Keyspan Analysis

About Keyspan

Keyspan, a member of the Standard & Poor's 500 Index, is the largest distributor of natural gas in the Northeast. In New York State, Keyspan is also the largest investor-owned electric generator. Keyspan has select investments along the gas supply chain as well as a dynamic portfolio of energy service companies. Keyspan's acquisitions of Eastern Enterprises and EnergyNorth made them the largest gas Distribution Company in the northeast. They have 2.5 million gas customers, including customers in the lucrative New England market.

Keyspan has a solid gas distribution, with 1.7 million customers in New York City and Long Island. They have an additional 800,000 customers in Massachusetts and New Hampshire. Keyspan's gas utilities are the core drivers of the company and they intend to capitalize on the tremendous growth potential. Keyspan also provides electric service to 1.1 million Long Island Port Authority customers. Keyspan owns and operates over 6,200 megawatts of generating capacity. They plan to add 250 megawatts of electrical generation to New York City by 2003, as well as another 250 to 300 megawatts to Long Island by 2004.

Keyspan's Energy Services business provides a full array of energy products to the immense Northeast market. Its energy investments sector includes a solid exploration and production business, as well as other investments that utilize their gas and electric core competencies.

Keyspan is making investments in new technologies that will benefit its relationship with its customers. Their new technological device is the use of its E-Commerce investment in MyHomeKey.com. This is an Internet portal, which helps customers manage their energy needs. The current mission of Keyspan is to become the premier energy and Services Company in the Northeastern United States, providing a full range of products and services. Its priorities are to grow the core regulated business, to build the energy service business, as well as continuing to grow organically.

The goal of Keyspan is to grow its customer base. They would like to be able to sell new products and services, extend their management over a large base, and provide an economy needed for technology investments.

Financial Position

Keyspan is financially solid with a +4 billion 'market cap', a healthy dividend, yields of 5-6%, and a strong balance sheet. Keyspans 52 week high was 43.63, while its low was 29.10. Its EBIT (Earnings Before Income Taxes) for the year 2000 is 720 million. For 1999 the EBIT was 529 million.

Internal Environment

Keyspan strategic initiatives are designed to foster the company's transition into one of the premier integrated energy companies operating in the Northeastern United States. Expansion of its gas distribution business, particularly on Long Island and New England remains a top priority. Management intends to aggressively take advantage of the trend towards deregulation and more competitive markets to offer an expanded array of energy and management services to an expanding customer base. The year 2000 was a year of tremendous progress for Keyspan as they saw their strategy for growth take hold in both regulated and unregulated businesses. As a result of Keyspan's solid performance from all their business segments, they acquired higher earnings. Keyspan took a giant step towards becoming the premier energy and Services Company in the northeast when they completed the acquisition of Eastern Enterprises and EnergyNorth on November 8, 2000. Eastern Enterprises and EnergyNorth were the largest gas companies in Massachusetts and New Hampshire, respectively with Eastern the parent company of Boston Gas, Essex Gas and Colonial Gas. All these former Eastern and EnergyNorth utilities are now doing business as Keyspan Energy delivery in New England. Due to this transaction, approximately 800,000 gas customers were added to Keyspan's customer base, bringing the total number of gas customers to 2.4 million. The primary driver behind the Eastern Enterprises and EnergyNorth acquisitions was the growth opportunity. Keyspan expects the Eastern acquisition to provide them with Synergy savings of approximately $40 million annually, mostly through the elimination of duplicate programs, systems consolidations, personnel reductions and organizational efficiencies. This completion of the Eastern and EnergyNorth transactions has also effectively positioned Keyspan in the energy marketplace, allowing the company to attain the right size and scale to provide shareholder value going forward. Keyspan is now the largest gas distribution company in the Northeast and the fifth largest in the United States, with over 1,1 billion in gross profit margin and more than 21,000 miles of gas mains. The acquisition also added 1,800 experienced employees to Keyspan's workforce, which now totals more than 13,000 employees across all their companies. These 1,800 new employees have the experience of working with a very large customer base and very cold winters.

Operating Environment

With the recent acquisitions of the New England companies, Keyspan now serves 2.4 million total customers. There is still the potential to grow to 3.6 million customers in coming years because of the new acquisitions. With this new large customer base, Keyspan can grow its energy services and appliances business. Along with the gas distribution customers, Keyspan also has 1.1 million electric customers because of a service agreement with LIPA (Long Island Port Authority). Keyspan owns and operated gas and oil fired electric plants on Long Island and New York City with the total capacity of about 6,200 megawatts. Also in the electric part of the business, there is still room for growth. Keyspan recently filed an application with New York State Public Service Commission to build a new 250 megawatt generating facility at the Ravenswood site (Queens). It will be put into service in 2003.

With the energy services line if business, Keyspan markets consumer products and services to over 300,000 residential, commercial and industrial customers ion New York City, Rhode Island, Pennsylvania, Massachusetts and New Hampshire. Keyspan also has some energy investments. They own 20% interest in the Iroquois's Gas Transmission System. They also own a 50% interest in the Premier Transco Pipeline and 24.5% interest in Phoenix Natural Gas; both are in Northern Ireland. Lastly, the Gas Exploration and Production line of business for Keyspan is also profitable. Keyspan owns 70% ownership interest in the Houston Exploration Company (an independent natural gas and oil company with