-term involves land erosion and resulting river sedimentation around Egenor’s hydroelectric generating facility, Carhuaquero.

Less than ideal agricultural practices, increased annual precipitation related to periodic El Nino climatic events, and naturally occurring geologic conditions have contributed to significant land erosion. Resulting sediment laden runoff and increased hydraulic loading of the rivers have contributed to:

• Decreased land area and useable soil types for sustained agriculture,
• Increased sedimentation at the generation facilities which must be actively managed leading to increased operational risks, and
• Increased suspended sediment introduced to the process resulting in significant mechanical (e.g., turbine) wear.

In partnership with the community, Egenor has instituted several programs that have resulted in measurable reductions in erosion and river sedimentation. Basic land use education has been provided to local farmers in the region, resulting in more favorable agricultural practices. Egenor is funding a re-vegetation effort where in excess of 70,000 native trees will be planted along valley slopes to enhance soil stability. Finally, Egenor has funded the construction of various types of regional engineering controls. These include local erosion control structures such as retaining walls placed at the base of slopes and lateral filtration trenches sited along hillsides that are designed to retard and capture runoff.

At Duke Energy, we strive to share our knowledge and values with the communities in which we operate. Besides our knowledge along the energy value chain —designing, constructing, and operating energy facilities, we have expertise in many areas related to environment, health and safety. How we manage waste materials, land, water, and fisheries is also valuable experience to share with communities.

Although we have developed many good practices that we like to share with others, we strive to learn best practices and values from the communities in which we serve and use that knowledge to help our operations worldwide. We believe that through partnerships and learning from each other, together we will find a sustainable path.

For our part in this journey to sustainability, we do intend to contribute both with our product and through our actions.

Through our product, energy and energy services, we intend to provide energy for a sustainable future, around the world.

Through our actions, we intend to:

• Support the development and application of technology for existing and future fuel options.
• Participate in and help inform public policy on key issues such as sustainability. We believe strongly in partnerships and learning from each other. We need to utilize the collective wisdom of many parties to help on the journey towards sustainability.
• Strive to continuously improve our performance via our environmental, health and safety management system, and through acquiring new knowledge from those customers and communities with which we do business.

I hope that this presentation, and these local illustrations in particular, has given you a feel for our environmental, health and safety philosophy, our approach to sustainability, and how we operate our energy business. To sum it up:

Duke Energy wants to bring value across the energy value chain throughout the world providing:

• Value to our customers through our product.
• Value to the communities in which we serve through use of knowledge.
• Value as a partner on the journey towards sustainability.

Thank you for this opportunity to share with you Duke Energy’s philosophy and approach to managing a global energy business, and we hope to do business with you all in the future!