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Duke's Trading Unit Sends Earnings Soaring

Duke's Trading Unit Sends Earnings Soaring

Led by its unregulated wholesale energy operations, Duke Energy put in a whopper quarter, exceeding analysts expectations. Earnings before interest and taxes from its wholesale group jumped 175%.

Power sales rose 164% to 89,967 gigawatt hours. Wholesale gas sales grew 15% to 12 trillion Btu/d (11.7 Bcf/d) from 10.4 TBtu/d (10.1 Bcf/d).

Excluding a one-time pre-tax gain of $407 million, or an after-tax gain of 67 cents per share, on the sale of Duke's interest in BellSouth Carolina PCS, third quarter earnings were $1.41 compared with $1.20 for the third quarter of 1999, an 18% increase, and earnings before interest and taxes totaled $1.6 billion, a 71% increase.

"We have kept our eye on the ball with disciplined, focused growth and have exceeded expectations throughout the year," said CEO Richard B. Priory.

James M. Donnell, CEO of Duke Energy North America (DENA), which is the wholesale energy division, said the company has a three-pronged strategy for success: developing its resources through a holistic approach; making a commitment to remaining competitive; and embracing technology. Donnell was a keynote speaker at PowerMart 2000.

"These are fun times for our industry, but we still face substantial challenges," Donnell said last week at the PowerMart 2000 meeting in Houston. "Technology will bridge the gap to meet our customers' expectations."

Pointing to DENA's venture into InterContinental Exchange (see NGI, July 31), a B2B trading platform, Donnell said that these types of platforms offer shareholders a way to instantly "know the score." He predicted that by 2005, there would be a "clear segmentation" between the retail and wholesale energy markets, with even more consolidation of players.

"I see a handful of national players, with a handful of niche players operating regionally," Donnell said, adding that he expects Duke Energy to be one of those national players.

But technology overall will be the "wildcard," said Donnell. "It's not difficult to imagine almost anything happening. Imbalances will be a thing of the past." He said that on the retail side, more corporate giants such as AT&T, Sprint and American Express will enter the energy market. On the wholesale side, he predicted that companies will "fight it out" over bandwidth.

"We have to be challenged by different ways of thinking," he said. "It's the only way to close the gap."

Carolyn Davis, Houston

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