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 to.
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 symbol "MIR."
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 state.
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 California."
Carolyn Davis, Houston
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