Duke Energy said Friday it is discontinuing proprietary trading at its North American merchant energy businesses, Duke Energy North America (DENA) and Duke Energy Merchants, to focus on more profitable businesses.

Fred Fowler, COO, said the changes would reduce the company’s risk profile and collateral needs and “is consistent with our strategy of sizing our business to market realities.”

Until Friday, Duke had pursued interests in crude oil, natural gas and power proprietary trading in the United States as well as the proprietary trading of crude oil in Europe. However, Duke noted that its gross margin from proprietary trading had historically represented less than 10% of the overall merchant energy gross margin.

“Our proprietary trading operations had already been scaled back in recent months,” said Robert T. Ladd, president of DENA. “By exiting proprietary trading, we can further align our trading and marketing efforts more closely around our contractual and physical assets, which include generation, gas transportation and storage.”

During a conference call on Tuesday, Fitch Ratings senior director Robert Nornick said the Charlotte, NC-based company’s forecast was “overly reliant” on some unhedged power sales. However, he added that most of Duke’s earnings came from its more predictable pipeline earnings.

In March, Duke CEO Richard Priory announced the company would cut its 2003 forecasted capital expenditures to $3 billion from a previous $3.2 billion to ensure there was enough financial flexibility this year (see NGI, March 17). Of the $3 billion, Priory noted that the company had to have $1.8 billion to pay for pipeline expansions, environmental projects and two power plant completions. Duke is scheduled to deliver its first quarter earnings report on April 30. On Thursday, the stock price closed at $14.09; it has traded as high as $39.60 in the past year.

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