Power generators Duke Energy Corp. and Southern Co., which bothprovide electricity to some markets in California, reported highfourth quarter profits and continued growth through the year lastweek. And, despite concern that the generators won’t be paid forenergy they supplied to nearly bankrupt California utilities, bothsaid they would pursue payments from their customers if they haveto.
While California problems were on the minds of some analystsduring conference calls with the Southeastern utility giants,executives with the power companies answered questions, but mostlydeferred to positive reports on overall fourth quarter earnings andexpected growth opportunities for the coming year. Duke’s revenuesdoubled, topping Wall Street expectations, and while Southern’strailed analysts’ expectations, it still reported solid gains,especially from its unregulated subsidiary Southern Energy.
Based on its earnings outlook, Charlotte, NC-based Duke onFriday raised its annual earnings per share growth target tobetween 10% and 15% for 2001, a rate that CEO Richard B. Prioryexpects to continue for the next few years.
“Duke Energy is a company on the move,” Priory said. “Ourcompetitive energy businesses are expanding domestically andabroad, and we have gained recognition as a growth company. Wedon’t plan to let up.”
Fourth quarter net income was $284 million, or 38 cents pershare, up from 1999’s fourth quarter net loss of $189 million. Itreported that excluding special charges, it had earnings of $353million for the fourth quarter 2000, or 94 cents per share, whichbeat the First Call/Thomson Financial estimate of 88 cents.
Fourth quarter revenues were $15.4 billion, up from $6.2 billionfor the same period a year ago. For 2000, Duke earned $1.78billion, or $4.78 per share, up from $1.51 billion, or $4.08 ashare in 1999.
Duke reported ongoing 2000 earnings of $4.20 a share, a 17%increase from 1999, with its competitive energy businesses leadingthe way. Priory said that trend will continue.
“We expect to grow this company through the addition of newbusinesses and more development where markets provide the greatestrewards,” he said. New earnings targets will be keyed to its NorthAmerican, international, energy field services and venturesbusinesses, along with an expanding gas transmission business.
Duke owns four California power plants that generate a totalcapacity of 3,300 MW for about 500,000 homes, but officials did notbreak down how much it has profited in California or other statesspecifically last week. Most of Duke’s operations are outsideCalifornia, and other power generators are expected to registermore profit there as fourth quarter reports are released.
Though Duke officials acknowledged that some Californians feelthat out-of-state generators are gouging the state, they “don’texpect to let up on any effort to collect” on the power the companyhas supplied there. Priory said the company, which faces nonpaymentfrom its nearly bankrupt California customers Pacific Gas andElectric and Southern California Edison, said Duke would “pursueall receivables and collect if we can.”
However, Duke did reserve $110 million in the fourth quarter inthe event it cannot collect on debts owed for its electricity salesin California. As of Dec. 31, Duke had about $400 million inoutstanding 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, butreported that its fourth quarter profits were smaller than expected— up 3.4% from a year earlier. The company is considering aspin-off of Southern Energy Inc. on April 2. The subsidiaryofficially becomes Mirant Corp. today, to be traded under thesymbol “MIR.”
Southern, which has utility operations in 11 countries besidesthe United States, expects to see only a small rise in its earningsthis year. Earnings from operations in the fourth quarter were $148million, with colder weather and a strong economy offset bymandated revenue sharing and increased non-fuel expenses. Earningsper share from operations actually dropped to 21 cents from 22cents, which was lower than First Call/Thomson Financial analysts’estimate of 25 cents a share.
For 2000, Southern reported a 12% earnings increase, with recordoperating 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 threemajor areas: traditional retail business in the Southeast,competitive generation in the eight-state “super Southeast,” andnew products and services for energy customers. It also plans todevelop or acquire more than 7,500 MW dedicated to the competitivewholesale business by 2005.
Subsidiary Mirant Corp. (Southern Energy), meanwhile, reportedthat 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 20cents a share, compared with $53 million, or 16 cents a share inthe fourth quarter of 1999. First Call/Thomson Financial hadpredicted earnings of about 15 cents a share.
Mirant’s earnings included credit reserves to account for theCalifornia power crisis, where it supplies energy to nearlybankrupt PG&E and SoCal Ed. Responding to criticism thatSouthern was indifferent to California’s energy problems and was incollusion with other suppliers to turn a profit, CEO Marce Fullersaid those charges were “ludicrous,” and said the company wouldattempt to recover the costs of all the energy supplied to thestate.
In 2001, Mirant expects to bring three plants online inMichigan, Texas and Louisiana and by the end of the year, expectsto have more than 15,000 MW under ownership or control throughoutkey regional markets.
“Mirant plans to continue building power plants, not only todiversify our portfolio, but also to help ease the pressure ofincreased power demand in regions where resources are scarce,”Fuller said. “A deregulated marketplace will not flourish withoutall the necessary components. New power generation is necessary tomaintain a strong wholesale market.”
Though both Duke’s and Southern’s stock has slumped in the pastfew weeks partly related to ongoing California problems, analystJustin Craib-Cox of Morningstar said he thought the two companieswere in a good position for the long haul.
“They both sell wholesale power to troubled incumbent utilitiesPG&E and Southern California Edison,” he said. “While long-termand short-term solutions to the mess in California are impossibleto predict, we like Duke and Southern’s strategies of positioningthemselves as market leaders in the fastest growing areas of theutility industry, and we don’t think California’s problems willdrag down their growth rates.”
He said he thought the shares of the companies were “attractiveat current levels, given that Duke, Southern and Southern Energyhave all seen their stock prices sag because of the fallout fromCalifornia.”
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