Duke Energy to refund $207.95 million to Western governments, utilities
The Charlotte Observer, N.C. - July 14, 2003
Duke Energy Corp. said Tuesday it will refund $207.5 million to Western state governments and utilities that accused energy companies of charging unjust rates during the region's 2000-01 power crisis.
"It appears to be the end of another hard fought battle we waged on
behalf of the ratepayers to return money that was lost as a result of the energy
crisis," said California Public Utility Commission President Michael Peevey.
Duke said it raised prices during the crisis in California because the agency
buying power for the state wasn't paying its bills and was a credit risk.
The settlement, which still needs approvals from state and federal regulators
to be final, effectively closes one of the most arduous chapters in Duke's
100-year history.
Duke has settled or been cleared in almost all the related investigations,
professing its innocence throughout. Only a handful of investigations remain,
and Duke sees none of them as being potentially costly.
Analysts and credit-rating agencies called Tuesday's settlement favorable for
Duke.
The company says it acted appropriately during the crisis, but it was in line
to pay refunds regardless, after the Federal Energy Regulatory Commission
decided that power producers in California and the West -- including Duke --
overcharged on both short-term and long-term contracts.
Only the amount was up for negotiation. A FERC judge pegged it at $1.8
billion, California utilities and politicians say it's closer to $8.9 billion.
The total will likely be closer to $3 billion.
If Duke hadn't settled, it would have faced years in court, which meant large
legal bills: about $10 million to $12 million annually, spokesman Pete Sheffield
said.
FERC officials have said such court battles could last a decade.
The settlement clears a large shadow of uncertainty that had weighed down
Duke's stock, analysts said. Duke shares rose 12 cents to $20.59 Tuesday.
"Just to get these things resolved is a breath of fresh air, simply
because they are going to be avoiding indefinite death by litigation," said
John Olson, chief investment officer of Sanders Morris Harris in Houston, who
owns Duke stock.
Standard & Poor's said Duke has enough cash and credit to pay the
settlement and gave the settlement a favorable rating.
"I think a real incentive for companies to enter into these settlements,
regardless of whether they committed any wrongdoing, is to provide some
certainty," said FERC spokesman Bryan Lee. "Certainly, Wall Street is
looking for that."
Fred Fowler, Duke's president and chief operating officer, said the
settlement "is in the best interest of our shareholders, our company and
western energy consumers as we resolve these issues and focus on meeting the
current and future energy needs of California and other western states."
The settlement also resolves:
--Investigations into market pricing by the attorneys general in California,
Washington and Oregon.
--Private class-action suits related to electricity filed on behalf of
California, Washington, Oregon, Idaho and Utah ratepayers.
--Questions about natural gas prices raised by the California attorney
general and three big California utilities: Pacific Gas and Electric Co.,
Southern California Edison and San Diego Gas & Electric.
The settlement, which could take months to approve, includes $85.1 million in
cash and $122.4 million in unpaid bills that Duke will wipe away.
On its books, Duke will take a $104.9 million pre-tax charge in the second
quarter to reflect the settlement. That should be offset by a one-time pre-tax
gain during the quarter of $130 million, spokesman Sheffield said.
The gain came from a bankruptcy court settlement related to payments between
Duke and Enron Corp.
Duke follows Dynegy Inc. and Williams Cos. as big power producers to settle
refund amounts in the West. Dynegy settled for $281 million, and Williams for up
to$140 million. Williams also lopped $1.4 billion off a $4.3 billion contract,
signed amid the crisis, to sell power to California over 10 years.
FERC had hoped those two first settlements would prove to be a template for
future agreements, spokesman Lee said, and they were in Duke's case.
The $207.5 million price tag of Tuesday's settlement includes a previous $3
million settlement Duke had agreed to with FERC.
That settlement cleared Duke of allegations of unethical trading practices
and of "economic withholding," in which companies try to drive up the
market by asking for high prices.
FERC said it found 49 cases where Duke asked for more than $250 per megawatt
hour between May 1, 2000, and Oct. 1, 2000, but not enough to establish any
pattern by Duke to drive up wholesale prices.
Duke charged as much as $3,880 per megawatt hour in California in 2001, The
Observer reported that year. That's the same amount of energy a Carolinas
residential customer uses in a month, paying $73 at retail.
Duke said its average sales price in California during the first three months
of 2001 was $136 per megawatt hour. FERC staff had previously cleared Duke of
accusations of turning off its power plants to choke off supply and drive up the
price for power.
Still on the horizon for Duke are a San Francisco grand jury and several
suits related to so-called "round-trip" trades, where two energy
companies swap equal amounts of power or natural gas for equal prices to boost
revenue.
DUKE OUT WEST
--1998: California power deregulation begins, Duke enters market
--May 2000: Power prices begin to spike
--Jan. 2001: First blackout
--June 01: FERC caps power prices
--Feb. 02: FERC begins price manipulation investigation
--Dec. 02: A FERC judge says suppliers owe California $1.8 billion in
overcharges
--March 03: FERC says suppliers owe California more than $1.8 billion but
less than the $8.9 billion state utilities and politicians say they should get
--Aug. 03: FERC staff clears Duke of charges that it intentionally shut down
plants to choke off supply and drive up prices.
--Dec. 03: Duke and FERC announce settlement that clears charges it used
unethical energy-trading practices and demanded unnecessarily high prices
--Tuesday: Duke announces $207.5 million proposed settlement with Western
states and utilities on refunds for the power crisis.
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