Duke Energy IndianaPresentation to Indiana Utility Regulatory Commission

Jim Stanley, President, Duke Energy IndianaMay 13, 2009

SUMMER 2009 PREPAREDNESS

OVERVIEW OF PRESENTATION

Operational challenges/accomplishments since summer 2008

Summer 2009 capacity and energy needs

Steps taken to prepare for summer 2009

Challenges for summer 2009 and beyond

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OPERATIONAL CHALLENGES/ACCOMPLISHMENTS SINCE SUMMER 2008

Three major storms June 2008 flooding September 2008 Hurricane Ike January 2009 ice storm EEI Emergency Recovery Award

Start of Ancillary Services Market - January 6, 2009 Initiation of Clean Air Interstate Rule (CAIR) – January 1, 2009

Edwardsport Station – June 2008

Hurricane Ike – September 2008 Ice Storm – January 2009

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Operational Challenges

DUKE ENERGY INDIANA’S PEAK DEMAND FORECAST

Incremental Growth (MW)… -72 -96Percent Growth… -1.0 -1.4

Weather Normalized Peak Load

6,000

6,200

6,400

6,600

6,800

7,000

7,200

2007 2008 2009

Forecast*Historical

Meg

awat

ts

6,7596,855

6,927

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Summer 2009 Capacity and Energy Needs

* Using July, which is the peak load month

DUKE ENERGY INDIANA’S SUPPLY/DEMAND BALANCE FOR SUMMER 2009*

+219

Demand Supply

-172

0

6500

7000

6,7136,751-172

6,923 6,931 MW (5.35% PRMUCAP)

6000

6,579+352

Mega

watts

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Summer 2009 Capacity and Energy Needs

* Using August, which is the peak resource requirement month

GENERATION SYSTEM

Over 35 weeks of maintenance outages were performed this spring

Generation/equipment availability this summer: All generating units Environmental compliance equipment FGDs and SCRs on all Gibson units FGDs on both Cayuga units Baghouses on all four Gallagher units

Duke Energy Indiana continues to focus on: Summer reliability A program of “availability outages” System-wide and plant-wide contingency

planning

Gibson Station

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Steps Taken to Prepare for Summer 2009

PURCHASED CAPACITY AND ENERGY

Duke Energy Indiana’s current on-system reserve margin is below the Midwest ISO resource adequacy requirement of 5.35% on a UCAP basis Short-term PRC purchases of 219 MW for

July – August were made to comply with the requirement

Financial swaps or financial options may also be used to hedge against wholesale market price volatility

Duke Energy Indiana is also purchasing up to 100 MW of wind power energy from the Benton County Wind Farm under a 20-year agreement

Benton County Wind Farm

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Steps Taken to Prepare for Summer 2009

Photo source: Vision Energy LLC. Used by permission

DEMAND SIDE MANAGEMENT PROGRAMS

Between 1991 and 2009, Duke Energy Indiana demand side management programs have achieved: Approximately 172 MW of annual peak demand

reductions Over 695,939 MWh annual energy reductions

2009 projected peak load management reductions in August (adjusted for losses): Special contracts (e.g., interruptible): 69 MW PowerShare®

Call (customer contractual commitment): Demand Resources (DR) 68 MW Behind-the-Meter Gen. (BTMG) 10 MW Quote (voluntary, yet compensated): 63 MW

Power Manager – direct load control: 35 MW

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Steps Taken to Prepare for Summer 2009

TRANSMISSION & DISTRIBUTION SYSTEM

$143 M in long-term T&D investments for load growth and system enhancements Tipton West 230/69 kV substation Speed 138/69 kV transformer Carmel 146th 69 kV capacitor Wabash-Urbana 69 kV reconductor North Manchester 69 kV reconductor Shawswick-Pleasant Grove 138 kV

reconductor Fishers Bank #2 substation Columbus West Bank #2 substation Bloomington Rockport Road substation

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Steps Taken to Prepare for Summer 2009

Fishers Bank #2 Substation Construction – March 2009

CHALLENGES FOR SUMMER 2009 AND BEYOND – OVERVIEW

Managing commodity price volatility – market price trends

Evolving resource adequacy requirements

Planning for tighter and changing environmental requirements

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MANAGING COMMODITY PRICE VOLATILITY – SPOT MARKET PRICE TRENDS

60.09 57.56

88.31

41.50

0

50

100

2006 2007 2008 2009

$/MW

H

July MISO CIN Hub On-Peak Power Price

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6.05 6.21

11.32

3.86

0

5

10

15

2006 2007 2008 2009$/M

MBTU

July NYMEX Henry Hub Natural Gas Price

32.91 32.83

68.37

37.00

0

50

100

2006 2007 2008 2009

$/TON

Illinois Basin High Sulfur Coal

728.00

524.00

268.60

67.500

500

1,000

2006 2007 2008 2009

$/TON

SO2 Allowance

1,847.50

807.00 809.69 1,475.00

0

1,000

2,000

3,000

4,000

2006 2007 2008 2009

$/TON

NOx Allowance (Note 2)

Notes: (1) 2009 prices are forward prices as of May 4, 2009.(2) 2009 NOx Price includes annual NOx allowance price of $1,100/ton. Annual NOx program is a new program that started on January 1, 2009.

Challenges for Summer 2009 and Beyond

EVOLVING RESOURCE ADEQUACY REQUIREMENTS

Unknown Demand Resource UCAP (unforced capacity) methodology

After-the-fact assessment of load forecast (for potential underforecasting)

MISO is considering whether it should perform load forecasting function

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Challenges for Summer 2009 and Beyond

PLANNING FOR TIGHTENING AND CHANGING ENVIRONMENTAL REQUIREMENTS

Clean Air Interstate Rule (CAIR) remanded to EPA to rewrite requirements

Clean Air Mercury Rule (CAMR) overturned

New Source Review retrial – May 2009

Probable coal ash regulation

Probable CO2 emission regulations/legislation

Edwardsport IGCC Site – April 2009

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Challenges for Summer 2009 and Beyond

CONCLUSION

Duke Energy Indiana is prepared with adequate resources and infrastructure to meet its customers’ needs during summer 2009.

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