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Duke - Page 8 - 2002
8 State Agencies Delay Duke PlantAssociated Press – July 16, 2002
FREDERICK, Md. (AP) - The state Public Service Commission has suspended its consideration of two power plant proposals in Frederick and Montgomery counties while a task force ponders the proliferation of such projects in the area.
The delay affects Duke Energy Corp.'s application to build a 640-megawatt, natural gas-fired plant in southern Frederick County, near Point of Rocks, and Mirant Corp.'s plan to expand an existing plant in Dickerson, about eight miles downstream from Point of Rocks along the Potomac River.
Two other companies also are considering putting power plants in southern Frederick County but haven't filed formal applications with the PSC. The area features easy access to water, natural gas lines and electric transmission lines - attractive elements to generating companies bent on expansion in the deregulated energy market.
Eight state agencies sought the delay after opponents of the Duke Energy project, including the Frederick County government, complained that smokestacks could soon dominate the rural landscape despite local zoning laws and state farmland preservation efforts.
The state agencies said in June that the PSC's power-plant siting rules, designed for the old, monopolistic regulatory system, did not adequately address proliferation of plants in close proximity.
Leaders of the state agriculture, economic development, planning, transportation, energy, environment, Smart Growth and natural resources agencies proposed a task force that would make recommendations for ensuring ``that neither the state nor any one region will become unduly inundated with power plants.''
PSC hearing examiners suspended the Duke proceedings Tuesday and the Mirant case Wednesday, pending receipt of the task force report, tentatively set for Dec. 1.
Duke, based in Charlotte, N.C., had not opposed a delay. Mirant, based in Atlanta, had objected.
Mirant spokesman David Payne said the company was not happy with the decision.
``We look forward to resuming the process in December. Mirant feels this is a good project. It meets all the criteria of industrial smart growth,'' he said.
Lisa Baugher, an opponent of the Duke plant who lives near the site, issued a statement calling the decision ``an important development in the protection of natural resources (particularly our water supply), farmland, prevention of future sprawl and for deregulation.''
Duke Stingy with Lake AccessThe Charlotte Observer – by Bruce Henderson – July 16, 2002
(7/14/02) - Access to the Charlotte region's largest public resource, the Catawba River and its lakes, belongs mostly to the few who own boats or waterfront homes.
Only 3 percent of the shoreline of lakes Norman and Wylie is open to the public. Norman, the state's largest lake, has one 225-foot-long swimming beach -- occasionally polluted -- on 520 miles of shoreline.
Reservoirs near Raleigh, Columbia and Atlanta offer far more places to swim, camp and hike.
An upcoming milestone for the Catawba, the renewal in 2008 of Duke Power's 50-year license to manage the lakes, will intensify debate over the public's rights to the water.
Critics and government agencies say new homes rising on the shoreline leave the public with dwindling scraps of recreation space.
More than 16,000 private piers jut into the lakes, compared with 116 public boat launches, parks or marinas.
Duke, which controls only the land under its lakes and power plants, says it has no jurisdiction over development.
Others disagree, pointing out that Duke's sister subsidiary, Crescent Resources, is a major developer of the shoreline.
Duke says its business is electricity, not recreation. But the utility says it exceeds the requirements of federal regulators. Over the past seven years, Duke says, it has spent $14 million to upgrade public-access areas such as boat ramps.
Most of that money went to boating and fishing, which Duke says has the highest recreational demand. Boaters can choose from 118 Duke-owned boat ramps on the 1,655 miles of shoreline.
"The usual way for getting access to the water is through boats, and we feel like we compare well with any utility," said Joe Hall of Duke's lake-management staff.
Like to fish but don't own a boat? The choices narrow to 13 piers or a seat on the bank.
Want to camp? Lake Norman offers 34 public campsites. Jordan Lake, southwest of Raleigh, has 1,055.
N.C. parks officials, in preparing for Duke's relicensing, used Raleigh as a benchmark to calculate what it would take to meet the recreation demand they expect on the Catawba. Their estimates:
"It just doesn't seem fair to the people of Charlotte, does it, that they would have so little while we in Raleigh have so much," said Carol Tingley, chief of planning and natural resources for the N.C. Division of Parks and Recreation.
Making the best of it
Comparing lakes is tricky because they're built for different purposes. Jordan and Falls lakes near Raleigh were created by the Army Corps of Engineers for recreation and drinking water sources. They're only lightly developed.
Duke's lakes were flooded to make hydroelectric power; recreation became an issue decades later.
In Duke's own surveys, most lake users said they're satisfied with existing facilities. They also said they want more places for picnicking, swimming and camping, plus more boat ramps and restrooms. Duke says it hopes to meet much of that demand by leasing access areas to local governments.
For now, Duke's access areas cater mostly to boaters and boat fishermen.
Fishermen without boats line the shore near the parking lots. Parents turn nearby banks into makeshift parks, shooing their kids away from broken beer bottles others have left behind. Swimmers ignore no-swimming signs.
S.C. Electric & Gas, in contrast, designed most of its Lake Murray access areas with picnic tables and places to swim, fish or launch a boat.
At the end of a stifling Tuesday last month, Angela Carpenter and Keith Slamcik were chasing away the heat at the water's edge.
They were alone with a couple of beers, Carpenter's Shar-Pei puppy, Babe -- and waves of stench from the Mount Holly sewage plant just beyond a chain-link fence.
"You've found the stinkingest place on the Catawba River," the bikinied Carpenter, 33, a pizzeria waitress, said with a laugh.
But a popular place, judging from the beaten path along the river's edge and the rope swing that hangs from an oak. It's the only place to reach the water between N.C. 27 and U.S. 74, which cross the Catawba about five miles apart between Mecklenburg and Gaston counties. "That's why we're here," said Slamcik, a 39-year-old welder.
A hundred yards downstream, three young Latinos fished from the bank. One perched on the treatment plant's discharge pipe, which belched dark dye into the river. Another waded through the treated effluent to retrieve a snagged line.
Riverkeeper Donna Lisenby, in the midst of a lake tour, was apoplectic.
"Hey, guys, you know what that is? It's sewage," she called from her boat.
They stared back, uncomprehending.
Lisenby tried again: "It's sh--. You shouldn't swim there."
That word they understood. The young man hustled out of the water.
Who is responsible?
Of the estimated 2.5 million visits to the Catawba lakes each year, Duke says, 45 percent of the people go boating. But the same percentage also picnic, 37 percent swim and 22 percent camp.
Yet Lisenby's employer, the nonprofit Catawba Riverkeeper Foundation, says it can't find a place to hold a large-scale family fun day on the Catawba.
"There's almost no just plain, old fishing sites," Lisenby said. "The hue and cry we get in this office is for something other than the traditional kinds of (boating) access."
Duke began building its lakes early in the last century to make hydroelectric power. But times have changed: Hydro now serves up only about 3 percent of the utility's generation, although Duke says it's important in peak periods. The lakes also feed cooling water to coal-fired and nuclear plants.
In the face of rising demand, the Federal Energy Regulatory Commission says hydropower operators have to provide enough land for optimum development of their recreational uses.
Yet on five of its 11 reservoirs, Duke offers only the minimum number of access areas required by a license granted in 1958, when the population in the Catawba basin was far smaller. A sixth -- Lake Wylie -- falls one access area short. Duke exceeds the minimum acreage the license requires for recreation on each lake. Duke says public agencies share responsibility for developing recreation on the lakes.
Mecklenburg County has three lakefront parks on Norman, including Jetton that Crescent Resources paid $2.7 million to develop, and one on Wylie. The county owns two undeveloped lakefront sites.
But the county hasn't allowed swimming at the parks since a rash of drownings in 1977.
"We just have a general sense that more public access is needed," said deputy parks director Fred Gray.
"Where and what kind are questions we haven't answered yet."
Utilities say satisfying the competing demands for their lakes, by property owners, visiting recreational users and environmentalists, can be a nightmare.
"The regulatory agencies are going to say, `There's too much development,' " said Tim Bevacqua of CP&L, which powers most of Eastern North Carolina. “The lake residents are going to say, `Don't put another boat ramp in there.' The general public is going to cry for more and better recreation and public access. It's human nature."
Other lakes offer more
But other Carolinas hydropower companies open more shoreline to the public than Duke does. On e to 2 percent of the shoreline is accessible on most of the Catawba lakes, according to Duke's 1996 report to the Federal Energy Regulatory Commission.
Since 1996, Duke has classified more shoreline for future public recreation. That would bring Lake Norman's accessible shoreline from 3 percent to 5 percent and Mountain Island Lake's from 10 percent to 26 percent.
On the four Yadkin River lakes east of Charlotte, the public has access to 12 percent to 44 percent of the shorelines, according to 1996 filings. On South Carolina's Lake Murray, it's 25 percent. S.C. Electric & Gas is also negotiating to donate parts of Lake Murray's undeveloped shoreline to the state.
Other hydro companies make public large swaths of land, including some shoreline, by enrolling it in the state gamelands program. Managed by the N.C. Wildlife Resources Commission, gamelands are open to the public for hunting, fishing and hiking, and for camping in some areas.
Alcoa Power Generating Inc., which makes hydropower on the Yadkin, has 14,000 acres in the gamelands program. CP&L, operator of Lake Tillery 45 miles northeast of Charlotte, has a total of 30,000 acres. Less than 1,200 acres is in gamelands on the Catawba.
Unlike CP&L and Alcoa, Duke transferred most of its shoreline decades ago to a land management and development arm, Crescent Resources. Crescent, now a Duke Energy subsidiary, owns the Catawba gamelands.
In the late 1980s Crescent began shifting its focus from growing pine trees to building subdivisions. Crescent now calls itself the Carolinas' premier development, land-management and commercial forestry company.
Lisenby, the riverkeeper, argues there's a conflict of interest between Duke Power's license obligations to recreation and the environment and Crescent's development of the shoreline. In a formal response to Duke's shoreline-management plan, now before FERC, she accused the utility of creating a "gross imbalance" favoring those who own lakefront homes or boats.
In the N.C. basin, 4 percent of the population owns a motor boat or large sailboat.
Stan Wilson, 36, of Charlotte beached his boat to fish from a muddy bank on Lake Wylie.
"It ain't really much," Wilson said amid a swarm of flying insects. "The rich people came and took away the good areas. Even a place like this, you couldn't get here if you didn't have a boat."
Three times since November, the U.S. Department of the Interior has voiced concern over Duke permits for new group docks and marinas on Norman and Wylie. The "disproportionate" amount of development on the shore threatens fish, birds and animals, the department says.
The N.C. Wildlife Resources Commission has said development along the Catawba can push fishermen out of favored spots.
"We remain concerned that recreational use by the general public is being lost in favor of those able to afford property adjoining the (lake)," the commission wrote FERC last November.
The state parks division believes recreation on the Catawba is inadequate, said Tingley, the planning chief.
"We just know the demand is there," she said. "The people would use it; we know they would."
Demand is heavy
Some parks on the Catawba are already bulging at the seams.
Even on a mild, cloudy Sunday, rangers were directing the overflow of cars trying to wedge into Lake James State Park.
A few miles south, a dozen wet friends and their children were strewn along a 50-foot-long beach near one of the lake's dams. Hamburgers sizzled on a portable grill. Mountains and forests rimmed the opposite shore.
But their nook was a canoe portage, not an official swimming hole. Reaching the spot by land is discouraged. The group's parked cars were jammed into a narrow gap between the winding road and a deep ditch, under a no-parking sign.
"It's all going to be private one of these days," said Eric Gaines, 18, of Black Mountain.
"Nowadays," agreed Teddy Ray, 36, poking a hamburger, "you've got to have a boat just to get to the lake."
Crescent Resources owns most of the shoreline bordering Lake James, 85 miles northwest of Charlotte.
Crescent's new subdivisions have caused rising tensions because the land was for decades regarded as public.
"It was an informal thing," said Ken Harris, a Marion real estate broker and Crescent critic. "People knew people were camping on their property, fishing on their property. Not until Crescent started leasing land to the hunting clubs did that change.
"To us, it's like losing a national forest."
Ditches appeared around the lake a few years ago, locals say, apparently to prevent cars from pulling off the road around much of the James shoreline.
"Used to be, you could pull over just about anywhere," April Asher, a native of the area, said as she fished at a boat ramp with her husband and three sons. "It seems like once they started putting up these big, fine houses that the access went away."
Last summer, commissioners in Burke County, on James' eastern side, slapped a six-month moratorium on construction at the lake. In February, they adopted a land-use plan that limits development.
The plan includes incentives for Crescent to offer public greater access to the water, said Judy Francis, the county's community development director. In return for Crescent's selling key parcels, she said, the county would let the company pack more houses into some of its new developments.
Crescent sued the county, saying the plan illegally restricted the use of its property. Citing the lawsuit, the company won't comment on access at Lake James.
Little interest in leases
Duke recently completed a recreation study to update its shoreline-management plan, now before the energy commission.
"We looked at how the lakes are used, and certainly boating and fishing were at the top of the list," said spokeswoman Guynn Savage. "We've invested in the top two categories and have an innovative approach to address the other recreational needs."
Since 1995, Duke has spent $12 million to pave and light parking areas, replace boat ramps and add fishing piers at 31 access areas. By the end of this year, the company expects to have spent an additional $2 million.
Duke also has offered 25-year leases of its access areas at nominal fees to local governments, which could develop parks. Communities would get waterfront sites to offer more non-boating recreation. Duke would be free of management headaches such as policing swim areas, Savage said.
But two years after Duke's deadline to submit plans, only one town has agreed to a lease. Duke says it is negotiating with 15 other communities.
If local governments don't step forward, Savage said, Duke will offer the leases to commercial operators. Duke's license allows it or its partners to charge reasonable fees for recreation.
The N.C. Wildlife Resources Commission, which maintains 27 access areas in an agreement with Duke, says it intends to keep those boat ramps open for free.
Some local governments didn't have the money to develop the access areas. Others thought Duke's offer was a bad deal because they could be investing hundreds of thousands of dollars in property they didn't own.
Burke County turned down three lease offers. "We had to accept all liability associated with those sites and would be held responsible for whatever improvements FERC might require in the future," Francis said. "It became very clear that we were going to have to carry most of the burden."
Budget problems killed Gaston County's interest in leasing two sites. Recreation director Betty Wilson said there is big demand for waterfront places to walk, picnic and fish.
Mount Holly plans to forge ahead, using a $100,000 state grant to turn a Duke access area on the Catawba into a 45-acre park offering trails, canoeing, camping and picnicking. The Gaston County town hopes to someday develop another park at a second Duke access area.
"The public is already there," City Manager David Kraus said, "but the facilities aren't."
Blue Chips Fall on Duke Energy NewsAssociated Press – by Amy Baldwin - July 15, 2002
(7/12/02) - NEW YORK - Sullen investors sold blue chips for a fifth straight day Friday, upset over a drop in consumer sentiment and the latest questions about business practices, this time involving Duke Energy.
But the tech sector achieved modest gains from better-than-expected earnings results from Juniper Networks.
Flogged by investors' persistent worries about corporate accounting and the strength of earnings, the market's major indicators appear headed toward their eighth straight losing week…
Duke Faces Two Federal InvestigationsTheStreet.com – by Melissa Davis – July 13, 2002
(7/12/02) - Duke Energy, burned by a subpoena over its power trading practices, has become the latest victim of the ongoing meltdown in the merchant energy sector.
The Charlotte, N.C., company disclosed Friday that it has received subpoenas from two governmental agencies seeking additional information related to, among other things, possible "roundtrip" power trades. Duke, which enjoys a strong credit rating now rare in its sector, joins a slew of less stable energy merchants under investigation by the government.
Duke's stock tumbled $3.66 to a new 52-week low of $24.29 on news of the subpoenas, issued Thursday by both the Houston office of the U.S. attorney and the Commodity Futures Trading Commission.
Analysts on Friday took news of the subpoenas in stride.
"It's not too great a surprise," said Paul Ridzon of McDonald Investments, who rates the stock hold. "And it's probably not the last [subpoenas] we'll see in this industry."
Paul Fremont of Jefferies & Co., who also rates Duke hold, said the real surprise came earlier this summer, when Duke first announced that it was cooperating with requests from the government about its trading practices.
"This [subpoena] would be the next logical step in that process, if the government found something of concern," he said.
Fremont did indicate that the formal investigations could become a "potential negative" for Duke's strong investment-grade rating. But Moody's, which rates Duke's long-term unsecured debt at A1, had taken no action against the company on Friday.
Just two weeks ago, Moody's announced that Duke's rating outlook remained stable and its credit profile was strong. Moody's has left Duke's A1 credit rating unchanged since 1998.
Duke continued to celebrate that credit rating on Friday, saying it had received no word of any possible downgrades. The company also stressed that it's just one of many energy traders caught up in the government's sweeping investigation of the industry.
"We understand that the Commodity Futures Trading Commission has requested similar information from other energy companies," said Duke spokesman Terry Francisco. "We just wanted to be very forthright after we received the subpoena on Thursday…"
Duke Rated ‘Underperform'BusinessWire– July 13, 2002
SHREVEPORT, La., Jul 1, 2002 (BUSINESS WIRE) -- StockPickReport.Com makes these stock evaluations for the short term:
Sprint PCS Group - Outperform
Broadcom - Outperform
Williams Companies - Outperform
Duke Energy – Underperform
AT&T Wireless Services - Outperform
WHAT THESE RATINGS MEAN:
StockPickReport.Com ranks stocks with a proprietary unbiased system of technical analysis. These ratings do not indicate a "long term" view of any company listed. These are ratings that reflect our opinion of a stock's PRICE movement versus the SP 500 over the short term.
Duke DowngradedThe Charlotte Observer – by Stella M. Hopkins – July 12, 2002
(7/11/02) - Duke Energy Corp. stock tumbled more than 10 percent Wednesday after an analyst cut her earnings estimate and rating for Charlotte's largest Fortune 500 company.
Citing industry pressures, Prudential Securities analyst Carol Coale reduced her 2002 earnings projection to $2.37 a share from $2.66 as she downgraded the stock to hold from buy.
"We're just concerned that Duke is vulnerable to revised earnings estimates downward, which is what's affecting their peer companies," Coale said Wednesday in a telephone interview.
In October, Prudential was the first to downgrade Enron Corp. stock to a sell rating, said Joe Cooper, a Thomson First Call research analyst. Weeks later, the Houston energy giant filed the largest-ever U.S. bankruptcy-protection case.
Duke said it had not changed its earnings projections of $2.54 to $2.78 for the year. The company is scheduled to release second-quarter earnings July 23 and so would not comment further on Coale's action. Adjusted for Prudential's downgrade, the earnings consensus among analysts is $2.68, Cooper said.
Enron's failure, revelations of faulty trading practices at three other energy companies and federal probes have depressed stock prices industrywide.
Duke, considered one of the financially strongest energy companies, has been free of any Enron-like scandal. But its stock has suffered, falling more than one-third from its 52-week high last summer. In a down day for broader markets, Duke stock closed Wednesday at $26, down $3.06 and the lowest price in more than two years.
"People are getting nervous about second-quarter earnings and disclosures," Mark Luftig, who helps manage about $1.2 billion at W.H. Reaves & Co., which owns about 1 million shares of Duke, told Bloomberg News on Wednesday. "Investors are just hearing negative news. They haven't heard any positive stories."
Other energy stocks have been harder hit. Houston-based Reliant Energy Inc., for example, closed at $15.30 on Wednesday, down 85 cents. The stock has lost more than half its value of $32.70 a year ago.
Duke Promises to Clean Up AccountingDow Jones – by Mary Ellen Lloyd - July 11, 2002
(7/9/02) - CHARLOTTE - (Dow Jones) - Duke Energy Corp. has agreed to change how it allocates some costs among its regulated and unregulated businesses in the wake of an ongoing investigation by the public staff of the North Carolina Utilities Commission.
In a filing late last week, the commission public staff outlined eight actions it recommended after reviewing Duke's compliance with a 1999 report regarding cost allocations. That 1999 public staff report followed an investigation intended to ensure Duke Power, the company's electric operations, didn't subsidize unregulated businesses and that Duke's diversification activities didn't boost costs for retail electric customers. Duke Power serves 2 million retail electric customers in the Carolinas.
Duke Power spokesman Tom Williams said any effect on earnings resulting from the accounting changes would be immaterial. "Given the number of transactions we have with our affiliates, we feel the concerns they (the utility commission staff) have are relatively minor," he said. "Where they have had concerns we've, in most cases, been able to resolve them."
Among the steps Duke recently agreed to take:
The latest review is separate from an audit ordered earlier this year by utility commissions in North Carolina and South Carolina following allegations that Duke Power underreported regulated profits by $100 million from 1998 through 2000. An employee whistleblower a year ago complained to regulators about accounting irregularities allegedly intended to avoid a rate review.
That audit, being conducted by Grant Thorton LLP, was originally expected to wrap up in June. But some of Duke's highest-ranking officials have since been asked to provide depositions to auditors, according to people familiar with the situation.
Those depositions are scheduled for mid-July, with a final report on the auditors' findings now expected later in the month or in early August.
Paul Chaney, an associate professor of management at Vanderbilt University's Owen Graduate School of Management, has done research on earnings management and is the author of an advanced accounting textbook that focuses on mergers and acquisitions.
He said that while the two investigations are separate, they both deal with an important issue: The allocation of costs between regulated and unregulated businesses.
"I think these are all good recommendations," he said after reviewing the public staff report. "Maybe some of these things they should've been doing before, but anytime you get into cost allocations, especially with utilities, these can get very complicated."
Duke Trading Slump DenialDow Jones – by Jon Kamp – July 10, 2002
(7/8/02) - CHICAGO - (Dow Jones) - Shrinking liquidity and falling prices in wholesale power markets have already hammered merchant energy companies.
Now, they're starting to bite integrated utilities with higher-rated trading operations as well.
"We've seen substantial reduction in liquidity, in available trading partners," said Mike Morrell, president of Allegheny Energy Supply, which handles energy marketing for Allegheny Energy Inc. "The market has simply gotten to where it's difficult to make money."
Weak power markets in part led Allegheny, which bought its trading business from Merrill Lynch last year, to slash its 2002 earnings forecast Monday. Some think other companies may suffer as well.
American Electric Power Co., the country's largest power trader, hasn't changed its 2002 guidance. But Merrill Lynch said in a research note Friday that it expects low commodity prices and liquidity to produce a "sizable decline," quarter on quarter, in the Midwestern utility's earnings.
Similarly, Merrill Lynch in June warned that the shrinking market is a growing risk for Duke Energy, another integrated utility with a well-regarded trading operation.
"DUK may end up simply having a larger share of a much smaller pie," said Merrill, which has an investment banking relationship with Duke.
Both AEP and Duke said they haven't changed their guidance or cut any trading staff. AEP spokesman Pat Hemlepp noted that the company has long maintained that it's unlikely to replicate its very strong trading results from the first six months of 2001.
In the post-Enron Corp. world - in which credit problems and federal investigation hammered companies like Dynegy Inc., Reliant Resources Inc. and Mirant Corp. - trading operations tied to companies with dependable, regulated utility operations like Hagerstown, Md.-based Allegheny, seemed like a safer bet.
And they are, to an extent, with solid bases of utility customers paying for energy every month. But companies like Allegheny, which has 3 million power and gas customers in the eastern Midwest and mid-Atlantic U.S. region, still have to market surplus energy somewhere. And that leaves them exposed to the same market conditions that have damaged the major players, Morrell said.
"What's left over has to be sold into the market," Morrell said. "The fact is, prices are lower." Allegheny demonstrated the impact of those conditions Monday, when it slashed 2002 earnings expectations to a range of $2.50 to $2.70 a share, excluding a 10% gain from property sales, from an earlier $3.60 to $3.70 a share range.
Reduced earnings from the trading business accounted for a third of that cut. Allegheny now expects energy trading to contribute 10 to 15 cents a share in 2002, down from the 45 to 50 cents it previously expected, spokeswoman Cynthia Shoop said.
To help trim costs, Allegheny also announced Monday that it would cut its workforce by 10%, or by about 600 workers, with most cuts coming this year. Initially, the company will use early retirement and attrition to pare down staff before resorting to layoffs.
Allegheny in June cut eight people from its trading business, which now has 41 traders and 88 support personnel. There are no plans for further cuts in energy trading staff right now; but like the rest of the company, it's fair game for reductions in the future, Morrell said.
"We may go further," Morrell said. "When we look for other staff reductions, we'll carefully review trading and marketing to see if other reductions are warranted."
Trading volume in the wholesale electricity markets has fallen off sharply in recent months, as once-key traders like Aquila Inc., Williams Cos. and El Paso Corp. have cut back their activities. Others in the market, meanwhile, have seen their ability to trade crimped by credit-ratings downgrades, leaving the better-rated companies with shrinking rosters of counterparties to do business with.
With wholesale power prices softening amid a glut of new power plants and a still-recovering economy, the world of wholesale energy trading, seemingly full of opportunity a year ago, has become a minefield for many companies.
Merrill Lynch expects independent power producers' earnings to fall 35% quarter on quarter. For electric utilities, Merrill sees a 10.5% drop.
Despite those expectations for a weaker second quarter, Duke and AEP said they aren't feeling the affects like Allegheny.
AEP spokesman Hemlepp said the company is maintaining its $3.60 to $3.75 2002 earnings per share guidance, which it reaffirmed in mid-June. The company hasn't cut its trading staff, or announced any plans to do so, Hemlepp said.
Likewise, Duke also hasn't cut any trading staff. "We have not made any (cuts), and we do not intend to," spokesman Terry Francisco said.
Entergy Corp. (ETR), a large New Orleans-based utility, said Monday it expects to beat consensus expectations by bringing in second-quarter earnings of $1.15 a share. Entergy also maintained its full-year 2002 guidance of $3.40 to $3.60 a share.
Entergy has a trading joint venture with Koch Industries Inc. The venture's energy-trading volumes aren't eroding, and it hasn't cut any trading staff, Entergy-Koch spokeswoman Stephanie Goodman said.
"Our strong credit rating is important to our business," she said.
In a release Monday, the company did say results at its Energy Commodity Services business, which includes the trading venture and power-plant development operations, will likely see lower results in 2002 compared with the year-earlier period.
Spokesman Morgan Stewart attributed the decline to the company's strong natural gas trading performance in 2001, which wasn't duplicated in the second quarter this year.
"They simply didn't have a blowout quarter," he said.
Review of Duke's Rates is SoughtThe Charlotte Observer – by Anna Griffin – July 6, 2002
(7/3/02) - North Carolina's biggest power customers want state regulators to conduct their first examination into Duke Energy's rates in more than a decade.
The Carolina Utility Customers Association has asked the N.C. Utilities Commission to order a rate case examining whether Duke is making too much money on business service. The association represents large manufacturers and industrial customers such as R.J. Reynolds and GlaxoSmithKline.
Association lawyers wrote in a June petition that Duke's rates were "unreasonably excessive" in 2001 and previous years. Duke's overall rate of return -- the amount of profit regulators allow the company to make from consumers -- was 9.25 percent last year.
But industrial customers say that number isn't entirely accurate.
Two years ago, the utilities commission allowed Duke to set aside several hundred million dollars to pay for future asbestos claims by employees.
The industrial customers say that decision enabled Duke to show a lower rate of return.
As a public utility, the amount of profit Duke earns is set by regulators. In North Carolina, Duke's allowed rate of return is 10.4 percent, set in a 1991 rate case, the company's last.
"Due to substantial changes in inflation, the cost of borrowing and other economic factors over the past decade," wrote lawyers for the consumer group, "the benchmarks set by the commission in 2001 are simply not relevant to a determination of whether Duke is over-earning in 2002."
Duke spokesman Tom Williams said the Charlotte-based company will oppose the request for a rate case.
"We believe this petition is without merit," Williams said.
A rate case could -- but would not automatically -- result in lower rates for commercial, residential and industrial customers. But the utilities commission, a quasi-judicial regulatory agency that sets and monitors rates, has been loathe to undertake a rate case against either Duke or Progress Energy in the 1990s.
In recent years, regulators said they wanted to hold off on reviewing rates as lawmakers wrangled about proposals to deregulate the power industry. But that movement was put on hold after California's energy crisis.
Now state law may bar future rate cases.
A new anti-pollution bill passed by General Assembly members this summer requires Duke and Progress Energy to reduce emissions from 14 coal-fired power plants. The estimated $2.3 billion in required upgrades will be paid by utility customers, although they may not feel it for five years because Duke's and Progress's electric rates will be frozen during that time.
After 2007, the state could determine whether rate increases are needed to recover costs.
Utilities Commissioner James Kerr said the law, signed by Gov. Mike Easley late last month, effectively bars regulators from holding a rate case before then.
"To require Duke to respond ... merely serves to waste time, money and energy," Kerr wrote of the consumer group's rate-case request.
Duke has until July 15 to respond. Commissioners could make a preliminary ruling in the case in August.
Commissioners are also awaiting results of an independent audit into Duke's finances. A whistleblower within Duke contacted the S.C. utilities commissioner last summer, contending that accounting changes may have resulted in Duke overcharging ratepayers in both Carolinas. Duke says it made accounting changes and some were mistakes. But the company says it never intended to mislead regulators.
Duke Market Manipulation InvestigationDow Jones – by Kristen McNamara - July 4, 2002
NEW YORK -- For the past month, Texas energy regulators have been quietly probing for signs of abuse in the state's wholesale power market, and have asked companies to admit or deny they have engaged in questionable trading practices.
The Public Utility Commission of Texas in mid-June directed more than 200 companies and municipalities to admit or deny by July 2 that they had engaged in any of the questionable trading practices Enron Corp. is accused of using to manipulate California 's power market in 2000 and 2001.
Recipients of the regulators' request for information included units of Calpine Corp., Duke Energy, Mirant Corp. and TXU Corp.
The PUC's deadline came more than a month after similar ones imposed on energy trading companies by the Federal Energy Regulatory Commission and a California State Senate committee.
The activities detailed in internal Enron memos that were made public in May include descriptions of methods for inflating trading volumes and for collecting payments from the power market operator by artificially congesting power lines.
PUC staff will examine the companies' responses and report to the commission, though there's no estimate of how long that will take, spokesman Terry Hadley said.
The PUC also asked the companies to certify in writing by late June that, in the future, they wouldn't engage in any of the behaviors detailed in the Enron memos.
But some companies objected to this affidavit requirement, so the PUC staff lifted the deadline and is considering asking the commission for guidance on how to proceed, Mr. Hadley said.
The PUC is also negotiating separately with five companies it says earned $29 million last summer by exploiting loopholes in the developing Texas power market.
The commission said Enron, the sixth company involved, refused to participate in the settlement talks. The PUC notified the company last month that it intended to fine it more than $7 million for repeated violations of the Texas market.
Since then, Enron and the PUC have been in communication and the PUC extended the July 2 deadline it had imposed on Enron for responding to its penalty notice, Mr. Hadley said.
Duke Facing California PenaltiesSan Francisco Chronicle - Christian Berthelsen - July 4, 2002
California's energy grid operator said Wednesday it had docked 26 power companies more than $251 million during the past two years for failing to deliver enough electricity during the state's power crisis.
The report by the California Independent System Operator is the first time the agency has disclosed which energy companies it has penalized, and by how much. The most heavily penalized companies appeared to be the out-of-state electricity generators and traders such as Dynegy, Reliant Energy, Williams Energy Services and Duke Energy.
The penalties cover the period from June 1999, when California's power shortage reached a crisis and millions were without power, until June 2001, when wholesale electricity prices began to stabilize.
The energy crisis saddled the state's utility customers with an estimated $9 billion in added electricity costs and forced Pacific Gas and Electric Co. into bankruptcy.
The ISO has levied a total of $122.1 million in direct fines against 12 companies. It also is withholding a total of $129 million in payments that 29 suppliers had expected to collect for providing back-up capacity.
"What this indicates is that at various times throughout the crisis, the ISO recognized various forms of misbehavior," said Gregg Fishman, ISO spokesman. "At various times, we had differing authority to try to correct that."
He said all of the fines and withholdings already have been imposed. However, because of the complex payment system in energy transactions, not all the transactions have been completed.
The fines are unrelated to the market gaming tactics that are believed to have created the $9 billion in overcharges during the energy crisis, and the amount is relatively small in comparison.
Moreover, the fines could be reduced. A pending decision by a federal administrative law judge will determine whether market prices were unfairly inflated at the time. Because the size of the fines was based on the market price at the time, the fines could be reduced if the market price is subsequently lowered.
The energy companies that have been cited are said to be opposing the penalties.
Top among them was Dynegy, a Houston company that was one of the heaviest traders of electricity and that also owns a handful of California power plants.
Dynegy was fined $44.77 million for failing to deliver energy that the ISO ordered during emergencies. The ISO also withheld $25.19 million in payments from Dynegy for failing to provide ancillary services, or have back-up energy at the ready, when it had been paid to do so.
David Byford, a spokesman for Dynegy, said that the company is disputing the fines and that it tried to meet California's energy needs during the crisis. He suggested the fines were the result of a misunderstanding of the rules for complying with ISO orders.
"We were working with the ISO to have generation available to the greatest extent possible," he said. "We didn't have a full understanding of some of the rules and tariffs the ISO introduced and continued to introduce during that period. Obviously, a number of others had questions about this as well."
Also heavily penalized was Williams Energy Services, of Tulsa, Okla., another power trader and owner of several California plants. Williams was fined $25.51 million and docked $25.07 million.
Paula Hall-Collins, a spokeswoman for Williams, said the company is disputing the penalties. The company's generators "never refused to respond to a dispatch order," she said Wednesday, but "there were times when we were not able to fulfill the entire dispatch."
As to the withheld payments, Hall-Collins said Williams had not expected to receive them anyway.
Reliant Energy, also of Houston, was fined $25.07 million and docked $16.71 million. Duke Energy, of Charlotte, N.C., was fined $4.45 million and docked $14.35 million. A Reliant spokesman did not return a call seeking comment.
Even the beleaguered California utilities that were left twisting under billions of debt they took on to pay for power costs did not escape. Pacific Gas and Electric Co., of San Francisco, was fined $5.85 million and docked nearly $11 million. PG&E declared bankruptcy in April 2001.
Enron Power Marketing, the collapsed Houston power trading pioneer that subsequently released memos showing that it was manipulating the state's power market, was docked $991,000 in payments. One of its subsidiaries, Portland General Electric Co., had $3,347.35 in payments withheld.
Duke Penalized for California ActivitiesThe Charlotte Observer - by Stella M. Hopkins - July 4, 2002
assessed penalties and chargebacks of $250 million
The latest fallout from last year's California energy crisis came Wednesday as the state's power grid operator said it has charged back payments and assessed penalties totaling more than $250 million against power providers, including Duke Energy Corp.
Duke is disputing most of the nearly $19 million in charge backs and penalties levied against it by the California Independent System Operator, or ISO.
The ISO buys power as part of its job operating transmission lines that serve about 75 percent of the state. The ISO has assessed the chargebacks and penalties for failing to provide power and services since mid-1999 but had not made the amounts public.
Some charges may arise from misunderstandings, errors or lack of information and could be reduced or eliminated in negotiations between the ISO and power providers. But the ISO has already reviewed and ruled on many disputes.
"We feel pretty strongly that these numbers will hold up to scrutiny," said ISO spokesman Gregg Fishman. "That doesn't mean some of it can't be challenged."
The ISO disclosures come as federal regulators have intensified probes into California power trading. In May, they also released memos from lawyers for failed energy giant Enron Corp. that detailed tactics for manipulating the state's power market.
Charlotte-based Duke, one of California's largest generators, and other power providers face lawsuits that allege price gouging and market manipulation. The California Senate also is investigating. Generators have repeatedly denied all such accusations.
"It's one more piece of evidence that shows the system was really being manipulated," Michael Aguirre, a former federal prosecutor, said Wednesday of the ISO's disclosure. The penalties, he said, "add support to the argument that there was underlying wrongdoing."
Aguirre is a San Diego lawyer with a civil suit filed on behalf of California's lieutenant governor against generators.
The ISO has rescinded payments to power providers for such services as holding power-plant capacity in reserve for the agency. The ISO said it has charged back $129 million to generators that sold such services but couldn't deliver. The chargebacks cover services sold June 14, 1999, through April 30.
Duke's charge of $14.4 million represented 11 percent of the total, the fifth largest. Dynegy Inc. and Williams Cos., at $25 million each, were the largest on the list of 31.
Pat Mullen, Duke's spokesman in California, said the company is disputing 90 percent of the charges. Mullen said a small amount might be valid. For example, Duke might have agreed to provide power but couldn't because a unit went down.
While not commenting specifically on Duke, ISO's Fishman said unexpected plant outages could explain some undelivered services.
The ISO also assessed penalties against generators that didn't provide power as directed by the ISO during emergencies. From January through May 2001, California had seven days of blackouts and dozens of days of extreme power shortages.
The penalties of $122 million were assessed for failures to deliver power from Dec. 8, 2000, to June 20, 2001. Duke's penalties of $4.5 million represent less than 4 percent of the total. Dynegy, at $45 million, led the list of 12.
Mullen said Duke is disputing most of the penalties. He said the company complied with all ISO directions except when asked to do something the plant physically couldn't do or couldn't do without violating an environmental permit.
"We are extremely strong in our belief that we've complied with dispatch instructions in every instance that we could," Mullen said.