Keyspan Energy Delivery (New York and Long Island)
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Third Quarter 2000 KeySpan Corporation One MetroTech Center Brooklyn, NY 11201 Michael J. Taunton Vice President and Treasurer (718) 403-3265 [email protected] Kenneth D. Daly Director, Investor Relations (718) 403-3385 [email protected] Ellen B. Kessler Investor Relations Analyst (718) 403-6977 [email protected] For more information visit us on the world wide web http://www.keyspanenergy.com This issue of the Quarterly Update is printed on recycled paper with soy ink. In this edition of our Quarterly Update, we are pleased to announce the completion of the acquisitions of Eastern Enterprises and EnergyNorth -- approximately one year after the transactions were announced. These acquisitions provide us with tremendous growth potential as we are now the largest gas company in the Northeast United States and among the 5 largest gas companies in the country. We also report our record Third Quarter earnings and positive outlook going forward. • Eastern Enterprises and EnergyNorth Acquisitions Completed • Gas Growth Opportunities • myHomeKey Update • 3rd Quarter Earnings Please feel free to contact me at (718) 403-3265 if you need further information. We appreciate your investment and support of KeySpan. Sincerely, Michael J. Taunton Vice President and Treasurer © KeySpan Corporation, November 2000 2 KeySpan Acquires Eastern Enterprises and EnergyNorth —Largest Natural Gas Company in Northeast Formed— Our goal is to convert many of the potential customers to gas, and to sell them new energy products and services by applying the same successful marketing techniques we have implemented in New York and on Long Island (see related article inside). "This expansion is a milestone in our company’s history, exemplifying our growth strategy and vision of becoming the premier energy and services company in the Northeast. It provides access to more than 5 million customers and a platform for growth of our gas and electric businesses and our energy-services subsidiaries,” said Robert B. Catell, chairman and chief executive officer On November 8, 2000, KeySpan completed its acquisitions of KeySpan. of Eastern Enterprises and EnergyNorth -- the largest gas companies in Massachusetts and New Hampshire, respectively. These acquisitions are a major step in KeySpan’s strategy to become the premier energy and services company in the Northeast. We now have 2.4 million gas customers, making us the largest gas distribution company in this region, and the 5th largest in the United States. Eastern Enterprises was the parent company of Boston Gas, Colonial Gas and Essex Gas, and was in the process of acquiring EnergyNorth. All former Eastern and The New England Opportunity EnergyNorth utilities are now Residential Saturation 35% Current Customer Base 800,000 identified as KeySpan Energy Remaining Prospects 916,000 Residential Existing Gross Profit Margin $389M Heating Prospects Delivery New England. In Remaining Gross Profit Margin $750M New England acquiring these companies, we 916,000 Customers have added 800,000 gas 157,000 customers and now have the With Gas Service opportunity to grow our gas 180,000 Near gas main business in New England – an affluent region with a low (continued on page 4) penetration of natural gas. 579,000 Other Customers Currently, only 35% of the customers in New England use natural gas for home heating. 3 KeySpan Acquires Eastern Enterprises and EnergyNorth —Largest Natural Gas Company in Northeast Formed— (continued from page 3) Growth Opportunities Financing the Acquisitions KeySpan expects the acquisition to yield pre-tax annual The purchase is valued at approximately $2.5 billion -- savings of approximately $40 million, resulting primarily $1.96 billion in equity and the assumption of $550 million from the elimination of duplicate programs, greater in debt. KeySpan will ultimately finance the acquisitions efficiencies, the consolidation of information systems, and with a $1.65 billion issuance of five, ten and thirty-year personnel reductions. The main driver of the transaction, bonds. In addition, the balance of the Company’s short- however, is the growth opportunity. In the New England term and seasonal capital needs will be financed in the service territory, there are more than 900,000 potential commercial paper markets. Along these lines, Standard & customers – primarily customers who are presently heating Poor’s has upgraded KeySpan’s rating to a solid ‘A’ rating, their homes with oil. Of these potential customers, more Moody’s recently re-affirmed the long-term ‘A3’ rating, than 150,000 already have a gas service for cooking or hot and Fitch has issued an ‘A-‘ rating on the Company. water. In addition, another 180,000 customers are in close proximity to a gas main. These customers require a KeySpan now has assets of more than $10 billion, minimal capital investment and provide the opportunity projected annual revenues of $5 billion, and nearly 14,000 for short pay back periods and attractive returns. We employees. KeySpan has also registered its holding estimate that there is approximately $750 million of company under the Public Utilities Holding Company Act potential annual gross profit margin remaining in New with the Securities and Exchange Commission. England, approximately double the current amount. Terms for Shareholders I Eastern Enterprises shareholders will receive an acquisition price of $64.558 per share (including a ‘ticking fee’), paid in cash, plus a portion of the fourth quarter dividend equal to $0.1692 per share. I EnergyNorth shareholders will receive an acquisition price of $61.4587 per share (including a ‘ticking fee’), paid in cash, plus a prorated dividend of $0.2683 per share. I KeySpan shareholders are not affected by this transaction, therefore, no action is required. 4 Northeast. KeySpan’s business strategy with myHomeKey.com seeks to: • Extend KeySpan’s reach beyond its traditional util- ity borders into new areas • Provide the opportunity to market new products and services to customers throughout the KeySpan Launches myHomeKey.com Northeast • Establish KeySpan in the forefront of the new econ- “Your Home Management” Web Site omy being shaped by e-commerce The myHomeKey.com site from KeySpan currently pro- In September, KeySpan officially launched its first vides services to communities in New York, New Jersey, e-commerce web site, www.myHomeKey.com. The Connecticut, Massachusetts, Rhode Island, and New myHomeKey.com site is an innovative, co-branded Web Hampshire. Over the next several months, KeySpan will be portal that gives busy consumers the advantage of conven- adding new features to the site, including more household ient, one-stop, ’round-the-clock, on-line access to a compre- appliances and small electronics, special incentives for reg- hensive set of home management services and solutions. istered members of the site, and expanded information of KeySpan MHK, Inc., a separate subsidiary of KeySpan, has interest to local community groups. developed the new web site with myHomeKey.com, Inc. Using zip codes, www.myHomeKey.com provides free, personalized services, products, and information to con- sumers. The web site features six home-related categories: • Shop for Products Company Update • Schedule a Service • Home Energy • Home Connections Gas Supply Update • Neighborhood On the national scene, gas supply storage is below the • My Information historic inventory levels. However, in the KeySpan mar- ket area, storages are on target as our inventory was at Recently, Sears HomeCentral’s vast network of qualified 97% of capacity at the end of the injection season. service technicians became a part of the on-line appliance service offering from myHomeKey.com. Sears joins other Although KeySpan will enter the heating season well companies on the site including such highly-recognized prepared as far as inventory is concerned, the price brand names as GE and Amana. impact on our customers is a big concern. We have During the eight weeks since its launch the web site has utilized our gas supply expertise to minimize the com- experienced rapid growth with approximately 30,000 peo- modity costs, yet we are projecting an approximate 25% ple around the country becoming registered members of increase in our customers' gas bills. The higher prices the site, of which nearly half are in the KeySpan market. could have an impact on our record level of gas conver- Simultaneous to the launch of the web site, an extensive sions. However, it should be noted that we have never advertising campaign began that included both traditional sold our product on the basis of price, but rather on the and new media. Ads have appeared in major New York benefits of natural gas, and are therefore expecting to metropolitan and suburban newspapers, commercials are continue a high level of growth. on radio stations, and on-line banner ads were placed on major Internet search engines. The campaign features peo- KeySpan Acquires Remaining 50% ple enjoying their new-found leisure time after using of Gulf Midstream Services myHomeKey.com services. New advertising and promo- tional efforts will be initiated in the Boston metropolitan KeySpan acquired Gulf Canada’s 50 percent interest in area beginning early next year. Gulf Midstream Services (GMS) on October 16, 2000. KeySpan is now the sole owner of this leading KeySpan announced its partnership with independent midstream services company in western myHomeKey.com, Inc. last March, which included a Canada — which will be known as KeySpan Energy $12.5 million investment. Another major investor in the Canada (KEC). KeySpan acquired its initial 50 percent home management concept is Dallas-based TXU Energy interest in GMS from Gulf in December 1998. No Services. More energy service companies are expected to form partnerships soon in different regions of the country. additional equity was required to complete this transaction, which enabled KeySpan to effectively The web site is an integral part of KeySpan’s overall vision reduce the unit cost of its investment in KEC. to become the premier energy and services company in the 5 An Interview with Wallace Parker, Jr., Executive Vice President – KeySpan Energy Delivery (New York and Long Island) Mr.