Duke to Halt Energy Trading in North America to Free Up Cash, Guard Rating

Resumen de Prensa            Enervía, lunes, 14 abril 2003

FUENTE: Bloomberg


Duke Energy Corp., the largest U.S. utility owner by revenue, will shut its speculative energy-trading business in North America to reduce collateral payments and preserve the company's credit rating.

Duke Energy North America, which owns unregulated power plants, will cut ``about a dozen'' energy-trading jobs, and about eight workers will be transferred to other parts of the company, spokesman Terry Francisco said. Duke had been trading crude oil, natural gas and electricity since the mid-1990s, he said.

The utility owner is retreating from trading after Moody's Investors Service said it may downgrade $22 billion of Duke debt on concern the company may have overestimated cash flow. Rivals including Mirant Corp. and Dynegy Inc. have quit or scaled back trading since Enron Corp.'s bankruptcy in 2001 spurred regulatory probes of bogus transactions and accounting.

Energy trading is a ``dying business,'' said Mark Maloney, who helps manage $2.5 billion at John Hancock Funds, which owns Duke shares. ``The rating agencies give it more downside risk than upside.''

Shares of Duke rose 30 cents to $14.39 in New York Stock Exchange composite trading. The stock has fallen 63 percent in the past year.

The speculative trading desk being closed is a part of Duke Energy North America, which also owns the company's portfolio of power plants in the U.S. and Canada. Duke's share of the output of those plants is 14,157 megawatts, or enough electricity for 11.3 million average U.S. homes.

Some Trading Remains

Duke will retain the traders who buy fuel and sell power on behalf of the plants, spokeswoman Kate Perez said. Duke Energy North America currently has about 200 people employed in marketing and trading.

Charlotte, North Carolina-based Duke was the second-biggest electricity marketer and the third-biggest gas marketer in the third quarter of 2002, according to the industry newsletter Natural Gas Week. Those rankings are based on both speculative and asset-based trading.

Speculative trading represents less than 10 percent of Duke Energy North America's ``overall merchant energy gross margin,'' the company said in a statement. Perez declined to elaborate. ``Gross margin'' does not appear in the annual report the company filed in March with the U.S. Securities and Exchange Commission.

In a January press release, the company said Duke Energy North America reported earnings before interest and taxes of $165 million last year, down from $1.49 billion in 2001. The decline of about 89 percent was ``primarily due to low price volatility levels, reduced spark spreads, decreased market liquidity and asset write-downs,'' the release said.

How Fast?

It's not clear how rapidly Duke will try to exit its trading contracts, said Leslie Rich, a utilities analyst at Bank of America Corp. in New York, which owned 3.55 million Duke shares as of Dec. 31.

Houston-based El Paso Corp., which announced a plan to quit energy-trading last November, has lost money as it worked to exit contracts quickly, Rich said. Columbus, Ohio-based American Electric Power Co., which also is quitting the business, has preserved profits by agreeing to deliver on contracts until they expire, he said.

``Any positions that we have outstanding will be wound down in an orderly manner,'' Perez said.

Cash that's being used to guarantee the speculative trading business would be returned as Duke unwinds the trading positions, Francisco said.

Duke's North American trading business, based in Houston, has typically been required to post between $100 million and $200 million with its trading partners, Francisco said. He declined to disclose the current amount.