Duke Energy on Wednesday reported a loss of more than 10% in net income for the second quarter due to the poor performance of its merchant energy business in a warmer-than-usual summer. American Electric Power (AEP) saw a sharp rise in reported net earnings for the period, but income from ongoing operations fell by nearly 4% for the second quarter.

Charlotte, NC-based utility giant Duke Energy turned in net income of $424 million, or 46 cents a share, for the second quarter, compared to $474 million, or 57 cents a share, in the year-ago period. The results included a pre-tax gain of $237 million, or 16 cents a share, from asset sales, against a pre-tax gain of $61 million, or 4 cents a share, for the second quarter in 2002.

In contrast, AEP said it nearly tripled its reported net earnings for the second quarter, posting $175.3 million, or 44 cents a share, compared to $61.9 million, or 19 cents a share, for the same period in 2002. The gain was not so much the result of an improved performance on AEP’s part during the period, but rather was due to the fact the company’s second-quarter earnings in 2002 took a major hit of $119.7 million in special charges related to the sale of its SEEBOARD and CitiPower operations.

Excluding the special charges for SEEBOARD and CitiPower, AEP’s earnings from its ongoing operations in the second quarter of 2002 were $181.6 million, or 56 cents share, the Columbus, OH-based company said. This compared to $174.9 million, or 44 cents a share, from ongoing operations for the latest quarter.

“2003 is proving to be another challenging year with a weak merchant energy sector and a sluggish economy,” said Duke Energy Chairman Richard B. Priory. Nevertheless, he predicted the company will achieve earnings per share (EPS) of $1.35-$1.60 for the entire year, before a charge for a change in accounting principles.

Likewise, AEP cited the weather, economy and outages its Donald C. Cook Nuclear Plant and partially owned South Texas Project Nuclear Plant as key factors in the poor performance of its utility operations in the second quarter. “The Midwest weather was extraordinary mild in the second quarter…This reduced residential demand. Temperatures in our western states were a bit above normal, but still below last year. We’re also seeing continuing pressure on industrial demand…Industrial load was down almost 5% from last year’s second quarter, continuing a decline that began in 2001,” said AEP Chairman E. Linn Draper Jr.

Still, the company expects to see EPS of $2.20 to $2.40 for 2003, “as we anticipated prior to the start of the year,” he noted.

Duke Energy reported that earnings before interest and taxes (EBIT) for its franchised electric operations fell to $316 million in the second quarter from $388 million in the year-earlier period due largely to cooler-than-normal weather and higher depreciation and amortization costs ($26 million), primarily related to a North Carolina clear air measure.

Duke Energy Natural Gas Transmission (DEGT) also turned in a lower EBIT of $306 million for the second quarter from $313 million in the 2002 period, despite the benefit of a pre-tax gain of $31 million from the sale of DEGT’s ownership interest in the Alliance Pipeline/Aux Sable processing plant. Duke estimated year-to-date EBIT for its natural gas pipeline operation at $729 million, up significantly from $579 million for the first half of 2002.

Duke Field Services posted a second-quarter EBIT of $76 million, nearly double the $41 million reported a year ago, due to higher gas prices and favorable results from hedging the price of natural gas liquids during the period, the company said. The six-month EBIT for Field Services was estimated at $109 million, compared to $76 million for the first half of 2002.

Cash flow from operations for the first six months of the year was $1.9 billion compared to $1.5 billion for the same period in 2002, Duke Energy said. Its cash flow had been bolstered by its asset sales. The company said it surpassed its 2003 goal of realizing more than $1.5 billion in gross proceeds from asset sales.

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