<http://secure.scientech.com/images/spacer.gif>	  <http://secure.scientech.com/images/spacer.gif>	
  <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg>	  <http://secure.scientech.com/images/spacer.gif>	  <http://secure.scientech.com/_IA_TEST/Corner_TR.jpg>	
	  <http://secure.scientech.com/rci/wsimages/ia_banner02.gif>		
  <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg>		  <http://secure.scientech.com/_IA_TEST/Corner_BR.jpg>	



  <http://secure.scientech.com/images/spacer.gif>	 <http://secure.scientech.com/rci/infogrids.asp>

  <http://secure.scientech.com/images/spacer.gif>	  <http://secure.scientech.com/images/spacer.gif>	
	  <http://secure.scientech.com/rci/wsimages/will100border_copy.jpg>
  <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg>		  <http://secure.scientech.com/_IA_TEST/Corner_TR.jpg>	
	
SPONSORS

  <http://secure.scientech.com/images/spacer.gif> <http://secure.scientech.com/main/ad_redirect.asp?URL=http://wwwthestructuregroup.com>
  <http://secure.scientech.com/images/spacer.gif>

INFORMATION PRODUCTS

 <http://secure.scientech.com/specialpages/Generation_Technology_IAs.asp>   <http://secure.scientech.com/images/spacer.gif> <http://secure.scientech.com/specialpages/Generation_Technology_IAs.asp>   <http://secure.scientech.com/images/spacer.gif>

CONFERENCES

  <http://secure.scientech.com/images/spacer.gif> <http://secure.scientech.com/main/ad_redirect.asp?URL=http://cpunmsu.edu/>Center for
Public Utilties
The Basics:
Practical Skills for a Changing Utility   <http://secure.scientech.com/images/spacer.gif> <http://secure.scientech.com/specialpages/New_Rate_Card.asp>   <http://secure.scientech.com/images/spacer.gif>	
  <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg>		  <http://secure.scientech.com/_IA_TEST/Corner_BR.jpg>	

December 10, 2001



Some Reasons Why Duke Energy
Was Named Company of the Year



By Will McNamara
Director, Electric Industry Analysis



[News item from PR Newswire] Duke Energy (NYSE: DUK) was named Energy Company of the Year at the 2001 Financial Times Global Energy Awards ceremonies held last week in New York. The awards, sponsored by publishing and information company Platts and the professional services firm Deloitte Touche Tohmatsu, recognized Duke Energy for its diversified operations and its successful overall growth during the past year. 

Analysis: 2001 may turn out to be the most tumultuous year in the history of the energy industry, and certainly the most volatile since deregulation began about four years ago. However, in the course of a year that has witnessed the bankruptcy filings of two leading energy companies (Pacific Gas & Electric Co. and Enron), Duke Energy's success during the same time frame is all the more impressive. In addition to earnings that consistently meet or exceed expectations, Duke has carved out a unique niche in the energy merchant space, the same market in which its competitor Enron has now failed. The pending acquisition of Vancouver-based Westcoast Energy should also add to Duke's already-diverse portfolio, give it a lock on Canada's seemingly abundant gas reserve fields, and expand the company's North American pipeline capacity. However, in my estimation, the real significance of Duke's performance is the strategy that is working behind the scenes at this company. While more energy companies continue to announce massive restructuring plans-dividing up their regulated and unregulated businesses-Duke remains intact. Further, while other companies become more focused on a primary fuel source (natural gas, coal or nuclear), Duke remains broadly diversified. What this means is that, once again, Duke Energy is bucking trends and doing things its own way. Instead of following a growing trend of becoming a pure-play company, Duke continues to play its card as a multi-focused operation, which it claims may be its secret weapon in a volatile market. 

First and foremost, Duke's stats remain very impressive in a market terrain that has become rather bleak. The company has consistently maintained a market capitalization of $28.6 billion, a book value of $16.11 and P/E ratio of 13.86. In addition, while Enron's stock has languished below the $1 mark, Duke shares are currently priced at $36.81 (as of early morning trading on Dec. 10), and recorded a 52-week high of $47.74. For the third quarter 2001, Duke reported a 46-percent increase in ongoing earnings per share, or $1.02 per share. Year-to-date earnings per share from ongoing operations as of Sept. 30 were $2.30 compared to $1.63 for the same period last year. For year-end 2001, Duke remains committed to delivering earnings growth within a stated guidance of 10- to 15-percent compound annual growth in earnings per share from a base of $2.10 in 2000. Looking ahead to 2002, Duke Energy expects to earn toward the high end of the 10- to 15-percent range. 

In addition, Duke presently owns and operates nearly 30,000 MW of generation worldwide (putting it on par with or very close to other generating companies such as AEP and Exelon), and reportedly trades eight times as much power and five to six times as much natural gas as it owns, operates or controls. Duke also claims that it transports 8 percent of the natural gas consumed in the United States as a whole, and 26 percent of the natural gas consumed on the East Coast. Also, Duke has some 12,000 miles of natural-gas pipeline in operation, 900 miles under construction and 450 miles in development. 

Responding to the newly bestowed award, Duke's CEO Richard Priory said, "This award recognizes the business strategy of Duke Energy, which has remained focused on creating customer and shareholder value during a turbulent year in the energy sector." This statement is significant because, perhaps more than Duke's strong numbers, the company's business strategy is arguably what gained it the enviable designation as "company of the year." According to Priory, Duke is attributing its financial success and strong projections for the future to its diverse portfolio and decision to remain an integrated company. In other words, all of Duke Energy's various business operations-including ownership of natural-gas and power assets, storage and transportation positions, and financial and physical trading-all stand as business units under the parent organization. Duke apparently has no plans to spin off any of its high-growth operations into a stand-alone operation. In fact, Priory maintains that "combining our slate of power generation and gas-pipeline assets with trading capabilities and structured origination allows us to prosper through the ups and downs of market cycles." 

Priory previously expressed that "Duke is positioned to sustain its growth trajectory by leveraging the volatility that so many [other companies] fear." It is becoming more and more uncommon for a company to remain as broadly diversified as Duke Energy, with regard to owning natural-gas pipelines and generation assets and operating an active trading strategy. Indeed, Wall Street presently seems particularly skittish about energy companies that have their fingers in various business sectors, and seems to prefer companies that become more focused on one operation in which they can excel. When referring to the pure-play strategy, Priory has previously alluded to companies that focus exclusively on generation or trading, and how he believes that approach carries a higher risk proposition than Duke's more diversified strategy. 

The other trend that is so common with energy companies right now is corporate restructuring to split off regulated and unregulated units in an attempt to realize greater value for both. The list of companies following this strategy is becoming longer all the time, but already AEP, Reliant, Southern Company, UtiliCorp, and Xcel have announced (or completed) massive endeavors to construct an operational wall between their regulated and unregulated businesses. In some cases, this has led to spinning off the unregulated business into its own stand-alone company. 

On the opposite end of the spectrum, Duke remains a holding company with various business units all integrated into one business model. As of spring 2001, Duke had structured its operations into seven business segments: 

North American Wholesale Energy (including the company's merchant generation portfolio); 
International Energy (comprised of Duke Energy International, with businesses in the Asia Pacific, Latin America and European regions); 
Field Services (including the company's natural-gas midstream, gathering and production businesses); 
Natural Gas Transmission (comprised of the company's natural-gas storage and pipeline businesses); 
Franchised Electric (Duke Power, the electric utility serving two million customers in North Carolina and South Carolina, and Duke Electric Transmission); 
Duke Ventures (including Crescent Resources, a real estate operation, DukeNet Communications, a telecom outfit, and Duke Capital Partners, which is essentially an investment banking firm); and 
Other Energy Services (including DukeSolutions, a C&I commercial energy services unit, Duke Engineering & Services, an energy engineering and technical services unit, and Duke / Fluor Daniel, which is involved in power plant engineering and construction). 

It should be noted that, at least until the Enron debacle, there have been downsides to this approach. First, investors may continue to be less likely to support a fully integrated operation that is broadly diversified, preferring instead to invest in companies that are more clearly focused. As noted, investors generally now support pure-play strategies and may seek out energy companies that have a very narrow and targeted business model. Second, on a related note, in an integrated company the success or failure of one business unit will have a direct impact on all of the other units. Without separating its operations, Duke could face a situation in which struggles in one particular area (telecom, for instance) could impinge on earnings in an unrelated, but connected, business unit. The bottom line for Duke may be that these potential risks pale in comparison to the advantage that the company believes it has over competitors in keeping its diverse operations integrated. 

As a final note, it is important to establish the role that Duke's $8.5-billion pending acquisition of Westcoast Energy most likely will play in its continued success, and its role in the reasoning for Duke being anointed as company of the year. From my perspective, one of the most important aspects of Duke's purchase of Westcoast Energy is the control over natural-gas pipelines that Duke gains in the deal. Upon completion of the deal, the combined entity reportedly will have 58,000 miles of gathering pipeline; 84 gas-processing facilities; 19,000 miles of gas transmission; and 16,500 miles of distribution pipeline. The purchase of Westcoast Energy, which includes a substantial amount of energy infrastructure in Canada, should help Duke to supply fuel to its current power plants in the United States and ones that the company has planned for future construction. 


An archive list of previous IssueAlert articles is available at
www.scientech.com <http://secure.scientech.com/issuealert/> 


  _____  

We encourage our readers to contact us with their comments. We look forward to hearing from you. Nancy Spring  <mailto:nspring@scientech.com>

Reach thousands of utility analysts and decision makers every day. Your company can schedule a sponsorship of IssueAlert by contacting Jane Pelz  <mailto:jpelz@scientech.com>at 505.244.7650. Advertising opportunities are also available on our Website. 

  _____  

Our staff is comprised of leading energy experts with diverse backgrounds in utility generation, transmission and distribution, retail markets, new technologies, I/T, renewable energy, regulatory affairs, community relations and international issues. Contact consulting@scientech.com <http://consulting@scientech.com> or call Nancy Spring at 505.244.7613. 

  _____  

SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer colleagues to receive our free, daily IssueAlert articles, please register directly on our site at secure.scientech.com/issuealert <http://secure.scientech.com/issuealert/>. 

If you no longer wish to receive this daily e-mail, and you are currently a registered subscriber to IssueAlert via SCIENTECH's website, please visit <http://secure.scientech.com/account/> to unsubscribe. Otherwise, please send an e-mail to IssueAlert <mailto:IssueAlert@scientech.com>, with "Delete IA Subscription" in the subject line. 

  _____  

SCIENTECH's IssueAlert(SM) articles are compiled based on the independent analysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. SCIENTECH's sole purpose in publishing its IssueAlert articles is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. 



Copyright 2001. SCIENTECH, Inc. All rights reserved.
  <http://infostore.consultrci.com/spacerdot.gif?IssueAlert=12/10/2001>