Duke Energy said Tuesday that it will take a $1.3 billion non-cash, pretax charge ($0.88 per basic share) in the third quarter because of a decision to sell off all of Duke Energy North America’s (DENA) physical and commercial assets outside the midwestern United States. The proposed sale includes about 6,200 MW of power generation as well as DENA’s trading book.

Duke’s board already has approved the plan, which it said is expected to boost 2005 earnings per share by 5 cents to $1.65. The asset sale is expected to be completed in the next 12 months as Duke and Cinergy continue through the regulatory process on their $9 billion mega utility merger (see Daily GPI, May 10).

“In recent years, we have devoted significant management attention to returning DENA to profitability and to developing a sustainable model for this business,” said CEO Paul M. Anderson. “We have made a great deal of progress, reducing DENA’s portfolio of assets and its trading book. But ultimately, we’ve determined that achieving our objective of break-even for DENA by the end of 2006 is not realistic without taking on an extraordinary amount of additional risk. Because we are not willing to increase our risk profile, we believe it is best from a shareholder value standpoint to exit the remaining business.

“Over the year ahead, we will be exiting DENA’s trading book and working to achieve the highest value for DENA’s remaining assets through sale or other disposition.”

DENA reported a segment loss from continuing operations of $56 million in second quarter 2005, compared to a loss of $38 million in second quarter 2004. Duke CFO David Hauser said earlier this year that the company was looking for a joint venture partnership deal for DENA. He said Duke was involved in discussions about a possible transaction.

DENA’s remaining power generation assets are located primarily in the West and Northeast. The company sold 5,325 MW of southeastern power generation to K Gen Partners LLC last year for $975 million, which included $425 million in cash, a note receivable of $50 million and $500 million in tax benefits.

Duke said it will remain active in the merchant power sector. As envisioned in the proposed merger with Cinergy, announced in May, Duke expects to combine DENA’s existing Midwest assets, 3,600 MW of power generation, with Cinergy’s commercial operations, providing a sustainable merchant business model in the region.

“Exiting DENA’s business outside the Midwest provides us with a fresh start and allows us to fully focus on the future,” Anderson said. “The merger with Cinergy provides new opportunities and allows us to focus on the consolidation of the electric utility industry and on growing our gas businesses. We continue to anticipate closing on the merger in the first half of 2006.”

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