Duke Doubles 4Q Profits, Southern Also Up
Power generators Duke Energy Corp. and Southern Co., which both
provide electricity to some markets in California, reported high
fourth quarter profits and continued growth through the year last
week. And, despite concern that the generators won't be paid for
energy they supplied to nearly bankrupt California utilities, both
said they would pursue payments from their customers if they have
While California problems were on the minds of some analysts
during conference calls with the Southeastern utility giants,
executives with the power companies answered questions, but mostly
deferred to positive reports on overall fourth quarter earnings,
expected growth opportunities for the coming year. Duke's revenues
doubled, topping Wall Street expectations, and while Southern's
trailed analysts' expectations, it still reported solid gains,
especially from its unregulated subsidiary Southern Energy.
Based on its earnings outlook, Charlotte, NC-based Duke on
Friday raised its annual earnings per share growth target to
between 10% and 15% for 2001, a rate that CEO Richard B. Priory
expects to continue for the next few years.
"Duke Energy is a company on the move," Priory said. "Our
competitive energy businesses are expanding domestically and
abroad, and we have gained recognition as a growth company. We
don't plan to let up."
Fourth quarter net income was $284 million, or 38 cents per
share, up from 1999's fourth quarter net loss of $189 million. It
reported that excluding special charges, it had earnings of $353
million for the fourth quarter 2000, or 94 cents per share, which
beat the First Call/Thomson estimate of 88 cents.
Fourth quarter revenues were $15.4 billion, up from $6.2 billion
for the same period a year ago. For 2000, Duke earned $1.78
billion, or $4.78 per share, up from $1.51 billion, or $4.08 a
share in 1999.
Duke reported ongoing 2000 earnings of $4.20 a share, a 17%
increase from 1999, with its competitive energy businesses leading
the way. Priory said that trend will continue.
"We expect to grow this company through the addition of new
businesses and more development where markets provide the greatest
rewards," he said. New earnings targets will be keyed to its North
American, international, energy field services and ventures
businesses, along with an expanding gas transmission business.
Duke owns four California power plants that generate a total
capacity of 3,300 MW for about 500,000 homes, but officials did not
break down how much it has profited in California or other states
specifically last week. Most of Duke's operations are outside
California, and other power generators are expected to register
more profit there as fourth quarter reports are released.
Though Duke officials acknowledged that some Californians feel
that out-of-state generators are gouging the state, they "don't
expect to let up on any effort to collect" on the power the company
has supplied there. Priory said the company, which faces nonpayment
from its nearly bankrupt California customers Pacific Gas and
Electric and Southern California Edison, said Duke would "pursue
all receivables and collect if we can."
However, Duke did reserve $110 million in the fourth quarter in
the event it cannot collect on debts owed for its electricity sales
in California. As of Dec. 31, Duke had about $400 million in
outstanding electricity bills in the state.
Electric utility holding company Southern Co., based in Atlanta,
said Friday it hopes to grow at a 5% rate in the next year, but
reported that its fourth quarter profits were smaller than expected
- up 3.4% from a year earlier. The company is considering a
spin-off of Southern Energy Inc. on April 2. The subsidiary
officially becomes Mirant Corp. today, to be traded under the
Southern, which has utility operations in 11 countries besides
the United States, expects to see only a small rise in its earnings
this year. Earnings from operations in the fourth quarter were $148
million, with colder weather and a strong economy offset by
mandated revenue sharing and increased non-fuel expenses. Earnings
per share from operations actually dropped to 21 cents from 22
cents, which was lower than First Call/Thomson Financial analysts'
estimate of 25 cents a share.
For 2000, Southern reported a 12% earnings increase, with record
operating earnings of $1.40 billion, or $2.13 per share, up from
$130 billion, or $1.90 a share in 1999.
This year, Southern said it plans to focus on growth in three
major areas: traditional retail business in the Southeast,
competitive generation in the eight-state "super Southeast," and
new products and services for energy customers. It also plans to
develop or acquire more than 7,500 MW dedicated to the competitive
wholesale business by 2005.
Subsidiary Mirant Corp. (Southern Energy), meanwhile, reported
that its fourth quarter results surpassed those set by Wall Street,
adding that it took credit reserves in its California power market.
Southern Energy's net income was $67 million, or 20 cents a share,
the same as the fourth quarter of 1999. Income from operations,
excluding its leasing subsidiary SE Finance, was $66 million, or 20
cents a share, compared with $53 million, or 16 cents a share in
the fourth quarter of 1999. First Call/Thomson Financial had
predicted earnings of about 15 cents a share.
Mirant's earnings included credit reserves to account for the
California power crisis, where it supplies energy to nearly
bankrupt PG&E and SoCal Ed. Responding to criticism that
Southern was indifferent to California's energy problems and was in
collusion with other suppliers to turn a profit, CEO Marce Fuller
said those charges were "ludicrous," and said the company would
attempt to recover the costs of all the energy supplied to the
In 2001, Mirant expects to bring three plants online in
Michigan, Texas and Louisiana and by the end of the year, expects
to have more than 15,000 MW under ownership or control throughout
key regional markets.
"Mirant plans to continue building power plants, not only to
diversify our portfolio, but also to help ease the pressure of
increased power demand in regions where resources are scarce,"
Fuller said. "A deregulated marketplace will not flourish without
all the necessary components. New power generation is necessary to
maintain a strong wholesale market."
Though both Duke's and Southern's stock has slumped in the past
few weeks partly related to ongoing California problems, analyst
Justin Craib-Cox of Morningstar said he thought the two companies
were in a good position for the long haul.
"They both sell wholesale power to troubled incumbent utilities
PG&E and Southern California Edison," he said. "While long-term
and short-term solutions to the mess in California are impossible
to predict, we like Duke and Southern's strategies of positioning
themselves as market leaders in the fastest growing areas of the
utility industry, and we don't think California's problems will
drag down their growth rates."
He said he though the shares of the companies were "attractive
at current levels, given that Duke, Southern and Southern Energy
have all seen their stock prices sag because of the fallout from
Carolyn Davis, Houston