Driven by continued strong contributions from both its natural gas and electricity businesses, KeySpan Corp. predicted last week that 2005 earnings will range between $2.30-2.40/share, an increase, excluding special items, of 4-5% over this year’s projected core earnings.

The Brooklyn, NY-based company also reaffirmed its prior forecast for 2004 consolidated earnings of $2.55-2.75/share, excluding special items. This guidance includes earnings from continuing core operations of $2.20-2.30/share, as well as $0.35-0.45/share from its now divested investment in The Houston Exploration Co.

“KeySpan is on track for sustainable growth,” said CEO Robert B. Catell. “We have successfully executed on the sales of our non-core assets, generating proceeds of over $1.7 billion. In the Northeast markets, we are well-positioned for growth in our gas and electric businesses. Our 2005 earnings guidance reflects growth of 4% to 5%, supported by our strong financial condition, the organic growth of our gas business, and the contribution of our new 250 MW Ravenswood generation expansion in our electric business. Our growth will continue to be efficient, as we remain focused on investment opportunities, as well as expense management.”

KeySpan’s Gas Distribution business continues to add gas conversions and new customers across all its gas distribution territories, and is expected to add an optimal gross profit margin level of $47 million in 2005. The low saturation level of natural gas in its service areas allows for significant organic growth opportunities, the company said. It also expects to further enhance profitability by reducing both its capital and operating expenditures.

The Electric Services business also is expected to continue to provide a solid earnings contribution from its contractual and load pocket operations in the New York City and Long Island regions, aided by the 250 MW generating plant at the existing Ravenswood facility in 2Q2004.

KeySpan also is continuing its strategic review of the Energy Services segment, and it now expects to retain its Home Energy Services division, which complements the core gas distribution business. The company also decided to monetize the mechanical contracting businesses within the Business Solutions division. It continues to evaluate the Professional Services business.

Beginning in February, KeySpan will increase its annual dividend to $1.82/share. The current dividend of $1.78 provides a yield of approximately 4.5%. Maintenance capital expenditures in 2005 are projected to be approximately $425 million, essentially level with estimated 2004 levels. Also, the company’s total debt-to-total capitalization ratio, as calculated under its credit facility, is projected to be approximately 50% at year-end 2004, which is an improvement of over 800 basis points from 58.3% at year-end 2003.

“KeySpan enjoys a strong financial position, from an earnings, balance sheet and liquidity perspective,” Catell said. “This position supports our dividend with its sustainable and stable yield, which combined with KeySpan’s earnings growth, should result in a solid return of 9-10% to our shareholders.”

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