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Duke: Earnings Up on Pipeline Sale, Still Seeking DENA Deal

Asset sales and lower interest expenses more than doubled Duke Energy Corp.'s first quarter earnings, to $868 million (91 cents/share), compared with $311 million (34 cents) in 1Q2004. On a diluted basis, earnings were 88 cents/share, compared with 33 cents a year ago.

Without the asset sales and special items, Duke earned 43 cents/share in 1Q2005, which was the consensus of Thomson First Call analysts.

The biggest gain for Duke in the quarter came from its sale of TEPPCO GP for $791 million to Enterprise GP Holdings LP, as well as the sale of 2.5 million TEPPCO limited partner units to Enterprise parent EPCO Inc. and affiliates (see NGI, Feb. 28).

"It was a great quarter and reflects the actions we took last year to strengthen all our businesses," said CEO Paul Anderson. "The effort we undertook to cut debt in 2004 is showing real results as we reduced interest expense by $63 million."

Anderson said that Duke Energy North America (DENA) continued to reduce losses, while field services had a strong quarter, and international energy increased its earnings.

The field services business segment, which currently represents Duke's 70% interest in Duke Energy Field Services (DEFS), saw its earnings dramatically increase to $921 million, including the TEPPCO sale, compared with $91 million from continuing operations in 1Q2004.

However, DENA, the merchant energy segment, reported a loss of $35 million in 1Q2005, compared with a loss last year of $557 million. The improved results were driven by the absence of a $359 million pretax loss on the sale of assets in the prior years and also the absence of a mark-to-market loss.

Duke CFO David Hauser said Wednesday that the company is looking for a joint venture deal for DENA.

"We are looking at creating a partnership with another entity so that it would be a bigger play, but we would own a smaller percentage of it," Hauser told Reuters in an interview. He said Duke was involved in discussions about a possible transaction. "We're moving as rapidly as we can to get a deal. But this is a strong company and we don't need to do a bad deal," he said.

Duke's break even target date for DENA is still the end of 2006, according to Hauser.

Also down in the quarter were Duke's franchised electric earnings, which were $336 million, compared with 1Q2004's $424 million. Duke blamed the decrease on milder winter weather and higher operating and maintenance expenses, which resulted from the timing of planned power plant maintenance and outages.

Earnings were also lower because of Duke Power's bulk power marketing (BPM) profit-sharing program, which did not begin in North Carolina and South Carolina until 2Q2004. Regulatory amortization expenses for the quarter were $85 million versus $69 million in first quarter 2004.

The impact of continued economic development activity led to industrial sales rising 6% from the previous year's quarter. Franchised electric also had almost 45,000, or about 2%, more customers than in 1Q2004.

Duke Energy Gas Transmission (DEGT) reported quarterly earnings of $407 million, compared with $398 million a year ago. The increase was credited primarily to U.S. business expansions and the strengthening Canadian currency, partially offset by the implementation of a new earnings-sharing mechanism at Union Gas in Canada.

Duke's consolidated capital structure at the end of the quarter, including short-term debt, was 50% debt, 45% common equity and 5% minority interests. The company had approximately $2.07 billion in cash, cash equivalents and short-term investments.

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