Exhibit 99.1
Presentation to the American Gas Association
Financial Forum - May 8, 2006
"Executing on our Strategy"
Cover Page (G Laskaris)
o Welcome
o Introduce KeySpan Attendees
o Handout - Folder
o Presentation
o 1Q `05 Press Release
o Fact Sheet
o Presentation Format -- Robert Fani and Gerry Luterman will be presenting,
this afternoon. The presentation content will include a discussion of the
planned acquisition of KeySpan by National Grid, our strategy, first
quarter results and a financial update. After the presentations we will
open the floor to questions. Also with us today are Wally Parker, President
of KeySpan Energy Delivery and Customer Relationship Group and Steve
Zelkowitz, President of Energy Assets and Supply. I'd also like to note
that Bob Catell was not able to join us today as he is being honored by the
Grads Foundation with the advocate for youth award. He sends his regrets
and warm regards.
Now, Bob Fani will kick-off the presentation.
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Slide 1- Acquisition Overview
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Thanks George and Good afternoon. Today, I'd like begin by reviewing the details
of the acquisition of KeySpan by National Grid.
As most of you already know, on February 27, 2006, KeySpan and National Grid
announced a definitive agreement under which National Grid will acquire KeySpan
in an all cash deal, at a price of $42 per share.
The terms of the agreement value KeySpan at $7.3 billion with an enterprise
value of $11.8 billion.
We expect the transaction to close by early 2007.
At that time, Bob Catell will become Executive Chairman of National Grid USA and
Deputy Chairman of National Grid PLC
Slide 2 - Excellent Strategic Fit
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This transaction is an excellent strategic and operational fit with National
Grid's existing presence in the Northeast. Looking at the map, KeySpan's service
territory is in states where National Grid already has a presence and in many
places the service areas are contiguous. National Grid and KeySpan are both
focused on energy delivery.
The transaction will create a combined company which will be the third largest
energy provider in the United States and part of one of the largest global
energy delivery companies in the world. The acquisition is a natural extension
of National Grid's growth strategy.
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KeySpan's strong operational track record and good growth prospects,
particularly in the diversified, strong and growing Long Island and metropolitan
areas, provide an excellent foundation for continued economic growth. This
growth potential will be enhanced by becoming part of one of the largest
investor owned utilities in the world.
This acquisition will double the size of National Grid's U.S. business and
strengthen and consolidate National Grid's presence in the Northeast. The
expanded company will have 4.4 million electric and 3.4 million gas customers.
As the third largest utility in the U.S., the new company will:
o Have access to greater working capital for investments
o Will leverage best practices and new technologies to improve services
o Use their size and scale to bring important infrastructure projects to
completion.
KeySpan feels that since the timing is favorable from both regulatory and
economic vantage points, it makes sense for all our constituents, that we move
forward now.
National Grid's all-cash offer for KeySpan will provide our shareholders the
best return on their investment, with an immediate premium. And from a customer
perspective, both companies have an impressive track record in delivering safe,
reliable, efficient, low-cost service.
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Slide 3 - Primary Approvals Required
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There are five approvals required, four of them are regulatory, before the
transaction can close. We filed our preliminary proxy statement on April 28th
and are currently working on our regulatory filings with a goal of filing them
in the next two months. The major state regulatory approvals required include
the New York State PSC and the New Hampshire PUC. The Massachusetts DTE
historically has not required filings connected with indirect changes of control
of regulated entities. The major federal filings include a FERC filing required
under the Federal Power Act and a Department of Justice filing under the
Hart-Scott-Rodino act.
Although LIPA approval is not required, new ownership allows LIPA the option to
consider terminating the contracts it currently has with KeySpan. National Grid
and KeySpan have been holding discussions with LIPA concerning the impact of the
transaction on LIPA's operations.
Slide 4 - Integration Approach
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The integration process has already started. Teams have been set up to evaluate
eight functional areas in both companies. Mobilization of the teams has
commenced and a consultant has been selected to assist in the process.
One of the main reasons National Grid was interested in a transaction with
KeySpan is our growth story.
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Slide 5 - Foundation for Growth
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We have created a strong foundation for our businesses, which have the advantage
of attractive core markets and superior growth opportunities:
o We have a focused strategy;
o With businesses that have a conservative risk profile, and o the financial
strength to continue to execute on our strategy.
I'd like to take a few minutes to go into a little more depth concerning our
focused strategy
Slide 6 - KeySpan's Focused Strategy
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We are focused on a very basic strategy to achieve organic growth through our
two core businesses: our regulated gas distribution business and our energy
assets portfolio. Both of these businesses are well-positioned in markets with
substantial growth opportunities.
In our gas distribution business, we will aggressively continue to implement our
customer strategy of adding new customers efficiently to drive net revenues and
increase margins.
This business has unique organic growth potential in our service territories,
which benefit from operating in markets with strong customer demographics and
relatively low gas saturation levels.
And we have developed enhanced marketing programs to pursue high margin
customers and specific ethnic groups. In addition to gas heating, we are
offering other new products and services to further improve our profitability.
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Our second core business - our Energy Assets and Supply - includes our electric
generation portfolio, our recently restructured T&D management contract, as well
as the complementary assets that support our businesses. Our generation assets
operate in the highly desirable load-pocket electric markets of New York City
and Long Island.
We have the opportunity for growth through the continued optimization of our
existing asset portfolio, including our contractual assets, as well as building
or acquiring additional strategic assets in this region.
And while implementing this strategy of focusing on our gas and electric
businesses .....
Slide 7 - Establishment a of More Conservative Business Mix
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....We have established a more conservative business mix. We have exited our
higher risk investments with the sales of our two major non-core businesses in
2004 and 2005, enhancing our risk profile. As you can see, KeySpan's assets are
now concentrated in the gas distribution and electric services segment, with 98%
of KeySpan's projected operating income coming from regulated, contractual or
load pocket businesses with stable cash flows.
Now I'd like to review KeySpan's first quarter earnings, which were released
last Thursday.
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Slide 8 - KeySpan 1st Quarter Results
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KeySpan announced on Thursday first quarter 2006 earnings of $1.19 per share,
compared to $1.45 per share last year. These results reflect the impact of the
extremely warm weather experienced in 2006 as compared to the very cold first
quarter last year which impacted our gas distribution results. In addition, they
reflect the $0.10 per share dilutive impact of the 12.1 million shares
associated with the MEDs Equity Units in May 2005. The strong results of the
electric services segment partially mitigated the effect of the warm weather. In
addition, our energy services segment saw an improvement of approximately $2.5
million over last year due to increased profitability.
I am happy to report that in spite of the warm weather and high gas prices, we
continued to grow our gas business through the addition of new customers, and
are on target to achieve our $50 million GPM goal.
Now I will turn it over to Gerry who will review our gas and electric segments
and our financial position.
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Slide 9 - Gas Distribution 1st Quarter Review
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Thanks Bob. Turning now to our gas distribution business...
We reported lower operating income of $336 million compared to $392 million last
year. As Bob mentioned, the gas segment was impacted by the very warm winter
experienced as well as higher gas prices. Weather was 15% warmer than last year,
and in January, which is normally one of our coldest months, weather was 30%
warmer than last year. And on top of that , gas prices were 32% higher than last
year. Both of these resulted in lower use per customer. And this includes the
$25 million positive impact of the weather normalization clause we have in New
York and Long Island.
Slide 10 - Strong Customer Additions in 1st Q
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Despite the impact from the warm weather and very high gas prices, which are
passed through to our customers, the Company did achieve strong results from
organic growth across all its territories. We exceeded our goal for the quarter
by adding 9,600 gas installations or approximately $9 million in new gross
profit margin... putting us on track to achieving our $50 million in GPM for the
year.
This shows that the fundamentals of the gas segment remain strong.
The foundation for our growth continues to be the unique organic growth
opportunity in both the residential and business markets... with a saturation
level of about 50% in our residential market, and approximately 60% in our
business market. Through these markets we have over 1 million prospects,
representing approximately $1 billion in potential gross profit margin.
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With such low saturation levels, growth can continue well into the future.
And as always, we continued to provide our customers with excellent reliable
service.
Slide 11 - Collections in Gas Distribution
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Another impact of the high gas prices is an increase in uncollectibles. We have
implemented several aggressive programs to manage this increase. We stepped up
our collection efforts, including an early referral program, which has a more
aggressive outbound calling process and field collection effort.
This program has shown success, as demonstrated by the decrease in A/R greater
than 90 days as a percentage of revenue, as compared to last year. This is an
important metric for aging receivables, and an item that we will continue to
actively manage. In the first quarter, accounts receivable (over 90 days) as a
percent of revenues decreased over 23% from the same period in 2005.
As you can see, results for the first quarter of 2006 are proof that we are
successfully managing collections.
Now let's move on to our electric business,
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Slide 12 - Electric Services 1Q Review
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First quarter Electric Services Operating Income rose 28% over the same period,
last year.
This segmented benefited primarily from the increase in energy margins of
approximately $38 million from the Ravenswood generating plant. The increase in
margins benefited from the dual fuel nature of the Ravenswood plant and due to
our strategy of locking in favorable margins in the New York City region. These
higher energy margins were partially offset by lower capacity revenues at
Ravenswood due to new installed generation in New York City.
KeySpan's two core businesses are supported by infrastructure investments. We
currently have two projects underway, Islander East and Millennium pipelines. .
Slide 13 - Growth Investments in Gas Infrastructure
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KeySpan has increased its interest in the Millennium pipeline project to 26%.
This pipeline will help bring new supplies of natural gas to New York and the
Northeast from Central United States and Canada. The total project cost is
approximately $650 million, and KeySpan and other utilities have already
contracted for over 75% of capacity. The review process by FERC is underway, and
we look forward to this project being in service in 2008.
Secondly, our Islander East pipeline project will increase gas supply to Long
Island with 265 million cubic feet per day. It has a total project cost of
approximately $250 million with an in service date of late 2007/early 2008. We
are continuing to work on obtaining the final water permit. Oral arguments were
held in April on the constitutional and jurisdictional issues associated with
this project. We are hopeful for a favorable decision.
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Turning now to our financials.
Slide 14 - Financial Focus
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I'd like to review KeySpan's financial position and strategy, which supports the
growth of our company.
We are focused on continuing to improve profitability as we grow, and maintain
our strong balance sheet consistent with our `A' quality credit rating. Our
strong and reliable cash flows from core operations will ensure our current
dividend and its growth as well as maintenance capex. This has been our focus
and will continue as we pursue our corporate growth strategy.
Slide 15 - Strengthening the Balance Sheet
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....The Debt to Capitalization ratio has come down from 67% at the end of 2002 to
49% as of March 31, 2006.
We are very comfortable with these levels in the high 40's to low 50's,
considering our low business risk profile. This is also reflected in the tight
spreads our bonds command in their markets - they fully reflect our "A" quality
credit ratings. The bottom line -- our balance sheet is well-poised to support
growth.
In addition, we are projecting minimal borrowing this year and further ratio
improvement.
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Slide 16 - Cash Flow / Capital Expenditures
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Looking more closely at our financial projections...
Our estimated 2006 net cash flow from core operations - given normal weather and
before capex for new investments and gas growth, is expected to improve by about
$25 million in 2006, covering both our maintenance capex and the newly-increased
dividend. Our maintenance capex is related to infrastructure work required in
order to deliver energy reliably and safely to our customers.
We are off to a great start in the first quarter as we realized an increase of
$152 million in cash flow from operations.
And now turning to our dividend
Slide 17 - Solid Dividend
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Consistent with the strength of our cash flows and strong balance sheet, we
increased our dividend to $1.86 per share starting February 1st. We realize the
importance of the dividend and its increase to our shareholders and this is the
second consecutive dividend increase.
We are currently providing a yield of approximately 4.5%, which is comparatively
higher than both the S&P 500 and Utility indices.
We remain committed to our dividend, recognizing it as a key part of KeySpan's
overall return to shareholders.
In closing, we will work this year to continue to grow KeySpan as we prepare for
our transaction with National Grid.
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