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Pipeline Sale Improves Duke 1Q Earnings

Pipeline Sale Improves Duke 1Q Earnings

The $1.9 billion sale in March of Panhandle Eastern Pipe Line Co. and Trunkline Gas Co. to Michigan-based CMS Energy resulted in a one-time gain of $1.82 per share for the first quarter and an after-tax gain of $660 million, putting Duke earnings for the quarter over results in the same quarter last year. Duke reported earnings of $2.65 per share, compared with 87 cents in 1Q98. Without the sale, and the absence of an extraordinary item from last year's quarter, basic first-quarter earnings were 83 cents per share versus 89 cents last year.

"This quarter highlighted our ability to reposition assets to create greater long-term shareholder value," said Duke CEO Richard B. Priory. "We have been able to redirect the capital gained from the Midwest pipeline sale to areas that offer us greater opportunities for the future."

In trading and marketing, earnings before interest and taxes (EBIT) were $33 million versus $13 million for the same quarter last year. A 39% increase in the amount of gas marketed helped boost margins. "Our trading and marketing operations continue to grow and turn in solid results," said Priory. "We have managed to grow the business through very different market conditions-from last year's volatile summer to the more calmer conditions of this quarter."

Duke Energy completed a number of acquisitions during the first quarter. The most notable was the $1.35 billion purchase of the midstream natural gas business from Union Pacific Resources. It also started construction on a new merchant power plant in Hidalgo County, TX.

Earnings from electric utility operations were up $29 million to $407 million. Gas transmission results were down $1 million at $208 million. Duke said earnings growth in the Northeast pipelines, spurred by expansion projects, basically offset lower earnings from the Midwest pipelines and the effect of a state tax refund in 1998. Lower gas liquids prices continued to hurt margins in field services, but Priory said, "We are seeing a major improvement in natural gas liquids prices." Field services EBIT for the quarter were $12 million versus $48 million.

The company's domestic and international energy development businesses also posted improved results with EBIT for the quarter up to $32 million versus $9 million in 1Q98. "Our merchant megawatt capacity has grown more than 50% in the past year," said Priory.

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