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Duke - Page 6 - 2002
Fox Announces New Hen House Security PlanThe Charlotte Observer – by Stella M. Hopkins – June 11, 2002
(6/10/02) - As the energy industry faces federal probes and talk of tougher regulation, a top Duke Energy Corp. executive is among the industry leaders heading a new ethics initiative.
The goal of the group announced Monday is to set ethical standards for power trading and is the second such industry effort in less than two weeks. The group will operate under the umbrella of the Electric Power Supply Assoc., a trade association advocating deregulation.
Duke unit president Jim Donnell joins colleagues from other energy-trading companies on the ethics committee. Duke, one of the nation's leading energy traders, also has an executive with a group announced May 28 to develop better risk-management guidelines. The earlier group is not part of EPSA but also was formed in response to industry challenges.
Enron Corp.'s demise amid allegations of faulty accounting, followed by disclosures of energy-market manipulation eroded faith in the industry. Recent disclosures of sham transactions and accounting errors by some traders -- including at least one member of the ethics group -- further hurt investor confidence.
The Federal Energy Regulatory Commission and the Securities & Exchange Commission are investigating. Charlotte-based Duke has denied engaging in the questionable activities.
"We hope to demonstrate to regulators, other policymakers and certainly our customers, the industry's commitment to the highest ethical standards of operation," said EPSA President Lynne Church.
New Duke ‘Wash Trade’ LawsuitPRNewswire – June 11, 2002
PHILADELPHIA, June 10 /PRNewswire/ -- On June 10, 2002, the law firm of Berger & Montague, P.C. (http://www.bergermontague.com) will be filing a class action suit against Duke Energy Corporation (NYSE: DUK - News; "Duke") and certain of its principal officers and directors in the United States District Court for the Southern District of New York on behalf of all persons or entities who purchased Duke common stock between July 22, 1999 and May 17, 2002 (the "Class Period").
The complaint charges Duke Energy Corporation and certain of its officers and directors with issuing false and misleading statements concerning its business and financial condition. Specifically, throughout the Class Period, as alleged in the Complaint, defendants issued numerous statements and filed quarterly and annual reports with the SEC which described the Company's increasing revenues and financial performance. These statements were materially false and misleading because they failed to disclose and/or misrepresented the following adverse facts, among others: (i) that the Company had engaged in approximately $1 billion of "round-trip" energy trades that provided no economic benefit for the Company; (ii) that the Company lacked the necessary internal controls to adequately monitor the trading of its power; and (iii) that as a result, the value of the Company's revenues and financial results were materially overstated at all relevant times.
On May 17, 2002, the last day of the Class Period, the Company issued a press release announcing that it had "analyzed its trades for the three-year period from 1999 through 2001 to identify those trades which may have some of the characteristics of sell/buy-back trades." These trades, known as "round- trip" or "wash" transactions, involve the simultaneous buying and trading of power in the same price and same amount and provide no economic benefit to the Company. Following this announcement, and the disclosure of inquiries by both the Federal Regulatory Commission and the Securities and Exchange Commission, the market price of Duke stock fell to $30.05 per share, after reaching a split-adjusted Class Period high of $44.97 on November 30, 2000.
If you purchased Duke common stock during the period from July 22, 1999 through May 17, 2002, inclusive, you may, no later than July 22, 2002, move to be appointed as a Lead Plaintiff. A Lead Plaintiff is a representative party that acts on behalf of other class members in directing the litigation. The Private Securities Litigation Reform Act of 1995 directs courts to assume that the class member(s) with the "largest financial interest" in the outcome of the case will best serve the class in this capacity. Courts have discretion in determining which class member(s) have the "largest/financial interest," and have appointed Lead Plaintiffs with substantial losses in both absolute terms and as a percentage of their net worth. If you have sustained substantial losses in Duke common stock during the Class Period, please contact Berger & Montague, P.C. at email@example.com for a more thorough explanation of the Lead Plaintiff selection process.
The law firm of Berger & Montague, P.C. has over 50 attorneys, all of whom represent plaintiffs in complex litigation. The Berger firm has extensive experience representing plaintiffs in class action securities litigation and has played lead roles in major cases over the past 25 years which have resulted in recoveries of several billion dollars to investors. The firm is currently representing investors as lead counsel in actions against Rite Aid, Sotheby's, Waste Management, Inc., Sunbeam, Boston Chicken and IKON Office Solutions, Inc. The standing of Berger & Montague, P.C. in successfully conducting major securities and antitrust litigation has been recognized by numerous courts. For example:
"Class counsel did a remarkable job in representing the class interests." In Re: IKON Offices Solutions Securities Litigation. Civil Action No. 98-4286 (E.D.Pa.) (partial settlement for $111 million approved May, 2000). "...[Y]ou have acted the way lawyers at their best ought to act. And I have had a lot of cases...in 15 years now as a judge and I cannot recall a significant case where I felt people were better represented than they are here... I would say this has been the best representation that I have seen." In Re: Waste Management, Inc. Securities Litigation, Civil Action No. 97-C 7709 (N.D. Ill.) (settled in 1999 for $220 million).
If you purchased Duke common stock during the Class Period, please visit our website at www.bergermontague.com to view the complaint and join the class action or if you have any questions concerning this notice or your rights with respect to this matter, please contact:
Sherrie R. Savett, Esquire
SOURCE: Berger & Montague, P.C.
Duke, Mirant, Williams Face New ImplicationsNew York Times – by Neela Banerjee – June 10, 2002
(6/8/02) - Xcel Energy, a power company based in Minneapolis, has sent documents to federal regulators suggesting that three big competitors — Mirant, Duke Energy and the Williams Companies — may have schemed to drive up the price of power in California.
The documents are part of Xcel's response to a demand by the Federal Energy Regulatory Commission that 150 energy companies disclose whether their traders used any of the market manipulation techniques outlined by Enron lawyers in memos that were released last month.
Xcel sent transcripts of several phone conversations that took place in 2000 between one of its traders and a counterpart at Southern Company Energy Marketing, now Mirant, where tactics to overschedule power were discussed. Overscheduling the amount of power that is needed in a market helps drive up prices. In one conversation, the two unidentified traders said Williams and Duke were among companies that routinely manipulated the weaknesses of the California market to increase prices.
Paul J. Bonavia, president of Xcel's trading business, said that Xcel had no way of determining whether Mirant, Williams and Duke actually used such practices and that the trader who talked about them left the company a year ago. Xcel released the transcript, Mr. Bonavia said, because the company understood FERC's request for information to be broad, covering anything pertinent to possible price manipulation.
"We're not pointing the finger at other companies," he said, "but we feel we're under a duty from FERC to respond fully and we responded fully."
The companies vigorously denied any improper behavior in California.
Williams said in a written statement: "Williams did not engage in any Enron-style trading. We have meticulously reviewed thousands and thousands of documents, reams of data and conducted dozens of personal interviews and Williams is certain that what we have told FERC is the truth. The Xcel document that you refer to sounds like employees' talk around a water cooler."
A Duke spokesman, Bryant Kinney, said: "We told FERC we had not participated in any of the activities described in the Enron memo. All we can do is stand on what we said."
James Peters, a spokesman for Mirant, said: "There is nothing new here. We have said we acted appropriately."
Bad news continued to batter the energy sector yesterday, further eroding confidence in the business of buying and selling electricity. Moody's Investors Service lowered its ratings on $13 billion of Williams's secured debt. The rating is now one notch above junk levels.
Also yesterday, the El Paso Corporation, Williams and Duke confirmed that they had received informal requests for information from the Securities and Exchange Commission about trades that may have inflated revenue without any other economic benefit, so-called round-trip or wash trades. The companies have said that they did not engage in such trades or any that may have manipulated power prices in California.
Duke, based in Charlotte, N.C., has conceded that its financial statements over the last three years included $1 billion in revenue from trades that had no economic benefit. But the company said the trades accounted for less than 1 percent of its revenue over that period and were done to "validate real-time prices," not inflate revenue.
Shares of Williams fell 23 cents, to $8.70. Duke fell 68 cents, or 2.2. percent, to $30 on concerns about the S.E.C. inquiry. Shares of El Paso fell 94 cents, or 4 percent, to $22.30.
On Tuesday, FERC threatened to strip Williams, El Paso and two other energy traders of their ability to charge unregulated rates for electricity because it found their responses to inquiries about their strategies in California inadequate.
An Xcel unit, the Public Service Company of Colorado, did participate in wash trades with Reliant Resources. Xcel itself denied using any of the schemes described in the Enron memos about price manipulation, although it indicated that it might have unwittingly participated in one. One of its traders at Public Service of Colorado discussed various arrangements with a counterpart at Southern Company Energy Marketing, but Xcel said it had found no evidence that the company actually did trades based on their ideas.
The company said it routinely recorded traders' phone calls in case questions emerged about deals. In several transcripts of conversations that took place in 2000 between the Xcel trader and a Mirant trader, they discussed overscheduling power into the California market: "11 through 20 we're going to overschedule the load," the Xcel trader says to his Mirant counterpart in one conversation on Oct. 4, 2000, using trader shorthand to talk about the power demand they wanted to schedule. It is unclear whether the plans the traders discussed were carried out.
Mirant has said that it overscheduled the need for power in California with the full knowledge of state regulators to obtain a fair price for electricity. The company maintained that the California utilities understated their need for power in the market to keep prices low.
In the last transcript of the filing, an Xcel trader and one from another company discuss penalties California regulators had just issued over manipulation of power prices. The arrangement traders may have used is described in garbled language, but Mr. Bonavia said it appeared that they were describing the creation of artificial congestion on transmission lines. In its memos, Enron described arrangements for scheduling demand for power on tight transmission paths on the California grid, thus creating congestion. Then the companies would be paid for generating power or sending it another direction to relieve the congestion.
One trader says: "Williams and Duke do that all the time. They overschedule a load at SP. So they create tons of congestion because they have all that generation in CP 26." The abbreviations are for zones where power becomes badly bottlenecked on the California grid.
Steve Maviglio, a spokesman for Gov. Gray Davis of California, said the transcripts indicated that price manipulation and those who might have practiced it were widely known in the energy trading industry but that FERC was indifferent.
"This isn't the second shoe to drop; it's the 15th shoe to drop," he said. "FERC needs to step up to the plate and do its job. They're supposed to be a cop on the beat here and they were off getting doughnuts."
Three Amigos: Duke, El Paso, WilliamsEmployee Advocate – DukeEmployees.com – June 9, 2002
Bloomberg News reported that the three amigos: Duke Energy, El Paso Corp., and Williams Companies are under further scrutiny by U.S. Securities and Exchange Commission. The SEC has requested wash energy trade data from the three companies.
Steve Maviglio, spokesman for California Governor Gray Davis, said: ``Duke charged some of the highest prices during the California energy crisis. The SEC, as well as FERC, should take a hard look at the company's trading practices.''
Denial Getting Harder for Duke and OthersWall Street Journal –by Arden Dale – June 6, 2002
(6/5/02) - NEW YORK -- The electricity business is in big trouble, and Wall Street firms, regulators and energy companies are racing to the rescue. They are trying to, at least. It isn't easy to tell who is in charge now.
Entities on all sides are inventing rules of the road to make electricity trading more fair and determine how to structure companies to survive.
The U.S. Federal Energy Regulatory Commission regulates the $600 billion wholesale power industry, and plans to issue a series of directives this fall to help keep it afloat. In the meantime, credit-ratings agencies have emerged as one of the strongest forces in the melee, and big electricity-trading companies are living by the axiom that the best defense is a good offense.
"It's amazing; today it's Moody's, tomorrow it's FERC, the next day it's the bank," said Scott Smith, senior vice president and chief risk officer at American Electric Power Co., an Ohio energy company that is one of the biggest traders of electricity in the country. "It's all of the above. We can't just concentrate on one constituency. We're under pressure."
A combination of listless power prices, fallout from California's energy crisis, the collapse of Enron Corp., and revelations about possible widespread electricity-trading fraud have combined to put the business into its current straits.
CMS Energy Corp., Duke Energy Corp., Reliant Resources Inc., Dynegy Inc., Mirant Corp. and Williams Cos. are among those suffering. Former Dynegy Chief Executive Chuck Watson resigned last week after the Securities and Exchange Commission and the U.S. attorney's office raised questions about trades the company made; his resignation came just days after that of longtime CMS chief executive William T. McCormick Jr., whose company is also implicated in possibly fraudulent trading. On Monday, El Paso Corp. confirmed that Charles Dana Rice, 47-years old, its senior vice president and treasurer, died during the weekend in an apparent suicide. The company has been under investigation by FERC for its possible role in California's energy crisis.
To help themselves, a group of major companies including AEP, Duke, Mirant, Constellation Energy Group, and TXU last week launched a committee to work on reducing credit-related costs of trading electricity and gas. The committee wants to standardize the way companies approach aspects of the business, including forecasting energy-market risk and writing 10K statements, said AEP's Mr. Smith. Companies "want to prove to Wall Street that we can regulate ourselves, control the risks in a very volatile market," he added.
The Edison Electric Institute, a leading association of utilities, is spearheading another initiative, to develop what it calls a standard netting agreement to help traders reduce the amount of capital they must post to back their natural-gas and power trades. Companies are throwing support behind the effort, which could aid the heavily leveraged, credit-poor industry. EEI said last week it plans to release a model contract this summer.
Credit-rating agencies including Moody's Investors Service and Standard & Poor's Corp. also are moving into the void. Credit quality is critically important to the companies right now not only from an investor standpoint, but also because electricity traders have become extremely cautious about counterparties' credit quality after the collapse of Enron.
Moody's last week issued a special report outlining its vision of the industry's future. Energy companies and Wall Street banks had been awaiting the report, which Merrill Lynch & Co. analyst Steven Fleishman described in a May 29 research note as a "key development."
The report said energy trading as it is now structured "may lack investment-grade characteristics unless it is ancillary to a more stable core business that generates strong sustainable cash flow." It cited a "lack of regulatory oversight" and "opaque accounting" as dragging on the industry, and said Moody's believes "a fundamental restructuring will need to occur in the near term for this sector to regain investor confidence."
"Are [the ratings agencies] overreacting?" FERC commissioner Nora Brownell asked. Ms. Brownell called the industry's impasse "a systemic failure," and said FERC has been meeting with Wall Street firms to find solutions. "Everyone in the energy meltdown has to look in the mirror," she said. "I don't want to wake up and say `Look at this lovely market we created and no one's playing.' "
Lawrence White, a professor of economics at New York University's Stern School of Business, said the ratings agencies are acting more aggressively toward the electricity industry right now, and that their actions matter more because it is so troubled.
S&P, for one, said it is simply doing its job in a tough time.
"You've seen companies out there taking bold steps to gain back investor confidence; we evaluate those plans and try to determine how risky they are," said John Whitlock, the S&P credit analyst. "S&P's role in that regard is one of third-party independent evaluator of credit, the same as it is in any industry S&P's covers."
Duke’s Pipeline ClashRoanoke Times & World News –by Lois Caliri – June 6, 2002
(6/4/02) - Tag, you're it.
First, East Tennessee Natural Gas convinced federal regulators of the need for a 24-inch-diameter pipeline through Southwest Virginia.
Then, pipeline opponents asked for a new hearing.
Then, East Tennessee responded by reiterating its case for the pipeline.
Now, opponents are taking issue with some of the supposed economic benefits cited in East Tennessee's response, asking regulators for permission to rebut the pipeline company.
The Federal Energy Regulatory Commission has not yet ruled on the request.
East Tennessee, which belongs to Duke Energy , wants to build a pipeline across Wythe, Carroll, Patrick and Henry counties. Proponents say the pipeline is needed to boost economic development in areas that have been hurt by the flight of textile and furniture industries.
Federal regulators issued a preliminary ruling in March approving the non-environmental aspects of the proposed pipeline through Tennessee, Virginia and North Carolina. FERC said the pipeline, called the Patriot Extension, is in the public interest because it will provide fuel for new electric-generation plants, provide additional gas supplies to local distribution companies and bring natural gas service to portions of Southwest Virginia for the first time. In April, FERC issued its preliminary draft environmental impact statement, favoring Duke's preferred corridor.
The Blue Ridge Coalition, a group opposing the project, and one of its officers, Barbara Smith, took issue with several of East Tennessee's claims in its response to a request by opponents that FERC rehear the case.
In their motion, they cited, among other things, East Tennessee's offer of taps, the construction of gas-fired power plants and the company's compliance with disclosure requirements.
East Tennessee has offered to install 20 taps - hookups where local gas companies or industrial users can connect to the pipeline - at its expense, to spur economic development.
Pipeline opponents say East Tennessee will put taps where no one wants them.
The opponents, in their latest request, said any potential economic benefits that East Tennessee has alleged through the proposed taps are "tainted by the fact that ETNG did not agree to install 20 taps, but in a large number of cases, has unilaterally sought to impose the taps on communities and landowners . . ." The motion request said that in most cases, the landowners have never been told that their property has been selected for taps. Also, the supervisors in Patrick and Henry counties said they did not request taps. Rick Smith, a project director of engineering for Duke Energy Gas Transmission, said he met with local officials to give them updates of the project. He said he made no secret of the taps.
In a May 22 letter to several local and state officials, Smith told them to "please feel free to share this letter with your fellow members of the Patrick County Board of Supervisors." In that letter, he also said, " Duke Energy Gas Transmission has moved forward to ensure that pipeline taps for Patrick County will be installed during construction at our cost."
Opponents, in the motion, also question whether other energy companies would build proposed gas-fired power plants in Virginia, given that the State Corporation Commission has remanded several applications for further environmental reviews. One company could be sold to another and some companies have delayed construction.
Barbara Smith, communications officer for the coalition, also noted the pending sale of one company and construction delays of other plants.
East Tennessee, in its response, said Smith speculated that the proposed power plants - expected to rely on the pipeline for natural gas - will be delayed or canceled.
"This contention is not speculation," Smith's motion said. It cited a proposed 870-megawatt gas-fired power plant at the AirSide Industrial Park in Danville. In February, Atlanta-based Mirant filed notice with the SCC, announcing it had indefinitely deferred construction of the project.
The SCC said Mirant is not abandoning the project.
Also, the opponents said East Tennessee has not properly disclosed information about its affiliate, Saltville Gas Storage Facility.
Because neither East Tennessee nor any of its officers or directors directly owns, controls or holds with power to vote 10 percent or more of the outstanding voting securities of Saltville or two additional Duke North America entities, it complied with disclosure rules, East Tennessee said in its response to the opponents' first motion.
The opponents, in their request to rebut East Tennessee's response, said "if any person or organized group of persons, directly or indirectly, owns, controls, or holds with power to vote, 10 percent or more of the outstanding voting securities, it needs to comply with disclosure rules." The opponents said Duke Energy, through subsidiaries, controls East Tennessee Natural Gas and Saltville Gas Storage Facility.
You can follow developments of this story on The Tennessee Gas Pain:
Duke Employee Opinion Survey 2002Employee Advocate – DukeEmployees.com – June 5, 2002
Employee opinion surveys are being distributed to some Duke employees this month. They are being sent electronically and by hard copy. If you receive a survey form, it must be submitted by Friday, June 28th, if you choose to respond.
If the company bothers to ask for your opinion, please take a little time to give them a piece of your mind.
In addition to the multiple choice answers, you can write in comments on three topics. Don’t wait around until the last minute to submit the survey. The comments below were submitted by an employee who did not waste any time:
2002 Duke Energy Employee Opinion Survey Response
Senior Leadership and Management:
The problems with the unethical conduct of senior management are not going away. They are getting worse. Denial is not working. The ad blitz is not working.
The public is becoming aware of the lack of integrity in Duke management. The investors are catching on (four Duke shareholder lawsuits, and counting). The employees know, first hand, of the unscrupulous activities of Duke management. Every since the cash balance pension plan was forced upon the employees, the company has been deteriorating. Then our retirement health coverage was eliminated.
Taking in large sums of money does not always mean that a company is ethically sound – it can mean the opposite. Some of the money that Duke takes in came from the employee’s promised benefits. Reducing liabilities by breaking promises to employees is the same as physically taking money from employees. This does not show “great leadership.” It shows that a conniving bunch of con artists have taken control of the company.
The negative press that Duke receives is not due to bad luck. Duke is getting exactly what it deserves. Con games cannot run indefinitely. The truth eventually comes out. So, don’t pretend to be shocked when exposure comes. Duke took the money and ran. Now a price is being paid for the unethical actions.
Each day the company delays in making restitution to the employees for their lost benefits, will only exacerbate the matter. If the employees do not trust the company, no one else ever will.
Life Tracks and Other Benefits:
Benefits have been a joke since 1996. That is when benefits started to be systematically destroyed. Health coverage is worse. Retirement benefits are much worse. Promised retirement health coverage is non-existent.
All the while, Duke’s bottom line continues to improve. Executive compensation continues to improve. From an employee’s perspective, current management could have hardly done a worse job. And, management has not made the first step to correct its blunders.
Denial is not going to improve the very bad employee relations situation. Can current management regain the trust of the employees? I don’t know. But if no attempt is made, the bad situation will only deteriorate.
Diversity and Ethics:
Just what is “diversity and ethics” supposed to be anyway? The term has been bantered around a lot for the past couple of years, but I have never heard a definition of the phrase. It seems to be a murky cloud floating around somewhere, with an undefined purpose and an unknown agenda.
Is it a program to promote blacks? Is it an anti-WASP program? The new program apparently was rolled out as a panacea for all of Duke’s employee relations problems. But the question remains, just what is it? Perhaps the program was designed only to confuse the issue. If the company can convince all employees that the program is to benefit them, while it only benefits management - what a major coup for management.
The major problems the company faces are in the areas of ethics and integrity. What has this to do with diversity? All employees lost benefits to some degree; this has nothing to do with race.
The worst breech of ethics was when the company started to take away employee benefits. Then the diversity and ethics program appeared as if it were an answer for the problem. The word diversity seems to imply race. But race has absolutely nothing to do with the situation! Is it implied that there can be nothing unethical unless it involves race?
If the diversity and ethics program was designed to be a smoke screen to confuse the issue, it is working well.
Duke and Others Named in New LawsuitAssociated Press – June 5, 2002
SEATTLE (AP) - A consumer-rights lawyer is seeking $1 billion in damages from some of the nation's largest power companies, claiming they made billions from artificially created power shortages during last year's power crunch.
Class-action status is sought for the lawsuit, filed Monday in San Francisco (Calif.) Superior Court by Seattle lawyer Steve Berman. He seeks to represent hundreds of thousands of ratepayers in 21 of Washington's 28 public utility districts.
In a statement, Berman said his was the first legal action seeking damages for affected ratepayers outside California. California's lieutenant governor and attorney general previously filed similar, separate lawsuits on behalf of California ratepayers.
Berman's lawsuit asks the court to force the defendants, who so far number 13, to return profits ``wrongfully amassed'' since January 2001 and make restitution to the ratepayers.
``In our opinion, the fix was in, and Washington electric ratepayers were set up to be the losers,'' Berman said.
According to the complaint, the defendants own or control 19 gas-fired power-generating plants in California and conspired to create a cartel to withhold power from the market, creating artificial shortages and causing price spikes. It also contends the defendants engaged in transactions designed to inflate the cost of electricity.
The impact was crippling on PUDs in the Northwest that were forced to buy power on the spot market, Berman said.
``Most of the PUDs tried to absorb the rate increases the defendants engineered, but simply ran out of money,'' he said. ``They had no choice but to go to the ratepayers with higher rates'' while the power brokers posted ``obscenely huge profits.''
The 13 named defendants include Enron Energy Services, Reliant Energy Services, Pacific Gas & Electric Co., Dynegy Power Marketing - all of Houston - and other power traders including Williams Energy Marketing and Trading of Tulsa, Okla., Sempra Energy Resources of San Diego and Duke Energy Trading of Charlotte, N.C.
Spokesmen for Williams, Duke, Reliant and Dynegy have previously termed such accusations false. Spokesmen for the other named defendants were not immediately reachable late Monday.
Earlier this month, in Washington, D.C., the nation's top energy regulator said Enron Corp. intentionally misled California energy officials about power trades to make more money during the state's electricity crunch.
But Pat Wood, chairman of the Federal Energy Regulatory Commission, said it was too soon to know if Enron or other energy companies manipulated the California energy market. The commission began investigating possible price manipulation in February.
While most of the activity alleged in the Berman lawsuit occurred in California, it had significant impact in the Northwest, Berman said, citing published reports that inflated electricity rates cost Washington state 43,000 jobs and state ratepayers $1.7 billion.
3 More Duke Suits; Stock Hits 52-Week LowDow Jones – June 1, 2002
(5/31/02) - NEW YORK -(Dow Jones)- Duke Energy Corp. was hit with three more Shareholder lawsuits alleging the company issued false and misleading statements about its business and financial condition.
The lawsuits, which seek class-action status, were filed in district court for the Southern District of New York and represent shareholders who bought stock between July 22, 1999 and May 17, 2002 .
In separate press releases, law firms representing the shareholders said statements made earlier this month by Duke Energy failed to disclose the company engaged in $1 billion of "round-trip" energy trades and that financial results were overstated.
A Duke Energy spokesman said the company hasn't had a chance to review the lawsuits and couldn't comment on them.
Duke Energy has said its California trading strategies were appropriate and its operations followed the market rules in the state.
Another shareholder lawsuit reported last week alleged auditor Deloitte & Touche violated the common law by certifying Duke's financial statements and allowing its unqualified opinion to be incorporated by reference into Duke's filings with the SEC, despite the fact that such financial statements and filings were allegedly materially misleading.
Duke Energy's New York Stock Exchange-listed shares set a new 52-week low of $ 31.75 Thursday, and were trading recently at $31.80, down $1.71, or 5.1%, on composite volume of 5,236.500 shares. Average daily volume is 4,416,301 shares.
Previous article about Duke Energy’s auditor
Duke Faces More LawsuitsMorningstar.com - by Karen Wallace – June 1, 2002
(5/31/02) - Utilities funds were the third worst-performing category this week, losing 2.9%. Galaxy II Utility Index, Liberty Utilities, and Rydex Utilities each lost between 4.5% and 5.2% through the five trading days ending Thursday. All three funds own stakes in beleaguered utilities companies like Duke Energy, El Paso, and Williams Companies.
On Thursday, Duke hit a new 52-week low after Dow Jones Newswires reported shareholders filed three more lawsuits alleging the company issued false and misleading statements about its business and financial condition. The stock lost 10.1% this week.
Duke and Alaskan OilAnchorage Daily News – by Tony Hopfinger – May 31, 2002
(5/29/02) - A group of pipeline builders has asked the state to stop permitting an Alaska-Lower 48 natural gas pipeline, saying they can't move ahead until producers of Alaska's vast gas reserves commit to the estimated $20 billion project.
Foothills Pipe Lines Alaska Inc., which represents eight pipeline companies, asked the Alaska Gas Pipeline Office in Anchorage to stop processing an application to run the gas line across state land and along the Alaska Highway.
With no project to permit, some Gas Pipeline Office employees could face layoffs as the agency prepares to shut down this summer in reaction to the news, said Bill Britt, the agency coordinator.
Tuesday's announcement comes a month after three companies with rights to produce most of the North Slope's proven gas reserves of 35 trillion cubic feet concluded the project does not make financial sense at the moment.
The companies -- Phillips, BP and Exxon Mobil -- are awaiting the outcome of federal legislation that could sweeten the project, including tax breaks and assurance the pipeline wouldn't become bogged down in permitting delays.
But until the producers commit, Foothills and its partners don't have a pipeline to build. And the state doesn't have a reason to staff its Gas Pipeline Office.
John Ellwood, executive vice president of Foothills, spelled out the dilemma in a letter to the state last Friday.
"Given this and other uncertainties, our customers, the producers, are not likely to be in a position to make significant commercial decisions until the first half of 2003,"he wrote.
The pipeliners include energy giants Enron, Duke Energy and El Paso, as well as several other companies, Britt said. They've been trying to revive a 25-year-old dream to run a pipeline from Alaska's arctic oil fields to the Lower 48.
In 1980 the federal government granted access to the group for a pipeline crossing about 430 miles of federal land in Alaska. But the project fell apart before the consortium got permission to cross about 200 miles of state land and 100 miles of private property.
About 18 months ago, the pipeliners chased the dream again as natural gas prices spiked, causing gas shortages in the Lower 48 where gas is increasingly burned for electricity and home heating…
Circling the Energy WagonsDow Jones – by Kristen McNamara – May 31, 2002
(5/29/02) - NEW YORK (Dow Jones) -- A newly formed committee of leading energy companies expects to begin releasing specific guidelines to reduce the credit-related costs of trading power and natural gas by this summer, executives from two of the participating companies said Wednesday.
Half a dozen of the larger energy companies doing business in the U.S. announced Tuesday that their chief risk officers would work together to increase the transparency of energy markets and free up capital by encouraging initiatives such as the development of multilateral clearing platforms, master netting agreements and a uniform system for measuring the value of energy trades.
"It certainly is seeking to have very concrete and specific output and deliverables," Richard Osborne, Duke Energy's executive vice president and chief risk officer, said of the committee. "We're hoping to have those start to emerge this summer, intended to identify and codify what we see to be the best practices in managing risk."
The formal creation of a committee to create industry standards reflects the degree of concern among investors, regulators and consumers about how power and gas traders conduct and value transactions in their opaque and complex markets.
Concerns about the quality of energy companies' financial reports were set off by the collapse of Enron Corp. and heightened by news of massive "round-trip" trades that boost volumes and revenue but serve no economic purpose. Of particular concern is the subjectivity the valuations energy companies use to mark their positions to market and book future income as current earnings.
The possibility of a heavy-handed regulatory response is weighing on the sector. Meanwhile, ratings downgrades - which triggered collateral requirements - have raised the cost of doing business.
The so-called Committee of CROs - or credit risk officers - consists of American Electric Power Co., Constellation Energy Group, Duke Energy, Mirant Corp., Suez unit Tractebel North American Inc. and TXU.
The committee will meet once a week and is open to new members. A few firms have already expressed interest in joining the group, said Mike Smith, Mirant's vice president and risk control officer…
Duke’s 'Wash Trades' Reduce Earnings EstimatesTheStreet.com – by Rebecca Byrne – May 26, 2002
(5/23/02) - Energy merchants rallied for the first time in weeks Wednesday after telling federal regulators they weren't involved in Enron-like transactions. But other dubious trading activities have thrown into question the profit potential of the energy trading business, according to Prudential Securities analyst Carol Coale.
Coale cut her 2002 and 2003 earnings estimates and price targets on Dynegy and Reliant and also reduced price targets for Williams and Duke Energy on Thursday.
"We remain skeptical of so-called round-trip trading having no impact on company profits, as we believe it afforded false price visibility to which other trading positions could be booked," she said.
A wash trade occurs when one trader sells power at a set price and instantaneously repurchases the power at the same price. Although the transaction does not result in a profit, it does boost trading volumes, giving the impression of greater profitability.
Several companies such as Reliant and CMS have admitted to booking revenue from these transactions, even though none was generated.
Coale noted that the revelations of questionable trades have also scared off counterparties, or the companies that energy traders do business with, and said that threatens to put a dent in earnings this year.
As a result, she cut her 2002 earnings estimates on Dynegy to $1.61 from $2.03 and lowered her 2003 estimates to $1.72 from $2.46. On Reliant, 2002 estimates were cut to $2.39 from $2.60.
In addition, she lowered her price target on Dynegy to $11 from $24. Duke's target was cut to $42 from $44, Reliant was cut to $18 from $27, and Williams was cut to $22 from $27.
While many energy companies have revealed to the U.S. Federal Energy Regulatory Commission that they did not use the same tactics that Enron used to boost profits during California's energy crisis, the FERC recently widened its probe to include wash trades. The agency issued a broad order Wednesday demanding that energy companies declare in a sworn statement whether they used such techniques in 2000 and 2001.
"Traditional valuation metrics do not appear to apply to the current performance of the energy merchant stocks," Coale said in a research note. "Instead, stocks appear to be event-driven, making it extremely challenging [and opportunistic] for investors, given the unpredictability of the news."
While there is money to be made in Duke, due to its already stable credit standing, and in Williams and El Paso, on the basis of their improving liquidity, the recent rally in the group may prove to be short-lived, Coale said, as investors continue to discount certain stocks with a partial or zero valuation for the trading business.
Dynegy, which jumped 6% Wednesday, had slipped 1.1% to 9.13 in early afternoon trading on Thursday. Williams was down 0.6% to $17.60, but Duke was gaining 1.6% to $35.56 and Reliant was up 6.9% to $17.02.
Duke’s Toxic ChemicalsThe Charlotte Observer – by Bruce Henderson – May 26, 2002
(5/25/02) - Power plants lead the list of industries that released toxic chemicals into North Carolina's environment in 2000, an annual Environmental Protection Agency report shows.
Person County, north of Durham and site of CP&L's big Roxboro coal-fired plant and two other power plants, ranked highest in the nation for releases from electric utilities. Catawba County, home of Duke Power's Marshall plant, ranked ninth.
Those and other power plants made up eight of the top 10 N.C. dischargers. Most of the chemicals released are corrosive hydrochloric and sulfuric acids.
EPA's Toxics Release Inventory catalogues more than 650 chemicals that industries discharge into the air, water or land each year. The inventory doesn't include all toxic sources, such as motor vehicles.
N.C. industries released or disposed of more than 157 million pounds of chemicals in 2000, this week's report says. That ranks North Carolina 10th-highest in the nation. Eighty percent of the N.C. releases were into the air.
South Carolina's 79 million pounds ranked 25th. Paper plants were five of the top 10 sources.
Electric utilities are among a group of industries -- including mines, hazardous-waste treatment plants and petroleum storage terminals -- that began reporting their releases in 1998. Until then, only manufacturing plants were required to report.
Ameristeel Corp., Foamex L.P., Stanley Home Automation Inc., Heritage Environmental Services LLC and Charlotte Pipe & Foundry Co. led the list of Mecklenburg County sources.
The EPA for the first time separately tallied releases of a group called persistent bioaccumulative toxic chemicals.
These long-lasting chemicals, such as dioxins and PCBs, accumulate in the environment and can be harmful even in tiny amounts.
More than 122,000 pounds of those chemicals were released in North Carolina, and 132,000 pounds in South Carolina.
Total N.C. releases from manufacturing plants dropped 68 percent between 1988 and 2000. S.C. manufacturing releases went down 23 percent. For all U.S. industries, releases dropped 8 percent from 1999 to 2000.
Duke Energy, Deloitte & Touche Face SuitDow Jones Newswires – by Ralph Tasgal – May 24, 2002
(5/23/02) - NEW YORK -- Duke Energy Corp. and its auditor, Deloitte & Touche, face a purported class-action lawsuit filed on behalf of those who purchased Duke shares between April 2, 2001 and May 17, 2002 .
The complaint, filed by law firm of Lovell & Stewart LLP, claims Duke failed to disclose that it was allegedly engaging in electricity trades involving simultaneous purchases and sales of power at the same prices, and overstated its revenue. The complaint further alleges that Duke didn't have in place sufficient management controls to prevent these types of trades.
The lawsuit alleges that Deloitte & Touche violated the common law by certifying Duke's financial statements and by allowing its unqualified opinion to be incorporated by reference into Duke's filings with the SEC despite the fact that such financial statements and filings were allegedly materially misleading.
Duke Energy said this week that its California trading strategies were appropriate said its operations followed the market rules in the state.
Neither Duke nor Deloitte was immediately available for comment Thursday evening.
New York Stock Exchange-listed shares of Duke closed Thursday at $35.34, well below its 52-week high of $47.45 reached exactly one year earlier.
Previous articles about Duke Energy’s auditor
Duke Energy Sued by ShareholdersLovell & Stewart, LLP – Press Release – May 24, 2002
(5/23/02) - NEW YORK--(BUSINESS WIRE)--May 23, 2002--The law firm of Lovell & Stewart, LLP ((212) 608-1900 or www.lovellstewart.com) filed a class action lawsuit on May 23, 2002 on behalf of all persons who acquired the common stock of Duke Energy Corp. (NYSE:DUK - News) between April 2, 2001 and May 17, 2002, inclusive.
The lawsuit asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated by the SEC thereunder and the common law and seeks to recover damages. Any member of the class may move the Court to be named lead plaintiff. If you wish to serve as lead plaintiff, you must move the Court no later than July 22, 2002.
The action, Albert Fadem Trust v. Duke Energy Corp., et al., is pending in the U.S. District Court for the Southern District of New York (500 Pearl Street, New York, New York), Docket No. 02-CV-3960 (JSR) and has been assigned to the Hon. Jed S. Rakoff, U.S. District Judge. The complaint alleges that Duke Energy and certain of its officers and directors violated the federal securities laws by making misstatements and/or omissions of material facts in Duke Energy's public filings with the Securities and Exchange Commission ("SEC") and otherwise.
Specifically, the complaint alleges that Duke failed to disclose that it was engaging in electricity trades involving simultaneous purchases and sales of power at the same price, overstated Duke's revenues in its public SEC filings and elsewhere by including in such revenues sums received in connection with such simultaneous purchases and sales of power, and failed to disclose that Duke did not have in place sufficient management controls to prevent Duke's traders from engaging in simultaneous purchases and sales of power at the same price.
The complaint further alleges that Deloitte & Touche violated the common law by certifying Duke's financial statements and by allowing its unqualified opinion to be incorporated by reference into Duke's filings with the SEC despite the fact that such financial statements and filings were materially misleading in that they materially overstated Duke's revenues by counting as revenue sums received in connection with simultaneous purchases and sales of power at the same price.
After the foregoing became known to the public, the complaint alleges, Duke stock tumbled to as low as $32.89 on May 21, 2002, down from a class period high of $47.74.
Christopher Lovell, the senior partner at Lovell & Stewart, has been appointed lead counsel or co-lead counsel in numerous significant class actions, including actions involving reportedly the largest class action recoveries in history under three separate federal statutes (the Sherman Antitrust Act, the Commodity Exchange Act, and the Investment Company Act of 1940). These record-breaking recoveries for class plaintiffs included the $1.027 billion recovery in In re: NASDAQ Market-Makers Antitrust Litigation and a $145.35 million recovery in 1999 in In re: Sumitomo Copper Litigation, a class action against various parties who conspired to manipulate the worldwide copper and copper futures markets for their own profit.
Investors who acquired Duke Energy Corp. common stock during the period April 2, 2001 through May 17, 2002, inclusive may contact Lovell & Stewart at the telephone number, address or E-mail address below for more information regarding the class action lawsuit. Investors can also visit Lovell & Stewart's website at www.lovellstewart.com to view a copy of the complaint.