A day after bucking the industry trend and raising its annual dividend to $1.84 from $1.80, Cinergy Corp. said last Wednesday that favorable weather conditions and strong power demand in its Indiana, Ohio and Kentucky service territories in 2002 will enable it to beat Wall Street consensus earnings estimates of $2.55/share by about 10 cents/share, excluding one-time charges. The Cincinnati-based utility company also said 2003 earnings would be in line with expectations.

“Cash dividends are becoming increasingly important to investors, and our dividend is an important part of the total value we provide our shareholders,” said Cinergy CEO James E. Rogers, referring to the Bush administration’s plan to end the investor dividend tax. “The board intends to review the dividend policy periodically and will determine future dividends based upon earnings, cash flows, industry payout ratios and other factors important to our investors.”

Meanwhile, several other energy companies, including TXU, Allegheny Energy, Dynegy and Williams Cos., have slashed or suspended their dividends to handle short-term cash needs and strengthen their balance sheets.

“We believe that this dividend increase, along with previously announced balance sheet and corporate governance improvements, sends a strong signal that we are taking actions that will provide benefits to all of our stakeholders,” Rogers added.

During a web cast on Wednesday Rogers stressed the company’s low-risk regulated structure and intention to maintain or expand the regulated side of its business. He told analysts that the company expects earnings of $2.55 to $2.70 per share in 2003, compared with an average First Call estimate of $2.64. Cinergy also expects sales to rise about 2% annually.

“As you look at our earnings and cash-flow growth, it becomes clear that 91% of our projected 2003 [earnings before interest, taxes, depreciation and amortization] comes from regulated retail customers in Indiana, Ohio and Kentucky,” said Rogers, highlighting the company’s primarily regulated operation. “Nine percent of our projected EBITDA comes from our wholesale energy operations and marketing businesses… Our judgment is that these percentages will maintain their relationship over the next several years and if anything our regulated operations should increase in 2004 after the PSI rate case.”

Cinergy owns Cincinnati Gas & Electric Co., Union Light, Heat & Power, Lawrenceburg Gas and PSI Energy, serving more than 1.5 million electric customers and 500,000 gas customers in Indiana, Ohio and Kentucky.

Separately, Cinergy filed with the Securities and Exchange Commission to periodically sell up to $750 million in debt securities, common and preferred stock, contracts, units and trusts. Rogers said the shelf would be used to refinance upcoming debt maturities, which include $93 million in 2003 and an additional $300 million to $400 million in 2004.

Despite all the positive news, however, shares of Cinergy stock were down Wednesday 43 cents to $34.07 and continued to fall Thursday and Friday to near $33/share on the New York Stock Exchange. Part of the reason for the weakness may have been related to an announcement concerning a potential shareholder resolution on pollution emissions. The proxy resolution is expected to be submitted during Cinergy’s upcoming annual meeting. Cinergy is one of the five largest carbon dioxide (CO2) emitters among U.S. electric power companies, which also includes American Electric Power, Southern Company, Xcel Energy Inc. and TXU Corp. All five utilities are expected to face simultaneous global-warming and other pollution- related shareholder resolutions during their annual meetings.

The actions were announced last week by a coalition of shareholders that included the State of Connecticut Plans and Trust Fund, and members of the Interfaith Center on Corporate Responsibility (ICCR), including the Presbyterian Church, USA. The coordinated effort reflects a growing concern among pension funds about the “hidden risks” involved in industries that contribute to global warming.

The shareholder resolutions focus on the potential risks to shareholders posed by the five utilities’ production of C02, the primary greenhouse gas emission linked to global warming. The resolutions ask that the companies report to their shareholders on the following: “(a) the economic risks associated with the company’s past, present, and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and mercury emissions, and the public stance of the company regarding efforts to reduce these emissions; and (b) the economic benefits of committing to a substantial reduction of those emissions related to its current business activities (i.e. potential improvement in competitiveness and profitability).”

State of Connecticut Treasurer Denise Nappier explained her fund’s interest in disclosure and reduction of portfolio company emissions: “Investors need the full picture to assess companies’ long-term investment value. Air pollutant emissions are some of the most measurable, relevant, and significant indicators of risk for this particular industry, and it’s our responsibility to ask what the company’s plans are to address that risk. We’re also concerned about the risks to investors global warming itself may bring, and think it’s important that our portfolio companies are not contributing to the problem.” For a full text of the shareholder resolution, go to https://www.hastingsgroup.com/FilthyFiveUtilities.html.

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