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1999
Duke

(7/2/03) - Wall Street isn't exactly rolling out the red carpet for Duke’s long journey back to the throne.

Mainstream analysts, who once treated Duke like royalty, now prefer to bet against the company's swift return to power. They warn of possible minefields -- particularly in the merchant energy business -- that could blow up the stock going forward. And they question why retail investors are still willing to pay a princely sum for the shares.

"Despite its ... apparent 'cultlike' following in some retail circles -- which we believe has helped support the stock -- we believe Duke has significant fundamental challenges ahead that do not warrant its shares trading at a ... premium," UBS analyst Ronald Barone wrote this week.

Barone started coverage of Duke Tuesday with a reduce recommendation and a $16 price target. At least five other analysts are pushing investors to sell their shares as well. The rest have lukewarm hold ratings on the stock. And some of them -- including two who recently upgraded the stock from sell -- even warn that Duke may have peaked already.

Following a powerful springtime rally, Duke recently topped $20 for the first time since early this year. But the stock took a hit on Barone's bearish report. Shares of Duke -- which surged more than 50% in the second quarter -- slipped 2.1%, or 41 cents, to $19.54 Tuesday afternoon.

Playing It Safe

To be sure, Wall Street has called this stock wrong before.

Before raising Duke to hold last month, both J.P. Morgan and Banc of America Securities warned investors to sell the stock while Duke's credit was still good. But the expected hit to Duke's credit profile never materialized. Instead, Moody's and Standard & Poor's opted for one-notch cuts that left Duke and its subsidiaries -- including a debt-burdened merchant finance arm -- with the all-important investment-grade ratings. And Moody's went a step further by essentially ending its review.

"Our operating assumption was always a one-notch downgrade ... but with a negative outlook," J.P. Morgan analyst Jamie Waters wrote last month. "The fact that Moody's concluded the review with a stable outlook is key to our upgrade."

Banc of America analyst Shelby Tucker, who had braced for a two-notch downgrade, expressed even greater surprise. He promptly concluded that Duke had escaped near-term hits to its stock. But he stopped short of discarding his caution with his sell recommendation.

He warned that Duke Capital, the company's struggling merchant finance division, could still drag the parent down.

"While in the near and intermediate term [Duke Capital] can rely upon asset sales and additional support from the parent ... we believe that is not sustainable over time," Tucker wrote.

Barone has given Duke only a short window -- roughly six to nine months -- to turn its business around.

Possible Strikes

But Barone isn't betting on a rebound. Instead, he predicts that Duke's financial performance will continue to deteriorate through at least 2004.

And like most, he blames Duke's wholesale energy unit -- once a booming profit center -- for most of the company's problems.

Going forward, Barone expects Duke's wholesale unit to fall well short of profit forecasts this year and be operating in the red by next. All told, he believes the unit faces a $3 billion funding gap for the two years combined.

Only by selling assets and leaning on its strong utility, he says, can Duke's wholesale unit weather the industry storm. And he warns that the entire company -- and its shareholders -- could pay dearly in the process.

"Though management is 'sweating' Duke's assets hard in an attempt to generate ... cash flow," Barone wrote, "we are not convinced that the company will have the tools at its disposal -- including a favorable enough wholesale power market environment -- to succeed in this effort without requiring material concessions from equity holders down the road."

He lists possible dilution and dividend cuts as risks. He also points with caution to regulatory probes of Duke's trading division and its "crown jewel" Carolina utilities. And he hasn't ruled out a devastating credit downgrade yet.

The Final Cut?

Unlike Moody's, Standard & Poor's left the door open to cut Duke's trading unit to junk. And Barone warns of dire consequences if that happens.

The downgrade "would require roughly $400 million of incremental collateral that, in our view, Duke cannot afford to have tied up," he wrote. "Moreover, we believe a downgrade to below investment grade would significantly impede [the merchant division's] ability to conduct future business."

Barone labeled Duke's credit a sensitive issue that must be closely monitored. But he also confessed that "limited disclosure," particularly from Duke's merchant unit, continues to complicate this task.

In the end, he called for investors to sell their shares and step to the sidelines until Duke's outlook improves. And he asked for management to provide the market with a much clearer picture going forward.

"We believe Duke's leadership has begun to turn the corner by being somewhat more realistic with the challenging situation at hand," he said. But "worth repeating is our view that further progress on this front -- with a clear track record of realism -- is required."

Previous TheStreet.com article:

Sunshine Fades on Duke

The Greenville News reported that an Oconee Nuclear Station worker charges that Duke Power did not take quick precautions to protect about 100 workers from a system leak. The leak, inside unit 3 reactor building, exposed them to potassium chromate. Five workers reported medical complaints.

The News obtained data concerning potassium chromate from the state Department of Health and Environmental Control. Potassium chromate can cause cancer and may cause an allergic reaction. If inhaled, it can affect the respiratory system. It is a strong oxidizer and can cause severe burns on contact. It can affect the liver, kidneys, eyes, skin and blood.

One of the workers, Chris Aiken, said that they worked for part of two days, before being issued respirators to protect them from potassium chromate left by the leak. The first day, some workers came out of the reactor building with yellow powder on their faces and protective clothing.

The second day, Mr. Aiken said that a haze could be seen from the yellow powder in the air. The leak was spraying onto the top of the reactor head. The leak left potassium chromate deposits and the ventilation system spread it.

Mr. Aiken said “They knew beforehand and didn't take the necessary precautions to take care of us. I don't want to put my life in jeopardy anymore. It worried me. I've got a wife and three kids.”

Mr. Aiken had a full-time job with a contractor at the plant. He quit it over safety concerns.

Air sampling was started a day after respirators were issued.

A worker obtained a memo from the site vice president. It stated "Clearly we missed an opportunity to recognize the potential for this and incorporate it into our outage plans. Instead we have had to react to the situation and develop a recovery plan in a short amount of time.”

Duke officials verified the authenticity of the memo, written on April 29.

A corporate spokesperson said “We overprotected these workers. Levels were such that the added protection was not necessary."

Dow Jones reported that some lawsuits against Duke Energy have been dismissed. One was a consolidated lawsuit, involving round-trip gas and power trading.

Six claims by a current and former participant of Duke's retirement savings plan were dismissed on Monday.

Plaintiffs alleged in the class action lawsuit that the company misrepresented its financial results by not disclosing round-trip trades.

There are two remaining lawsuits against Duke related to round-trip trading.

Duke has admitted to $217 million in round-trip trading.

Below is a link to an employee lawsuits that was among those dismissed:

Matthews v. Duke Energy

Reuters has reported that the Federal Energy Regulatory Commission may be finally getting serious. Duke Energy Corp.'s Duke Energy Trading and Marketing Co. was among 60 power sellers ordered by FERC to give reasons, if any, why they should not have to make restitution for ill gotten gains from allegedly manipulating the market during California's energy crisis.

FERC Commissioner William Massey said “I think this order is a major step toward addressing the manipulation that contributed to the extraordinary western power crisis. Profit maximization is not an excuse for market manipulation.”

“Remarks to Analysts,” By Rick Priory, Duke Energy Chairman and CEO, is posted on the Duke Energy Website. It is Mr. Priory’s comments made on May 30, 2003 at the Duke Energy Analyst Conference.

Always the consummate salesman, Mr. Priory tried to make the last six-plus years not seem too disastrous. He attempted to make today’s situation seem like business as usual – but it is not! These are unprecedented times; Duke is in uncharted waters.

He spoke of a coal shortage in the 1970’s, and the high prices that it brought. Duke could not pass on the extra cost of coal. The price of Duke stock dropped. Nukes had been build, were being built, and more were on the drawing board.

Mr. Priory tried to paint the situation as being identical to today’s scenario. That comparison is bogus. Duke suffered restricted cash flow and low stock prices in the 1970’s because of conditions beyond its control and maybe a few honest mistakes. It is not criminal to make business decisions that turn sour. All factors can never be controlled and the future is never known. These earlier problems were not caused by greed and treachery.

The problems that Duke faces today are unique and they did not happen by accident.

To the credit of Duke’s former management, it survived. Now things have changed. Most members of the old, stable management have departed. The newcomers would like to be able to ride on the old management’s coattails, but they will have to stand on their own. They will either stand or fall. They cannot hide behind what there predecessors have accomplished. He talked of what we did then. But he was not part of the we.

Mr. Priory said that rule number one is: “When you’re in a hole, stop digging!”

Mr. Priory started digging his hole on January 1, 1997. He has been digging feverishly ever since. With supreme arrogance, he ignored warnings from others in management and employees. He dug and dug and dug. He was going to show everyone up. He was especially going to show up the analyst who had laughed in his face. He ignored the verbal warnings. He ignored the cracking timbers and falling dust. Only when the timbers started to give way, was he forced to stop digging.

He is now fervently trying to fill the hole back up. Make no mistake; he took Duke to the brink. His actions appear to now be reformed, but he is still not admitting anything. How can one abruptly make a 180 degree turn, without admitting that he was going in the wrong direction all along?

Mr. Priory was speeding along the highway at 90 miles per hour, headed straight for the abyss. The employees in the car were screaming that he was going in the wrong direction, but he would not listen. The investors in the back seat were pleading for their lives, but Mr. Priory kept the petal to the metal. The California customers in the trunk were screaming “We’re doomed!”

At the very last instant, Mr. Priory threw the Duke-mobile into a power slide and reversed directions.

Now he is driving along in the opposite direction, whistling, and listening to the radio like nothing happened.

He said “We’ve certainly felt the bumps, but we’re steering clear and moving forward. It’s beginning to feel like we’ve rounded the toughest curves.” (The bumps were hapless employees, investors, and customers.)

Mr. Priory said “Looking back – and compared to the power side of the house – restructuring of the natural gas industry went smooth as glass!” That is another statement that will haunt him. The real gas problems are just taking a little longer to develop, but they are coming.

He spoke of leadership changes and that the times call for a “different style of leader.” If that is the case, it is interesting that the one in the top slot does not budge!

Mr. Priory again boasted of management’s integrity, ethical behavior, and honesty.

Think of the most honest people that you know. Do they feel the need to constantly tell everyone how honest they are? Honest people assume that other are honest also. They would never conceive of bragging about it. It would be like bragging about breathing. It is something everyone alive does, so what’s to brag about?

Those with a compulsion to broadcast just how honest they are usually are not the best people to be handling your money.

Mr. Priory’s attempt to tie himself to greater people of the past was not only lame, it was not even original. Ruth Shaw gave the same spiel on May 1, 2003! His business plan was “borrowed” from Kenny-Boy Lay. His speech was “borrowed” from Ruth Shaw. Does all this “borrowing” have anything to do with why some pension funds are swelling, while others are shrinking?

Follow the link below to read about Ruth Shaw’s comments:

Ruth Shaw Explains It All

On March 25, 2003, Rick Priory gave the "Business, Leadership and the Next Generation" speech at the Duke University Fuqua School of Business.

Mr. Priory said that he wondered and worried about what the students were thinking when they read about corporate greed and the many scandals. He mentioned Enron, IMClone, Global Crossing, and Tyco.

He mentioned a Gallup poll that rated executives behind lawyers and real estate agents on honesty and ethics. Executives were rated ahead of car salesmen and telemarketers. Another poll rated confidence in big business as the lowest in 22 years.

Mr. Priory said that public trust has been damaged by the irresponsible, unethical acts of some. He was clearly resurrecting the old “few bad apples” ploy. But there are really more than a few bad apples, because everyone does not get caught. All we ever see is the tip of the iceberg. Those not caught will lay low until the heat is off. There are cases of bad apples pointing to other bad apples as being rotten.

He attempted to lump executives and workers together and say the vast majority are focused on doing the right thing. That would be a true statement. But you see the problem: Executives and employees can never be lumped together.

When it comes to pay, executives and employees are never lumped together. When it comes to benefits, executives and employees are never lumped together. When it comes to rule making and rule breaking, it is not exactly a joint effort.

Executives are on one raft and employees are floating along on another raft. Just because the executives set their raft on fire, does not mean that they can climb abroad the employees’ raft. Executives and workers are not one and the same. They never have been. They never will be.

Today’s problems were cause solely by the executives. The “one big happy family” ruse is only brought out in times of extreme distress.

Mr. Priory tried to build on a tenet that will not support its own weight. He said “To condemn the entire institution of business for the failures of a few is irrational and unproductive – and it unjustly discounts the contributions of dedicated, hardworking, honest employees around the world.”

He tried to lump employees, worldwide, in with the crooked CEO’s. That will not fly. Workers had zero input into the decisions made by the CEO’s. Employees will accept zero blame.

And yes, there is a problem with the basic structure of business when it allowes executives to dominate the political system. A broken system allowed the CEO’s to pull off their many schemes. In some cases, they got away clean. Only a very few corporations have had to answer for their dubious pension maneuvers. It will take a housecleaning in Washington before there is a chance of any improvement. When executives and politician eat at the same trough, employees are fortunate to even survive.

Mr. Priory said “Businesses at their best are far more than profit machines…”

Few businesses are at their best and many are only profit machines for executives. Workers are denied the basics that they were promised for years and years.

Mr. Priory spoke of companies with problems as if he were referring to microorganisms in a petri dish. He seemed to regard these companies and their CEO’s as several universes removed from himself. But being a magnanimous type of guy, he expressed a willingness to help these unfortunates.

Mr. Priory has learned that when employees, investors, and the public lose confidence in a company, the executives will not escape unscathed. But he is still implying that others are causing all of his problems. Denial is always the first stumbling block. Until one can get over it, no progress can be made.

Mr. Priory said “Even if we don’t deserve the bad rap, we deal with it.”

Hello? Maybe this is past denial. Maybe this has evolved into a complete delusion. If one refuses to accept something, can it really be true?

Mr. Priory went on to say “We know that the work of scrubbing our systems and practices, of instituting new and enhanced measures of control and governance, and of working to set new standards and raise the bar – is good and healthy work.”

Now, wait a minute. If Mr. Priory has no problems, why is he scrubbing his systems? Oh yes, that’s to help all those other people. Mr. Priory has no problems, but is cleaning up his act because other CEO’s have problems. This must be something like the sound of one hand clapping – sort of hard to describe.

Mr. Priory said “Integrity is the foundation of business success. You can have every other advantage – the best balance sheet, the brightest stars, the smartest portfolio. But lose your integrity and you lose it all.”

He did not say if he learned this the night before the speech or perhaps a week before the speech.

Mr. Priory said “As a society and marketplace we had become fixated on short-term returns and immediate gratification.”

Again, he never said when he figured this out. He is the one that used to make big earnings promises to investors. He did not make mere projections; he made promises!

Mr. Priory said “Shareowners moved from the mindset of investors to the outlook of Wild West speculators.”

This is completely unbelievable. Now, he is blaming the shareholders, when he was making the promises! What are the shareholders guilty of – believing Mr. Priory? The shareholders need not feel too bad. The employees believed it too, when promised specific pension amounts and paid retirement health care.

Mr. Priory said “We all – investors, analysts, and businesses – need to take a longer view of value and face the reality that stratospheric short-term results are not sustainable – and they’re not healthy.”

Now, it’s everybody’s fault! But yet, only one person had the gall to make earnings promises. It’s wonderful that Mr. Priory is learning all of this stuff. But it would have been so much better if he would have had more of a clue at the beginning of the slide to disaster.

Mr. Priory said “It’s hard not to take it personally when you’re taking heat for a plummeting stock price, or California’s energy crisis, or perceptions of corporate greed and misconduct, or the winter ice storm that knocks the lights out, or mistakes – regrettable but inevitable – within your organization. Business leaders develop thick skin – you have to. But if you shy away from taking personal accountability for your company’s performance and its culture, if you’re reluctant to stand up and be counted as a leader in the broader community of your industry – no amount of thick hide will protect you.”

Just what accountability has been accepted? Blame has been transferred to other companies, other CEO’s, employees, investors, but zero blame has been accepted. To put it kindly, this is doubletalk.

Ruth Shaw recently mentioned that executives take criticism personally. That could be good, if it helps them improve. If they only continue to deny everything, nothing has been accomplished.

For the record: The Employee Advocate does not hold any person personally responsible for the promises broken over the past six-plus years. People are held accountable when acting in their various executive roles, but nothing is ever held against them personally. The executives’ good qualities are recognized, but are not likely to be advertised. They blow their own horns enough anyway.

Employees realize that the executives did not take pension and other benefits to cause others personal problems. The executives just wanted the money. As any don will tell you “It’s noting personal; it’s just business.” No personal offence taken, none intended.

This does not mean that the benefits matter will be allowed to rest. It does not mean silence, acceptance, or surrender. It does not mean that the matter will not see every court in the land and the halls of Congress. It only means that there is no personal resentment held against any human.

Mr. Priory said “We’ve seen too many instances lately of finger pointing and passing the buck. It is personal – and it should be.”

This speech has only gone in circles. Each statement contradicts the other. Mr. Priory has condemned finger pointing, while he pointed his finger at everyone else. He cannot be accused of passing the buck. One would have to actually touch the buck, before it could be passed. He is not getting that close to any controversy.

He claims to accept personal responsibility, but denies all blame. Can you imagine the mental juggling feat of trying to keep all these contradicting positions sorted out? Just think of the wasted energy. The man must be exhausted! Dare one ask: Is anyone being fooled?

Mr. Priory said “You remember when clicks were the only securities with any backing – and bricks were considered ballast that Wall Street told us to dump. Duke Energy weathered several years of criticism for being ‘asset-heavy’ – while Enron was envied for its innovation. But today it’s our regulated electric utility and our natural gas pipeline business that are allowing us to weather the challenges in our sector better than most.”

Perhaps we are getting to the root of the problem. Did Mr. Priory take the asset-heavy criticism personally and vow to follow Enron? The person who always follows the fad of the moment is doomed to failure.

For a CEO that once refused to go to “utility company” conferences, he now speaks highly of the electric utility and pipeline business. And this is the same man who once mentioned changing the company name to DukeEnergy.com! He said it as a joke, but many truths are told in jest. Mr. Priory’s major downfall is fad following.

It is sobering that a CEO must learn things that employees intuitively knew. But it is much better than never learning. Some of the students were no doubt thinking that it took Mr. Priory a long time to learn some basic facts. But, just as the employees, they have been talked down to before. Blank looks do not always mean a lack of comprehension. Sometimes they are looks of utter disbelief!

Be sure to submit your Duke Energy Employee Survey. It is being sent all Duke employees, worldwide. Some people never complete the surveys. They say that it will not do any good. Some Americans refuse to vote for the same reason. They feel that all politicians are crooks and that the whole system is rigged.

The Employee Advocate will not say that such thinking is entirely wrong. But as all politicians are not crooks, everyone in management is not a shyster. Honest feedback gives those who actually try to look out for everyone’s best interest something to work with.

Think about it. The company ran for close to 100 years without anything resembling the treachery seen today. There was no wholesale replacement of senior management. So what went wrong? All the power fell into the hands of the worst possible people. A few are oppressing the many. To paraphrase Duke “It's time to change management, or change management." Your feedback will demonstrate that the employees are not oblivious to the situation. If management feels that workers don’t have a clue or just don't care, why should it improve?

The multiple choice questions will restrict you in several ways. First, management has full control of the questions asked. So, don’t expect any of them to get to the heart of the matter. Second, management has full control to phrase the question in an attempt to elicit the desired response. Third, by asking redundant, meaningless questions, employees will be lead in circles. Some will grow frustrated and not even complete the survey. Score one for management. A survey that is not turned in, is one that will never disturb anyone’s playhouse.

If you fight the survey to the end - through all the rhetoric and through the multiple screens, you will fine three spaces to write in whatever you wish to write. This is the only place that you will be able to pick the issue and not be limited to a predigested answer. Lock and load.

Below are the write-in comments of one employee:

Values and Integrity:

Very little values and integrity have been observed in Duke Energy management. They talk a good game, but that's about it.

Robbing employees of their earned retirement benefits was the most despicable, underhanded injustice ever committed by Duke Energy. Management took a lot of money from the employees, but they have paid a price for it and will continue to pay a price. Management has lost the trust of employees. Ethics has become a joke at Duke Energy. Anytime ethics or integrity is preached, it only emphasizes the hypocrisy and duplicity of Duke Energy senior management.

All ethical companies give employees a choice between the old retirement plan and the cash balance plan. Duke Energy, on the other hand, was only interested in maximizing the take from employees. To add to the deceit, management was not truthful about the conversion. Management took money from the employees and then tried to hide it. The whole truth is yet to be told.

As if taking promised retirement benefits was not enough, management then revoked promised retirement health care. When management extracts labor under false pretenses for twenty-five or so years, what does that make them?

The injustices committed against employees only set the stage for the disasters to follow. Lawsuits, inquires by government agencies, and the ongoing FBI and federal grand jury investigation are all symptoms of the malignancy that began with the abuse of employees. Duke Energy's reputation was lost because of overpowering greed. Lip service alone will never restore it.

Management took real retirement money from the employees. This was money that some employees had worked decades to obtain. Talking constantly about the Duke Energy "brand," diversification, community involvement, and other such PR rhetoric does not even remotely address the real issues.

Until management is willing to make restitution to the wronged employees, expect no smooth sailing in the future. Employees have heard enough talk about ethics and integrity from management. It is time for delivery.

Senior Leadership and Management:

Duke Energy was among the other companies blinded by the greed of the 1990's. Yet management only wants to talk about the failings of other companies. Many speeches have been made by management types about how these other companies can improve.

Duke Energy management needs to stop looking at other companies and look within. Look at the promises made to employees that were broken. Look at the unrealistic promises made to investors, in an attempt to pump up the price of stock. Look at the fanciful deregulation projections made to customers. Look at how every value the company ever had has been perverted by greed.

If management can correct these problems, little time will be left for chastising other companies.

Satisfaction with your Job:

Many employees, who would otherwise be completely satisfied with their jobs, cannot ignore what has happened to their benefits. Employees are not being greedy for expecting the things that were promised to them. The things taken from employees were not extravagant things, on the order of country club memberships and jet aircraft. The benefits taken were simple, basic retirement promises.

It matters little how well management does in providing a good work environment, if they fail in delivering these promised, basic benefits. The issue of revoked benefits must be resolved before the company can ever move forward. Ignoring the problem will not make it go away.

When benefits are revoked, across the board, for no good reason, the message is clear to all employees. The message is that the employees are of no value to the company. As employees gain more experience and become more valuable, management is saying that the employees are worth less (or worthless).

Combine this with the ongoing major campaign to increase the pay and benefits of senior management. This strongly says that management is doing an ever greater job, while the employees are doing a worse job.

This assumption by management is entirely wrong. Employees are doing a better job than ever. This is proven by the recognition received from various regulating bodies. The improvements made by employees are also measurable by increased reliability and output.

As the employees have improved, senior management has dropped the ball. It is doing the worse job in the history of the company! Anyone who can read a newspaper cannot deny this fact.

Consequently, management has found itself in the position of rewarding poor performance and penalizing excellence performance. The poor performance that is being rewarded is its own poor performance. Senior management does not deserve superstar pay. The employees did not deserve to have their benefits taken away.

Senior management needs to be placed on a bread and water diet until full restitution has been made to all employees. If this is not done, it will be obvious to the world that the only concern of management is the satisfying of their own constant lust for more money.

Duke Employee Opinion Survey 2002

Lately, business scandal stories seem to come out on a weekly basis, if not daily. Often these episodes vary little from story to story. Only the names of the companies change. Many of the stories fit a pattern so well that the name of any of dozens of companies would work in the headline.

Some companies tend to follow one another. The problem is that companies always tend to follow others into a quagmire – never into anything good. Enron is the poster child for leading other corporations astray. But the blame cannot be laid on Enron. The other companies followed very willingly. In fact, they fought each other to get to the head of the pack. When they finally realized where Enron was leading them, it was a mad scramble – in the other direction. The finger pointing at each other has not stopped.

The latest scandalous headline is “Accounting Investigation.” That headline could certainly apply to several corporations, including Duke Energy. But today’s headline is not about Duke; it is about IBM.

The headline is not speculation. IBM has admitted that the U.S. Securities and Exchange Commission has begun a formal investigation of accounting issues for 2000 and 2001.

Duke and IBM are in different businesses, but sometimes IBM follows Duke. Duke Energy caused dissention among employees in 1997 by forcing them into a cash balance pension plan. IBM followed right along in 1999, with a very similar pension plan.

IBM’s cash balance plan blew the hinges off of Pandora’s box. A pension rebellion began that spread to other companies, and is yet to die down. Pension lawsuits have been filed, and more likely will be filed. Some employees have won back the full retirement benefits that they were promised.

Duke’s hand got caught in the “creative accounting” cookie jar in 2001. Not to be outdone, IBM came barreling into the same abyss this year. IBM's shares were even halted from trading on the New York Stock Exchange! That is not a good sign. Is there a pattern developing?

IBM is also following Duke in attempting to spin away its problems. TheStreet.com accuses IBM of trying to make “molehills out of mountains,” and they are not buying it. The article correctly points out that a formal SEC investigation does not mean that it is a black tie affair.

James J. Cramer said “If you have a formal investigation, that means that the company isn't playing ball and is fighting the probe tooth and nail. It means that the investigation is broad-based and may be all-encompassing. It means, in a word, trouble.”

We will see if IBM has any more success in downplaying problems than Duke had. The more Duke denied the problem, the more it mushroomed. Duke had a chance to come clean up-front and come out smelling like a rose. Duke threw the chance away and pursued the denial route. Even one of Duke’s own accountants did not buy their story. The regulators did not buy their story. The investigating firm did not buy Duke’s story. Even after settlements were made, Duke was still denying. Apparently, others have not bought Duke’s story; a federal grand jury and the FBI have begun their own investigation. Duke’s final refuge is complaining about the media for covering the story!

If IBM is following in Duke’s footsteps, it has not heard the last of this investigation.

Duke executives have been asking for a long time "When will we stop getting so much negative press?"

The answer is easy: When you clean up your act!

Corporations do not get bad press for no reason. Everything always has a cause and effect. Spokespersons and other shills attempt to ignore the plain cause for the negative articles. They also attempt to muddy the water by manufacturing bogus reasons for what is too painful to admit. Everything else has failed, now Duke is trying to play the part of the victim.

Duke has run with some ugly, mangy dogs. Executives should not feign surprise at being infested with fleas.

Duke started by alienating the employees through benefit reductions. It has all been downhill from there. Duke does not want to recognize the cause and surely does not like the effect.

Executives have really been blubbering over The Charlotte Observer article of May 11, 2003, “Feds Deepen Duke Probe.” There was moaning about the article the very next day in the May Noon Meeting. Site VP’s have expressed dismay over the article. Executives have posted internal memos, grieving about the article.

The article dealt with provable facts and even gave Duke spokespersons plenty of space. What is the executive’s beef? Well, they just did not like it!

The best the executives could come up with was that it was “old news.” At the risk of bursting someone’s bubble, there is no statutes of limitations on news. The Observer can run articles on the Duke FBI/grand jury investigation every day of the year if it wants to. Now that The Observer knows what kind of reaction they can get, that would not be a bad idea. That way even infrequent news readers would be sure to catch the story.

Executives claim that employees ask them about the negative press. Many employees play the executives with almost as much zeal as management tries to play the workers. They will appear concerned around management, but guffaw loudly in private. Management sold out everyone, because they thought that they could get away with it. As they get their much deserved lumps, they should not expect too much sympathy.

The only reason anyone would get that upset over one article is if it hits home. The truth may set people free, but they never like it.

Maybe the executives thought that they had an understanding with the editors, and were counting on them keeping the bad new quite. The Observer has played Duke management for saps time and time again. Duke never learns! The newspaper will print fluffy articles and get Duke feeling all warm and fuzzy. Then WHAM! Management gets clobbered. They never see it coming. And, they always come back for more! Just watch; they will do it again!

A Duke executive boasted that they will go to a reporter’s editor if they do not like an article. Just how well does all this “media micromanaging” seem to be working out for Duke? The fact that Duke management has to expend so much effort in “managing the news” is indicative of a problem, in itself. Duke's ham-fisted approach does not work with everyone. It makes some even more determined to get the truth out.

When a corporation is hiring top criminal defense lawyers for more than a dozen employees, it’s news!

The bottom line is: Who has credibility? Shills have no credibility. These include defense attorneys, spokespersons, executives of every stripe, lobbyist, and politicians on the take. They are all paid mouthpieces. They will all say anything that they are paid to say. The press will always have more credibility that any to these types!

Anyone paid to suppress the facts has zero credibility. The great part is that sometimes, in trying to aggressively suppress the news, they end up fanning the flames!

Read the article that started it all:

Feds Deepen Duke Probe

San Diego 10News reported that David Malcolm, former San Diego port commissioner, who was on Duke Energy’s payroll, was sentenced Thursday for conflict of interest. Duke paid him $20,000 a month.

Malcolm was sentenced to 49 to 120 days in custody and three years probation. The judge recommended Malcolm spend his sentence through a work furlough program. He must also pay for the investigation - $249,000.

Superior Court Judge John Einhorn said "The problem is that, as a result of what you did, we're all victims. You, sir, have eroded further the public confidence in all of us."

Malcolm pleaded guilty on April 30 and admitted to receiving $20,000 per month from Duke Energy in 2000 and 2001.

Duke operated the South Bay Power Plant in Chula Vista and stood to benefit from favorable actions taken by the port commission, while Malcolm was on the Duke payroll. Malcolm signed a contract to "act in the best interests" of the power company and "not assist any competitor."

As a public official, Malcolm was being paid by the commission. He was also being paid by Duke Energy to put its interests above the commission’s interests.

More Than a Slap on the Wrist

The Atlanta Journal-Constitution reported that Southern Co. has learned its lesson about chasing the hot energy trends of the 1990’s. CEO Allen Franklin said “In essence, we went back to our core business. Ten years ago, we were a company that was adding a very different kind of business to its traditional business. Now we're a company that decided that was not the right way to go."

The company is on the wagon and is swearing off energy trading, competition and foreign investment. The company came clean and mended their ways. The executives do not have to expend unnecessary energy playing a charade, in an attempt to convince the world that no mistakes were ever made. The only way for them now is up.

The companies unwilling to admit their mistakes continue to labor under the burden created by their own denials. The really amusing part is the fact that they are deceiving no one but themselves. Investors must ask themselves if they can trust management that will not admit obvious mistakes. Honest mistakes can be forgiven. Deliberate deception may not be readily forgiven.

Picture the energy CEO who bills himself as an infallible, omniscient demigod. He loudly proclaims to the world the great wonders that he will perform. He is as a debonair circus ringmaster. He struts into the center ring in an immaculate tuxedo, top hat, and cape.

Megaphone lifted, he expounds at length about the many stupendous performances to be witnessed. He attempts to bring the anticipation of the audience to a peak. He bows, turns to leave, trips, and falls into an huge pile of pachyderm manure.

The crowd goes wild.

Let’s face it, there is just no way for him recover gracefully. The ringmaster made a boo-boo. He knows it. Everyone else know it. The crowd is roaring with laughter.

The circus hands laugh the hardest of all! They have heard his line of baloney too many times.

If the ringmaster tries to strut out as if nothing has happened, the situation will become even more hilarious. No clown will be able to get more laughs than the ringmaster. When people talk of their circus trip, they will each tell of the ringmaster.

He did not want laughs; he wanted to impress people. But alas, it is obvious to the most casual observer that the ringmaster literally stinks.

Such is the dilemma of the energy CEO unwilling to admit being afflicted with Enron envy. There is no graceful exit. Trying to distract the crowd to ring number one, so he can escape in the clown car will never work. The energy CEO is the center of attention - for all the wrong reasons.

In a message to employees on May 1, 2003, Ruth Shaw commented on the “reliable earnings muscle” of Duke Power in the first quarter. This is good, since all of Rick Priory’s exotic schemes failed.

Ms. Shaw attempted to draw parallels between the many Duke disasters of recent years and the downturn of the early 1970’s. She stated that in the 1970’s some mistakes were made in projecting the growth in demand of electric power. This, combined with massive construction, caused Duke’s credit rating to fall and a cash crunch ensued. She said that Duke’s reputation suffered, some construction was halted, and the company was in dire straits.

Her goal was, of course, to convince everyone that the very same thing is happening once again and everything will be all right. But Ms. Shaw made an error when she lumped reputation in along with everything else. In the 1970’s, Duke’s reputation did not suffer. Errors in judgment caused the stock price to be depressed and property was sold at night to meet the next day’s payroll. But these were simply business errors. They certainly did not destroy the company’s reputation. Any group of humans will make mistakes from time to time. In the early 1970’s, there was no effort to hoodwink employees, investors, or customers. Then, there were no utility commission, grand jury, or FBI investigations going on. At that time, the integrity, ethics, and honesty of Duke management were never in question.

The present day debacle, which started on January 1, 1997, cannot be explained away as simple business errors. This time there is a sinister undertone that cannot be whitewashed. Duke tried to rule the world energy market at the expense of employees, investors and customers. Now Ms. Shaw is trying to laugh it off as merely a business error. Ms. Shaw is the only one laughing.

Employees will not forget how Duke plotted and schemed to deprive them of their earned pension and health benefits. Investors will not forget how the dividend was tampered with and outlandish promises made to sucker more people into the game. Customers know that all was not well in California and that they also could have been paying quadruple power rates. Only the derailment of deregulation saved the rest of the country.

There is no credible comparison between the two times. It does not really matter if Duke wins or loses financially. Everyone knows what Duke tried to do. The integrity, ethics, and honesty of Duke management is very much in question today. Even if Duke management survives financially, the putrid albatross of greed will hang around their necks for years to come.

In 1974, employees had not lost faith in Duke management. To the contrary, some loaded up on Duke stock at $10 a share (pre-splits). Duke came back stronger than ever, because it was still regarded as a stable company with honest management. Today the situation is totally different.

Executives were well into the present day debacle when they suddenly had a blinding flash of insight. They realized that even if they escaped unscathed, the world would still regard them as crooks. So, no matter how much wealth had been accumulated, their losses in reputation would always be greater.

Then the damage control began. Full page ads began appearing, effectively stating: “We didn’t do it.” It was much too late for such desperate moves. Too many questionable actions had been taken. It seemed like every few weeks there was a new denial by management. The executives may have pulled off denying one or two incidents, but the accusations kept rolling in. The answer to each charge was denial and stonewalling. Management would publicly welcome a complete investigation, but privately deny access to the necessary data. Amid the public show of outrage, secret deals were offered to the California governor. There are too many accusations, too many unanswered questions, too many discrepancies, and too many weak denials for the matter to ever pass the smell test.

Executives from Rick Priory on down have been chanting “complete vindication” regarding the California charges. But the matter is still under investigation! How does one know the results of an investigation before it is completed? Unless the results have been bought, the verdict is unknown until the investigation is complete. Mr. Priory started proclaiming complete vindication many months ago, when the investigation was in its infancy.

Dow Jones reported that the Federal Energy Regulatory Commission’s findings would be acted on “soon.” The article stated: “The March 26 report found Enron Corp. and numerous other energy companies had gaming strategies in California electricity markets that violated FERC-approved rules, and that these companies should forfeit gaming profits between Jan. 1, 2000, and June 21, 2001.

“Among those the staff accused of gaming are… Duke Energy Corp…”

Does this sound anything like “completely vindicated”?

Ms. Shaw’s only knowledge of the earlier downturn is from hearsay. She was not with Duke during that time. She was not with Duke when management was trusted. She came in during the transition between trusted management and cowboy management. The wheeling-dealing, day-trading, slip-the-employees-a-Mickey crowd is all that she has ever known at Duke. She attempted to explain a situation that she has no direct knowledge of. She further attempted to use the unrelated incident to explain away today’s problems.

If Ms. Shaw had been hired off the street into her new position, she may have been entitled to a “honeymoon period.” But she has been an executive during all of the skullduggery of the last six years or so. She can wash her hands, but they will never be completely clean. She is now trying to downplay the very problems that she helped create.

Ms. Shaw stated: “We must improve relations with our stakeholders -- regulators, employees, retirees, legislators, communities, and more. Duke Power's reputation for citizenship and service goes back nearly 100 years. It is an exceptional asset, and it remains strong. But we have lost some ground, and we must work together to regain it.”

At least she recognizes that the relationship with employees is not too good. Often executives tend to gloss over this area.

It is somewhat amusing that when executives implement the big mistakes, they make it clear that they are fully in charge and that no one else will have any input. It is always a case of “I know best, It’s my way or the highway, Employees just do not understand.” When their half-baked concoctions blow up in their faces, it is always “We need to fix this, We need to work together, We must all sacrifice (for my blunders).” Employees are never included before the scheme blows up. Employees are always included in picking up the pieces. Management can break it, but it always takes everyone to fix it.