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<http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient=
ech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09 <http://secure.s= cientech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/C= orner_TR.jpg<=09 =09 <http://secure.scientech.com/rci/wsimages/ia_banner02.gif<=09=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.sciente= ch.com/rci/infogrids.asp< <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 =09 <http://secure.scientech.com/rci/wsimages/will100border_copy.jpg< <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_TR.jpg<=09 =09 SPONSORS <http://secure.scientech.com/images/spacer.gif<; <http://secure.scientech.= com/main/ad_redirect.asp?URL=3Dhttp://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.c= om/specialpages/Generation_Technology_IAs.asp< <http://secure.scientech.c= om/images/spacer.gif< CONFERENCES <http://secure.scientech.com/images/spacer.gif<; <http://secure.scientech.= com/main/ad_redirect.asp?URL=3Dhttp://cpunmsu.edu/<;Center for Public Utilties The Basics: Practical Skills for a Changing Utility <http://secure.scientech.com/imag= es/spacer.gif< <http://secure.scientech.com/specialpages/New_Rate_Card.asp<= <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 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 Compa= ny of the Year at the 2001 Financial Times Global Energy Awards ceremonies = held last week in New York. The awards, sponsored by publishing and informa= tion company Platts and the professional services firm Deloitte Touche Tohm= atsu, recognized Duke Energy for its diversified operations and its success= ful overall growth during the past year.=20 Analysis: 2001 may turn out to be the most tumultuous year in the history o= f the energy industry, and certainly the most volatile since deregulation b= egan about four years ago. However, in the course of a year that has witnes= sed the bankruptcy filings of two leading energy companies (Pacific Gas & E= lectric 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 merc= hant space, the same market in which its competitor Enron has now failed. T= he pending acquisition of Vancouver-based Westcoast Energy should also add = to Duke's already-diverse portfolio, give it a lock on Canada's seemingly a= bundant gas reserve fields, and expand the company's North American pipelin= e capacity. However, in my estimation, the real significance of Duke's perf= ormance is the strategy that is working behind the scenes at this company. = While more energy companies continue to announce massive restructuring plan= s-dividing up their regulated and unregulated businesses-Duke remains intac= t. Further, while other companies become more focused on a primary fuel sou= rce (natural gas, coal or nuclear), Duke remains broadly diversified. What = this means is that, once again, Duke Energy is bucking trends and doing thi= ngs its own way. Instead of following a growing trend of becoming a pure-pl= ay company, Duke continues to play its card as a multi-focused operation, w= hich it claims may be its secret weapon in a volatile market.=20 First and foremost, Duke's stats remain very impressive in a market terrain= that has become rather bleak. The company has consistently maintained a ma= rket 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 o= n Dec. 10), and recorded a 52-week high of $47.74. For the third quarter 20= 01, 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.=20 In addition, Duke presently owns and operates nearly 30,000 MW of generatio= n worldwide (putting it on par with or very close to other generating compa= nies such as AEP and Exelon), and reportedly trades eight times as much pow= er and five to six times as much natural gas as it owns, operates or contro= ls. Duke also claims that it transports 8 percent of the natural gas consum= ed in the United States as a whole, and 26 percent of the natural gas consu= med on the East Coast. Also, Duke has some 12,000 miles of natural-gas pipe= line in operation, 900 miles under construction and 450 miles in developmen= t.=20 Responding to the newly bestowed award, Duke's CEO Richard Priory said, "Th= is award recognizes the business strategy of Duke Energy, which has remaine= d focused on creating customer and shareholder value during a turbulent yea= r in the energy sector." This statement is significant because, perhaps mor= e than Duke's strong numbers, the company's business strategy is arguably w= hat 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 integrat= ed company. In other words, all of Duke Energy's various business operation= s-including ownership of natural-gas and power assets, storage and transpor= tation positions, and financial and physical trading-all stand as business = units under the parent organization. Duke apparently has no plans to spin o= ff any of its high-growth operations into a stand-alone operation. In fact,= Priory maintains that "combining our slate of power generation and gas-pip= eline assets with trading capabilities and structured origination allows us= to prosper through the ups and downs of market cycles."=20 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 an= d generation assets and operating an active trading strategy. Indeed, Wall = Street presently seems particularly skittish about energy companies that ha= ve their fingers in various business sectors, and seems to prefer companies= that become more focused on one operation in which they can excel. When re= ferring to the pure-play strategy, Priory has previously alluded to compani= es that focus exclusively on generation or trading, and how he believes tha= t approach carries a higher risk proposition than Duke's more diversified s= trategy.=20 The other trend that is so common with energy companies right now is corpor= ate restructuring to split off regulated and unregulated units in an attemp= t to realize greater value for both. The list of companies following this s= trategy is becoming longer all the time, but already AEP, Reliant, Southern= Company, UtiliCorp, and Xcel have announced (or completed) massive endeavo= rs to construct an operational wall between their regulated and unregulated= businesses. In some cases, this has led to spinning off the unregulated bu= siness into its own stand-alone company.=20 On the opposite end of the spectrum, Duke remains a holding company with va= rious business units all integrated into one business model. As of spring 2= 001, Duke had structured its operations into seven business segments:=20 North American Wholesale Energy (including the company's merchant generatio= n portfolio);=20 International Energy (comprised of Duke Energy International, with business= es in the Asia Pacific, Latin America and European regions);=20 Field Services (including the company's natural-gas midstream, gathering an= d production businesses);=20 Natural Gas Transmission (comprised of the company's natural-gas storage an= d pipeline businesses);=20 Franchised Electric (Duke Power, the electric utility serving two million c= ustomers in North Carolina and South Carolina, and Duke Electric Transmissi= on);=20 Duke Ventures (including Crescent Resources, a real estate operation, DukeN= et Communications, a telecom outfit, and Duke Capital Partners, which is es= sentially an investment banking firm); and=20 Other Energy Services (including DukeSolutions, a C&I commercial energy ser= vices unit, Duke Engineering & Services, an energy engineering and technica= l services unit, and Duke / Fluor Daniel, which is involved in power plant = engineering and construction).=20 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, prefe= rring instead to invest in companies that are more clearly focused. As note= d, investors generally now support pure-play strategies and may seek out en= ergy 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 i= n 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 co= mpany believes it has over competitors in keeping its diverse operations in= tegrated.=20 As a final note, it is important to establish the role that Duke's $8.5-bil= lion pending acquisition of Westcoast Energy most likely will play in its c= ontinued 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 pip= elines that Duke gains in the deal. Upon completion of the deal, the combin= ed entity reportedly will have 58,000 miles of gathering pipeline; 84 gas-p= rocessing 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.=20 An archive list of previous IssueAlert articles is available at www.scientech.com <http://secure.scientech.com/issuealert/<;=20 _____ =20 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 com= pany can schedule a sponsorship of IssueAlert by contacting Jane Pelz <mai= lto:jpelz@scientech.com<at 505.244.7650. Advertising opportunities are also= available on our Website.=20 _____ =20 Our staff is comprised of leading energy experts with diverse backgrounds i= n utility generation, transmission and distribution, retail markets, new te= chnologies, I/T, renewable energy, regulatory affairs, community relations = and international issues. Contact consulting@scientech.com <http://consulti= ng@scientech.com< or call Nancy Spring at 505.244.7613.=20 _____ =20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let u= s know if we can help you with in-depth analyses or any other SCIENTECH inf= ormation products. If you would like to refer colleagues to receive our fre= e, daily IssueAlert articles, please register directly on our site at secur= e.scientech.com/issuealert <http://secure.scientech.com/issuealert/<;.=20 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 se= nd an e-mail to IssueAlert <mailto:IssueAlert@scientech.com<, with "Delete = IA Subscription" in the subject line.=20 _____ =20 SCIENTECH's IssueAlert(SM) articles are compiled based on the independent a= nalysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's Iss= ueAlerts are not intended to predict financial performance of companies dis= cussed, or to be the basis for investment decisions of any kind. SCIENTECH'= s sole purpose in publishing its IssueAlert articles is to offer an indepen= dent perspective regarding the key events occurring in the energy industry,= based on its long-standing reputation as an expert on energy issues.=20 Copyright 2001. SCIENTECH, Inc. All rights reserved. <http://infostore.consultrci.com/spacerdot.gif?IssueAlert=3D12/10/2001<;
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