Duke Energy and El Paso Energy proudly put their third quarterearnings on display yesterday, touting improvements in unregulatedservices and downplaying drops in their respective gas transmissionperformances.

For the quarter, Duke’s earnings before interest and taxes(EBIT) increased from $1.18/share or $871 million in 3Q98 to$1.20/share or $908 million in 3Q99. El Paso reported a one centdrop from its third quarter performance in 1998, registering anEBIT of 42 cents/share or $180 million for 3Q99.

The EBIT of Duke’s gas transmission dropped from $178 million inthe third quarter of last year to $128 million this past quarter.The North Carolina-based company said the sale of its MidwestPipelines, including CMS’ purchase of Trunkline and EasternPanhandle Pipeline Cos., was a main factor in the performancedrop-off, subtracting $37 million from the bottom line. The companyalso absorbed a $39 million gas supply realignment (GSR) provisionrelease. Its Northeast Pipelines increased $16 million due tomarket expansion projects and lower operating costs compared to thethird quarter of 1998.

Richard Priory, Duke’s CEO, downplayed the gas transmissionresults and focused on the unregulated service operations. “Thestrength of our unregulated businesses continues to grow as weimplement our global energy merchant strategy,” Priory said. “OurEnergy Services’ portfolio of businesses and leading marketposition in natural gas liquids (NGL), as well as the continuedunyielding performance of our energy transmission and electricoperations businesses, are delivering on our promise of growth.”

Duke Energy’s Energy Services grew the most out of any Dukesubsidiary last quarter. The strong performance was led by DukeEnergy International (DEI) and Duke Energy North America (DENA),which reported a total EBIT of $128 million — a 288% increasefrom last year, the company said.

Duke Energy Field Services also excelled, reporting EBIT for thequarter of $49 million, an increase of more than $40 million fromthird quarter 1998. The main boost to this section’s earnings wasthe November 1998 acquisition of UPFuels (see Daily GPI, Nov. 24,1998), said Barry Abramson, a PaineWebber analyst.

“Their Field Services arm was a main driver in the big earningsreport. Its operations were given a double boost. Not only did theyacquire a main NGL producer in UPFuels, but NGL prices also rosesignificantly in the quarter. The earnings are so dramatic becauseDuke didn’t have UPFuels’ added production in 3Q98.”

For El Paso, both Tennessee Gas Pipeline Co. and El Paso NaturalGas reported an earnings decline. Tennessee’s earnings fell from$81.2 million to $76 million, mainly due to lower interest incomeand a three percent decline in total throughput from 4,317 BBtu/dto 4,197 BBtu/d. El Paso Natural had a successful quarter, postingan EBIT of $68 million compared to $57.7 million in the same periodprior, but it also had to absorb a one-time $14 million pre-taxcharge on a rate case settlement with Southern California Edison(see Daily GPI, Sept. 3). The charge not only dropped El PasoNatural’s earnings below 3Q98 levels, it also reduced the overallcompany’s EBIT by eight cents.

Despite these results, William Wise, El Paso’s CEO, expressedfaith in the company’s regulated operations and lauded theperformance of its unregulated sector. “Each of El Paso Energy’sbusiness units produced strong earnings,” said Wise. “Our regulatedbusinesses continued to deliver solid earnings performance, and ournon-regulated businesses continued their steep earnings growthtrajectory, up 83% year-to-year.”

Backing Wise’s point, El Paso Field Services Co. reported thirdquarter EBIT of $23 million compared to $12 million in 3Q98, on thestrength of higher NGL prices and contributions from EnCapInvestments and Leviathan Gas Pipelines. El Paso Merchant Energy,comprised of the company’s gas and power services arms, reported anEBIT of $9 million this past quarter compared to a break-evenreport for the same period last year.

El Paso’s overall performance impressed Ron Barone, anotheranalyst with PaineWebber. “Given the slightly higher than expected3Q results (as well as continued optimism for strong results in[the company’s] Field Services over the balance of the year), weare raising our 1999 stand-alone estimate on El Paso Energy to$2.00 from $1.95

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