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Jan., Feb.


Pre-1999 - Duke Energy Employee Advocate

News - Page 2 - 2002

"Fifty-five-year-old Priory, Grigg's handpicked successor, isn't quite as deep Duke." - Fortune

Insider Women With Outsider Values

New York Times by Anita F. Hill - June 13, 2002

(6/6/02) - WALTHAM, Mass. It's hard to imagine a less likely fictional plot than the true story of Coleen Rowley. A memo from a Minneapolis suburban mother of four calls into question the accountability of one of the country's most impenetrable government agencies, the F.B.I. And by sending this memo, 30 years after the bureau hired its first woman agent, a woman becomes a key player in the overhaul of an institution whose structure and priorities have largely gone unquestioned since the time of J. Edgar Hoover.

It may be an overstatement to say that in setting the stage for changes in the bureau, Coleen Rowley did what no president has done. But the significance of Robert S. Mueller's redesigned F.B.I. cannot be overstated, and even the most skeptical concede that the changes would never have seemed so urgent or received so much public attention were it not for Ms. Rowley's 13-page letter detailing the bureau's failures and deficiencies in responding to information leading up to the Sept. 11 attacks.

The magnitude of Ms. Rowley's role in exposing the mishandling of vital intelligence has no direct parallel. However, it can be likened in the private sector to the central role that Sherron Watkins played in exposing the extent of corporate culpability in the Enron scandal. In August 2001, just weeks before the company's collapse, Ms. Watkins warned Kenneth Lay, Enron's chairman, of improper accounting and management practices. And in January she testified before the House Energy and Commerce Committee about the explicit warnings she had written in her memo to him. When the dust settles from all the investigations into the Enron debacle, not only are criminal indictments likely, but so are accounting and corporate governance reforms.

Ms. Rowley and Ms. Watkins are two women who rose through the ranks of male-dominated institutions to become insiders. Yet the not-too-distant history of male exclusivity in their institutions meant both were outsiders as well. As whistle-blowers they expressed certain values and had the conviction to act on values that were apparently in conflict with those of the leaders in their institutions.

But values alone do not explain their ability to challenge the leadership. Both needed the status to support their criticisms. As the general counsel in the F.B.I. Minneapolis field office and a vice president at Enron, the two women had more than impressive job titles; they had access to information, authority over others and positions in the chain of command that gave them access to the leadership.

But as they ascended to positions of authority, they must also have been conscious of the traditions of the institutions in which they served.

Coleen Rowley must have been aware of discrimination others in the F.B.I. had faced. It was in 1971 that the bureau admitted women in its training program for agents. In 1994, one of the two women admitted in 1971 sued the F.B.I., saying that throughout her career she had been subjected to sex discrimination. In the past decade the agency has been the subject of lawsuits by women, as well as blacks and Hispanics, charging widespread discrimination in hiring and promotion practices.

The industry in which Sherron Watkins succeeded was no more friendly to women than the F.B.I. The Texas energy and oil industry is known to be dominated by men, to have cultivated arrogance and to have had its own share of discrimination scandals.

Though each woman had attained respected insider status, I can't help but wonder whether, given their gender and the nature of the institutions, the feeling of being inside was complete. This uncertainty may have caused them to consider whether their gender would be used as the basis for ignoring their complaints or attacking them as malcontents in retaliation for their criticisms.

To speak out made Ms. Rowley and Ms. Watkins outsiders among colleagues who remained silent, and perhaps that was exacerbated when superiors waved aside their criticisms. Yet perhaps their experiences as women in traditionally male workplaces heightened their awareness of resistance to much needed change and deepened their commitment to making it happen.

Given the time during which they came of age professionally, their successes are neither coincidental nor surprising. Both no doubt benefited from changes in the law and in society that give women better opportunities to advance in male-dominated industries. But is it a coincidence that the whistle-blowers in what may turn out to be the most significant examples of government incompetence and corporate wrongdoing in our time are women? I don't think so.

I think the increase in the number of women in positions of prominence, coupled with the tension that can develop between insider status and outsider values, brings us to this point. A similar phenomenon is at work when women and men complain about discrimination in the workplace. And like those who have had to challenge workplace bias, Ms. Rowley and Ms. Watkins differed from their superiors in their notions of appropriate institutional conduct. Similarly, Ms. Rowley and Ms. Watkins ultimately found that their chances for bringing change to their workplaces existed only outside those workplaces.

Coincidence or not, the fact is that in the public and private sectors the number of women in positions of authority is growing. As their numbers increase, so will their opportunities, not only to be whistle-blowers but, more important, to shape institutional standards from the top.

Anita F. Hill is a professor of law, social policy and women's studies at the Heller Graduate School at Brandeis University.

Worked Until They Drop

Washington Post by Philip P. Pan May 21, 2002

The difference between labor law and reality in China can be deadly. Chinese newspapers even have a term for it guolaosi meaning 'overwork death.' Lawyers are discouraged from taking up cases, and workers mostly migrants from small, rural, peasant villages have little recourse.

(5/20/02) - SONGGANG, China On the night she died, Li Chunmei must have been exhausted.

Co-workers said she'd been on her feet for nearly 16 hours, running parts from machine to machine inside the Bainan Toy Factory. When the quitting bell finally rang shortly after midnight, her young face was covered with sweat.

This was the busy season, before Christmas, when orders peaked from Japan and the United States for the factory's stuffed animals. Long hours were mandatory, and at least two months had passed since Li and the other workers had enjoyed even a Sunday off.

In bed that night, the slight 19-year-old complained she felt worn out, her roommates recalled. She was massaging her aching legs, and coughing, and she was hungry. The factory food was so bad, she said, she felt as if she hadn't eaten at all.

"I want to quit," one roommate, Huang Jiaqun, remembered her saying. "I want to go home."

Her roommates were already asleep when Li started coughing up blood. They found her on the bathroom floor a few hours later, moaning softly in the dark, bleeding from her nose and mouth. She died before the ambulance arrived.

The exact cause of Li's death remains unknown. But what happened to her last November in this industrial town in southeastern Guangdong province is described by family, friends and co-workers as an example of what China's more daring newspapers call guolaosi. The phrase means "overwork death," and usually applies to young workers who collapse and die after working exceedingly long hours, day after day.

There has been little research on what causes these deaths, or how often they occur. Many are never documented, say local journalists, who estimate that dozens die under such circumstances every year in the Pearl River Delta area alone, the booming manufacturing region north of Hong Kong.

The stories of these deaths highlight labor conditions that are the norm for a new generation of workers in China, tens of millions of migrants who have flocked from the nation's impoverished countryside to its prospering coast.

In a historic shift, these migrant workers now number more than 200 million by some estimates, more than the 80 million employees working in China's shrinking state industries.

They are younger, poorer, and less familiar with the promises of labor rights and job security that once were the ideological bedrock of the ruling Communist Party. They're more likely to work for private companies that are often backed by foreign investment, with no socialist tradition of cradle-to-grave benefits.

They're also second-class citizens, with less access to the weak courts and trade unions that sometimes temper market forces as China's economy changes from socialist to capitalist. Most of all, they are outsiders, struggling to make a living far from home.

Li Chunmei's home was the village of Xiaoeshan, a remote hamlet high in the mountains of western Sichuan province, 700 miles and a world away from the factories of Songgang, where she died.

The area remains among the poorest in China, with no roads, one telephone, and limited electricity and plumbing. There are no tractors just oxen, a few primitive tools and peasants who till the earth with their hands. Few residents can read; even fewer speak the national language, Mandarin.

Li was the second of five children born to parents who squeeze out a living from small plots on terraces carved into the mountainside.

"This is a poor village, and all the parents here want their children to leave for the cities as soon as possible," said Li's father, Li Zhimin, in the house he built of packed dirt. "The sooner they go, the sooner they can help support the family."

Villagers eat most of what they grow, and by selling the rest they earn an average annual income of about $25 each. But local officials demand about $37 per person in taxes and fees. Several peasants who refused to pay last year were arrested.

Residents say there's only one way to survive: Pull the children out of school, and later send them to find work in faraway cities.

Li took both Li Chunmei and his eldest daughter, Li Mei, out of school in the third grade to farm and feed the livestock. At 15, Li Mei boarded a bus to Shenzhen, the special economic zone adjacent to Hong Kong.

Two years later, Li Mei returned home with more than $100 in savings. Li Chunmei, then 15, announced she was ready to join her sister. At the end of the holiday, Li Zhimin accompanied his daughters on the long walk through the mountains to the nearest bus station. Li Chunmei was crying quietly, he recalled.

The train ride lasted three days and three nights.

When they reached the elevated expressway between Guangzhou and Shenzhen, Li Chunmei caught her first glimpse of the factory complexes of the Pearl River Delta, her sister said. Lining the road were drab, concrete dormitories, decorated only by lines of laundry hanging from window to window. Late at night, passing motorists can see, through factory windows, rows of young women hunched over machines, working under florescent lights.

The sisters disembarked in Dongguan, a fast-growing city of 9 million, of whom more than 7 million are migrant workers. Li Mei had a job waiting there, and arranged one for her little sister, too.

But Li Chunmei's first year in the factories ended abruptly when a motorcycle struck her and broke her leg as she crossed the street. She went home to recuperate and didn't return for more than a year.

This time Li, now 17, settled in Songgang, northwest of Shenzhen, and joined her sister at work at a Korean toy manufacturer, Kaiming Industrial.

In the next two years, friends and relatives said, Li worked in three different plants that produced stuffed animals, one run by Kaiming and two others that regularly received orders from the company.

Songgang is dominated by fenced-in industrial complexes that produce all manner of clothes, toys and electronic goods for world markets. In the evenings, after quitting time, young men and women stroll through town, factory ID tags pinned to their uniforms.

Inside the factory, life followed a rigid routine, co-workers said. Li was out of bed by 7:30 a.m. and at her post by 8. At noon, she had 90 minutes for lunch and a quick nap. At 5:30 she had 30 minutes for dinner. Overtime began at 6, and the quitting bell usually didn't ring until after midnight.

Workers said most employees were assigned to assembly lines that stitched together stuffed animals. Li was a runner, co-workers said, always on her feet. When one worker finished a task, a runner would pick up the toy and race it to the next worker on the line. An average line had 25 workers and just two or three runners, and produced up to 1,000 toys a day.

"There were no breaks, and there was no air conditioning," said one worker on Li's assembly line who asked to be identified by his surname, Liu. The air was full of fibers, Liu added, and with the heat from the machines, the temperature sometimes climbed above 90 degrees.

Runners were paid the least, about 12 cents per hour, workers said. During the busy season, including extra pay for overtime, Li could earn about $65 a month.

But workers said the company withheld about $12 a month for room and board and charged them for benefits they never received, such as the temporary residence permits they needed to live and work in Songgang legally. Managers could also impose arbitrary fines for such penalties as spending more than five minutes in the bathroom or failing to meet production quotas, workers said.

Two months before she died, Li Chunmei was transferred from the main Kaiming factory to a new plant down the street, the Bainan Toy Factory, where she and about 60 other Kaiming employees began making toys under the supervision of her manager at Kaiming, Wu Duoqin, co-workers said.

There, conditions worsened. It was peak season, and Wu pressed her employees to work longer hours, sometimes past 2 a.m. or 3 a.m., workers said. They worked every day for more than 60 days.

"Everyone has to work overtime. You have no choice. Even if you're sick, you have to work," said one of Li's co-workers who asked to be identified only by her surname, Zhao. "But we don't even get paid for all of the overtime. ... For example, we might work six or seven hours extra, but then they just put down three or four hours on the timecards."

Less than a week before she died, Li begged her line manager for a day off, pleading exhaustion. He refused. Li skipped a night shift to catch up on sleep and was docked three days' pay, co-workers recalled. Friends said Li often spoke of quitting, but the factory hadn't paid her for two months and she feared she might not get the money if she quit. Several workers were in similar situations.

Many conditions described by Li's co-workers violate Chinese law. The minimum wage in Songgang is about 30 cents per hour. China limits overtime to 36 hours per month and prohibits arbitrary fines and pay deductions. But enforcement is weak.

One Chinese journalist who has investigated working conditions in the Pearl River Delta said the problem is a "merger of interests" between local government officials and factory managers. The officials, eager to stimulate investment and generate taxes and bribes, often are willing to overlook labor rights and safety violations, he said.

Under a government system intended to restrict population movement, migrants enjoy fewer rights and welfare benefits than workers in the old state factories, and police can arbitrarily arrest and repatriate them to their home towns.

Foreign outcry over sweatshop labor has led some multinational firms to monitor conditions in their factories measures undermined by a system of subcontracting.

For example, Kaiming Industrial receives orders to produce toys for a variety of brand-name companies, but their inspectors rarely visit the company, according to a senior manager who spoke on condition of anonymity.

He said the factory maintains good labor standards because it farms out the least profitable and most difficult orders to factories with lower standards, including Bainan, and then just takes a commission. The Bainan factory, in turn, distributes some of its workload to subcontractors such as Wu Duoqin, who employed Li, he said.

"So you see, she wasn't working for us," he said. "It's not our problem."

After his daughter's death, Li Zhimin traveled to Songgang. For 28 days, he said, he tried to get someone to take responsibility for what happened.

The police sent him to the local labor bureau, which sent him to the Bainan factory, where managers refused to see him. He tried the district-level labor bureau, which sent him to the local commerce department and the Shenzhen city labor bureau.

The local labor bureau declared his daughter's death "non-work-related."

Eventually, he said, Kaiming Industrial pressured Wu Duoqin to pay for Li Chunmei's funeral, his expenses in Songgang and his bus ticket home. His daughter Li Mei returned with him.

Now, the family is again struggling to make ends meet. Li Mei plans to return to the factories next year.

Alleged Substation Bomb Plot

Reuters May 19, 2002

MIAMI (Reuters) - Two men who allegedly plotted to carry out bomb attacks on electrical power substations and a National Guard Armory in South Florida a year ago were charged on Friday with conspiracy to damage and destroy property with explosives, justice officials said.

A two-count indictment was unsealed on Friday and the two defendants, Pakistani immigrant Imran Mandhai, 19, and Shueyb Mossa Jokhan, a 24-year-old naturalized U.S. citizen, appeared before a federal magistrate, the U.S. Attorney's Office in Miami said in a statement.

Prosecutors requested pretrial detention for Mandhai and Jokhan, who could face maximum jail sentences of up to 25 years and 20 years respectively if convicted as charged.

The indictment said the alleged plotting took place between May 2000 and May 2001 in Miami-Dade County and neighboring Broward County.

The two plotted their missions as part of what they saw as an Islamic holy war, the indictment said, and their alleged plans included trying to obtain AK-47 assault weapons and funds, seeking to recruit others, and looking over possible targets.


The indictment said the "defendants scouted several locations for a 'jihad' mission, including electrical power substations and a National Guard Armory, in preparation for bombing such a location or locations, which would be followed by a list of demands to be placed on the United States government and other governments elsewhere around the world."

Mandhai and Jokhan were charged with conspiracy to damage and destroy property by means of fire and explosives. Mandhai was also charged with soliciting Jokhan to commit a crime of violence.

If convicted as charged, they each face up to 20 years in prison and fines of up to $250,000 on the conspiracy count. Mandhai also faces a maximum of five years on the charge of soliciting to commit a crime of violence.

Details of when the men were arrested or what led investigators to their arrest were not immediately available.

The indictment listed activities by the two as including trying to buy guns, obtaining information about explosives and scouting out electrical power transformers and substations including one near Miami International Airport and another in the Miami Shores area.

It said Mandhai sought funds to "acquire a variety of items to engage in training for an armed struggle against the United States, otherwise known as a 'jihad,' including firearms and other weapons, night vision equipment, stun guns, pepper spray and smoke grenades and other military supplies."

U.S. Attorney Guy Lewis noted investigation into the case involved agencies including the FBI and the Immigration and Naturalization Service, and local and state law enforcement.

"This case represents a coordinated multi-front effort to identify and prosecute those who would engage in conduct that threatens public safety and national security," he said.

Preliminary hearings in the case were set for May 24.

Stockholders Sensibly Say That's Enough

The Charlotte Observer by Tommy Tomlinson April 28, 2002

(4/26/02) - Business executives love to talk about cutting costs to the bone.

But when they leave a company, most head out the door with a lifetime supply of prime rib.

That's why it warms the soul to see that Bank of America stockholders voted Wednesday to limit severance pay for top execs.

Don't worry, we won't have to have a telethon for retiring CEOs. The bank's executives can still get golden parachutes worth twice their salary and bonus.

And if some future bigwig doesn't like it, he can appeal to the stockholders for more.

What it means is that Bank of America stockholders -- not to mention employees and customers -- won't have to suffer because of guys like David Coulter.

Coulter was the top guy at San Francisco's BankAmerica before it merged with Charlotte's NationsBank to create Bank of America.

After the merger, news broke that BankAmerica got hammered on two big deals under Coulter's watch, losing more than $600 million on a hedge-fund fiasco and an investment in the Russian government.

So Coulter resigned before anyone could fire him.

Sure, it hurts to lose your job. But you can buy a lot of Advil with Coulter's severance: $5 million a year for life, plus 300,000 shares of stock (current value: more than $21 million).

This is how big business has worked for far too long. Once you get to the top, there's no risk. CEOs who are so dumb they have to be turned toward sunlight twice a day end up with the retirement of a Powerball winner.

Even execs who deserve their big salaries sometimes overreach. Hugh McColl, the recently retired head of Bank of America, earned his money over the years.

But in one year -- 1999 -- he got nearly $45 million in stock options for leading the NationsBank-BankAmerica merger.

Too often, a company's board of directors simply writes a check and lets the CEO fill in the numbers, piling up the bonuses and stock options.

You might notice that this often happens at the same time people at the bottom get laid off by the thousands.

The IRS has tax penalties for truly outrageous severance pay. But this isn't for the government to solve. The power lies with the stockholders.

Companies do what stockholders want. If BofA's stockholders told CEO Ken Lewis to dress in drag on Fridays, he'd be shopping for high heels right now.

Most folks who own stock in a company want the top bosses to get rich, because that usually means everybody else gets rich, too.

The bank argues that it'll be harder to recruit prospects for top jobs. So a CEO-to-be will turn down a massive salary at one of America's soundest companies because of the pension plan? Sorry. No sale.

This is just a matter of common sense, of drawing a line between rich and greedy.

Apparently, when your office is on the top floor, it's hard to see the line.

Mexico Police Academy Raided

10News, San Diego April 12, 2002

(4/11/02) - SAN DIEGO -- About 120 state and city police from Tijuana, Mexico, and Tecate, Mexico, were arrested Wednesday in Baja California, Mexico, 10News reported.

Baja California's governor said Mexican soldiers and federal police raided the Baja California police academy in Tecate where officers were holding a meeting on their licenses to carry arms.

Elorduy said officers ordered them to turn over their weapons and credentials and arrested them. Detainees were taken to Tijuana and loaded on three planes to Mexico City.

Tijuana Police Chief Carlos Otal and his two bodyguards were among those arrested, according to 10News.

The arrests are being touted as the latest step in the government's effort to crack down on corruption. Many of the officers are suspected of links to the Arellano Felix organization, which has been based in Tijuana.

Investigators say the cartel is struggling to survive following the arrest of Benjamin Arellano Felix last month. His brother, Ramon, who was on the FBI's 10 most-wanted list, was killed by police in February. The police officers arrested have been flown to Mexico City. Officials said Thursday that they would be ordered to appear before investigators.

The surprise operation was a part of President Vicente Fox's crackdown on drug smuggling and police corruption. Fox's administration has landed two major blows this year to the Felix cartel, once the most-feared drug gang in Mexico.

The Associated Press contributed to this report.

Burying the Energy News by Michael Ryan April 7, 2002

The late I.F. Stone, who might well have been the most important investigative journalist of my lifetime, didn't do a lot of legwork. He wasn't noted for stakeouts or ambush interviews, yet, every week, he filled his publication, I.F. Stone's Weekly, with amazing stories of government malfeasance or misfeasance. His method was simple: he read the newspapers -- especially the parts of the newspapers that many of us ignore.

"The great thing about The New York Times and The Washington Post, " he used to explain, "Is that you never know where you'll find a front page story."

What Stone knew -- and what the rest of us need to be reminded of on a regular basis -- is that a newspaper is only as good as its news judgment; the best story in the world won't make a big impact if it's buried on page 18.

Like, for instance, the report in The New York Times that much of the Bush-Cheney energy plan seems to have been dictated verbatim by the oil industry.

"It's very flattering to think that one e-mail can determine energy policy," a spokeswoman for the Southern Company told the Times. But, as the paper reported, a lot depended on where that one e-mail was coming from. Energy Secretary Spencer Abraham, for example, reportedly spoke only with energy industry officials and lobbyists -- and no consumer or environmental advocates -- while the policy was being formulated.

Yes, energy policy can seem boring -- except when you get your electric bill. California senators Barbara Boxer and Dianne Feinstein charged that their state's rates were so high last year because Enron's CEO, Kenneth Lay, put in a good word for abolishing price caps with Dick Cheney.

Maybe I can understand why the Minneapolis Tribune buried that story and Cheney's denial on page 18 -- it could be folks in the Twin Cities don't use electricity anymore; but what were the editors of the Sacramento Bee thinking when they put it on page 16? Were they afraid that a reminder of last year's prices might trigger post-traumatic stress among their readers?

To be fair, most media around the country gave pretty thorough coverage to the General Accounting Office's lawsuit against Cheney to get a look at the energy task force's papers; that's the kind of let's-you-and-him-fight flap between two branches of government that most editors can sink their teeth into. But why did the citizens of Wichita have to go to page seven of the Business Section to find out that 16 of the top 25 energy contributors to the Bush campaign had private meetings with the task force -- including Koch Industries, one of Wichita's biggest companies?

Now I could be a cynic, and suggest that some of these papers don't want to risk alienating big advertisers and community leaders by giving these embarrassing stories prominent display. But I would never do that. Because, in reality, they are simply observing the highest traditions of journalism.

They are following I.F. Stone's advice.

This is Michael Ryan for

Published: Apr 04 2002

Sharon Basco produced this piece.

The Un-Enron by Nelson D. Schwartz April 6, 2002

"On Jan. 2, 2001, all hell broke loose, and it didn't stop." says Priory.

(Monday, April 15, 2002 Issue) - A few years back, Duke Energy CEO Rick Priory left Charlotte, N.C., and headed north to make one of his periodic pitches to Wall Street. As far as Priory was concerned, he had a pretty exciting story to tell, and it went something like this: Duke, which had a long, proud history as a utility in the Carolinas, was about to enter the big time. It was building dozens of efficient, gas-fired plants that would supply electricity to juice-starved markets. It was constructing scores of pipelines and underground storage caverns to take advantage of surging demand for natural gas. And all that shiny new big iron would give Duke's energy traders a leg up in ever volatile commodity markets.

But the suits from the Street seemed--well, they seemed bored. The problem was that Priory had followed an awfully tough act. Literally minutes before he came onstage, the investors and analysts gathered at the midtown Manhattan hotel had been wowed by the top brass of a certain Houston-based energy giant. This company's model was tons sexier and a lot simpler than Duke's--just ditch the power plants and other old-economy relics, and trade your way to glory. Priory stuck to his script, but it was rough going, and the sting of Wall Street's skepticism is fresh even now. "I explained our approach, but the analysts said the story they'd heard before ours was exactly the opposite," he recalls. "They said, 'Ken told us you don't need assets.' I still remember defending myself, saying you have to be able to produce and deliver energy as well as trade it."

As you've no doubt guessed by now, the company with the oh-so-clever strategy was Enron, and "Ken" was Kenneth Lay, Enron's now disgraced former chairman. For Priory, obviously, this is a tale of sweet vindication. Because while nothing is more fashionable in corporate America today than dumping on Enron, conservative Duke has deliberately been the un-Enron for years.

And these days that's really paying off: Revenues rose from $49.3 billion in 2000 to $59.5 billion in 2001, putting Duke at No. 14 on this year's FORTUNE 500. Profits--they seem to be mostly real at Duke, not the product of some accountant's sleight of hand--totaled almost $2 billion. True, the company's giant revenue jump is partly attributable to the way energy traders book sales. But it's notable that while Duke and No. 13 American Electric Power posted nearly the same amount in revenues, Duke earned almost twice as much. Better still, while the stock market has drifted downward, shares of Duke have risen 51% since the beginning of 2000, outperforming both the Dow and the S&P 500 as well as market darlings like GE and Exxon Mobil.

That performance is all the more remarkable because last year will almost certainly go down as one of the nastiest patches in recent memory for the energy industry--and not just because of Enron. "On Jan. 2, 2001, all hell broke loose, and it didn't stop," says Priory, referring to last winter's energy crisis in California, when hundreds of thousands of people suffered through rolling blackouts. Priory then ticks off the rest of 2001's troubles: collapsing prices for electricity and natural gas as a result of the slowing economy, the terrorist attacks of Sept. 11, the bankruptcy of Enron, and Wall Street's fear that other energy firms like Duke might get caught in the undertow. "I just can't imagine 2002 being that tough," says Priory.

So far--knock on wood--it hasn't been. On March 14, Duke completed its $8 billion acquisition of Canada's Westcoast Energy, reinforcing its position as one of North America's largest natural-gas players. And over the next few months, as temperatures rise and electricity demand soars, Duke plans to bring 11 new gas-fired power plants online across the country, adding 6,600 megawatts in generating capacity. That's enough juice to power more than six million homes, and it will put Duke among the country's very largest power producers.

All those new physical assets--in terms of both natural gas and electricity--will also help Duke expand its burgeoning trading and power-marketing operation. Unlike Casino Enron, which made huge bets on the overall direction of energy prices, most of Duke's trades revolve around its own assets--selling power in the future from one of its existing plants, buying gas that moves through its pipeline--so with more infrastructure on the ground, there's more room for trading volumes to grow. "In the end, markets ebb and flow," says Priory, sitting in his spacious but spare third-floor office, which overlooks a parking lot next to Duke's downtown Charlotte, N.C., headquarters. "You can only do smoke and mirrors so long. You have to have a background in the energy business."

Duke has come a long way since founder James "Buck" Duke began selling power from his plant on the Catawba River to nearby textile mills nearly a century ago, but its risk-averse culture is shaped by its history as a utility in the Carolinas. Duke Power, the company's regulated utility division, supplies electricity to more than two million homes and businesses in North and South Carolina, and while this unit isn't a growth dynamo--the local public-service commission has essentially kept rates flat for the past 16 years--it is a cash cow. Duke Power generated $1.6 billion in earnings before interest and taxes (EBIT) last year, and economic growth in the Carolinas should help its profits continue to grow by 3% to 4% annually. What's more, the unit's steady stream of earnings balances out the risk in more volatile business areas like unregulated power generation and energy trading.

The company's small-town Tar Heel roots still reach way down. Like many of his predecessors, Bill Grigg, a courtly native North Carolinian who served as CEO from 1994 to 1997, hails from a rural town and attended Duke University, which was endowed by Buck Duke with the millions he made in electricity and tobacco. "I'm deep Duke," says Grigg, who came aboard as a lawyer at age 31 and worked his way up to the top job. Fifty-five-year-old Priory, Grigg's handpicked successor, isn't quite as deep Duke. He grew up in New Jersey and studied engineering in West Virginia and at Princeton, but he's practically a lifer, having joined the company at age 30 as a structural engineer. Rich Osborne, who serves as chief risk officer and is one of Priory's top lieutenants, was raised west of Charlotte in the textile town of Gastonia and joined Duke straight out of college in 1975. "Our values are rooted in that North Carolina history," says Priory. ''The utility business gave us a deep understanding of the energy business and a real knowledge of operating assets. We're grounded, so we didn't fall victim to short-term fads or accounting tricks.''

The newspapers often make it seem as if Enron's funky accounting, shady partnerships, and off-balance-sheet financing were all cooked up by former CFO Andy Fastow himself. The reality is that most of the financing tricks and complex partnerships used and abused by Enron were marketed to many companies by some of Wall Street's biggest investment firms. Duke listened to them all. It just said no.

Facing down the legions of product-pitching bankers and analysts was the job of David Hauser, who joined Duke Power in 1973 at age 21 and now serves as senior vice president and treasurer. Although Hauser is typically Duke in his refusal to identify which firms came down to Charlotte--he'll only say that nearly every big investment and commercial bank was represented--he does offer a detailed description of the stratagems that were all the rage just a year or two ago. One was the shared trust, a credit vehicle in which stock, along with a real asset like a power plant or a pipeline, is offered as collateral for a loan. The advantage of a shared trust is that a company can borrow more than it could in a traditional secured transaction while keeping that extra debt off the balance sheet. The danger in this kind of deal, says Hauser, is that if the borrower's stock drops, a company could end up being forced to issue more and more shares in order to keep the level of collateral up. "It can be very dilutive," he says.

Indeed, financial vehicles dependent on infusions of fresh equity were a key factor in Enron's death spiral. "They told us we were being too conservative, that any problems would be unlikely, but these proposals didn't get beyond me," says Hauser. "We make our decisions based on the economics, not on the accounting implications."

While Hauser was keeping the bankers at bay, Wall Street analysts were advising energy companies to borrow and build as much as they could to take advantage of high power prices. In fact, Duke's A credit rating and strong balance sheet was seen as a liability in some quarters. So was the company's reluctance to spin off its trading operations and go the "asset light" route, even though that undoubtedly would have resulted in a hot IPO and quick stock market gain. Other Wall Streeters advised Duke to do an IPO of its unregulated power generation unit, back when electricity supplies were tight and power merchants were considered hot on Wall Street. "Investment bankers are a voracious lot," says Bruce Williamson, head of Duke Energy Global Markets. "They called everyone from Rick Priory on down to push an unregulated spinoff." But the company didn't budge. "We weren't convinced that an IPO was the way to go," says CFO Robert Brace. "It certainly would have created investment banking fees. But it would not have created long-term value."

Duke also chose not to trade bandwidth, the telecommunications commodity that turned into a huge money pit for Ken Lay & Co. In fact, the way Duke handled bandwidth vs. how Enron did illustrates just how different the two companies are. While Enron was hiring hundreds of employees and spending millions on bandwidth, Duke's Energy Services president, Harvey Padewer, assigned five veterans to check out this niche. "Enron showed up and made a pitch [for us] to trade bandwidth with them," recalls Padewer--a move that only increased Duke's wariness. "Why would Enron be trying to convince us? If counterparties have a good business, they generally don't have to come to you and say 'trade with us.' '' After spending six months and $3 million, the five-man group concluded bandwidth was a loser, and Duke dropped the idea. Enron, meanwhile, ended up employing more than 1,500 people in its broadband unit, racking up hundreds of millions in losses. "Whatever Enron did, they did it big--metals, water, projects in Europe and India," says Padewer, reeling off a list of other Enron money losers. "That's fundamentally different from the Duke approach. You go in small and try to understand a new market. You get your feet wet. You don't bet the company on it."

These days Duke is saying no to something else--hiring legions of ex-Enron traders. Although the company has made selective hires, executives decided not to import whole teams of Enron people despite the fact that Duke's trading operations are also in Houston. "We'd rather hire individuals, because when you hire a team you get the culture as well as the team,'' says Ruth Shaw, Duke's chief administrative officer. "It's a message about how important we think it is to preserve our culture."

Rising more than 500 feet into the misty air along the Pacific Coast Highway near Carmel, Calif., the giant smokestacks of the Moss Landing Power Plant are a monument to the Golden State's ravenous need for power. Known as "Mighty Moss" to the men and women who watch over its maze of giant steam pipes, 2,000-degree furnaces, and mammoth turbines, this is about to become the largest fossil-fuel plant in the state. Built in the 1960s, Moss Landing has a capacity of just over 1,500 megawatts--enough power for 1.5 million homes--and was acquired in 1998 from Pacific Gas & Electric. Since then Duke has spent about $250 million on the aging plant, reducing its emissions of smog-causing nitrous oxide with new four-story scrubbers, and upping its peak output.

This coming summer, though, "Mighty Moss is about to get mightier, almost enough to make your knees buckle," says manager Gene McCrillis. A couple of hundred yards from the old smokestacks and boilers, Duke is spending more than $500 million on a brand-new facility that uses the latest in natural gas-fired generating technology. Known as a combined cycle plant, it will use a jet engine-inspired system to churn out another 1,000 megawatts in power production. Although power prices in California have dropped since construction began 18 months ago, the new plant has a big advantage: It uses nearly 30% less natural gas than most conventional plants in the state to produce each megawatt of power. So even if electricity prices remain low, the new facility should be a moneymaker. And when both plants are online later this year, Duke will be California's largest non-utility power producer.

But Duke isn't just throwing money into new plants and hoping electricity prices stay high. Because electricity can't be stored and the nation's transmission grid is full of bottlenecks, power prices can vary widely across regions. So Duke puts enormous effort into finding locations that afford the maximum amount of flexibility. For example, its 1,200-megawatt Moapa plant under construction in Nevada can send power to California if prices are high there or, if not, ship the power to fast-growing Las Vegas.

And because all these plants are gas-fired, Duke's trading and gas-pipeline operations can take advantage of shifting prices for electricity and natural gas. Here's how it works: Let's say electricity prices are down in the West because of weak demand, but it's cold in the East and Midwest so natural gas prices are up. Duke can simply turn off the generators at places like Moapa and Moss Landing, sell the natural gas for home heating, and capture a much fatter profit margin. That's the winter scenario; if it's a hot summer and natural gas prices are weak but power is expensive, Duke can simply buy cheap gas and turn it into more richly priced electricity, making money on the other side of the same trade. The best part? Duke can ship all that gas through its huge pipeline system, slicing off additional profits as volumes rise.

Capturing the differences in gas and electricity prices--known in the business as the "spark spread"--is only one element in the strategy of Duke's North American Wholesale Energy (NAWE) unit in Houston, which includes both trading and unregulated power production. Thanks to high electricity prices in early 2001, fat spark spreads, and huge trading opportunities from all the volatility, NAWE was Duke Energy's main growth engine last year. EBIT more than tripled, to $1.35 billion, while revenues rose from $33.8 billion to $43.1 billion. Lower energy prices and reduced volatility make it unlikely that NAWE can match that kind of gain in 2002, but the company predicts--and Wall Street expects--annual EBIT growth of 30% to 40% from NAWE in the next few years.

Now that Enron is history, Duke's Houston trading floor is the largest in the city, and the company is keenly aware of how controversial energy trading is in the post-Enron era. But here again, Duke's approach is quite different, because about 80% of its trades involve its physical assets rather than making speculative plays on overall energy prices, as Enron did. Of course, even in the best of circumstances, trading carries risks. Analysts like Morgan Stanley's Kit Konolige estimate that about 10% of Duke's overall EBIT last year came from trading. And while Duke's traders may be smart, that kind of success can hardly be guaranteed year after year. "Compared with most of the businesses Duke engages in, trading is a higher-risk, higher-reward segment," says Konolige. "If they have a disappointing year in trading, other parts of the business would have to make up for that.''

In addition, a sizable chunk of Duke Energy's EBIT--about 13%, Konolige estimates--came in the form of "mark to market'' gains, income that's recorded now but won't actually come in for months or years, when forward contracts are settled. So if power prices go against Duke and the company isn't adequately hedged, those mark-to-market gains might turn into losses at some point. "Mark-to-market accounting has become controversial,'' Konolige says, "but it's normal industry practice. In fact, it's required for many transactions." That's certainly true. But such bookkeeping does make earnings somewhat less dependable. Managing those potential dangers is the job of Rich Osborne, Duke's bow-tied chief risk officer. Although many other companies have chief risk officers these days--believe it or not, even Enron had one--Osborne's unit actually has teeth. For starters, he was Duke's CFO until CEO Priory created his current job in 2000, and Osborne still reports directly to Priory. Even more impressive, Osborne's team is bigger than CFO Robert Brace's, with about 250 people on the staff, including accountants located directly in the middle of the Houston trading floor. Besides preventing a rogue trader from blowing up the company, Osborne's job entails smoothing out the risks inherent in any volatile commodity-oriented business. That means making sure the company is hedged against swings in power prices while also seeing to it that Duke's trading partners are creditworthy.

Judging by 2001's numbers, Osborne has had a pretty good run. A few months before Enron's collapse, Duke's exposure to Enron ran into the hundreds of millions, Priory and Osborne say. By the time Enron filed for bankruptcy, Duke's hit totaled just $43 million. "We didn't know it was going to go bankrupt, but by the fall it was clear from the falling stock price that Enron was in trouble," says Osborne. "So we traded away from them, selling Enron deals to other parties or paying a penny or two more on contracts so we weren't trading with Enron." Osborne was also savvy enough to protect Duke from plunging electricity prices by hedging much of its non-utility power production back when prices were high. About 91% of the unregulated power Duke will sell this year has already been hedged, so gains are locked in. And more than half the power Duke will sell in 2003 and 2004 is similarly hedged, protecting future profits from the weak spark spreads that now prevail in many key markets.

Those hedges sure look smart now, but when Duke made them in 2000 and 2001, the company had to pass up some short-term profits. That kind of thinking is fundamental to the company, says Priory. "I went through a lot of pressure two years ago," he says. "Everybody in the industry thought prices would go up and up, and the top would continue forever. But we've been in this business for a long time, and we know there are going to be cycles."

Today, power prices are weak amid fears of an electricity glut. Shares of many energy companies are in single digits, and Duke's rivals are putting assets up for sale. Although he's an engineer by training, Priory is enough of a trader to think that all the doom and gloom out there means that things are about to turn around. "We sold plants at the top when prices were at their peak," says Priory. ''Now that everybody's selling, we're anxious to buy assets. It takes a hell of a lot of discipline, but sometimes you have to go against the market.'' Buying assets? Showing some discipline? You just don't get any more un-Enron than that, do you?

Risk - One trader can literally bring down a company

News - Page 1 - 2002