Deloitte & Touche Consulting
Group
PROJECT WASHINGTON
November 1995
Washington Amber Monroe
Deloitte Touche Privileged and Confidential -
Tohmatsu For Internal Use Only
International
Privileged and Confidential - For Internal Use Only
PROJECT WASHINGTON
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
Synergies Assumptions
- -- Projection period 1997-2006
- -- "As-is" industry model with flexibility for subsequent disaggregation
- -- Full integration of corporate and support functions
- -- Early preparation for and pursuit of nonlabor cost savings at closure
- -- Position reductions occurring over three years
- -- Costs to achieve savings incurred over first three years for separation
programs
- -- Attrition, controlled hiring and voluntary separation programs for position
reductions
- -- Conservative quantification approach for merger-related savings areas
Deloitte & Touche Consulting
Group
1
Privileged and Confidential - For Internal Use Only
PROJECT WASHINGTON
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
(Aggregate)
SAVINGS BEFORE COSTS TO ACHIEVE SAVINGS DISTRIBUTION(1)
1997-2006 TOTAL ($ MILLIONS)
[Set forth here are charts which summarize total savings before costs to
achieve, total savings distribution, and net savings after costs to achieve over
the 1997-2006 period. A bar chart on the left side of the page contains one bar
for each year from 1997 to 2006, representing annual savings before costs to
achieve. The annual amounts are as follows, in millions of dollars: 1997: $31;
1998: $49; 1999: $71; 2000: $80; 2001: $81; 2002: $85; 2003: $89; 2004: $94;
2005: $98; 2006: $101. A pie chart on the right side of the page depicts the
distribution of total savings among seven categories of savings, as follows:
labor savings: 45%; corporate & administrative program savings: 20%; nonfuel
purchasing economies: 8%; gas supply savings: 7%; joint dispatch savings: 10%;
capacity deferral savings: 7%; fuel transportation savings: 3%. The chart on
the lower left side of the page summarizes the ten-year total savings from 1997-
2006, as follows (in millions of dollars): gross savings of $779; costs to
achieve of $78; net savings of $701.]
(1) Savings distribution percentages exclude costs to achieve
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Group
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PROJECT WASHINGTON
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Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
(By Component)
[Set forth here is a chart which summarizes overall 1997-2006 savings by
component in nominal dollars. The progressive bar chart depicts ten-year
savings, by component, as follows (in millions of dollars): labor savings: $353;
corporate & administrative program savings: $155; nonfuel purchasing economies:
$60; gas supply savings: $53; fuel transportation savings: $22; capacity
deferral savings: $55; joint dispatch savings: $81; unquantified financing
savings; gross merger savings: $779; less costs to achieve: $78; net merger
savings: $701.]
Deloitte & Touche Consulting
Group
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Privileged and Confidential - For Internal Use Only
PROJECT WASHINGTON
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Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
(By Component)
[Set forth here is a chart which summarizes overall 1997-2006 corporate programs
savings by component in nominal dollars. The progressive bar chart depicts ten-
year savings, by component, as follows (in millions of dollars): A&G overhead
savings: $10; association dues and memberships savings: $3; benefits savings:
$9; insurance savings: $20; information services savings: $76; professional
services savings: $27; shareholder services savings: $10; total corporate
programs savings: $155.]
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PROJECT WASHINGTON
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Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
Costs to Achieve
($ Thousands)
1997 1998 1999 2000 2001-2006 Total
---- ---- ---- ---- --------- -----
Separation Costs $7,644 $5,486 $12,194 $ 0 $ 0 $25,324
Systems Consolidation 8,500 8,500 0 0 0 17,000
Facilities Integration 2,000 0 0 0 0 2,000
Relocation 7,408 0 0 0 0 7,408
Travel- Mobile
Transmission Crews 1,000 1,000 1,000 1,000 6,000 10,000
Internal/External
Communications 2,000 0 0 0 0 2,000
Transition Costs 2,000 0 0 0 0 2,000
Transaction Costs(1) 3,000 3,000 3,000 3,000 0 12,000
Directors and Officers
Liability Tail
Coverage 665 0 0 0 0 665
----- ----- ------ ----- ----- ------
Total Costs to
Achieve $34,217 $17,986 $16,194 $4,000 $6,000 $78,397
------- ------- ------- ------ ------ -------
------- ------- ------- ------ ------ -------
(1) Amortized over four years
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PROJECT WASHINGTON
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Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
COMPARISON TO OTHER TRANSACTIONS
[Set forth here are charts which compare savings in the IES/IPC/WPL proposed
transaction to other announced savings estimates in the utility industry in
three areas: position reductions, nonfuel operating and maintenance savings in
year 5 after transaction closure, and fuel savings in year 5 after transaction
closure. Position reductions are compared on the basis of position reductions
as a percentage of total company pre-merger employees. The IES/IPC/WPL
transaction is compared to twenty previously announced transactions, with
estimated position reductions as follows: CE/TE: 3.4%; PPL/UPL: 11.5%; NU/PSNH:
0.9%; SCE/SDGE: 5.1%; KCPL/KGE: 5.5%; KPL/KGE: 6.6%; IPC/IPS: 5.8%; ETR/GSU: not
applicable; CGE/PSI: 4.2%; IPL/PSI: 9.6%; IEL&P/IS: not applicable; CSW/EPE:
2.6%; WWP/SPR: 8.5%; MWR/IIGE: 6.0%; NSP/WEC: 10.1%; UE/CIPS: 3.4%; PSCo/SPS:
8.8%; PECO/PPL: 9.5%; BGE/PEPCO: 11.0%; PSPL/WEC: 8.7%; IES/IPC/WPL: 11.2%. The
low position reductions across the previously announced transactions, excluding
IES/IPC/WPL, is 0.9%, the average is 6.7%, and the high is 11.5%.
Nonfuel operating and maintenance savings are compared on the basis of year 5
savings as a percentage of total combined nonfuel expense in year 5 after
transaction closure. The IES/IPC/WPL transaction is compared to twenty
previously announced transactions, with estimated nonfuel operating and
maintenance savings as follows: CE/TE: 6.2%; PPL/UPL: 5.9%; NU/PSNH: 1.7%;
SCE/SDGE: 5.2%; KCPL/KGE: 4.2%; KPL/KGE: 6.9%; IPC/IPS: 6.1%; ETR/GSU: 4.2%;
CGE/PSI: 7.2%; IPL/PSI: 13.1%; IEL&P/IS: 4.1%; CSW/EPE: 2.3%; WWP/SPR: 10.1%;
MWR/IIGE: 5.2%; NSP/WEC: 15.3%; UE/CIPS: 5.4%; PSCo/SPS: 5.0%; PECO/PPL: 9.9%;
BGE/PEPCO: 14.3%; PSPL/WEC: 9.4%; IES/IPC/WPL: 9.2%. The low nonfuel operating
and maintenance savings across the previously announced transactions, excluding
IES/IPC/WPL, is 0.7%, the average is 7.2%, and the high is 15.3%.
Fuel savings are compared on the basis of year 5 savings as a percentage of
total combined fuel expense in year 5 after transaction closure. The
IES/IPC/WPL transaction is compared to twenty previously announced transactions,
with estimated fuel savings as follows: CE/TE: 2.4%; PPL/UPL: 8.6%; NU/PSNH:
1.0%; SCE/SDGE: 0.1%; KCPL/KGE: 4.6%; KPL/KGE: 2.1%; IPC/IPS: 0.5%; ETR/GSU:
3.4%; CGE/PSI: 1.0%; IPL/PSI: 0.0%; IEL&P/IS: 4.1%; CSW/EPE: 0.1%; WWP/SPR:
0.1%; MWR/IIGE: 0.2%; NSP/WEC: 1.7%; UE/CIPS: 1.7%; PSCo/SPS: 3.8%; PECO/PPL:
0.3%; BGE/PEPCO: 0.0%; PSPL/WEC: 0.0%; IES/IPC/WPL: 2.3%. The low fuel savings
across the previously announced transactions, excluding IES/IPC/WPL, is 0.0%,
the average is 1.8%, and the high is 8.6%.
The sources for these comparisons are regulatory filings and Deloitte & Touche
analysis.]
Deloitte & Touche Consulting
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6
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PROJECT WASHINGTON
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Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
Transaction Comparison
[Set forth here are charts which compare savings in the IES/IPC/WPL proposed
transaction to the low, average and high estimates of savings in the eight most
recent announced transactions in the utility industry in three areas: position
reductions, nonfuel operating and maintenance savings in year 5 after
transaction closure, and fuel savings in year 5 after transaction closure.
Position reductions are compared on the basis of position reductions as a
percentage of total company pre-merger employees. The low position reductions
across the eight most recent announced transactions, excluding IES/IPC/WPL, is
3.4%, the average is 8.2%, and the high is 11.0%. IES/IPC/WPL savings are
estimated to be 11.2%.
Nonfuel operating and maintenance savings are compared on the basis of year 5
savings as a percentage of total combined nonfuel expense in year 5 after
transaction closure. The low nonfuel operating and maintenance savings across
the eight most recent announced transactions, excluding IES/IPC/WPL, is 5.0%,
the average is 9.4%, and the high is 15.3%. IES/IPC/WPL savings are estimated
to be 9.2%.
Fuel savings are compared on the basis of year 5 savings as a percentage of
total combined fuel expense in year 5 after transaction closure. The low fuel
savings across the eight most recent announced transactions, excluding
IES/IPC/WPL, is 0.0%, the average is 1.1%, and the high is 3.8%. IES/IPC/WPL
savings are estimated to be 2.3%.]
Deloitte & Touche Consulting
Group
7
PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: MERGER LABOR ASSUMPTIONS AND RESULTS
WASHINGTON, AMBER AND MONROE POSITION:
[] Washington employee base 1/1/97 2,323
before merger
[] Amber employee base 1/1/97 before merger 949
[] Monroe employee base 1/1/97 before merger 2,156
[] Total employee base before merger 5,428
[] Merger reductions 609
[] Total staffing after merger 4,819
MERGER POSITION:
[] Key reduction percentages
[] Human Resources 41%
[] Executive Management 37%
[] Gas Operations 28%
[] Electrical System Technical Support 26%
[] Overall corporate support 18%
[] Electric 7%
[] Gas 14%
[] All employees 11%
KEY ASSUMPTIONS:
[] The merger reductions only include those reductions that Washington,
Amber and Monroe could not achieve independently. There are two
types of reductions: centralized economies and avoided duplication.
[] Centralized economies occur when one company performs a function such as
investor relations for all companies with very few incremental employees.
[] Avoided duplication occur when one of two identical positions or functions
can be eliminated, such as payroll.
[] Reductions are phased in over three years (25% by 1997, 50% by 1998,
100% by 1999)
[] An average 20% of all savings are capitalized, using a 15% levelized
revenue requirements rate
OPEN POINTS:
[] Officer validation of reduction levels
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: OVERALL LABOR ASSUMPTIONS
WASHINGTON POSITION:
[] Ending employee
count on 10/16/95 2,325
[] Attrition and
pre-existing
reduction programs 2
[] Employees 2,323
[] Contractors included
in analysis 0
[] Total FTEs included
in analysis 2,323
[] Existing program
reductions in effect
before 1/1/97 0
[] Employee base before
1/1/97 merger 2,323
KEY ASSUMPTIONS:
[] Change in employees between 10/16/95 and 1/1/97 assigned to attrition
and pre-existing reduction programs
AMBER POSITION:
[] Ending employee
count on 8/28/95 966
[] Attrition and
pre-existing
reduction programs 0
[] Employees 966
[] Contractors included
in analysis 0
[] Total FTEs included
in analysis 966
[] Existing program
reductions in effect
before 1/1/97 17
[] Employee base before
1/1/97 merger 949
KEY ASSUMPTIONS:
[] Change in employees between 8/28/95 and 1/1/97 assigned to attrition
and pre-existing reduction programs
MONROE POSITION:
[] Ending employee
count on 10/12/95 2,435
[] Attrition and
pre-existing
reduction programs 0
[] Employees 2,435
[] Contractors included
in analysis 72
[] Total FTEs included
in analysis 2,507
[] Existing program
reductions in effect
before 1/1/97 351
[] Employee base before
1/1/97 merger 2,156
KEY ASSUMPTIONS:
[] Change in employees between 10/12/95 and 1/1/97 assigned to
attrition and pre-existing reduction programs
Deloitte & Touche Consulting
Group
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: WASHINGTON LABOR ASSUMPTIONS
WASHINGTON DATA:
[] Washington initially provided a phone listing dated 4/3/95.
Subsequently, Washington provided the Active Employees By
Organizational Units Report dated 10/16/95 from which detailed
employee data was obtained. Employees were aligned into Mercer
benchmarking categories. Washington personnel reviewed the
preliminary alignment. The alignment was modified based on their
suggestions and resubmitted for their review.
[] The headcount as of 10/16/95 was adjusted to reflect the departure
of David Ellestad and his secretary. Per Dan Doyle, they are no
longer on the Washington payroll.
WASHINGTON INITIATIVE OVERVIEW:
[] No initiatives are in process for existing operations
EXISTING OPERATIONS INITIATIVES:
[] No initiatives are in process for existing operations
OPEN ISSUES:
[] Officer review and validation of functional alignments
Deloitte & Touche Consulting
Group
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: AMBER LABOR ASSUMPTIONS
AMBER DATA:
[] Amber provided the Employees By Department Report dated 8/28/95 from
which detailed employee data was obtained. Salary data was obtained
from the Employee Pay Rates Report dated 9/13/95. Employees were aligned
into Mercer benchmarking categories. Amber personnel reviewed the
preliminary alignment. The alignment was modified based on their
suggestions and resubmitted for their review.
AMBER INITIATIVE OVERVIEW:
[] Headcounts were adjusted to reflect reduction initiatives in place
that would be in effect by the completion of the merger.
The reductions will result from current process
redesign efforts.
[] The information was provided by Mike Chase.
EXISTING OPERATIONS INITIATIVES:
[] Amber initiatives for existing operations include reductions
in the following functional areas:
[] Customer Service, Marketing, &
Sales 14
[] Electric Transmission and
Distribution 3
OPEN ISSUES:
[] Officer review and validation of functional
alignments
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: MONROE LABOR ASSUMPTIONS
MONROE DATA:
[] Monroe provided the Labor Costs/Budget Report dated 10/12/95 from which
employee data by functional department was obtained. Employees were aligned
into Mercer benchmarking categories. Monroe personnel reviewed the
preliminary alignment. The alignment was modified based on their
suggestions and resubmitted for their review.
MONROE INITIATIVE OVERVIEW:
[] Headcounts were adjusted to reflect reduction initiatives in place that
would be in effect by the completion of the merger. The reductions will
result from current process redesign efforts. The number of employees
affected is an average based on the range provided by Monroe.
[] The information was provided by Larry Root and Rick Gabbianelli.
EXISTING OPERATIONS INITIATIVES:
[] Monroe initiatives for existing operations include reductions
in the following functional areas:
[] Customer Service, Marketing, &
Sales 36
[] Electric Transmission and
Distribution 158
[] Power Supply and Production
(Nuclear) 135
[] Finance, Accounting and
Planning 18
[] Legal 4
These reductions are based on a distribution of estimated
reductions supplied by Larry Root.
OPEN ISSUES:
[] Officer review and validation of functional alignments
[] Officer validation of premerger reduction initiatives
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Group
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: ADMINISTRATIVE AND GENERAL OVERHEAD
WASHINGTON POSITION:
[] Based on internal data, Washington's administrative expense
totaled approximately $2.86MM in 1994. Variable administrative
expense were approximately $1.44MM. Variable cost per
corporate and administrative employee totaled $1,505.
AMBER POSITION:
[] Based on external data, Amber's administrative expense totaled
approximately $1.65MM in 1994. Variable administrative expense were
estimated at $0.515MM. Variable cost per corporate and administrative
employee totaled $1,453.
MONROE POSITION:
[] Based on internal data, Monroe's administrative expense totaled
approximately $10.91MM in 1994. Variable administrative expense were
estimated at $3.4MM. Variable cost per corporate and administrative employee
totaled $4,927.
SAVINGS ($000):
1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $260 $10,040
[] O&M - Revenue Requirements $0 $0
-- --
[] O&M - Total $260 $10,040
RATIONALE FOR SAVINGS:
[] Variable administrative costs vary with the level of personnel.
Examples of variable costs include office supplies, telephone
expenses and business expenses. Administrative overhead will
be eliminated as corporate personnel are reduced.
BASIS FOR CALCULATION:
[] The variable administrative cost per corporate and
administrative employee for the combined company totaled
$2,675. This figure was multiplied by the number of corporate
personnel reductions (329) to estimated savings
[] Savings are synchronized with personnel reductions
KEY ASSUMPTIONS:
[] Similar costs are captured in the internal data for Washington
and Monroe.
[] Amber and Monroe's variable portion of A&G expense are near
industry average of 30%
OPEN POINTS:
[] Amber's analysis is based on external data.
Deloitte & Touche Consulting
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: ASSOCIATION DUES AND MEMBERSHIPS
WASHINGTON POSITION:
[] Washington's 1994 association dues were $398,599, including
approximately $212,644 EEI dues.
AMBER POSITION:
[] Amber's 1994 association dues were $190,905, including approximately
$103,619 EEI dues.
MONROE POSITION:
[] Monroe's 1994 association dues were $639,579, including approximately
$205,700 EEI dues.
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $269 $3,079
[] O&M - Revenue Requirements $0 $0
-- --
[] O&M - Total $268 $3,079
RATIONALE FOR SAVINGS:
[] The combined company will be able to save on dues to shared
associations and memberships
BASIS FOR CALCULATION:
[] Savings are generated through a 20% reduction in the combined
company's association dues.
[] Formula for EEI dues alone provides $164,052 of savings annually
KEY ASSUMPTIONS:
[] Overlapping dues and memberships
OPEN POINTS:
[] External data only provided
Deloitte & Touche Consulting
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: BENEFITS
WASHINGTON POSITION:
[] Washington's 1994 benefits were estimated at $20.2 million (including $5.5
million OPEB). Washington offers an array of comprehensive insurance plans
including health, dental, vision, life, and disability. Administrative fees
were estimated at $732,000.
AMBER POSITION:
[] Amber's 1994 benefits were estimated at $8.3 million (no OPEB).
Amber offers an array of comprehensive insurance plans including medical and
life (no dental). Administrative fees were estimated at $475,000.
MONROE POSITION:
[] Monroe's 1994 benefits were estimated at $22.2 million (including $7
million OPEB). Monroe offers an array of comprehensive insurance plans
including health, dental, and disability. Administrative fees were
estimated at $717,000.
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $197 $2,257
[] O&M - Expense $591 $6,771
[] O&M - Revenue Requirements $30 $1,780
--- ------
[] O&M - Total $621 $8,551
RATIONALE FOR SAVINGS:
[] Cost savings result from increased purchasing power in
negotiating the cost of comprehensive benefit plans, and from
the elimination of duplicate administrative fees.
BASIS FOR CALCULATION:
[] Administrative fees were calculate as 6% of combined pension
and health costs for all three companies. Twenty-five percent
of these costs were were reduced as administrative fee
savings. In addition, 1% of health costs (less administrative
fees) was reduced to determine the combination of plans under
one administrator. Twenty-five percent of savings were
capitalized using an annual revenue requirements rate.
KEY ASSUMPTIONS:
[] Washington is not expected to recognize any pension expense
between 1997 and 2006.
OPEN POINTS:
[] None
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PROJECT WASHINGTON
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: INSURANCE
WASHINGTON POSITION:
[] 1995 projected costs include $1.68 million of non-nuclear property
insurance, $3.25 million on excess liability and $0.43 million on
directors and officers liability insurance.
AMBER POSITION:
[] 1995 projected costs include $0.72 million of property insurance,
$0.69 million on excess liability and $148,050 on directors and
officers liability insurance.
MONROE POSITION:
[] 1995 projected costs include $0.84 million of non-nuclear property
insurance, $0.77 million on excess liability and $238,725 on directors and
officers liability insurance.
RATIONALE FOR SAVINGS:
[] The combined company will be able to extend its insurance with
its carriers over a larger asset and loss experience base
which will reduce its overall cost. Combination of the
insurance programs will also provide an opportunity to
reassess needed coverage levels and related deductibles based
on the loss experience and risk profile of the combined
company.
BASIS FOR CALCULATION:
[] Insurance savings were estimated as 20% of the combined
companies property insurance, 15% of the combined companies
excess liability insurance and 75% of Amber and Monroe's
director and officers liability insurance.
KEY ASSUMPTIONS:
[] Total insurance program to be administered as a combined
company rather than as three separate entities.
[] Combination of each insurance coverage with a single broker.
Deloitte & Touche Consulting
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
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SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $1,744 $19,997
[] O&M - Revenue Requirements $0 $0
-- --
[] O&M - Total $1,744 $19,997
OPEN POINTS:
[] Lack of coverages, deductibles and carrier
information
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: PROFESSIONAL SERVICES
WASHINGTON POSITION:
[] 1992-1994 audit fees averaged $326,333. Average legal fees from 1992-1994
equaled $248,333. Costs for General Consulting from 1992-1994 averaged
$70,933. Other professional fees from 1992-1994 averaged $10.38MM.
Other professional fees includes Financial/Tax, Regulatory,
Computer/Systems and Environmental Services.
AMBER POSITION:
[] From 1992-1994 audit fees averaged $243,479. Legal fees from 1992-1994
averaged $859,650. Average General Consulting costs from 1992-1994 were
$117,552. Other professional fees from 1992-1994 averaged $1.32MM. Other
professional services includes Regulatory, Demand Side Management and
Environmental services
MONROE POSITION:
[] Audit fees from 1992-1994 averaged $487,785. Legal fees from 1992-1994
averaged $940,311. General Consulting fees averaged $1.79MM from
1992-1994. Other professional fees from 1992-1994 averaged $12.65MM.
This includes Financial/Tax, Computer/System, Nuclear, Demand Side
Management and Environmental services.
RATIONALE FOR SAVINGS:
[] The combined company will consolidate and reduce professional
services activities through economies of scope and elimination
of duplicate services and increased utilization of a broader
and deeper skill base. Audit savings are similar, with
additional audit services (e.g., bond insurance letters,
pension plan audit, stock issuance) reduced as a result of
duplication. Similar legal expenditures (regulatory and
corporate) and general consulting services can be reduced due
to redundancy and duplication.
BASIS FOR CALCULATION:
[] It is estimated that the audit fees for the new company will
be $750,000. Also there will be a 10% savings of the combined
legal and environmental services cost. General consulting and
DSM services (non-program related) will also be reduced.
Twenty-six percent of all professional services savings were
capitalized.
Deloitte & Touche Consulting
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
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SYNERGIES SUMMARY Draft
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SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $467 $5,351
[] O&M - Expense 2,022 $23,179
[] O&M - Revenue Requirements 70 $4,219
-- ------
[] O&M - Total $2,092 $27,398
KEY ASSUMPTIONS:
[] Purchasing economies result from increased size of the combined
company (e.g., Audit)
[] Similar types of consulting assistance required (e.g., restructuring,
market and competitive analysis).
OPEN POINTS:
[] Correct categorization of costs
Deloitte & Touche Consulting
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PROJECT WASHINGTON
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BOARD OF DIRECTORS MEETING
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: MIS OPERATING COSTS
WASHINGTON POSITION:
[] 1996 PC software maintenance cost totaled $448,331 (based on internal
data).
[] 1996 software maintenance cost totaled $608,489 (based on internal data).
[] PC maintenance cost per corporate employee was $366 which was assumed to
be the same for all three entities
AMBER POSITION:
[] 1996 PC software cost was estimated as $149,444 (based on Ambers
cost being 50% of Monroe's)
[] 1996 software maintenance cost was estimated as $196,030 (based on Amber's
cost being 50% of Monroe).
MONROE POSITION:
[] 1996 PC software cost was estimated as $298,887 (based on Monroe's cost
being 67% of Washington).
[] 1996 software maintenance cost totaled $392,060 (based on internal data).
[] Number of PCs per corporate employee was 0.56, which was assumed to be the
same for all three entities.
RATIONALE FOR SAVINGS:
[] Cost savings will result from the elimination of redundant
spending on software, licenses, leases and maintenance
contracts, as well as reduced PC purchases.
BASIS FOR CALCULATION:
[] Operating costs will be reduced by 75% of Monroe's contract
with EDS, starting in 2000.
[] Software maintenance cost will be reduced by 75% of Monroe's
and 100% of Amber's costs
[] PC software costs will be reduced by 75% of Monroe's and 100%
of Amber's costs
[] Offsite recovery cost savings totaling 75% of Washington's costs
[] Leased personal computers reduced in proportion to corporate
and administrative personnel reduction. (PC maintenance and
lease cost, times number of PCs per employee times number of
corporate reductions).
KEY ASSUMPTIONS:
[] PC leased cost per corporate employee totaled $1,000 (based on
industry average)
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $1,167 $33,831
[] O&M - Revenue Requirements $ 0 $ 0
------ -------
[] O&M - Total $1,167 $33,831
OPEN POINTS:
[] Further analysis of platforms used by each company
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: MIS (CAPITAL)
WASHINGTON POSITION:
[] Washington has several relatively new systems which could be expanded to
handle the combined companies' requirements.
AMBER POSITION:
[] Amber has several relatively new systems which could be expanded to
handle the combined companies' requirements.
[] Accounts payable system will be avoided, which totaled $0.4MM in 1997
MONROE POSITION:
[] Monroe has several relatively new systems which could be expanded to
handle the combined companies' requirements.
[] Customer Information System which totaled $20MM and Work Management System
which totaled $3MM will be avoided
SAVINGS (1997 $000): 1997 1997-2006
---- ---------
[] Capital $11,900 $23,400
[] O&M - Expense $0 $0
[] O&M - Revenue Requirements $2,380 $42,120
------- -------
[] O&M - Total $2,380 $42,120
RATIONALE FOR SAVINGS:
[] Capital savings will result from the elimination of certain
systems in the future
BASIS FOR CALCULATION:
[] Avoid Amber's Financial Planning System in 1996 for a total of
$400K
[] Monroe's Customer Information System totaling $20MM ($10MM in
1997 and 1998) and Work Management System totaling $3MM
($1.5MM in 1997 and 1998) will be avoided.
KEY ASSUMPTIONS:
[] Systems in place or near development completion are adequate.
[] Existing parallel system development efforts would be
discontinued.
[] Avoided CIS and WMS costs based on packaged systems with
minimal customization, consistent with Washington's I/S
strategy.
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: SHAREHOLDER SERVICES
WASHINGTON POSITION:
[] 1994 shareholder expenses totaled $1.2 million.
There were an estimated 38,625 shareholders during 1994.
AMBER POSITION:
[] 1994 shareholder expenses totaled $607,580.
There were an estimated 16,256 shareholders during 1994.
MONROE POSITION:
[] 1994 shareholder expenses totaled $385,321.
There were an estimated 32,565 shareholders during 1994.
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $853 $9,776
[] O&M - Revenue Requirements $ 0 $ 0
---- ------
[] O&M - Total $853 $9,776
RATIONALE FOR SAVINGS:
[] Cost savings will result through the elimination of duplicative
shareholder related activities (annual meetings and annual
reports) and a reduction in the total cost of processing
shareholder transactions.
BASIS FOR CALCULATION:
[] Perform a regression analysis of shareholder cost per
shareholder vs. number of shareholder for the industry.
Savings is equal to the difference between the cost per
shareholder of the combined company vs. the cost per
shareholder of the three companies combined on a stand-alone
basis.
KEY ASSUMPTIONS:
[] Cost per shareholder declines as incremental shareholders are
added to the combined company.
OPEN POINTS:
[] Public data was used for all three companies
[] Monroe's shareholder expense per shareholder is low.
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: PROCUREMENT AND INVENTORY
WASHINGTON POSITION:
[] 1994 average inventory approximately equaled $14.165 million. Non-
inventory purchases approximately equaled $14.165 million, and
inventory purchases totaled $22.947 million. Washington's non-inventory
turnover was estimated to be 1.0 (based on Monroe's internal data) and
the inventory turnover is 1.62 (based on Washington's internal data).
AMBER POSITION:
[] 1994 average inventory approximately equaled $4.895 million.
Non-inventory purchases approximately equaled $4.895 million, and
inventory purchases totaled $6.413 million. Amber's non-inventory
turn was estimated to be 0.85 (based on Monroe's internal data) and
the inventory turnover was 1.31 (based on the average of Monroe and
Washington).
MONROE POSITION:
[] 1994 average inventory approximately equaled $14.691 million. Non-
inventory purchases approximately equaled $12.549 million, and inventory
purchases totaled $14.542 million. Monroe's non-inventory turnover of 0.85
and inventory turnover of 1.0.
RATIONALE FOR SAVINGS:
[] Savings will be realized based on an increase in
standardization, resulting in increased purchasing power and
vendor consolidation. A combined entity would also realize a
one-time inventory reduction due to inventory duplication.
BASIS FOR CALCULATION:
[] 1994 average inventory balances for all three entities were
combined and reduced by 5%. 1994 procurement figures were
combined and reduced by 5%. One hundred percent of the
inventory savings and 53.8% of procurement savings were
capitalized.
KEY ASSUMPTIONS:
[] Historical procurement is indicative of future levels.
[] Equipment standards design comparable for shared usage.
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $3,828 $24,589
[] O&M - Expense $1,984 $22,745
[] O&M - Revenue Requirements $ 574 $20,700
------ -------
[] O&M - Total $2,558 $43,445
OPEN POINTS:
[] Ability to combine warehouses.
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: CONTRACT SERVICES
WASHINGTON POSITION:
[] 1992-1994 contract services averaged approximately $9.59 million of which
$2.6 million related to tree trimming. Other contract services which
include engineering, field related, power plant related, construction
and contract labor services averaged $6.99 million from 1992-1994.
AMBER POSITION:
[] 1992-1994 contract services, excluding tree trimming, engineering
services, averaged $102,525. Amber also spends $2MM annually on tree
trimming per Mike Chase
MONROE POSITION:
[] 1992-1994 contract services averaged approximately $47.33 million of which
$3.75 million related to tree trimming. Other contract services which
include engineering, field related, power plant related, construction and
contract labor services averaged $43.5 million from 1992-1994.
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $1,193 $13,677
[] O&M - Expense 494 5,668
[] O&M - Revenue Requirements $ 179 $10,784
------ -------
[] O&M - Total $ 673 $16,453
RATIONALE FOR SAVINGS:
[] Cost savings will occur due to increased leverage in
negotiating services from similar vendors. Savings
opportunities exists due to the contiguity of the service
territories and similar regional providers of services.
BASIS FOR CALCULATION:
[] Savings are calculated by taking 10% of the combined company's
tree trimming costs and 10% of Washington and Amber's other
contractor costs.
KEY ASSUMPTIONS:
[] Existing contractors use or potential mix relatively consistent
due to proximity of service territory
OPEN POINTS:
[] Monroe's contract services costs are high relative to Amber and
Washington, primarily due to temporary plant contractor level
increases.
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: FUEL TRANSPORTATION
WASHINGTON POSITION:
[] Washington relies exclusively on low BTU coal from Wyoming and Montana
[] 5 MM tons are shipped on the BN and about 2.5 MM tons are shipped
on the CNW system
[] Rail contracts extend through 1999
AMBER POSITION:
[] 500,000 tons of low BTU coal are shipped over the BN; contract
expires in 1998
[] 50,000 tons of medium BTU coal are from Colorado or Southern Pacific
[] These contracts expire in 1998
RATIONALE FOR SAVINGS:
[] Significant increase in leverage after existing contracts expired
[] Greater purchasing power available to extend to all companies
for volumes not under contracts and for volumes in which
contracts have expired
BASIS FOR CALCULATION:
[] After 1998, Amber's 500,000 tons over the BN expires;
therefore, $2/ton BN savings gives $1 MM per year savings from
1999 onward exclude savings from current renegotiation efforts.
[] 25 CENTS/ton savings on Washington's CNW contract, which expires
in 1999, give $625K reduction from 2000 onward
[] Monroe's BGS volumes, not under contract, receive savings of
25 CENTS/ton for $375 K savings per year. Also, two CNW
contracts are expiring in 1997, therefore, 50 CENTS/ton savings
were taken on each, yielding a $400 K and $250 K per year
savings from 1998 onward
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
MONROE POSITION:
[] Rules exclusively on low BTU coal from Wyoming and Montana
[] 4.5 MM tons shipped to BGS and OGS over BN (3 MM tons have contracts
through or after 2001 and 1.5 MM tons do not have long-term contracts)
[] 1 MM+ tons shipped under CNW contract expire at the end of 1998
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $375 $21,975
[] O&M - Revenue Requirements $ 0 $ 0
---- -------
[] O&M - Total $375 $21,975
KEY ASSUMPTIONS:
[] $2/ton BN savings for Amber BN volumes
[] 25CENTS/ton savings for Washington's BN volumes and Monroe's
BGS volumes
[] Washington's purchasing power can be extended to Monroe's CNW
contracts
[] No procurement and inventory savings because supply diversity
is not enhanced and increased volumes don't indicate lower
price procurement costs would result
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
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PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: CAPACITY DEFERRAL
WASHINGTON POSITION:
[] Planned addition of 83 Mw CT in 1998
[] Further CT additions in 2001, 2003 and 2005
AMBER POSITION:
[] Surplus capacity until purchases expire in 2001
[] Surplus begins at 185 Mw in 1997 and diminishes to 122 Mw in 2000
[] Surplus can be used to offset Washington and Monroe deficits
MONROE POSITION:
[] Minor capacity deficits in 1997 to 2000
[] Significant capacity deficits from 2000 forward
[] No planned resource additions
RATIONALE FOR SAVINGS:
[] Apply Amber surplus to Washington/Monroe deficit
[] Reduce combined capacity requirement to reflect diversity
benefit of approximately 100 Mw
BASIS FOR CALCULATION:
[] Permanent elimination of one 83 Mw peaker in 1998
[] Avoided short-term purchase of 17 Mw, 76 Mw, 55 Mw and 140 Mw in
1997 to 2000 as Amber surplus is used
[] Ongoing avoided short-term purchases of approximately 20 Mw per
year
KEY ASSUMPTIONS:
[] Washington and Monroe would cover capacity deficits stand-alone
[] Savings are from bid capacity purchases, not construction
[] Amber CT construction costs of $350/kw
[] Short-term purchase costs of $25/kw/year escalating at 7% annually
[] Peak load diversity of 1.8%
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $425 $54,832
[] O&M - Revenue Requirements $ 0 $ 0
---- -------
[] O&M - Total $425 $54,832
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: JOINT DISPATCH
WASHINGTON POSITION:
[] Approx. 2,195 MW of Capacity (assumes addition of two gas turbines at
SFDL, similar to SFDL #3, and no long-term firm purchases), with variable
costs per MWh ranging from $10-$155 Capacity Average = $24.16; Generation
Average = $14.70
[] Summer Peak of 2,002 MW and Winter Peak of 1,787 MW
AMBER POSITION:
[] Approx. 1,300 MW of Capacity (including 280 MW of long-term firm
purchases), with variable costs per MWh ranging from $8-$82
Capacity Average = $31.56; Generation Average = $13.82
[] Summer Peak of 932 MW and Winter Peak of 768 MW
RATIONALE FOR SAVINGS:
[] Joint dispatch of all three systems would allow for lowest
combined system incremental cost per MWh to be dispatched based
on interconnection capabilities
[] Savings represent the differential between stand-alone
incremental generation costs and merged incremental costs (i.e.
lambda differential)
BASIS FOR CALCULATION:
[] Using 1994 load and plant data for each company, 36 sample days
were selected to be run through a simulated hourly dispatch
(via a proprietary dispatch model) on both stand-alone and
combined bases
[] Using standard deviation analysis, a distribution curve was
generated to extrapolate a full year based on the sample
results
Deloitte & Touche Consulting
Group
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PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
MONROE POSITION:
[] Approx. 2,000 MW of Capacity (including 276 MW of long-term firm
purchases), with variable costs per MWh ranging from $9-$70.42
Capacity Average = $28.82; Generation Average = $11.48
[] Summer Peak of 1,773 MW and Winter Peak of 1,519 MW
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $5,402 $81,014
[] O&M - Revenue Requirements $ 0 $ 0
------ -------
[] O&M - Total $5,402 $81,014
KEY ASSUMPTIONS:
[] The model relies primarily on data available from FERC Forms 1
and 714, with adjustments as provided by the companies
[] Assumed construction of 150 MW Nelson Dewey to East Dubuque
interconnection built by end of 1998 (dispatch savings offset
by 15% annual fixed charge on $6.3 million capital investment -
already removed from savings figure) instead of wheeling
through Dairyland (as in 1997 and 1998)
[] Only long-term firm purchases were included in the dispatch
[] No per-plant emissions costs were included
[] Outage rates were constrained by a 3% minimum and 20% maximum
OPEN POINTS:
[] Potential impacts of market forces (i.e. short-term non-firm purchases);
combined dispatch savings may already be capturable on the short-term
economy market;
[] Historical data may not be a good proxy for future operation of
generation, particularly for plants which were not dispatched
much in the historical year;
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: GAS SUPPLY
WASHINGTON POSITION:
[] Maintains long-term firm transportation with Northern Natural Gas
NSP/Viking, and ANR Pipeline Company. Gas is procured (29,733 MDth)
from over 50 suppliers with contracts staggered through 2003.
An additional 8,536 MDth is transported for other parties.
Also maintains contract storage of 94 MDth/day with ANR and Northern.
AMBER POSITION:
[] Maintains long-term firm transportation with Northern Natural Gas and
Natural Gas Pipeline Company. Gas is procured (8,794 MDth) from 10
suppliers. An additional 24,499 MDth is transported for other parties.
Owns 1,224,000 gallons (19,100 Mcf/day) of LPG storage at its Albert Lea,
Clinton, and Mason City sites for peaking use.
MONROE POSITION:
[] Maintains long-term firm transportation with Northern Natural Gas, Natural
Gas Pipeline Company, and ANR Pipeline Company. Gas is procured (29,320
MDth) from 9 suppliers through a combination of base load and no-notice
contracts staggered through 2003. An additional 8867 MDth is transported
for other parties. Owns 276,500 gallons (6,800 Mcf/day) of LPG storage at
Grinnell, Burlington, and Washington for peaking use. Also maintains
contract storage of 105MDth with ANR, NNG, and NGPL.
RATIONALE FOR SAVINGS:
[] Cost savings result from the maximization of underutilized
assets, smoothing of seasonal volumes, economies of scale with
gas suppliers, reduction of reserve margins, and elimination of
redundant contracts.
BASIS FOR CALCULATION:
[] Gas supply savings were calculated based on savings identified
in similar merger transactions. Savings due to decontracting,
reducing margins, and stabilizing loads were added to savings
from purchasing economies to determine total savings.
KEY ASSUMPTIONS:
[] Size of combined firm warrants reductions in margins and
underutilized assets.
[] Similar peak periods could result in more stable combined loads.
[] Negotiation with transporters and suppliers
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997 - 2006
---- -----------
[] Capital $0 $0
[] O&M - Expense $4,478 $53,000
[] O&M - Revenue Requirements $ 0 $ 0
------ -------
[] O&M - Total $4,478 $53,000
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: COSTS TO ACHIEVE
WASHINGTON POSITION:
[] Not applicable
AMBER POSITION:
[] Not applicable
MONROE POSITION:
[] Not applicable
RATIONALE FOR SAVINGS:
[] Merger savings in some instances require a certain level of out of
pocket expense to be achieved.
BASIS FOR CALCULATION:
[] Number of personnel for voluntary separation equals total number
of reductions less 1% attrition in areas affected by reduction.
[] Voluntary separation - phased in over three years. $7.64MM in
1997, $5.49MM in 1998 and $12.19MM in 1999. Assumes 40 early
retirements at $100K, with remaining reductions through
voluntary separation. Voluntary separation packages includes
nine months' pay with medical benefits over the same time period.
[] Relocation - $7.41MM incurred in 1997. Assumes 10% of corporate
and administrative personnel of combined company will be
relocated at a cost of $40,000 per employee.
[] Transition cost - $2MM in 1997 for external assistance to
facilitate integration of individual entities.
[] Systems consolidation/telecommunications - $17MM in 1997-1998 to
integrate phone, data, facsimile communications and write-off of
redundant systems and digitize Ambers infrastructure..
[] Facilities integration - $2.0MM in 1997 includes filed office
and corporate facility closure costs.
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $34,217 $78,397
[] O&M - Revenue Requirements $ 0 $ 0
------- -------
[] O&M - Total $34,217 $78,397
[] Internal/External Communication - $2.0MM to educate customers,
employees regarding combination
[] D&O tail coverage - $0.67MM, or 1.5 times annual D&O premium of
Monroe and Amber's in 1997
[] Transaction costs - $10MM bankers fees, $2MM legal fees -
amortized over four years.
[] Travel - Mobile transmission crews - $1MM in 1997-2006
KEY ASSUMPTIONS:
[] Reductions will occur through attrition, controlled hiring,
early retirement and voluntary separation programs
[] One percent non-retirement attrition rates for all three companies
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
----------
PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
WASHINGTON STAFFING ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------
WASHINGTON STAND-ALONE ADJUSTED
STAFFING BY FUNCTIONAL AREA TOTAL PRE-MERGER WASHINGTON
INITIATIVES TOTAL
- ---------------------------------------------------------------------------------------------------
Customer Service/Marketing 418 --- 418
Human Resources 44 --- 44
Finance/Accounting 65 --- 65
Information Services 126 --- 126
External Relations 10 --- 10
Legal 2 --- 2
Administrative & Support 187 --- 187
Executive Management 18 --- 18
Power Supply & Production 485 --- 485
Electric Transmission & Distribution 661 --- 661
Electric System Technical Support 88 --- 88
Gas Transmission & Distribution 199 --- 199
Gas Operations 20 --- 20
TOTAL 2,323 --- 2,323
Deloitte & Touche Consulting
Group
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PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
AMBER STAFFING ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------
AMBER STAND-ALONE ADJUSTED
STAFFING BY FUNCTIONAL AREA TOTAL PRE-MERGER AMBER TOTAL
INITIATIVES
- ---------------------------------------------------------------------------------------------------
Customer Service/Marketing 168 14 154
Human Resources 15 --- 15
Finance/Accounting 45 --- 45
Information Services 27 --- 27
External Relations 3 --- 3
Legal 3 --- 3
Administrative & Support 65 --- 65
Executive Management 14 --- 14
Power Supply & Production 156 --- 156
Electric Transmission & Distribution 365 3 362
Electric System Technical Support 23 --- 23
Gas Transmission & Distribution 78 --- 78
Gas Operations 4 --- 4
TOTAL 966 17 949
Deloitte & Touche Consulting
Group
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PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
MONROE STAFFING ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------
MONROE STAND-ALONE ADJUSTED
STAFFING BY FUNCTIONAL AREA TOTAL PRE-MERGER MONROE TOTAL
INITIATIVES
- ---------------------------------------------------------------------------------------------------
Customer Service/Marketing 316 36 280
Human Resources 39 --- 39
Finance/Accounting 95 18 77
Information Services 79 --- 79
External Relations 3 --- 3
Legal 15 4 11
Administrative & Support 148 --- 148
Executive Management 19 --- 19
Power Supply & Production 928 135 793
Electric Transmission & Distribution 638 158 480
Electric System Technical Support 75 --- 75
Gas Transmission & Distribution 137 --- 137
Gas Operations 15 --- 15
TOTAL 2,507 351 2,156
Deloitte & Touche Consulting
Group
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PROJECT WASHINGTON
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
MERGER REDUCTIONS
- --------------------------------------------------------------------------------------------------------------
WASHINGTON AMBER MONROE OVERALL M&A REDUCTION NEWCO TOTAL
STAFFING BY ADJUSTED ADJUSTED ADJUSTED ADJUSTED REDUC- AS % OF
FUNCTIONAL AREA TOTAL TOTAL TOTAL TOTAL TION FUNCTION
- --------------------------------------------------------------------------------------------------------------
Customer Service/Marketing 418 154 280 852 123 14.4% 729
Human Resources 44 15 39 98 40 40.8% 58
Finance/Accounting 65 45 77 187 43 23.0% 144
Information Services 126 27 79 232 32 13.8% 200
External Relations 10 3 3 16 4 25.0% 12
Legal 2 3 11 16 4 25.0% 12
Administrative & Support 187 65 148 400 64 16.0% 336
Executive Management 18 14 19 51 19 37.3% 32
Power Supply & Production 485 156 793 1,434 40 2.8% 1,394
Electric Transmission & 661 362 480 1,503 129 8.6% 1,374
Distribution
Electric System Technical 88 23 75 186 49 26.3% 137
Support
Gas Transmission & 199 78 137 414 51 12.3% 363
Distribution
Gas Operations 20 4 15 39 11 28.2% 28
TOTAL 2,323 949 2,156 5,428 609 11.2% 4,819
Deloitte & Touche Consulting
Group
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Deloitte & Touche Consulting
Group
PROJECT MONROE
November 1995
Washington Amber Monroe
Deloitte Touche Privileged and Confidential -
Tohmatsu For Internal Use Only
International
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
OVERVIEW OF SYNERGIES
Synergies Usage
Cost Savings
Financial Regulatory Operational
Valuation Savings Sharing Integration
Targets
Deloitte & Touche Consulting
Group
1
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
OVERVIEW OF SYNERGIES
Created Directly related to merger
Savings -- "But For"
Savings
Categories Enabled Indirectly related to merger
Savings -- "Unlocked"
Developed Unrelated to merger
Savings -- "On Your Own"
Deloitte & Touche Consulting
Group
2
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
OVERVIEW OF SYNERGIES
Principal Focus
Duplication Avoidance
Created Economies of Scale
Savings Expenditure Avoidance
Operational Efficiency
Skill Transfer
Savings Enabled Practices Adoption
Categories Savings Philosophy Modification
Organizational Streamlining
Developed Work Reduction
Savings Performance Realignment
Contractual Arrangements
Deloitte & Touche Consulting
Group
3
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
OVERVIEW OF SYNERGIES
Merger Synergies
Categories
Corporate and Capacity Deferral
Support Labor
Corporate Programs Fuel Transportation
Nonfuel Purchasing Joint Dispatch
Economies
Gas Supply
Deloitte & Touche Consulting
Group
4
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
OVERVIEW OF SYNERGIES
Quantification Approach
------------------------------------
Direct Transaction
Savings Area Analysis Comparison Judgment
- ------------ ------------------------------------
Corporate and Support Labor X __ __
Corporate Programs X __ __
Nonfuel Purchasing Economies __ X __
Gas Supply __ __ X
Joint Dispatch X __ __
Fuel Transportation __ X __
Capacity Deferral X __ __
X Primary __ Secondary
Deloitte & Touche Consulting
Group
5
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
OVERVIEW OF SYNERGIES
Merger Costs
Categories
Employee Programs Transaction Costs
Systems Consolidation Transition Costs
Infrastructure Internal/External
Communications
Deloitte & Touche Consulting
Group
6
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
Synergies Assumptions
- -- Projection period 1997-2006
- -- "As-is" industry model with flexibility for subsequent disaggregation
- -- Full integration of corporate and support functions
- -- Early preparation for and pursuit of nonlabor cost savings at closure
- -- Position reductions occurring over three years
- -- Costs to achieve savings incurred over first three years for separation
programs
- -- Attrition, controlled hiring and voluntary separation programs for position
reductions
- -- Conservative quantification approach for merger-related savings areas
Deloitte & Touche Consulting
Group
7
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
------------
Illustrative
POTENTIAL SYNERGIES SUMMARY ------------
Operating Structure - Registered Holding Company
NewCo
Corporate
Nonregulated Washington Amber Monroe Services
Business Generation Transmission Delivery Retail Legal
Units Human Resources
Technical Support Communications
Marketing Corporate
Purchasing Support
Financing & Accounting
Information Services
Rates & Regulatory
Affairs
Support Services
Materials Trans- Engineer- Construc-
Manage- porta- ing tion
ment and tion Services Services
Stores Services and
Support
Main- Customer
tenance Services
Services
State Offices External Affairs
Deloitte & Touche Consulting
Group
8
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
(Aggregate)
SAVINGS BEFORE COSTS TO ACHIEVE SAVINGS DISTRIBUTION(1)
1997-2006 TOTAL ($ MILLIONS)
[Set forth here are charts which summarize total savings before costs to
achieve, total savings distribution, and net savings after costs to achieve over
the 1997-2006 period. A bar chart on the left side of the page contains one bar
for each year from 1997 to 2006, representing annual savings before costs to
achieve. The annual amounts are as follows, in millions of dollars: 1997: $31;
1998: $49; 1999: $71; 2000: $80; 2001: $81; 2002: $85; 2003: $89; 2004: $94;
2005: $98; 2006: $101. A pie chart on the right side of the page depicts the
distribution of total savings among seven categories of savings, as follows:
labor savings: 45%; corporate & administrative program savings: 20%; nonfuel
purchasing economies: 8%; gas supply savings: 7%; joint dispatch savings: 10%;
capacity deferral savings: 7%; fuel transportation savings: 3%. The chart on
the lower left side of the page summarizes the ten-year total savings from 1997-
2006, as follows (in millions of dollars): gross savings of $779; costs to
achieve of $78; net savings of $701.]
(1) Savings distribution percentages exclude costs to achieve
Deloitte & Touche Consulting
Group
9
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
(By Component)
[Set forth here is a chart which summarizes overall 1997-2006 savings by
component in nominal dollars. The progressive bar chart depicts ten-year
savings, by component, as follows (in millions of dollars): labor savings: $353;
corporate & administrative program savings: $155; nonfuel purchasing economies:
$60; gas supply savings: $53; fuel transportation savings: $22; capacity
deferral savings: $55; joint dispatch savings: $81; unquantified financing
savings; gross merger savings: $779; less costs to achieve: $78; net merger
savings: $701.]
Deloitte & Touche Consulting
Group
10
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
(By Component)
[Set forth here is a chart which summarizes overall 1997-2006 corporate programs
savings by component in nominal dollars. The progressive bar chart depicts ten-
year savings, by component, as follows (in millions of dollars): A&G overhead
savings: $10; association dues and memberships savings: $3; benefits savings:
$9; insurance savings: $20; information services savings: $76; professional
services savings: $27; shareholder services savings: $10; total corporate
programs savings: $155.]
Deloitte & Touche Consulting
Group
11
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
Costs to Achieve
($ Thousands)
1997 1998 1999 2000 2001-2006 Total
---- ---- ---- ---- --------- -----
Separation Costs $7,644 $5,486 $12,194 $ 0 $ 0 $25,324
Systems Consolidation 8,500 8,500 0 0 0 17,000
Facilities Integration 2,000 0 0 0 0 2,000
Relocation 7,408 0 0 0 0 7,408
Travel- Mobile
Transmission Crews 1,000 1,000 1,000 1,000 6,000 10,000
Internal/External
Communications 2,000 0 0 0 0 2,000
Transition Costs 2,000 0 0 0 0 2,000
Transaction Costs(1) 3,000 3,000 3,000 3,000 0 12,000
Directors and Officers
Liability Tail
Coverage 665 0 0 0 0 665
----- ----- ------ ----- ----- ------
Total Costs to
Achieve $34,217 $17,986 $16,194 $4,000 $6,000 $78,397
------- ------- ------- ------ ------ -------
------- ------- ------- ------ ------ -------
(1) Amortized over four years
Deloitte & Touche Consulting
Group
12
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
COMPARISON TO OTHER TRANSACTIONS
[Set forth here are charts which compare savings in the IES/IPC/WPL proposed
transaction to other announced savings estimates in the utility industry in
three areas: position reductions, nonfuel operating and maintenance savings in
year 5 after transaction closure, and fuel savings in year 5 after transaction
closure. Position reductions are compared on the basis of position reductions
as a percentage of total company pre-merger employees. The IES/IPC/WPL
transaction is compared to twenty previously announced transactions, with
estimated position reductions as follows: CE/TE: 3.4%; PPL/UPL: 11.5%; NU/PSNH:
0.9%; SCE/SDGE: 5.1%; KCPL/KGE: 5.5%; KPL/KGE: 6.6%; IPC/IPS: 5.8%; ETR/GSU: not
applicable; CGE/PSI: 4.2%; IPL/PSI: 9.6%; IEL&P/IS: not applicable; CSW/EPE:
2.6%; WWP/SPR: 8.5%; MWR/IIGE: 6.0%; NSP/WEC: 10.1%; UE/CIPS: 3.4%; PSCo/SPS:
8.8%; PECO/PPL: 9.5%; BGE/PEPCO: 11.0%; PSPL/WEC: 8.7%; IES/IPC/WPL: 11.2%. The
low position reductions across the previously announced transactions, excluding
IES/IPC/WPL, is 0.9%, the average is 6.7%, and the high is 11.5%.
Nonfuel operating and maintenance savings are compared on the basis of year 5
savings as a percentage of total combined nonfuel expense in year 5 after
transaction closure. The IES/IPC/WPL transaction is compared to twenty
previously announced transactions, with estimated nonfuel operating and
maintenance savings as follows: CE/TE: 6.2%; PPL/UPL: 5.9%; NU/PSNH: 1.7%;
SCE/SDGE: 5.2%; KCPL/KGE: 4.2%; KPL/KGE: 6.9%; IPC/IPS: 6.1%; ETR/GSU: 4.2%;
CGE/PSI: 7.2%; IPL/PSI: 13.1%; IEL&P/IS: 4.1%; CSW/EPE: 2.3%; WWP/SPR: 10.1%;
MWR/IIGE: 5.2%; NSP/WEC: 15.3%; UE/CIPS: 5.4%; PSCo/SPS: 5.0%; PECO/PPL: 9.9%;
BGE/PEPCO: 14.3%; PSPL/WEC: 9.4%; IES/IPC/WPL: 9.2%. The low nonfuel operating
and maintenance savings across the previously announced transactions, excluding
IES/IPC/WPL, is 0.7%, the average is 7.2%, and the high is 15.3%.
Fuel savings are compared on the basis of year 5 savings as a percentage of
total combined fuel expense in year 5 after transaction closure. The
IES/IPC/WPL transaction is compared to twenty previously announced transactions,
with estimated fuel savings as follows: CE/TE: 2.4%; PPL/UPL: 8.6%; NU/PSNH:
1.0%; SCE/SDGE: 0.1%; KCPL/KGE: 4.6%; KPL/KGE: 2.1%; IPC/IPS: 0.5%; ETR/GSU:
3.4%; CGE/PSI: 1.0%; IPL/PSI: 0.0%; IEL&P/IS: 4.1%; CSW/EPE: 0.1%; WWP/SPR:
0.1%; MWR/IIGE: 0.2%; NSP/WEC: 1.7%; UE/CIPS: 1.7%; PSCo/SPS: 3.8%; PECO/PPL:
0.3%; BGE/PEPCO: 0.0%; PSPL/WEC: 0.0%; IES/IPC/WPL: 2.3%. The low fuel savings
across the previously announced transactions, excluding IES/IPC/WPL, is 0.0%,
the average is 1.8%, and the high is 8.6%.
The sources for these comparisons are regulatory filings and Deloitte & Touche
analysis.]
Deloitte & Touche Consulting
Group
13
Privileged and Confidential - For Internal Use Only
PROJECT MONROE
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
Transaction Comparison
[Set forth here are charts which compare savings in the IES/IPC/WPL proposed
transaction to the low, average and high estimates of savings in the eight most
recent announced transactions in the utility industry in three areas: position
reductions, nonfuel operating and maintenance savings in year 5 after
transaction closure, and fuel savings in year 5 after transaction closure.
Position reductions are compared on the basis of position reductions as a
percentage of total company pre-merger employees. The low position reductions
across the eight most recent announced transactions, excluding IES/IPC/WPL, is
3.4%, the average is 8.2%, and the high is 11.0%. IES/IPC/WPL savings are
estimated to be 11.2%.
Nonfuel operating and maintenance savings are compared on the basis of year 5
savings as a percentage of total combined nonfuel expense in year 5 after
transaction closure. The low nonfuel operating and maintenance savings across
the eight most recent announced transactions, excluding IES/IPC/WPL, is 5.0%,
the average is 9.4%, and the high is 15.3%. IES/IPC/WPL savings are estimated
to be 9.2%.
Fuel savings are compared on the basis of year 5 savings as a percentage of
total combined fuel expense in year 5 after transaction closure. The low fuel
savings across the eight most recent announced transactions, excluding
IES/IPC/WPL, is 0.0%, the average is 1.1%, and the high is 3.8%. IES/IPC/WPL
savings are estimated to be 2.3%.]
Deloitte & Touche Consulting
Group
14
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
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-----
SYNERGIES SUMMARY Draft
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SAVINGS AREA: MERGER LABOR ASSUMPTIONS AND RESULTS
WASHINGTON, AMBER AND MONROE POSITION:
[] Washington employee base 1/1/97 2,323
before merger
[] Amber employee base 1/1/97 before merger 949
[] Monroe employee base 1/1/97 before merger 2,156
[] Total employee base before merger 5,428
[] Merger reductions 609
[] Total staffing after merger 4,819
MERGER POSITION:
[] Key reduction percentages
[] Human Resources 41%
[] Executive Management 37%
[] Gas Operations 28%
[] Electrical System Technical Support 26%
[] Overall corporate support 18%
[] Electric 7%
[] Gas 14%
[] All employees 11%
KEY ASSUMPTIONS:
[] The merger reductions only include those reductions that Washington,
Amber and Monroe could not achieve independently. There are two
types of reductions: centralized economies and avoided duplication.
[] Centralized economies occur when one company performs a function such as
investor relations for all companies with very few incremental employees.
[] Avoided duplication occur when one of two identical positions or functions
can be eliminated, such as payroll.
[] Reductions are phased in over three years (25% by 1997, 50% by 1998,
100% by 1999)
[] An average 20% of all savings are capitalized, using a 15% levelized
revenue requirements rate
OPEN POINTS:
[] Officer validation of reduction levels
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: OVERALL LABOR ASSUMPTIONS
WASHINGTON POSITION:
[] Ending employee
count on 10/16/95 2,325
[] Attrition and
pre-existing
reduction programs 2
[] Employees 2,323
[] Contractors included
in analysis 0
[] Total FTEs included
in analysis 2,323
[] Existing program
reductions in effect
before 1/1/97 0
[] Employee base before
1/1/97 merger 2,323
KEY ASSUMPTIONS:
[] Change in employees between 10/16/95 and 1/1/97 assigned to attrition
and pre-existing reduction programs
AMBER POSITION:
[] Ending employee
count on 8/28/95 966
[] Attrition and
pre-existing
reduction programs 0
[] Employees 966
[] Contractors included
in analysis 0
[] Total FTEs included
in analysis 966
[] Existing program
reductions in effect
before 1/1/97 17
[] Employee base before
1/1/97 merger 949
KEY ASSUMPTIONS:
[] Change in employees between 8/28/95 and 1/1/97 assigned to attrition
and pre-existing reduction programs
MONROE POSITION:
[] Ending employee
count on 10/12/95 2,435
[] Attrition and
pre-existing
reduction programs 0
[] Employees 2,435
[] Contractors included
in analysis 72
[] Total FTEs included
in analysis 2,507
[] Existing program
reductions in effect
before 1/1/97 351
[] Employee base before
1/1/97 merger 2,156
KEY ASSUMPTIONS:
[] Change in employees between 10/12/95 and 1/1/97 assigned to
attrition and pre-existing reduction programs
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: WASHINGTON LABOR ASSUMPTIONS
WASHINGTON DATA:
[] Washington initially provided a phone listing dated 4/3/95.
Subsequently, Washington provided the Active Employees By
Organizational Units Report dated 10/16/95 from which detailed
employee data was obtained. Employees were aligned into Mercer
benchmarking categories. Washington personnel reviewed the
preliminary alignment. The alignment was modified based on their
suggestions and resubmitted for their review.
[] The headcount as of 10/16/95 was adjusted to reflect the departure
of David Ellestad and his secretary. Per Dan Doyle, they are no
longer on the Washington payroll.
WASHINGTON INITIATIVE OVERVIEW:
[] No initiatives are in process for existing operations
EXISTING OPERATIONS INITIATIVES:
[] No initiatives are in process for existing operations
OPEN ISSUES:
[] Officer review and validation of functional alignments
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: AMBER LABOR ASSUMPTIONS
AMBER DATA:
[] Amber provided the Employees By Department Report dated 8/28/95 from
which detailed employee data was obtained. Salary data was obtained
from the Employee Pay Rates Report dated 9/13/95. Employees were aligned
into Mercer benchmarking categories. Amber personnel reviewed the
preliminary alignment. The alignment was modified based on their
suggestions and resubmitted for their review.
AMBER INITIATIVE OVERVIEW:
[] Headcounts were adjusted to reflect reduction initiatives in place
that would be in effect by the completion of the merger.
The reductions will result from current process
redesign efforts.
[] The information was provided by Mike Chase.
EXISTING OPERATIONS INITIATIVES:
[] Amber initiatives for existing operations include reductions
in the following functional areas:
[] Customer Service, Marketing, &
Sales 14
[] Electric Transmission and
Distribution 3
OPEN ISSUES:
[] Officer review and validation of functional
alignments
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: MONROE LABOR ASSUMPTIONS
MONROE DATA:
[] Monroe provided the Labor Costs/Budget Report dated 10/12/95 from which
employee data by functional department was obtained. Employees were aligned
into Mercer benchmarking categories. Monroe personnel reviewed the
preliminary alignment. The alignment was modified based on their
suggestions and resubmitted for their review.
MONROE INITIATIVE OVERVIEW:
[] Headcounts were adjusted to reflect reduction initiatives in place that
would be in effect by the completion of the merger. The reductions will
result from current process redesign efforts. The number of employees
affected is an average based on the range provided by Monroe.
[] The information was provided by Larry Root and Rick Gabbianelli.
EXISTING OPERATIONS INITIATIVES:
[] Monroe initiatives for existing operations include reductions
in the following functional areas:
[] Customer Service, Marketing, &
Sales 36
[] Electric Transmission and
Distribution 158
[] Power Supply and Production
(Nuclear) 135
[] Finance, Accounting and
Planning 18
[] Legal 4
These reductions are based on a distribution of estimated
reductions supplied by Larry Root.
OPEN ISSUES:
[] Officer review and validation of functional alignments
[] Officer validation of premerger reduction initiatives
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: ADMINISTRATIVE AND GENERAL OVERHEAD
WASHINGTON POSITION:
[] Based on internal data, Washington's administrative expense
totaled approximately $2.86MM in 1994. Variable administrative
expense were approximately $1.44MM. Variable cost per
corporate and administrative employee totaled $1,505.
AMBER POSITION:
[] Based on external data, Amber's administrative expense totaled
approximately $1.65MM in 1994. Variable administrative expense were
estimated at $0.515MM. Variable cost per corporate and administrative
employee totaled $1,453.
MONROE POSITION:
[] Based on internal data, Monroe's administrative expense totaled
approximately $10.91MM in 1994. Variable administrative expense were
estimated at $3.4MM. Variable cost per corporate and administrative employee
totaled $4,927.
SAVINGS ($000): 1997 1997-2006
- -------------- ---- ---------
[] Capital $0 $0
[] O&M - Expense $260 $10,040
[] O&M - Revenue Requirements $0 $0
-- --
[] O&M - Total $260 $10,040
RATIONALE FOR SAVINGS:
[] Variable administrative costs vary with the level of personnel.
Examples of variable costs include office supplies, telephone
expenses and business expenses. Administrative overhead will
be eliminated as corporate personnel are reduced.
BASIS FOR CALCULATION:
[] The variable administrative cost per corporate and
administrative employee for the combined company totaled
$2,675. This figure was multiplied by the number of corporate
personnel reductions (329) to estimated savings
[] Savings are synchronized with personnel reductions
KEY ASSUMPTIONS:
[] Similar costs are captured in the internal data for Washington
and Monroe.
[] Amber and Monroe's variable portion of A&G expense are near
industry average of 30%
OPEN POINTS:
[] Amber's analysis is based on external data.
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: ASSOCIATION DUES AND MEMBERSHIPS
WASHINGTON POSITION:
[] Washington's 1994 association dues were $398,599, including
approximately $212,644 EEI dues.
AMBER POSITION:
[] Amber's 1994 association dues were $190,905, including approximately
$103,619 EEI dues.
MONROE POSITION:
[] Monroe's 1994 association dues were $639,579, including approximately
$205,700 EEI dues.
SAVINGS ($000): 1997 1997-2006
- -------------- ---- ---------
[] Capital $0 $0
[] O&M - Expense $269 $3,079
[] O&M - Revenue Requirements $0 $0
-- --
[] O&M - Total $268 $3,079
RATIONALE FOR SAVINGS:
[] The combined company will be able to save on dues to shared
associations and memberships
BASIS FOR CALCULATION:
[] Savings are generated through a 20% reduction in the combined
company's association dues.
[] Formula for EEI dues alone provides $164,052 of savings annually
KEY ASSUMPTIONS:
[] Overlapping dues and memberships
OPEN POINTS:
[]] External data only provided
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: BENEFITS
WASHINGTON POSITION:
[] Washington's 1994 benefits were estimated at $20.2 million (including $5.5
million OPEB). Washington offers an array of comprehensive insurance plans
including health, dental, vision, life, and disability. Administrative fees
were estimated at $732,000.
AMBER POSITION:
[] Amber's 1994 benefits were estimated at $8.3 million (no OPEB).
Amber offers an array of comprehensive insurance plans including medical and
life (no dental). Administrative fees were estimated at $475,000.
MONROE POSITION:
[] Monroe's 1994 benefits were estimated at $22.2 million (including $7
million OPEB). Monroe offers an array of comprehensive insurance plans
including health, dental, and disability. Administrative fees were
estimated at $717,000.
SAVINGS ($000): 1997 1997-2006
- -------------- ---- ---------
[] Capital $197 $2,257
[] O&M - Expense $591 $6,771
[] O&M - Revenue Requirements $30 $1,780
--- ------
[] O&M - Total $621 $8,551
RATIONALE FOR SAVINGS:
[] Cost savings result from increased purchasing power in
negotiating the cost of comprehensive benefit plans, and from
the elimination of duplicate administrative fees.
BASIS FOR CALCULATION:
[] Administrative fees were calculate as 6% of combined pension
and health costs for all three companies. Twenty-five percent
of these costs were were reduced as administrative fee
savings. In addition, 1% of health costs (less administrative
fees) was reduced to determine the combination of plans under
one administrator. Twenty-five percent of savings were
capitalized using an annual revenue requirements rate.
KEY ASSUMPTIONS:
[] Washington is not expected to recognize any pension expense
between 1997 and 2006.
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
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PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: INSURANCE
WASHINGTON POSITION:
[] 1995 projected costs include $1.68 million of non-nuclear property
insurance, $3.25 million on excess liability and $0.43 million on
directors and officers liability insurance.
AMBER POSITION:
[] 1995 projected costs include $0.72 million of property insurance,
$0.69 million on excess liability and $148,050 on directors and
officers liability insurance.
MONROE POSITION:
[] 1995 projected costs include $0.84 million of non-nuclear property
insurance, $0.77 million on excess liability and $238,725 on directors and
officers liability insurance.
RATIONALE FOR SAVINGS:
[] The combined company will be able to extend its insurance with
its carriers over a larger asset and loss experience base
which will reduce its overall cost. Combination of the
insurance programs will also provide an opportunity to
reassess needed coverage levels and related deductibles based
on the loss experience and risk profile of the combined
company.
BASIS FOR CALCULATION:
[] Insurance savings were estimated as 20% of the combined
companies property insurance, 15% of the combined companies
excess liability insurance and 75% of Amber and Monroe's
director and officers liability insurance.
KEY ASSUMPTIONS:
[] Total insurance program to be administered as a combined
company rather than as three separate entities.
[] Combination of each insurance coverage with a single broker.
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
- -------------- ---- ---------
[] Capital $0 $0
[] O&M - Expense $1,744 $19,997
[] O&M - Revenue Requirements $0 $0
-- --
[] O&M - Total $1,744 $19,997
OPEN POINTS:
[] Lack of coverages, deductibles and carrier
information
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: PROFESSIONAL SERVICES
WASHINGTON POSITION:
[] 1992-1994 audit fees averaged $326,333. Average legal fees from 1992-1994
equaled $248,333. Costs for General Consulting from 1992-1994 averaged
$70,933. Other professional fees from 1992-1994 averaged $10.38MM.
Other professional fees includes Financial/Tax, Regulatory,
Computer/Systems and Environmental Services.
AMBER POSITION:
[] From 1992-1994 audit fees averaged $243,479. Legal fees from 1992-1994
averaged $859,650. Average General Consulting costs from 1992-1994 were
$117,552. Other professional fees from 1992-1994 averaged $1.32MM. Other
professional services includes Regulatory, Demand Side Management and
Environmental services
MONROE POSITION:
[] Audit fees from 1992-1994 averaged $487,785. Legal fees from 1992-1994
averaged $940,311. General Consulting fees averaged $1.79MM from
1992-1994. Other professional fees from 1992-1994 averaged $12.65MM.
This includes Financial/Tax, Computer/System, Nuclear, Demand Side
Management and Environmental services.
RATIONALE FOR SAVINGS:
[] The combined company will consolidate and reduce professional
services activities through economies of scope and elimination
of duplicate services and increased utilization of a broader
and deeper skill base. Audit savings are similar, with
additional audit services (e.g., bond insurance letters,
pension plan audit, stock issuance) reduced as a result of
duplication. Similar legal expenditures (regulatory and
corporate) and general consulting services can be reduced due
to redundancy and duplication.
BASIS FOR CALCULATION:
[] It is estimated that the audit fees for the new company will
be $750,000. Also there will be a 10% savings of the combined
legal and environmental services cost. General consulting and
DSM services (non-program related) will also be reduced.
Twenty-six percent of all professional services savings were
capitalized.
Deloitte & Touche Consulting
Group
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PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
- --------------- ---- ---------
[] Capital $467 $5,351
[] O&M - Expense 2,022 $23,179
[] O&M - Revenue Requirements 70 $4,219
-- ------
[] O&M - Total $2,092 $27,398
KEY ASSUMPTIONS:
[] Purchasing economies result from increased size of the combined
company (e.g., Audit)
[] Similar types of consulting assistance required (e.g., restructuring,
market and competitive analysis).
OPEN POINTS:
[] Correct categorization of costs
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
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SYNERGIES SUMMARY Draft
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SAVINGS AREA: MIS OPERATING COSTS
WASHINGTON POSITION:
[] 1996 PC software maintenance cost totaled $448,331 (based on internal
data).
[] 1996 software maintenance cost totaled $608,489 (based on internal data).
[] PC maintenance cost per corporate employee was $366 which was assumed to
be the same for all three entities
AMBER POSITION:
[] 1996 PC software cost was estimated as $149,444 (based on Ambers
cost being 50% of Monroe's)
[] 1996 software maintenance cost was estimated as $196,030 (based on Amber's
cost being 50% of Monroe).
MONROE POSITION:
[] 1996 PC software cost was estimated as $298,887 (based on Monroe's cost
being 67% of Washington).
[] 1996 software maintenance cost totaled $392,060 (based on internal data).
[] Number of PCs per corporate employee was 0.56, which was assumed to be the
same for all three entities.
RATIONALE FOR SAVINGS:
[] Cost savings will result from the elimination of redundant
spending on software, licenses, leases and maintenance
contracts, as well as reduced PC purchases.
BASIS FOR CALCULATION:
[] Operating costs will be reduced by 75% of Monroe's contract
with EDS, starting in 2000.
[] Software maintenance cost will be reduced by 75% of Monroe's
and 100% of Amber's costs
[] PC software costs will be reduced by 75% of Monroe's and 100%
of Amber's costs
[] Offsite recovery cost savings totaling 75% of Washington's costs
[] Leased personal computers reduced in proportion to corporate
and administrative personnel reduction. (PC maintenance and
lease cost, times number of PCs per employee times number of
corporate reductions).
KEY ASSUMPTIONS:
[] PC leased cost per corporate employee totaled $1,000 (based on
industry average)
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $1,167 $33,831
[] O&M - Revenue Requirements $ 0 $ 0
------ -------
[] O&M - Total $1,167 $33,831
OPEN POINTS:
[] Further analysis of platforms used by each company
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: MIS (CAPITAL)
WASHINGTON POSITION:
[] Washington has several relatively new systems which could be expanded to
handle the combined companies' requirements.
AMBER POSITION:
[] Amber has several relatively new systems which could be expanded to
handle the combined companies' requirements.
[] Accounts payable system will be avoided, which totaled $0.4MM in 1997
MONROE POSITION:
[] Monroe has several relatively new systems which could be expanded to
handle the combined companies' requirements.
[] Customer Information System which totaled $20MM and Work Management System
which totaled $3MM will be avoided
SAVINGS (1997 $000): 1997 1997-2006
---- ---------
[] Capital $11,900 $23,400
[] O&M - Expense $0 $0
[] O&M - Revenue Requirements $2,380 $42,120
------- -------
[] O&M - Total $2,380 $42,120
RATIONALE FOR SAVINGS:
[] Capital savings will result from the elimination of certain
systems in the future
BASIS FOR CALCULATION:
[] Avoid Amber's Financial Planning System in 1996 for a total of
$400K
[] Monroe's Customer Information System totaling $20MM ($10MM in
1997 and 1998) and Work Management System totaling $3MM
($1.5MM in 1997 and 1998) will be avoided.
KEY ASSUMPTIONS:
[] Systems in place or near development completion are adequate.
[] Existing parallel system development efforts would be
discontinued.
[] Avoided CIS and WMS costs based on packaged systems with
minimal customization, consistent with Washington's I/S
strategy.
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: SHAREHOLDER SERVICES
WASHINGTON POSITION:
[] 1994 shareholder expenses totaled $1.2 million.
There were an estimated 38,625 shareholders during 1994.
AMBER POSITION:
[] 1994 shareholder expenses totaled $607,580.
There were an estimated 16,256 shareholders during 1994.
MONROE POSITION:
[] 1994 shareholder expenses totaled $385,321.
There were an estimated 32,565 shareholders during 1994.
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $853 $9,776
[] O&M - Revenue Requirements $ 0 $ 0
---- ------
[] O&M - Total $853 $9,776
RATIONALE FOR SAVINGS:
[] Cost savings will result through the elimination of duplicative
shareholder related activities (annual meetings and annual
reports) and a reduction in the total cost of processing
shareholder transactions.
BASIS FOR CALCULATION:
[] Perform a regression analysis of shareholder cost per
shareholder vs. number of shareholder for the industry.
Savings is equal to the difference between the cost per
shareholder of the combined company vs. the cost per
shareholder of the three companies combined on a stand-alone
basis.
KEY ASSUMPTIONS:
[] Cost per shareholder declines as incremental shareholders are
added to the combined company.
OPEN POINTS:
[] Public data was used for all three companies
[] Monroe's shareholder expense per shareholder is low.
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: PROCUREMENT AND INVENTORY
WASHINGTON POSITION:
[] 1994 average inventory approximately equaled $14.165 million. Non-
inventory purchases approximately equaled $14.165 million, and
inventory purchases totaled $22.947 million. Washington's non-inventory
turnover was estimated to be 1.0 (based on Monroe's internal data) and
the inventory turnover is 1.62 (based on Washington's internal data).
AMBER POSITION:
[] 1994 average inventory approximately equaled $4.895 million.
Non-inventory purchases approximately equaled $4.895 million, and
inventory purchases totaled $6.413 million. Amber's non-inventory
turn was estimated to be 0.85 (based on Monroe's internal data) and
the inventory turnover was 1.31 (based on the average of Monroe and
Washington).
MONROE POSITION:
[] 1994 average inventory approximately equaled $14.691 million. Non-
inventory purchases approximately equaled $12.549 million, and inventory
purchases totaled $14.542 million. Monroe's non-inventory turnover of 0.85
and inventory turnover of 1.0.
RATIONALE FOR SAVINGS:
[] Savings will be realized based on an increase in
standardization, resulting in increased purchasing power and
vendor consolidation. A combined entity would also realize a
one-time inventory reduction due to inventory duplication.
BASIS FOR CALCULATION:
[] 1994 average inventory balances for all three entities were
combined and reduced by 5%. 1994 procurement figures were
combined and reduced by 5%. One hundred percent of the
inventory savings and 53.8% of procurement savings were
capitalized.
KEY ASSUMPTIONS:
[] Historical procurement is indicative of future levels.
[] Equipment standards design comparable for shared usage.
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $3,828 $24,589
[] O&M - Expense $1,984 $22,745
[] O&M - Revenue Requirements $ 574 $20,700
------ -------
[] O&M - Total $2,558 $43,445
OPEN POINTS:
[] Ability to combine warehouses.
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: CONTRACT SERVICES
WASHINGTON POSITION:
[] 1992-1994 contract services averaged approximately $9.59 million of which
$2.6 million related to tree trimming. Other contract services which
include engineering, field related, power plant related, construction
and contract labor services averaged $6.99 million from 1992-1994.
AMBER POSITION:
[] 1992-1994 contract services, excluding tree trimming, engineering
services, averaged $102,525. Amber also spends $2MM annually on tree
trimming per Mike Chase
MONROE POSITION:
[] 1992-1994 contract services averaged approximately $47.33 million of which
$3.75 million related to tree trimming. Other contract services which
include engineering, field related, power plant related, construction and
contract labor services averaged $43.5 million from 1992-1994.
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $1,193 $13,677
[] O&M - Expense 494 5,668
[] O&M - Revenue Requirements $ 179 $10,784
------ -------
[] O&M - Total $ 673 $16,453
RATIONALE FOR SAVINGS:
[] Cost savings will occur due to increased leverage in
negotiating services from similar vendors. Savings
opportunities exists due to the contiguity of the service
territories and similar regional providers of services.
BASIS FOR CALCULATION:
[] Savings are calculated by taking 10% of the combined company's
tree trimming costs and 10% of Washington and Amber's other
contractor costs.
KEY ASSUMPTIONS:
[] Existing contractors use or potential mix relatively consistent
due to proximity of service territory
OPEN POINTS:
[] Monroe's contract services costs are high relative to Amber and
Washington, primarily due to temporary plant contractor level
increases.
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: FUEL TRANSPORTATION
WASHINGTON POSITION:
[] Washington relies exclusively on low BTU coal from Wyoming and Montana
[] 5 MM tons are shipped on the BN and about 2.5 MM tons are shipped
on the CNW system
[] Rail contracts extend through 1999
AMBER POSITION:
[] 500,000 tons of low BTU coal are shipped over the BN; contract
expires in 1998
[] 50,000 tons of medium BTU coal are from Colorado or Southern Pacific
[] These contracts expire in 1998
RATIONALE FOR SAVINGS:
[] Significant increase in leverage after existing contracts expire
[] Greater purchasing power available to extend to all companies
for volumes not under contracts and for volumes in which
contracts have expired
BASIS FOR CALCULATION:
[] After 1998, Amber's 500,000 tons over the BN expires;
therefore, $2/ton BN savings gives $1 MM per year savings from
1999 onward exclude savings from current renegotiation efforts.
[] 25 CENTS/ton savings on Washington's CNW contract, which expires
in 1999, give $625K reduction from 2000 onward
[] Monroe's BGS volumes, not under contract, receive savings of
25 CENTS/ton for $375 K savings per year. Also, two CNW
contracts are expiring in 1997, therefore, 50 CENTS/ton savings
were taken on each, yielding a $400 K and $250 K per year
savings from 1998 onward
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
MONROE POSITION:
[] Rules exclusively on low BTU coal from Wyoming and Montana
[] 4.5 MM tons shipped to BGS and OGS over BN (3 MM tons have contracts
through or after 2001 and 1.5 MM tons do not have long-term contracts)
[] 1 MM+ tons shipped under CNW contract expire at the end of 1998
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $375 $21,975
[] O&M - Revenue Requirements $ 0 $ 0
---- -------
[] O&M - Total $375 $21,975
KEY ASSUMPTIONS:
[] $2/ton BN savings for Amber BN volumes
[] 25 CENTS/ton savings for Washington's BN volumes and Monroe's
BGS volumes
[] Washington's purchasing power can be extended to Monroe's CNW
contracts
[] No procurement and inventory savings because supply diversity
is not enhanced and increased volumes don't indicate lower
price procurement costs would result
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: CAPACITY DEFERRAL
WASHINGTON POSITION:
[] Planned addition of 83 Mw CT in 1998
[] Further CT additions in 2001, 2003 and 2005
AMBER POSITION:
[] Surplus capacity until purchases expire in 2001
[] Surplus begins at 185 Mw in 1997 and diminishes to 122 Mw in 2000
[] Surplus can be used to offset Washington and Monroe deficits
MONROE POSITION:
[] Minor capacity deficits in 1997 to 2000
[] Significant capacity deficits from 2000 forward
[] No planned resource additions
RATIONALE FOR SAVINGS:
[] Apply Amber surplus to Washington/Monroe deficit
[] Reduce combined capacity requirement to reflect diversity
benefit of approximately 100 Mw
BASIS FOR CALCULATION:
[] Permanent elimination of one 83 Mw peaker in 1998
[] Avoided short-term purchase of 17 Mw, 76 Mw, 55 Mw and 140 Mw in
1997 to 2000 as Amber surplus is used
[] Ongoing avoided short-term purchases of approximately 20 Mw per
year
KEY ASSUMPTIONS:
[] Washington and Monroe would cover capacity deficits stand-alone
[] Savings are from bid capacity purchases, not construction
[] Amber CT construction costs of $350/kw
[] Short-term purchase costs of $25/kw/year escalating at 7% annually
[] Peak load diversity of 1.8%
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $425 $54,832
[] O&M - Revenue Requirements $ 0 $ 0
---- -------
[] O&M - Total $425 $54,832
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
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PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: JOINT DISPATCH
WASHINGTON POSITION:
[] Approx. 2,195 MW of Capacity (assumes addition of two gas turbines at
SFDL, similar to SFDL #3, and no long-term firm purchases), with variable
costs per MWh ranging from $10-$155 Capacity Average = $24.16; Generation
Average = $14.70
[] Summer Peak of 2,002 MW and Winter Peak of 1,787 MW
AMBER POSITION:
[] Approx. 1,300 MW of Capacity (including 280 MW of long-term firm
purchases), with variable costs per MWh ranging from $8-$82
Capacity Average = $31.56; Generation Average = $13.82
[] Summer Peak of 932 MW and Winter Peak of 768 MW
RATIONALE FOR SAVINGS:
[] Joint dispatch of all three systems would allow for lowest
combined system incremental cost per MWh to be dispatched based
on interconnection capabilities
[] Savings represent the differential between stand-alone
incremental generation costs and merged incremental costs (i.e.
lambda differential)
BASIS FOR CALCULATION:
[] Using 1994 load and plant data for each company, 36 sample days
were selected to be run through a simulated hourly dispatch
(via a proprietary dispatch model) on both stand-alone and
combined bases
[] Using standard deviation analysis, a distribution curve was
generated to extrapolate a full year based on the sample
results
Deloitte & Touche Consulting
Group
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PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
MONROE POSITION:
[] Approx. 2,000 MW of Capacity (including 276 MW of long-term firm
purchases), with variable costs per MWh ranging from $9-$70.42
Capacity Average = $28.82; Generation Average = $11.48
[] Summer Peak of 1,773 MW and Winter Peak of 1,519 MW
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $5,402 $81,014
[] O&M - Revenue Requirements $ 0 $ 0
------ -------
[] O&M - Total $5,402 $81,014
KEY ASSUMPTIONS:
[] The model relies primarily on data available from FERC Forms 1
and 714, with adjustments as provided by the companies
[] Assumed construction of 150 MW Nelson Dewey to East Dubuque
interconnection built by end of 1998 (dispatch savings offset
by 15% annual fixed charge on $6.3 million capital investment -
already removed from savings figure) instead of wheeling
through Dairyland (as in 1997 and 1998)
[] Only long-term firm purchases were included in the dispatch
[] No per-plant emissions costs were included
[] Outage rates were constrained by a 3% minimum and 20% maximum
OPEN POINTS:
[] Potential impacts of market forces (i.e. short-term non-firm purchases);
combined dispatch savings may already be capturable on the short-term
economy market;
[] Historical data may not be a good proxy for future operation of
generation, particularly for plants which were not dispatched
much in the historical year;
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: GAS SUPPLY
WASHINGTON POSITION:
[] Maintains long-term firm transportation with Northern Natural Gas
NSP/Viking, and ANR Pipeline Company. Gas is procured (29,733 MDth)
from over 50 suppliers with contracts staggered through 2003.
An additional 8,536 MDth is transported for other parties.
Also maintains contract storage of 94 MDth/day with ANR and Northern.
AMBER POSITION:
[] Maintains long-term firm transportation with Northern Natural Gas and
Natural Gas Pipeline Company. Gas is procured (8,794 MDth) from 10
suppliers. An additional 24,499 MDth is transported for other parties.
Owns 1,224,000 gallons (19,100 Mcf/day) of LPG storage at its Albert Lea,
Clinton, and Mason City sites for peaking use.
MONROE POSITION:
[] Maintains long-term firm transportation with Northern Natural Gas, Natural
Gas Pipeline Company, and ANR Pipeline Company. Gas is procured (29,320
MDth) from 9 suppliers through a combination of base load and no-notice
contracts staggered through 2003. An additional 8867 MDth is transported
for other parties. Owns 276,500 gallons (6,800 Mcf/day) of LPG storage at
Grinnell, Burlington, and Washington for peaking use. Also maintains
contract storage of 105MDth with ANR, NNG, and NGPL.
RATIONALE FOR SAVINGS:
[] Cost savings result from the maximization of underutilized
assets, smoothing of seasonal volumes, economies of scale with
gas suppliers, reduction of reserve margins, and elimination of
redundant contracts.
BASIS FOR CALCULATION:
[] Gas supply savings were calculated based on savings identified
in similar merger transactions. Savings due to decontracting,
reducing margins, and stabilizing loads were added to savings
from purchasing economies to determine total savings.
KEY ASSUMPTIONS:
[] Size of combined firm warrants reductions in margins and
underutilized assets.
[] Similar peak periods could result in more stable combined loads.
[] Negotiation with transporters and suppliers
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997 - 2006
---- -----------
[] Capital $0 $0
[] O&M - Expense $4,478 $53,000
[] O&M - Revenue Requirements $ 0 $ 0
------ -------
[] O&M - Total $4,478 $53,000
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS AREA: COSTS TO ACHIEVE
WASHINGTON POSITION:
[] Not applicable
AMBER POSITION:
[] Not applicable
MONROE POSITION:
[] Not applicable
RATIONALE FOR SAVINGS:
[] Merger savings in some instances require a certain level of out of
pocket expense to be achieved.
BASIS FOR CALCULATION:
[] Number of personnel for voluntary separation equals total number
of reductions less 1% attrition in areas affected by reduction.
[] Voluntary separation - phased in over three years. $7.64MM in
1997, $5.49MM in 1998 and $12.19MM in 1999. Assumes 40 early
retirements at $100K, with remaining reductions through
voluntary separation. Voluntary separation packages includes
nine months' pay with medical benefits over the same time period.
[] Relocation - $7.41MM incurred in 1997. Assumes 10% of corporate
and administrative personnel of combined company will be
relocated at a cost of $40,000 per employee.
[] Transition cost - $2MM in 1997 for external assistance to
facilitate integration of individual entities.
[] Systems consolidation/telecommunications - $17MM in 1997-1998 to
integrate phone, data, facsimile communications and write-off of
redundant systems and digitize Ambers infrastructure..
[] Facilities integration - $2.0MM in 1997 includes filed office
and corporate facility closure costs.
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
SAVINGS ($000): 1997 1997-2006
---- ---------
[] Capital $0 $0
[] O&M - Expense $34,217 $78,397
[] O&M - Revenue Requirements $ 0 $ 0
------- -------
[] O&M - Total $34,217 $78,397
[] Internal/External Communication - $2.0MM to educate customers,
employees regarding combination
[] D&O tail coverage - $0.67MM, or 1.5 times annual D&O premium of
Monroe and Amber's in 1997
[] Transaction costs - $10MM bankers fees, $2MM legal fees -
amortized over four years.
[] Travel - Mobile transmission crews - $1MM in 1997-2006
KEY ASSUMPTIONS:
[] Reductions will occur through attrition, controlled hiring,
early retirement and voluntary separation programs
[] One percent non-retirement attrition rates for all three companies
OPEN POINTS:
[] None
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
WASHINGTON STAFFING ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------
WASHINGTON STAND-ALONE ADJUSTED
STAFFING BY FUNCTIONAL AREA TOTAL PRE-MERGER WASHINGTON
INITIATIVES TOTAL
- ---------------------------------------------------------------------------------------------------
Customer Service/Marketing 418 --- 418
Human Resources 44 --- 44
Finance/Accounting 65 --- 65
Information Services 126 --- 126
External Relations 10 --- 10
Legal 2 --- 2
Administrative & Support 187 --- 187
Executive Management 18 --- 18
Power Supply & Production 485 --- 485
Electric Transmission & Distribution 661 --- 661
Electric System Technical Support 88 --- 88
Gas Transmission & Distribution 199 --- 199
Gas Operations 20 --- 20
TOTAL 2,323 --- 2,323
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
AMBER STAFFING ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------
AMBER STAND-ALONE ADJUSTED
STAFFING BY FUNCTIONAL AREA TOTAL PRE-MERGER AMBER TOTAL
INITIATIVES
- ---------------------------------------------------------------------------------------------------
Customer Service/Marketing 168 14 154
Human Resources 15 --- 15
Finance/Accounting 45 --- 45
Information Services 27 --- 27
External Relations 3 --- 3
Legal 3 --- 3
Administrative & Support 65 --- 65
Executive Management 14 --- 14
Power Supply & Production 156 --- 156
Electric Transmission & Distribution 365 3 362
Electric System Technical Support 23 --- 23
Gas Transmission & Distribution 78 --- 78
Gas Operations 4 --- 4
TOTAL 966 17 949
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
MONROE STAFFING ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------
MONROE STAND-ALONE ADJUSTED
STAFFING BY FUNCTIONAL AREA TOTAL PRE-MERGER MONROE TOTAL
INITIATIVES
- ---------------------------------------------------------------------------------------------------
Customer Service/Marketing 316 36 280
Human Resources 39 --- 39
Finance/Accounting 95 18 77
Information Services 79 --- 79
External Relations 3 --- 3
Legal 15 4 11
Administrative & Support 148 --- 148
Executive Management 19 --- 19
Power Supply & Production 928 135 793
Electric Transmission & Distribution 638 158 480
Electric System Technical Support 75 --- 75
Gas Transmission & Distribution 137 --- 137
Gas Operations 15 --- 15
TOTAL 2,507 351 2,156
Deloitte & Touche Consulting
Group
----------
PROJECT MONROE
--------------------------
BOARD OF DIRECTORS MEETING
Privileged and Confidential - For Internal Use Only
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
-----
SYNERGIES SUMMARY Draft
-----
MERGER REDUCTIONS
- --------------------------------------------------------------------------------------------------------------
WASHINGTON AMBER MONROE OVERALL M&A REDUCTION NEWCO TOTAL
STAFFING BY ADJUSTED ADJUSTED ADJUSTED ADJUSTED REDUC- AS % OF
FUNCTIONAL AREA TOTAL TOTAL TOTAL TOTAL TION FUNCTION
- --------------------------------------------------------------------------------------------------------------
Customer Service/Marketing 418 154 280 852 123 14.4% 729
Human Resources 44 15 39 98 40 40.8% 58
Finance/Accounting 65 45 77 187 43 23.0% 144
Information Services 126 27 79 232 32 13.8% 200
External Relations 10 3 3 16 4 25.0% 12
Legal 2 3 11 16 4 25.0% 12
Administrative & Support 187 65 148 400 64 16.0% 336
Executive Management 18 14 19 51 19 37.3% 32
Power Supply & Production 485 156 793 1,434 40 2.8% 1,394
Electric Transmission & 661 362 480 1,503 129 8.6% 1,374
Distribution
Electric System Technical 88 23 75 186 49 26.3% 137
Support
Gas Transmission & 199 78 137 414 51 12.3% 363
Distribution
Gas Operations 20 4 15 39 11 28.2% 28
TOTAL 2,323 949 2,156 5,428 609 11.2% 4,819
Deloitte & Touche Consulting
Group
----------
Deloitte & Touche Consulting
Group
PROJECT AMBER
Board of Directors Meeting
November 7, 1995
Washington Amber Monroe
Deloitte Touche Privileged and Confidential -
Tohmatsu For Internal Use Only
International
Privileged and Confidential - For Internal Use Only
PROJECT AMBER
- --------------------------
Board of Directors Meeting
OVERVIEW OF SYNERGIES
Merger Synergies
Categories
Corporate and Capacity Deferral
Support Labor
Corporate Programs Fuel Transportation
Nonfuel Purchasing Joint Dispatch
Economies
Gas Supply
Deloitte & Touche Consulting
Group
1
Privileged and Confidential - For Internal Use Only
PROJECT AMBER
- --------------------------
Board of Directors Meeting
OVERVIEW OF SYNERGIES
Quantification Approach
------------------------------------
Direct Transaction
Savings Area Analysis Comparison Judgment
- ------------ ------------------------------------
Corporate and Support Labor X __ __
Corporate Programs X __ __
Nonfuel Purchasing Economies __ X __
Gas Supply __ __ X
Joint Dispatch X __ __
Fuel Transportation __ X __
Capacity Deferral X __ __
X Primary __ Secondary
Deloitte & Touche Consulting
Group
2
Privileged and Confidential - For Internal Use Only
PROJECT AMBER
- --------------------------
Board of Directors Meeting
OVERVIEW OF SYNERGIES
Merger Costs
Categories
Employee Programs Transaction Costs
Systems Consolidation Transition Costs
Infrastructure Internal/External
Communications
Deloitte & Touche Consulting
Group
3
Privileged and Confidential - For Internal Use Only
PROJECT AMBER
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
Synergies Assumptions
- -- Projection period 1997-2006
- -- "As-is" industry model with flexibility for subsequent disaggregation
- -- Full integration of corporate and support functions
- -- Early preparation for and pursuit of nonlabor cost savings at closure
- -- Position reductions occurring over three years
- -- Costs to achieve savings incurred over first three years for separation
programs
- -- Attrition, controlled hiring and voluntary separation programs for position
reductions
- -- Conservative quantification approach for merger-related savings areas
Deloitte & Touche Consulting
Group
4
Privileged and Confidential - For Internal Use Only
PROJECT AMBER
- --------------------------
Board of Directors Meeting
------------
Illustrative
POTENTIAL SYNERGIES SUMMARY ------------
Operating Structure - Registered Holding Company
NewCo
Corporate
Nonregulated Washington Amber Monroe Services
Business Generation Transmission Delivery Retail Legal
Units Human Resources
Technical Support Communications
Marketing Corporate
Purchasing Support
Financing & Accounting
Information Services
Rates & Regulatory
Affairs
Support Services
Materials Trans- Engineer- Construc-
Manage- porta- ing tion
ment and tion Services Services
Stores Services and
Support
Main- Customer
tenance Services
Services
State Offices External Affairs
Deloitte & Touche Consulting
Group
5
Privileged and Confidential - For Internal Use Only
PROJECT AMBER
- --------------------------
Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
(Aggregate)
SAVINGS BEFORE COSTS TO ACHIEVE SAVINGS DISTRIBUTION(1)
1997-2006 TOTAL ($ MILLIONS)
[Set forth here are charts which summarize total savings before costs to
achieve, total savings distribution, and net savings after costs to achieve over
the 1997-2006 period. A bar chart on the left side of the page contains one bar
for each year from 1997 to 2006, representing annual savings before costs to
achieve. The annual amounts are as follows, in millions of dollars: 1997: $31;
1998: $49; 1999: $71; 2000: $80; 2001: $81; 2002: $85; 2003: $89; 2004: $94;
2005: $98; 2006: $101. A pie chart on the right side of the page depicts the
distribution of total savings among seven categories of savings, as follows:
labor savings: 45%; corporate & administrative program savings: 20%; nonfuel
purchasing economies: 8%; gas supply savings: 7%; joint dispatch savings: 10%;
capacity deferral savings: 7%; fuel transportation savings: 3%. The chart on
the lower left side of the page summarizes the ten-year total savings from 1997-
2006, as follows (in millions of dollars): gross savings of $779; costs to
achieve of $78; net savings of $701.]
(1) Savings distribution percentages exclude costs to achieve
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Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
(By Component)
[Set forth here is a chart which summarizes overall 1997-2006 savings by
component in nominal dollars. The progressive bar chart depicts ten-year
savings, by component, as follows (in millions of dollars): labor savings: $353;
corporate & administrative program savings: $155; nonfuel purchasing economies:
$60; gas supply savings: $53; fuel transportation savings: $22; capacity
deferral savings: $55; joint dispatch savings: $81; unquantified financing
savings; gross merger savings: $779; less costs to achieve: $78; net merger
savings: $701.]
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Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
(By Component)
[Set forth here is a chart which summarizes overall 1997-2006 corporate programs
savings by component in nominal dollars. The progressive bar chart depicts ten-
year savings, by component, as follows (in millions of dollars): A&G overhead
savings: $10; association dues and memberships savings: $3; benefits savings:
$9; insurance savings: $20; information services savings: $76; professional
services savings: $27; shareholder services savings: $10; total corporate
programs savings: $155.]
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POTENTIAL SYNERGIES SUMMARY
Costs to Achieve
($ Thousands)
1997 1998 1999 2000 2001-2006 Total
---- ---- ---- ---- --------- -----
Separation Costs $7,644 $5,486 $12,194 $ 0 $ 0 $25,324
Systems Consolidation 8,500 8,500 0 0 0 17,000
Facilities Integration 2,000 0 0 0 0 2,000
Relocation 7,408 0 0 0 0 7,408
Travel- Mobile
Transmission Crews 1,000 1,000 1,000 1,000 6,000 10,000
Internal/External
Communications 2,000 0 0 0 0 2,000
Transition Costs 2,000 0 0 0 0 2,000
Transaction Costs(1) 3,000 3,000 3,000 3,000 0 12,000
Directors and Officers
Liability Tail
Coverage 665 0 0 0 0 665
----- ----- ------ ----- ----- ------
Total Costs to
Achieve $34,217 $17,986 $16,194 $4,000 $6,000 $78,397
------- ------- ------- ------ ------ -------
------- ------- ------- ------ ------ -------
(1) Amortized over four years
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Board of Directors Meeting
POTENTIAL SYNERGIES SUMMARY
COMPARISON TO OTHER TRANSACTIONS
[Set forth here are charts which compare savings in the IES/IPC/WPL proposed
transaction to other announced savings estimates in the utility industry in
three areas: position reductions, nonfuel operating and maintenance savings in
year 5 after transaction closure, and fuel savings in year 5 after transaction
closure. Position reductions are compared on the basis of position reductions
as a percentage of total company pre-merger employees. The IES/IPC/WPL
transaction is compared to twenty previously announced transactions, with
estimated position reductions as follows: CE/TE: 3.4%; PPL/UPL: 11.5%; NU/PSNH:
0.9%; SCE/SDGE: 5.1%; KCPL/KGE: 5.5%; KPL/KGE: 6.6%; IPC/IPS: 5.8%; ETR/GSU: not
applicable; CGE/PSI: 4.2%; IPL/PSI: 9.6%; IEL&P/IS: not applicable; CSW/EPE:
2.6%; WWP/SPR: 8.5%; MWR/IIGE: 6.0%; NSP/WEC: 10.1%; UE/CIPS: 3.4%; PSCo/SPS:
8.8%; PECO/PPL: 9.5%; BGE/PEPCO: 11.0%; PSPL/WEC: 8.7%; IES/IPC/WPL: 11.2%. The
low position reductions across the previously announced transactions, excluding
IES/IPC/WPL, is 0.9%, the average is 6.7%, and the high is 11.5%.
Nonfuel operating and maintenance savings are compared on the basis of year 5
savings as a percentage of total combined nonfuel expense in year 5 after
transaction closure. The IES/IPC/WPL transaction is compared to twenty
previously announced transactions, with estimated nonfuel operating and
maintenance savings as follows: CE/TE: 6.2%; PPL/UPL: 5.9%; NU/PSNH: 1.7%;
SCE/SDGE: 5.2%; KCPL/KGE: 4.2%; KPL/KGE: 6.9%; IPC/IPS: 6.1%; ETR/GSU: 4.2%;
CGE/PSI: 7.2%; IPL/PSI: 13.1%; IEL&P/IS: 4.1%; CSW/EPE: 2.3%; WWP/SPR: 10.1%;
MWR/IIGE: 5.2%; NSP/WEC: 15.3%; UE/CIPS: 5.4%; PSCo/SPS: 5.0%; PECO/PPL: 9.9%;
BGE/PEPCO: 14.3%; PSPL/WEC: 9.4%; IES/IPC/WPL: 9.2%. The low nonfuel operating
and maintenance savings across the previously announced transactions, excluding
IES/IPC/WPL, is 0.7%, the average is 7.2%, and the high is 15.3%.
Fuel savings are compared on the basis of year 5 savings as a percentage of
total combined fuel expense in year 5 after transaction closure. The
IES/IPC/WPL transaction is compared to twenty previously announced transactions,
with estimated fuel savings as follows: CE/TE: 2.4%; PPL/UPL: 8.6%; NU/PSNH:
1.0%; SCE/SDGE: 0.1%; KCPL/KGE: 4.6%; KPL/KGE: 2.1%; IPC/IPS: 0.5%; ETR/GSU:
3.4%; CGE/PSI: 1.0%; IPL/PSI: 0.0%; IEL&P/IS: 4.1%; CSW/EPE: 0.1%; WWP/SPR:
0.1%; MWR/IIGE: 0.2%; NSP/WEC: 1.7%; UE/CIPS: 1.7%; PSCo/SPS: 3.8%; PECO/PPL:
0.3%; BGE/PEPCO: 0.0%; PSPL/WEC: 0.0%; IES/IPC/WPL: 2.3%. The low fuel savings
across the previously announced transactions, excluding IES/IPC/WPL, is 0.0%,
the average is 1.8%, and the high is 8.6%.
The sources for these comparisons are regulatory filings and Deloitte & Touche
analysis.]
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POTENTIAL SYNERGIES SUMMARY
Transaction Comparison
[Set forth here are charts which compare savings in the IES/IPC/WPL proposed
transaction to the low, average and high estimates of savings in the eight most
recent announced transactions in the utility industry in three areas: position
reductions, nonfuel operating and maintenance savings in year 5 after
transaction closure, and fuel savings in year 5 after transaction closure.
Position reductions are compared on the basis of position reductions as a
percentage of total company pre-merger employees. The low position reductions
across the eight most recent announced transactions, excluding IES/IPC/WPL, is
3.4%, the average is 8.2%, and the high is 11.0%. IES/IPC/WPL savings are
estimated to be 11.2%.
Nonfuel operating and maintenance savings are compared on the basis of year 5
savings as a percentage of total combined nonfuel expense in year 5 after
transaction closure. The low nonfuel operating and maintenance savings across
the eight most recent announced transactions, excluding IES/IPC/WPL, is 5.0%,
the average is 9.4%, and the high is 15.3%. IES/IPC/WPL savings are estimated
to be 9.2%.
Fuel savings are compared on the basis of year 5 savings as a percentage of
total combined fuel expense in year 5 after transaction closure. The low fuel
savings across the eight most recent announced transactions, excluding
IES/IPC/WPL, is 0.0%, the average is 1.1%, and the high is 3.8%. IES/IPC/WPL
savings are estimated to be 2.3%.]
Deloitte & Touche Consulting
Group
11