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(2/7/03) - Duke Energy Corp. changed the structure of its top management last week, replacing the powerful policy committee with a two-tier system hinged on new President and Chief Operating Officer Fred Fowler.

Fowler will lead the new executive advisory committee. The group is made up in part of the heads of Duke's seven principal lines of business, who all report to him. Five have been named to their posts since Fowler took over as president in late November.

Fowler and other top executives will report to Duke Chairman and Chief Executive Rick Priory as part of the newly created chairman's council. The members of the council are also members of the executive advisory committee, but Fowler is in charge of the business leaders such as Duke Power Co.'s Ruth Shaw.

Art Gelber, an energy consultant who leads Houston-based Gelber & Associates, says Fowler is finding the best people for jobs in a changed energy industry. Duke is reacting to the decline in trading and marketing that characterized the growth of the late 1990s, Gelber says. "He's done a pretty aggressive job and it's showing."

Gelber expects Duke to announce several additional rounds of layoffs and more management changes before the metamorphosis is complete. "They're not done changing."

When Fowler took his current job, analysts expected him to lead Duke back to its electrical-power and natural-gas roots, away from energy trading. Gelber says Fowler is walking a tightrope between changing the organization and regressing to that utility background. "He's trying to keep the organization balanced and moving forward."

Duke spokesman Terry Francisco says the new structure stems from Duke's having a president and chief operating officer for the first time since 1998. "We've changed the set-up, so to speak," Francisco says.

Analysts don't view Fowler as Priory's rival. Instead, Fowler's leadership of the business units frees Priory to talk about strategic issues with top leaders and court Wall Street, they say.

Wake Forest University associate professor Aneil Mishra says corporations nationwide are moving toward such power-sharing. "This could be partially a backlash to Enron and other companies where power was concentrated," says Mishra, who works at the Babcock Graduate School of Management.

The two-tier system also will give Fowler a better handle on various lines of business. "It may be a way to bring greater discipline," Mishra says.

Fowler, who traveled to Colorado this week for an analysts' conference, was unavailable for comment.

Since the collapse of energy trading, the company needed to alter its organizational structure, Francisco says.

In the old policy-committee format, Priory led a group of eight, which included corporate leaders, the Duke Power president and the leader of energy services such as trading and marketing.

The new executive advisory committee will meet semi-monthly to discuss business decisions, budgets and capital projects. The chairman's council will get together as needed to talk about corporate issues, income and balance statements and Duke's brand.

The changes come as Duke, once an industry darling, battles a declining stock price and credit downgrades. The stock closed Wednesday at $16.79 per share, slightly above the 52-week low of $16.42 set in October. That's far from the 52-week high of $39.60 hit in April.

Standard & Poor's credit-rating service has downgraded Duke or various bond issues several times during the past year, including last week's decision to cut the corporate credit of Duke and several subsidiaries to "A-" from "A."

Standard & Poor's analyst Cheryl Richer told a European news agency she worries that Duke's reductions in spending and asset sales won't be enough to pay down debt and reduce interest expenses. She also told the news agency that Duke's darkest days may be behind it, and the company has potential for greater performance.

Organizational experts say Fowler's moves, and the structural change, are a sign of a new day in the energy industry.

"The 1990s were a particular environment, and companies responded in a certain way," says Claudio Carpano, an associate professor of management at UNC Charlotte. "Different conditions require different responses."

Many normally chatty analysts won't comment on Fowler's moves. Several are watching but reserving judgment. Francisco says the change in leaders at Duke's top business units show the company's leadership depth.

"That's the benefit of having a larger company," he says. "You can borrow from that management talent and put it in another part of the company."

The five new business leaders had been with Duke in another capacity before their appointment. For example, Shaw had worked for 10 years at the company before being named Duke Power president last month. She takes over for Bill Coley, who retires this month.

Bobby Evans, who had been president and CEO of Duke Energy Gas Transmission, will help Fowler refashion the unregulated businesses, which have been hit by the industry shift. Harvey Padewer resigned as president of those businesses last year. Jim Donnell, president and CEO of Duke Energy North America, also left the company.

(2/6/03) - SACRAMENTO -- A Houston company that provides up-to-the-minute reports to energy companies detailing power plant outages in California is under scrutiny by state investigators digging for evidence of power market manipulation.

Lawyers for several state agencies probing the energy crisis this week subpoenaed data from Industrial Information Resources, which delivers data on West Coast outages to some of the biggest electricity producers working in California. State officials want to know if companies used the outage information during the energy crisis to capitalize on shortages and bid high prices into power markets.

The subpoena comes as the state faces an end-of-the-month deadline to prove to federal energy regulators that corporate misbehavior caused much of the crisis. It also adds a new name to the long list of companies California has probed in its quest for billions of dollars in refunds, ranging from Enron Corp. to a consulting firm run by former presidential candidate Ross Perot.

E-MAIL UPDATES

Industrial Information Resources culls publicly available data and talks with power plant operators to gather information on outages, according to a company official. Clients who subscribe to the company's services receive e- mail updates about power plant operations.

That's piqued the interest of a group of lawyers putting together a report for the Federal Energy Regulatory Commission on market manipulation in California. State officials have long complained that a few companies who provide large amounts of electricity in California used their clout to control supply and drive up prices.

"When companies communicate with each other either directly or indirectly through a conduit about supply, we are very interested in that," said Tom Dressler, a spokesman for California Attorney General Bill Lockyer.

A FERC judge this week granted the state permission to obtain data from Industrial Information Resources about its clients and what types of information it gave clients during the energy crisis. The subpoena also asks for any communication between the company and some of largest electricity suppliers in the nation, including Duke Energy, Dynegy and Reliant Resources.

COMPANY COOPERATING

Industrial Information Resources is cooperating with the state, said chief operating officer Edward Fox. The company provides information services to various markets, ranging from energy to manufacturing. Fox said company officials had also spoken with FERC, which is also investigating market manipulation on the West Coast.

Power plant outage information is posted on the Web site of the California Independent System Operator, but that policy was not in effect for much of the energy crisis.

An energy expert said companies could have taken advantage of outage information during the crisis to bid high prices into state markets if they knew about shortages in certain areas of California.

"It tends to reduce competition," said Severin Borenstein, director of the University of California Energy Institute. "This certainly could be a way for a company to crank up prices."

UNPROVEN ALLEGATION

Borenstein noted, however, that he was doubtful the state could prove an antitrust case simply by showing companies may have had knowledge of each others' outages. The state has alleged that companies conspired to create record-high power prices, but that allegation has never been proven.

Fox said the company was not performing any activity that was illegal or broke market rules. A spokesman for Duke Energy confirmed that Duke subscribed to Industrial Information Resources' services, but said Duke obeyed all state and federal market rules while doing business in California.

The state must file a report by Feb. 28 to FERC outlining the case for market manipulation. The commission is then expected in March to decide whether California is entitled to as much as $8.9 billion in refunds.

WASHINGTON, Feb 5 (Reuters) - California officials will take sworn statements from employees of Williams Cos. Inc. and Duke Energy Co. in an effort to gather evidence to support the state's demand for nearly $9 billion in refunds for electricity overcharges.

California's attorney general told the Federal Energy Regulatory Commission in a Tuesday filing he would interview or depose Brian Skinner and Cynthia Emerson of Williams, as well as James Stebbins of Duke.

All three will be asked about market manipulation and outages by generating plants during the largest U.S. state's energy crisis in 2000-01, which may have contributed to a tenfold jump in wholesale power prices.

State officials told FERC they also want to take sworn statements from employees of B.C. Hydro's Powerex Corp. about the company's "Zai Net" technology, which tracked scheduling and arbitrage trades.

In a related development, a FERC administrative law judge on Wednesday granted California's request to subpoena to a former employee of Public Service Co. of Colorado.

The subpoena was issued to Stephen Murphy, who may have "unique knowledge of certain energy trading strategies," the judge's order said. Public Service Co. of Colorado is a unit of Xcel Energy Inc.

California has until Feb. 28 to collect evidence to support its claim of price-gouging by a dozen wholesale electricity suppliers. The power crisis triggered rolling blackouts and billions of dollars in economic damage.

The state had a major setback in its FERC case in December, when a FERC judge issued an initial decision finding that California was owed only $1.8 billion in refunds. The judge also said the state still owes its suppliers for unpaid bills and should pay them $1.2 billion instead of receiving any refunds.

FERC commissioners will decide whether to accept, reject or modify the judge's ruling.

Last month, California said it would take sworn statements from employees of B.C. Hydro's Powerex unit and from Mirant Corp. about their electricity trading profits during the state's power crisis and contacts with Enron Corp. and its affiliates.

The Western state also subpoenaed Mirant and Reliant Resources to obtain documents about generating unit outages at company plants and power scheduling through the California grid.

Last week, Reliant agreed to pay $13.8 million to FERC to settle the agency's allegations that it deliberately idled power plants less than a week after blackouts hit northern California in June 2000. The settlement was the first to emerge from a FERC investigation launched one year ago into alleged California trading misbehavior. The agency is scheduled to release next month a full report on its probe.

The new depositions were filed in FERC docket EL00-95.

(Reporting by Julie Vorman, Edited by Saul Hudson)

From Rick Priory’s message to employees on Tuesday, he is beginning to face reality in a few areas. Understand, reality has not changed. Only Mr. Priory’s perception of reality has changed. In other words, he may be beginning to get a clue.

He stated “Duke Power nuclear stations delivered their best performance ever…”

That is a very different tune than the one he was singing six years ago. Then he appeared to be ashamed of the Generation Department. Day trading , derivatives, and milking deregulation were where it was at! Success could be achieved by copying Enron’s every move.

Mr. Priory arrogantly refused to attend any meetings with analysts, where only utility CEO’s would be present. He vehemently denied being the CEO of a utility. He adamantly proclaimed to the world that he was the CEO of an energy company (like Enron).

How is Mr. Priory’s crow tasting today?

Regulated utilities are the only thing saving his bacon from the fire!

In Tuesday’s Webcast, Mr. Priory stated, “Even as the merchant sector virtually collapsed, our Franchised Electric and Natural Gas Transmission businesses remained robust. Those businesses delivered the vast majority of our earnings – nearly $2.8 billion in earnings…”

Sir, would you care for any Grey Poupon with your crow?

Mr. Priory went on to say, "Meanwhile our merchant energy business struggled throughout the year with the dramatic decline in trading and marketing activity, an oversupply of merchant generation, low commodity pricing and volatility, and below par performance from our international business."

Mr. Priory previously held little regard for the dividend on Duke stock. He had announced the stock was a growth stock. Now, he is embracing what is left of the dividend, and stated “Our plans for 2003 fully support the dividend at current levels. For 77 consecutive years we have paid quarterly dividends on our common stock.”

Mr. Priory has discovered the downside of being considered a growth company or a Dot.com company: the shares can easily become penny stocks!

Wine with your crow, sir?

As usual, those who had nothing to do with the problems paid the price. Approximately 10 percent of the Duke employees got the ax. First a portion of their pension was taken, then their health care coverage, and finally their jobs.

The layoffs were touted as saving million of dollars. This is a very short-term payoff. A company cannot cut its workforce by one-tenth and not suffer any long-term side effects. Of course, the negative consequences were not mentioned.

As usual, Mr. Priory went a little too far with his rosy predictions. He stated, "We are taking the tough steps during this market downturn to assure we will be well-positioned for the inevitable turnaround."

Few things are inevitable. What if someone perfects a small fuel cell generator that only costs a few hundred dollars? What if this generator costs $100 per year to operate and has a 25 year life expectancy? Could you foresee people cutting loose from the grid? Few things are inevitable.

In 1929, there were, no doubt, those touting the “inevitable turnaround.” The problem was that many never lived to see it. And, what good is a turnaround to the wiped out investor?

Mr. Priory said, “There are significant regulatory issues impacting Duke Energy's activities and reputation. We saw some wins recently, such as the dismissal of some of the class action lawsuits. Going forward, we will focus on reducing these and other regulatory and legal risks.

First, Duke may not be off the hook for the 13 dismissed shareholder lawsuits; they may be re-filed. Even if they are not filed again, they represent a mere pittance of the suits against Duke.

One way of avoiding regulatory and legal risks is to simply obey the law. What? No one ever thought of that?

When one embraces every gray area, every loophole, and falls for every get-rich-quick scheme being peddled, legal troubles are bound to follow. That is about as close to “inevitable” as it comes!

Now, Mr. Priory is wanting “Open and regular communications.” There was no communications about the employees benefits, other than “You had them, now you don’t.” Are we to now wait, with baited breath, to hear more about EBIT?

Sir, we trust the crow does not leave a “fowl” taste in your mouth!

WASHINGTON, Jan 27 (Reuters) - IDACORP Inc. said it would respond to another request for information by the U.S. Commodity Futures Trading Commission, which is investigating fake natural gas prices given to industry newsletters that track daily trades throughout the United States.

IDACORP, which was subpoenaed by the CFTC last October, said the CFTC on Jan. 14 asked for documents "related to certain wholesale energy transactions and information supplied to energy industry publications."

Boise-based IDACORP and its affiliates, Idaho Power and Idacorp Energy, will respond to the CFTC by saying "they again deny engaging in any round trip or wash trade transactions, and they believe the only information provided to energy industry publications was actual transaction data," the company said.

In wash trades, a company simultaneously buys and sells power with the same counterparty, often to inflate trading volume.

IDACORP disclosed the CFTC's new request for documents in a filing last Friday with the Securities and Exchange Commission.

The company previously responded to a request for documents by the Federal Energy Regulatory Commission, which launched an investigation into energy trading practices last spring.

On Monday, a former Dynegy Inc. trader was charged with wire fraud and reporting 43 fake trades to "Inside FERC" newsletter in 2000 and 2001. The trader, Michelle Valencia, pleaded not guilty during a brief courtroom appearance and was released on bond.

Federal prosecutors said the charges grew out of a settlement last year, when a Dynegy unit agreed to pay a $5 million fine to the CFTC to settle charges of trying to manipulate U.S. energy markets by reporting bogus natural gas prices.

Last month, a Houston grand jury indicted a former natural gas trader with El Paso Corp., Todd Geiger, on similar charges. He pleaded not guilty and is scheduled to go on trial next month for wire fraud and giving 48 fake trades to an industry newsletter.

As part of its energy trading investigation, the CFTC has issued subpoenas to other companies, including Reliant Resources, Duke Energy Corp, Avista Corp. and American Electric Power Co. Inc.

Another federal agency, the Federal Energy Regulatory Commission, is also investigating natural gas and wholesale electricity trading practices. Last May, FERC released internal Enron Corp. memos that detailed trading strategies with names like "Death Star" and "Fat Boy" which Enron allegedly used to manipulate electricity prices and boost its profits during the Western power crisis of 2000-01.

(1/26/03) - N.C. legislators may be regretting the day several years ago when they passed legislation prohibiting political action committees from making contributions while the General Assembly is in session. That reform has focused an embarrassing but illuminating light on the fact that business groups made big contributions to lawmakers not long after legislators granted tax breaks to their companies before adjourning Oct. 4.

The campaign reform advocacy group Democracy North Carolina, which monitors campaign finance practices, took note of the timing and the totals of contributions of political committees associated with four major banks and two major electric utility companies. The group found the committees had donated more than $425,000 to state legislators in the month following approval of the tax break in the closing days of the 2002 session. Duke Energy's committee gave $116,500 to lawmakers in the first half of October. Bank of America's committee gave $98,400 on a single day.

Those are not the only political contributions the companies' committees made; over the past two election cycles, the six major political action committees gave $1.4 million to legislators and another $627,000 to political parties, leadership caucuses and other political candidates.

That's a lot of money. It gets a lot of attention from legislators. And it earns the donors a lot of good will in the state House and Senate.

It's important to note that political action committees could not give money to candidates until after the legislature adjourned in October. The compressed period for making donations created at least the appearance that the donations were made in thanks for the legislature's adopting a limit on the tax bill the companies would owe on dividends from subsidiary companies.

The 2001 General Assembly had changed the way taxes for these companies would be computed. At the time, the estimate was that it would cost the companies $63 million in revenue over two years. Later projections grew to $113 million for the first two years, and the companies complained. The 2002 legislature's changes mean the state would still receive $113 over the first two years, but caps the amount paid by any bank holding company at $11 million per year.

Spokesmen for the companies say the contributions were not to reward legislators for passing the tax break. Perhaps. But without the restriction on giving, the political committees could have made the contributions while the legislature was still in session and still pondering whether to grant the tax breaks. In short, it wouldn't have looked -- or smelled -- one bit better.

Individual taxpayers took significant hits in recent legislatures. They're paying more in sales taxes, and certain tax reductions have been postponed because of state budget problems. For legislators to significantly reduce the tax liability of the state's largest corporations at the same time -- and to receive significant political contributions, regardless of the timing -- reaffirms what many have long suspected: Moneyed interests continue to get their way in the N.C. General Assembly.

(12/29/02) - The guardians of the Piedmont's most vital water supplies are neither civil servants nor elected officials. They're power companies.

Straddling the blurred line between public good and private profit, utilities are the gatekeepers to rivers of blue gold.

Duke Power built its 11 reservoirs on the Catawba River to make electricity. But the 198 billion gallons of water stored in those lakes now supplies more than 1 million people.

As demands increase, Duke says it might veer from long-standing practice and start charging for water.

Federal rules allow utilities to recover the money they lose when reservoir water is used for purposes other than making electricity. Duke currently charges only Greenville, S.C., which pipes Lake Keowee water into another river basin.

"We're reserving the right to charge (others) for water as we go forward," said George Galleher, Duke's lake management chief.

Power companies also control the amount and timing of water released through their dams -- pulses of life to the communities, industries and fish downstream.

Those releases are so important that state water officials, biologists and environmentalists are preparing for a once-in-a-career event: the renewal of federal hydropower licenses.

Fifty-year licenses in the Charlotte region's two major basins, the Catawba and the Yadkin, expire in 2008.

S.C. officials, because their state is so dependent on rivers that rise in North Carolina, will push for larger and steadier flows downstream.

"We want to mimic nature as much as we can," said Bud Badr, hydrology chief for the S.C. Department of Natural Resources. "Mother Nature does not give 9,000 cubic feet per second one day and 200 the next."

S.C. residents have for years complained about "weekend droughts" on the Great Pee Dee River resulting from uneven flows. The Pee Dee forms from the Yadkin and Uwharrie rivers in North Carolina, emerging at the Atlantic Ocean south of Myrtle Beach.

Alcoa Power Generating Inc. shuts down its four hydro plants on the Yadkin on weekends, it says, to make efficient use of them. The hydros are designed to generate power during peak demand on weekdays. Raleigh-based CP&L runs two hydros just downstream of Alcoa's lakes.

Conflict boiled over on both ends of the basin last May. After four years of drought, the Yadkin's flows nose-dived to historic lows. High Rock Lake, the largest of the Alcoa reservoirs, dropped 24 feet below full pond.

Homeowners accused Alcoa of incompetence and greed in continuing to run its hydropower turbines. In defense, Alcoa said its hydro license required the company to release water downstream even when little was flowing into its lakes.

The stakes rose in July, when fish stranded in shrinking pools began dying. Two kills on High Rock ultimately took 4,000 to 5,000 fish.

"That just seemed like a really bad plan, to basically drain High Rock Lake," said John Morris, director of the N.C. Division of Water Resources. "... We're talking hundreds of truckloads of dead fish or more."

Downstream, South Carolina faced a different crisis. So little water moved down the Yadkin to the Pee Dee that saltwater crept toward water intakes along the S.C. coast. A half-million S.C. residents rely on the Pee Dee for water.

Officials from both states and the Federal Energy Regulatory Commission met with Alcoa and CP&L. They negotiated reductions in the amount of water the companies sent downstream -- enough to begin refilling High Rock and to meet South Carolina's minimum needs.

Fall rains have eased the pressure. But a longer-term solution will be sought in Alcoa's and CP&L's upcoming relicensings.

High Rock residents want assurances that their lake won't be drained again.

S.C. officials will argue for significantly higher, consistent flows downstream.

"I can appreciate the power companies making money, but they have to appreciate our needs," said Freddy Vang, a deputy director of the S.C. Department of Natural Resources. "You can't look at one part without looking at all of it, from the headwaters to the ocean."

Alcoa says it will solicit all points of view.

In talks with South Carolina last summer, the company brought up compensation for its loss of generation by releasing water downstream. Alcoa agreed to drop the issue for the time being, environmental and natural resources manager Gene Ellis said, but will re-evaluate its position next year.

Said Vang, with a short laugh: "That one's going to be talked about in relicensing."

(1/24/03) - Power trading didn't exist. That's right. It was a made-up business. It was something that was thought to be a cash cow that amounted more to a conspiracy of dunces. This morning, CMS Energy became the latest to realize that it had trashed its company on the altar of power trading. (This is the second trashing of the company, as the first was sacrificed on the altar of nuclear. What will it be next time, solar?)

Yet people remain in these stocks. They remain in Duke. They are still in this El Paso. They are still in Calpine and Williams.

SAN FRANCISCO, Jan 22 (Reuters) - Regulators and lawmakers in California and North Carolina, pressured by angry customers, want to know why utilities took so long to restore electricity after powerful winter storms lashed their states in December.

They're also asking what California's big Pacific Gas & Electric utility, North Carolina's Duke Power and other utilities are doing to deliver more timely and accurate information to their customers when blackouts occur.

Three Pacific Ocean storms packing heavy rain and gale force winds slammed into Northern California last month, while, a continent away, the most powerful ice storm in memory toppled thousands of electrical poles and local power lines.

About 1.9 million homes and businesses served by PG&E Corp.'s Pacific Gas & Electric unit were blacked out in California, while the Carolina ice storm cut power and electric heat to 1.4 million customers of Duke Energy's Duke Power unit.

While the utilities said they got more than 90 percent of their customers back on the grid within about 24 hours, they also admitted that it took up to 10 days to get the lights back on in some rural areas and communities that suffered heavy damage to poles, wires and other power gear.

Utility officials have defended their work to restore electricity during harsh weather conditions and vowed to do better when storms strike again.

Duke Power estimated its costs for storm repairs at $115 million to $130 million, while PG&E put its damages bill at $35 million.

Progress Energy, another North Carolina-based utility, estimated its repairs at $50 million to $55 million. No hard figures are available for what the storms cost customers in spoiled food, lost business, electronic data and other items.

Utility customers are demanding better telephone systems to deliver timely, accurate messages about power restoration, and non-English speakers want the information in their own language.

RELIABLE INFORMATION

"I have been hearing from a lot of PG&E customers and they are angry they couldn't get correct information on when electricity would come back," said Carl Wood, a member of the California Public Utilities Commission.

"It makes it impossible to make good decisions about what to do with perishable food or moving to a friend's house or hotel until service is restored," Wood said.

North Carolina Gov. Mike Easley ordered a task force to examine how utilities and state agencies handled the ice storm, and the state Public Utilities Commission has held hearings around the state…

(12/12/02) - GREENVILLE, S.C. - Duke Power might seek a rate increase for South Carolina customers to recover the costs of restoring power after last week's ice storm, a company spokesman says.

State legislators want the company to explain why thousands of Upstate residents were without power for days. All service interrupted by the storm had been repaired Wednesday, the company said.

Duke Power has not decided on how to offset the money spent restoring power, but spokesman Tom Williams said a rate increase is not out of the question.

Duke won't raise rates in North Carolina, Williams said.

South Carolina customers pay about 1 cent less per kilowatt hour than those in North Carolina, he said.

The Public Service Commission would have to approve the rate increase.

The last rate increase in South Carolina was in 1991, when Duke Power was given a rate increase for the $69 million it spent restoring service to about 700,000 customers after Hurricane Hugo.

More than 1 million customers in the Carolinas lost power in last week's storm, including about 332,000 in South Carolina.

David Butler, chief attorney for the PSC, said it's not unusual for a utility to request increases to cover costs after a natural disaster.

Sen. David Thomas, R-Fountain Inn, opposes a rate increase.

"Anytime a business closes, you lose money," Thomas said. "But to say to your customers, 'We're going to charge you money for us being down,' is ridiculous."

Duke Power says losses from this storm will top the $26 million the company suffered in a similar storm in 1996, when 660,000 customers in the Carolinas lost power.

Williams said the Charlotte, N.C.-based company would not know the final cost for several months.

"We're still doing the work," Williams said. "It will cost more than the last ice storm. How much more, we don't know."

Duke said it was forced to contract with several out-of-state power companies to restore power.

About 10,000 linemen worked 16-hour shifts, according to company officials.

Thomas disputes those figures.

He said a Duke Power official told him many crews from South Carolina went to North Carolina, and crews in South Carolina did not work overtime.

"Why were crews moved to North Carolina while we had tens of thousands of South Carolina customers sitting in the dark?" Thomas said. "Apparently North Carolina got preferential treatment."

Thomas wants a meeting with Duke officials about the situation.

(1/23/03) - Political action committees for six banks and utilities made heavy contributions to N.C. lawmakers in October, only days after legislators passed a tax break for their industries, a campaign watchdog group said Wednesday.

Democracy North Carolina calls the contributions an example of big political donors winning tax breaks. But industry officials said contributions piled up in the month because state law prohibited them from donating any earlier. They and lawmakers insist the contributions didn't influence passage of the measure.

At the end of last year's May-October legislative session, lawmakers approved a bill that limited the tax paid by banks and utilities on dividends from subsidiaries. Companies such as Charlotte's Bank of America Corp. and Wachovia Corp. had lobbied for the measure after a previous law increased their taxes more than legislators had estimated.

In the following weeks, the six PACs -- representing the Charlotte banks, as well as BB&T Corp., First Citizens BancShares Inc. and utilities Duke Energy Corp. and Progress Energy Corp. -- gave a total of $427,824 to N.C. lawmakers, according to Democracy North Carolina. That amounted to about two-thirds of their contributions in the 2001 and 2002 sessions, according to the group.

Duke's PAC gave the most of the six in October -- $116,500. The Charlotte company also set a record for the most contributions made in a two-week period by a corporate PAC. On Oct. 18, Bank of America set a record for the most contributed on a single day by a corporate PAC, giving $94,800, according to the nonpartisan group, which tracks candidate spending and promotes campaign finance reform.

"It's as close as you can get to money going in and a special favor coming out," said Bob Hall, research director for Democracy North Carolina.

Spokesmen for Duke and Bank of America said the timing of their contributions was tied to the end of the session on Oct. 4, not the tax measure. Under state law, PACs cannot contribute to lawmakers during session. With the late end to the session, corporations had a compressed window to give before the Nov. 5 election.

"We contribute to legislators that support pro-business interests," said Bank of America spokesman Brad Russell. "Throughout the years in the N.C. legislature, that is pretty much anyone."

A Duke spokesman said the company didn't lobby for the law.

Lawmakers say they resent any effort to link contributions to the tax measure. And they say the tax "break" actually brought the state money it wouldn't otherwise have had.

"This was a hell of a good thing for the citizens of North Carolina," said Sen. John Kerr, D-Wayne and co-chair of the Senate Finance Committee.

Originally, state officials estimated the initial tax law passed in 2001 would rake in $63 million in the first two years, but projections later grew to about $113 million.

That law affected the nontaxable dividends that companies receive from subsidiary firms and what expenses they could write off related to this untaxed income. Banks and utilities were hit hard because they often have complex corporate structures.

Lawmakers approved changes to the law on Oct. 1 that would continue to bring in at least $113 million in the first two years. But it caps the amount paid by any bank holding company at $11 million per year. It also has tax credits for power companies.

Kerr and his co-chair David Hoyle, D-Gaston, said the state faced the possibility of banks and other large corporations moving at least part of their corporate headquarters across the state line.

But Chris Fitzsimon of the liberal Common Sense Foundation calls the tax measure another example of "corporate welfare."

"That new corporate welfare gift came in addition to the massive tax loophole banks already enjoy that costs the state treasury $100 million a year," he said in an email to supporters and reporters Wednesday.

According to Hall, records show Kerr got $26,900 from PACs representing the four big banks and two major utilities in 2000 and 2002. The same groups gave Hoyle $47,300. What portion of their contributions that represented wasn't clear Wednesday.

Hoyle said lawmakers were trying to be competitive in tax policy. He criticized Hall.

"We'll freeze to death in the dark, have no jobs, have no industry, have no economic opportunities for our people," he said. "But he'll be pleased to know that our tax code is pure and nobody gets a tax break of any kind."

(12/10/02) - Three former workers who last year accused Duke Energy of withholding electricity from its South Bay Power Plant during statewide shortages say a federal investigation into the charges targeted them and failed to focus on the allegations.

The workers said that about a month after their explosive public accusations that Duke ordered them to dispose of new parts for the plant and reduce output when electricity was in short supply, they were summoned for questioning by the Federal Energy Regulatory Commission.

But the questioning, which took place under oath over three days in July 2001, focused almost exclusively on their backgrounds and personnel records, Glenn Johnson, Ed Edwards and Jimmy Olkjer said yesterday. The three said they were instructed not to discuss their allegations further and faced federal prison if they did so. They said the instruction was intimidating and kept them from talking about their allegations for more than a year.

They ended their silence because of a recent series of revelations regarding market manipulation by power companies during the crisis, as well as the recent guilty plea by Enron Corp.'s top West Coast power trader to charges of market rigging.

The recent evidence, they said, is consistent with the allegations they made last year about the South Bay plant.

Kevin Cadden, director of FERC's office of external affairs, confirmed yesterday that Marcia Lurensky, a commission attorney, questioned the three employees last year. But the FERC spokesman cited commission policy in declining to comment on ongoing investigations.

FERC has said it expects to complete its main investigation of the California power crisis early next year. Noting that he was speaking in general, Cadden said the commission asks "lots of questions" in the course of an investigation, and he did not find it unusual for FERC to tell whistle-blowers to refrain from further public comment.

Edwards said the FERC official who questioned him had an array of his personal records, including job applications and a personnel file from the power plant, where he had worked for more than 20 years. "It was an investigation of me, not a look into what I said," said Edwards.

"In our opinion, they were working for the power company to discredit us," said Johnson, who said the FERC investigator had some of his military service records.

Olkjer, who was a plant operator and said he witnessed output reductions at the plant when statewide shortages had been declared, added that the FERC investigator said she would get back to them later. But he never again was contacted by the commission.

Duke, for its part, says it operated the plant in accordance with instructions of the statewide power grid operator, the California Independent System Operator. It disputed the allegations of withholding to drive up prices and said it disposed only of obsolete parts.

The ISO said Duke obeyed 36 of 37 orders regarding output at South Bay during a three-day period it reviewed in January 2001, a time when the workers said manipulation took place.

But the ISO has also said that during the power crisis Duke used a number of market manipulation tactics including withholding output and asked federal officials to revoke the company's right to sell power in the deregulated market. The ISO made the same request for other suppliers.

FERC has not acted on these requests.

Michael Aguirre, a former assistant U.S. Attorney who is working with the Duke employees and is pursuing a class-action suit against power providers, said an attempt by FERC to keep whistle-blowers from public comment cannot be justified.

"It is completely improper for FERC to attempt to gag these employees," said Aguirre. "It amounts to obstructing them from providing information they should be allowed to provide."

The three former South Bay plant workers were discharged last April when Duke became the employer for workers at the facility. Under a transition agreement in place before that, Duke managed the plant but the workers were employees of San Diego Gas & Electric, the plant's previous owner.

Since going public with their charges, two of the three said they've found it impossible to get work in the power industry.

Johnson, a mechanic who worked for SDG&E for 25 years, said companies have told him that his hiring would cause them to lose contracts within the industry. He is living on a small pension.

Edwards said he stopped looking for work in the power industry and landed a job with the city of San Diego. He is critical of the market deregulation that allowed companies to raise electricity prices up to 100-fold during the crisis last year.

"I refuse to work in the power industry," said Edwards.

"When I hear about elderly people having to make decisions about having to choose between eating or paying their utility bills, I don't want any part of it."

The power crisis of 2000 and 2001 led to at least $30 billion in electricity overcharges, according to state officials. State officials and consumer advocates say electricity suppliers manipulated the market to cause artificial shortages and drive up prices.

Power suppliers say the shortages were real and caused prices to rise. But the companies and investigators have made a series of disclosures in recent months about false filings, withheld electricity and market manipulation tactics.

Power Workers Supported

(11/17/02) - Two summers ago, 12 members of an extended family were camping on the banks of the Pecos River in New Mexico, about 100 yards from an underground pipeline.

At 5:26 a.m., while the campers were asleep in their tents, a nearby section of the 30-inch-diameter pipe ruptured, expelling a cloud of natural gas that drifted over to the family's campfire.

The resulting explosion tore an 86-foot-long, 20-foot-deep crater in the earth and sent a tower of flame nearly 50 stories high. The intense heat turned the desert sand to glass, melted steel, and turned concrete to dust.

Some of the campers survived the initial explosion by diving into the river, but they were already so badly burned, firefighters said, that they looked like walking mummies. All died within days - seven adults and five children, including infant twin girls and their toddler sister.

An investigation by the National Transportation Safety Board determined that the 50-year-old pipeline owned by El Paso Natural Gas Co. had corroded from the inside and burst under the pressure of the compressed gas.

According to federal records, between 1986 and 2002 there were 4,439 accidents involving natural-gas and petroleum transmission pipelines - resulting in 95 deaths, 2,324 injuries that required medical attention, and $1.1 billion in property damage.

In the same 16-year period, another 288 people died in accidents involving natural gas-distribution pipelines, with 1,283 injuries.

Duke Energy's proposed Patriot Extension will travel directly under a large campground on the banks of the New River, within 25 feet of 202 houses and within 50 feet of 80 others.

Officials with Duke point out that their corporate record is far better than that of the pipeline industry as a whole - with seven accidents and no fatalities since 1997, the year that Duke acquired most of its pipelines. The company recently won the 2002 Safety Achievement Award for its record from the American Gas Association.

The Texas Eastern Pipeline now owned by Duke had a major accident in Edison, N.J., in 1994, when a 36-inch pipe ruptured. Local residents were evacuated before the gas ignited, but the resulting explosion leveled six apartment buildings and burned more than 200 cars.

Rick Smith, the project manager for Duke Energy Gas Transmission, said that people in southwestern Virginia should not be worried if the Patriot Extension goes through their back yards. He said that there is a neighborhood gas-distribution line behind his house in Houston.

"It's about 5 feet from the pool, and it doesn't concern me in the least," Smith said. "Safety is of paramount importance to us, and we go above and beyond what is required."

In general, many pipeline leaks go undiscovered, leaching into the ground and causing unseen environmental damage.

Though the outside of steel pipelines is coated to resist corrosion, water vapor mixed in natural gas can cause internal problems after only a few years. Pinhole-size leaks in pipelines are so common that there is a term for it in the industry - Swiss cheese.

"These things do blow up on occasion," said Bob Rackleff, the president of the National Pipeline Reform Coalition, a nonprofit group that tracks pipeline safety. "The federal government's efforts to police pipelines are woefully understaffed and underfunded."

There are 2.2 million miles of gas and petroleum pipelines in the United States, enough to circle the earth 88 times. The U.S. Department of Transportation's Office of Pipeline Safety has 79 inspectors and a total of 135 full-time employees.

The small staff size ensures that some pipelines go years between federal inspections, with the government largely relying upon pipeline operators to spot problems. And a recent inspection is no guarantee of safety. A federal inspector had looked at the El Paso pipeline less than a month before it exploded. No problems were found.

"Federal regulations require operators to visually inspect pipeline rights-of-way 26 times a year, and most do it by helicopter," Rackleff said. "That makes it pretty tough to know what's going on underground."

Shortly before leaving Duke Energy, Harvey Padewer received an award from the Anti-Defamation League, in Houston. CEO Rick Priory was on the scene.

Can you imagine what Mr. Padewer was thinking? (Here I am getting an award and the chairman and CEO is right here. I have been to secret energy meetings in Washington. I have hosted the Noon Meeting. I’ll probably be the next CEO. Man, I am going places fast.)

But the fickle finger of fate decided that he only place Harvey Padewer was going was out the door, but he did go out fast!

Mr. Padewer was always talking about his “Rules For The Road.” It looks like now he will be able to put them to good use!

Mr. Padewer said "I am accepting this honor this evening on behalf of all my colleagues here at Duke Energy" and mentioned a Duke “core value” inclusion: valuing diversity and respecting the dignity of every individual.

He went on to say, "First, we all need to be activists. It's not enough to observe from the sidelines. We have to take the initiative…

"Second, we need to speak out and be opinionated. Silence is not an option…

"Third, we need to be vigilant. . . . We cannot be bystanders…"

We have never figured out how one can show respect for the dignity of every individual by reneging on promises made to them. But Duke’s “values” have always been for hanging on the wall, and not for following.

But Mr. Padewer did have some parting words that each employee can put to use.

If you do not like having the Duke promises made to you broken, you can:

• all be activists,

• take the initiative,

• speak out and be opinionated,

• be vigilant,

• and, not just be a bystander!

Hey, this advice is better than his, much touted, "Rules For The Road."

More on the secret energy meetings:

Secret Energy Meetings Now in Court

If anyone needs a reminder of the carnage possible through trading financial derivatives, they need look no farther than the current Associated Press article (link below).

In this episode, a currency trader managed to lose $691 million. By hiding the losses and cooking the books, he was even able to draw $650,000 in bonuses for his trading! The losses were incurred and hid over a five year period!

$691 million is not chump change, but the losses could have been much higher. The risk for an undisciplined, inept, or crooked trader, playing with a corporate bankroll, is infinite. In 1995 a trader lost over $1 billion dollars! In the process, he brought down Barings Bank, in England.

The latest rogue trader received hard time for his actions. But the money is still gone. The markets play for keeps. We only hear about the one who get caught. How many others have made such risky trades and pulled it off?

Rick Priory has said: "With about half of our revenues now derived from commodity positions..." Mr. Priory appointed a risk officer in 2000. Duke claims to have “processes in place” to prevent rouge trading. This is all well and good, but do you suppose that these banks did not have processes in place? Do you think that they told their traders to “go out and shoot the wad”? The risk is still there.

The risk grows when things are not going too well, and people start looking for shortcuts to shoring up the bottom line.

Accounting methods have been tinkered with from time to time to make things seem better that they are. It is usually not illegal to change accounting and reporting methods. But when one gets accustomed to rearranging the numbers to make them look better, what other possible actions come to mind? How different is changing a reporting method to tinkering with a trade? With just a little tinkering, a hedge position, can become a net long or short position. A trade that once contained risk, can now bring exposure to great risk.

Duke has played with fire for six years. Duke has been burned on about every turn. Improperly used, derivatives have the potential to send Duke down in flames. And, it only takes one trader, with sufficient authority, to do it!

Who paid the price for the latest rouge trading? Who always pays the price? The bank downsized hundreds of innocent employees.

Currency Trader Gets Jail Sentence

Wheeling Dealing Duke

Risk