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DukeEmployees.com - Duke Energy Employee Advocate

Duke - Page 4 - 2003

"If [Duke]management would just come clean all at once -- instead of just
dripping out news -- their stock wouldn't be at $12.95 today." – TheStreet.com

Fox Convention Update

Employee Advocate – DukeEmployees.com – March 24, 2003

Duke Energy commented to employees about the Forum for Corporate Conscience. It seems that Duke helped sponsor the event, and Rick Priory was on the forum’s board of advisors. Everything is falling right into place.

The Fox Convention was held. And, who better to advise the forum than the master fox, Rick Priory? The event had all the smell of a smokescreen from the start. This bit of information merely confirms it.

Mr. Priory has proven for over six years that he is a master of evading the issue. If he can provide a distraction, he will.

The event was obviously designed to give the appearance that management was interested in something other than packing Mr. Priory’s pockets with the maximum amount of money. Let’s face it; the Wall Street Journal ads were a complete failure. When anyone needs a forum to try to develop a conscience, you know that they are indeed desperate.

So, after years of stabbing people in the back, management now suddenly seeks a clue as to where they may have went wrong?

All the corporate appeasing groups flocked to the forum to pitch their agenda. Employees have spelled out the problems to Mr. Priory since he first assumed his present position. By choice, he ignored almost all of them. Now he is creating some straw issues in an attempt to seem effective and concerned. By drawing attention to created issues, he hopes to continue to ignore the real problems.

Two injustices will harm employees the most: the cash balance pension conversion and lost retirement health coverage. That is where employees universally lost the most earned benefits. It is where Duke gained the most at the expense of employees.

Naturally, Mr. Priory would prefer to focus on some window dressing to obscure the real issues. He stands willing to advise other corporations on how to evade the real issues.

Some of the issues brought up at the forum may have merit. But they should not serve as a decoy. The benefits that employees already had should come first. Employee benefits have not reached parity with 1996. Until they do, everything else is smoke.

When anyone asks why the hens continue to be eaten, Mr. Priory will now have an answer. We have held a Fox Convention, and the matter should now be well in hand.

Fox Convention

Will Duke Cut the Dividend?

N. Y. Times –by Tim Gray – March 24, 2003

Utility Dividends Aren't a Sure Thing

(3/23/03) - For decades, most electric power companies have delivered a steady stream of dividends. But over the last year, many shareholders have learned to their chagrin that dividends don't come with a guarantee.

At least 13 energy companies with major electric utility divisions, including American Electric Power of Columbus, Ohio, the country's largest power generator, have announced in the last 12 months that they are reducing or suspending dividends. And analysts and portfolio managers have cited others, like Duke Energy of Charlotte, N.C., and TECO Energy of Tampa, Fla., as companies that may be unable to maintain theirs.

The reductions are rooted in the 1990's, when power companies tried to attract investors by embracing deregulation and seeking new ways to grow. "The new economy was a very painful experience for these guys," said Paul Patterson, an analyst at Glenrock Associates in New York. "Their stocks went to incredible lows, and it wasn't like they'd done anything wrong but being boring."

Dullness, however, is not much of a stock market liability these days, especially if that means a company can pay its shareholders. Once-dowdy dividends have found new allure. President Bush has called for eliminating taxes on them, and if Congress agrees, "a good solid utility stock becomes a very good alternative to a municipal bond for individual investors," said Mark Luftig, co-manager of the Strong Dividend Income fund. "And if we get inflation," he added, "it'd be a heck of a lot better because bond prices will go down."

Dividends can bolster a portfolio's total return. In the 1990's, technology stocks, which typically do not pay dividends, overshadowed dividend-paying companies like utilities. But investors' ardor for technology blinded them to a benefit of dividends: an income stream even when the company's stock price sinks.

Many electric companies' dividends remain as reliable as the power flowing through their high-tension wires. The Edison Electric Institute, a trade group, found that four-fifths of the largest power companies raised or maintained their dividends in 2002. Bill Brier, the institute's vice president for communications, expects similar numbers this year.

UZANNE SMITH, a director at Standard & Poor's Rating Services in New York, said "a perfect storm" in the industry had buffeted the companies that had to suspend or reduce their dividends.

The bankruptcy of Enron, an energy trader, focused public attention on the industry's troubles. Credit-rating agencies redoubled their scrutiny of power companies.

Their reviews came as the companies were grappling with lower prices for their power because of the sluggish economy — and their own mistakes.

Facing deregulation, many had scurried to build plants that would sell power on the open market. Known as merchant plants, their electricity rates are determined in the marketplace and are not set by state regulators.

The new merchant plants created a power surplus, pushing down prices. And companies took on short-term debt to pay for construction. Standard & Poor's estimates that $40 billion in electric-power debt will come due in 2003, and that $50 billion more will be due over the next three years.

Together, lower power prices and greater indebtedness caused a cash shortage.

Dividend cuts offered a reprieve. "One thing about cutting the dividend is that the benefit is immediate," Ms. Smith said. "Asset sales can take time and come in at a lower price than you expected."

American Electric, for example, proposed to reduce its dividend this year to 35 cents a quarter, from 60 cents, as one of a series of measures aimed at paying off debt, said Susan Tomasky, the executive vice president and chief financial officer. In April, its board will vote on the reduction, which could save more than $335 million a year. American Electric is also raising cash by selling assets and issuing more stock — diluting the holdings of existing shareholders — and it is cutting costs, by eliminating 1,300 jobs.

At CenterPoint Energy in Houston, a syndicate of banks required the cut in the dividend — to 10 cents from 16 cents a quarter — as a condition of refinancing $3.85 billion in debt, said Gary Whitlock, executive vice president and chief financial officer. The company announced the refinancing on Feb. 28.

"That night, we had a glass of Champagne," though in a plastic-foam cup, Mr. Whitlock said.

Money managers say individual investors should consider the same sorts of factors that managers do in assessing the stability of a dividend.

Take time to understand the company, said Bob Becker, manager of the Franklin Utilities fund. If the bulk of its sales come from selling regulated power, it should be able to maintain its dividend. Mr. Becker also likes to see relatively low indebtedness; a debt-to-capital ratio of less than 55 percent is his touchstone.

Judy Saryan, manager of the Eaton Vance Utilities fund, suggested that investors also check two key ratios — the dividend yield and the payout ratio. The yield is calculated by dividing a company's annual dividend by its stock price, while the payout ratio is the annual dividend divided by the company's annual per-share earnings.

Ms. Saryan said the median yield among the dividend-paying electric utilities she follows was about 5 percent. A yield of 7.5 percent or more is often the market's way of saying a dividend may not be sustainable. (The yield rises when the share price falls.)

The average payout ratio among Ms. Saryan's companies is about 55 percent. She worries when that ratio hits 70 percent.

Companies that money managers believe will maintain their dividends include the FPL Group, based in Juno Beach, Fla.; the Southern Company, in Atlanta; and Exelon, in Chicago.

Companies that may have trouble include Duke and TECO, in the view of many portfolio managers. Both have higher-than-average yields because of slumping share prices. Duke's yield is 7.14 percent; TECO's is 12.97 percent. Duke's annual dividend is $1.10 a share; TECO's is $1.42.

Executives at both companies have said repeatedly that their dividends are safe.

ATE on March 12, Moody's Investors Service said that it was considering a downgrade of TECO's debt because of concerns about the company's cash flow, and the stock fell 7.5 percent the next day over worries about its ability to maintain the dividend. The stock has since gained some ground, and closed on Friday at $10.95. Laura Plumb, a spokeswoman for TECO, said it would not comment about the dividend until its next meeting with analysts on Friday.

Robert Brace, Duke's executive vice president and chief financial officer, reaffirmed its commitment to its dividend. "We've been very clear," he said, "that paying the dividend is what we intend to do."

Duke's two main businesses — Duke Power, a regulated utility, and Duke Energy Gas Transmission, a natural-gas pipeline company — will produce 80 percent, or $2.8 billion, of the company's earnings before interest and taxes in 2003, which should provide plenty of cash for debt and dividends, he said.

The spate of dividend cuts has made at least one company, dismissed as stodgy not long ago, look smart today. For years, Progress Energy in Raleigh, N.C., was overshadowed by Duke. Analysts rhapsodized about Duke's innovations and its efficiency as a nuclear-plant operator. They chided Progress for its less-efficient operations. Duke built many merchant plants and created a hefty energy trading operation. Progress stayed mostly with generating regulated power.

For years, Duke's stock outperformed Progress's. But lately it has lagged behind. In the last 12 months, Duke's shares have slipped 57 percent, compared with a loss of 14 percent for Progress's.

While Duke has been dogged by dividend questions, Progress is raising its dividend by 6 cents a share, to $2.24 annually, the 15th consecutive annual increase.

John R. Kirwan, an investment broker in Matthews, N.C., with Carolina Financial Partners, said he wished that Duke had chosen the more conservative path.

About a third of his clients hold Duke stock — "some of them 25 shares, some of them thousands" — and "they've taken a 50 percent hit in the head in the last six months," he said.

Fox Convention

Employee Advocate – DukeEmployees.com – March 17, 2003

The Forum for Corporate Conscience was cloaked in secrecy, according to reports in The Charlotte Observer. Reporters were allowed to attend, but were confined to a separate room. They had to view the proceeding via closed-circuit TV. This was probably necessary. Otherwise, the CEO’s would have been breathing the same air as, gasp, reporters!

Also, there was an alcohol swilling session before the meeting. They certainly could not have reporters running amok, drinking up free liquor, getting too chummy with the dignitaries, and hearing a bit more than was intended.

Leigh Dyer wrote “A phalanx of public relations staffers fiercely guarded CEOs arriving for The Forum for Corporate Conscience on Friday, shielding them from close encounters with the media.”

The entourage was no doubt thrown into a tizzy when some normal humans, wearing bathrobes and bathing suits, approached the reception room. The day was saved when the Gestapo instantly sprang into action and “hurriedly ushered them out.”

Warren Buffett proceeded to blast excessive CEO pay as a reason for the loss of investor confidence. Of course, Mr. Buffett is right; he usually is. He did not get to be the second wealthiest person in America by usually being wrong. Mr. Buffett did acknowledged his head start in acquiring great wealth, because of being born into wealth.

Excessive pay was not the message that the CEO’s wanted to hear. They wanted something more along the lines of: “We need to align the vertical matrix with a more proportional distribution of diversified commonalties blah, blah, blah…” They did not want to get blasted by one of their own kind. Being a wealthy CEO does not deprive Mr. Buffet of common sense and an appreciation of justice. He also faulted the Bush tax cut as being unjust.

One article pointed out that Mr. Buffett “was among the few men in the room not wearing a suit.” It is very possible that Mr. Buffett did not feel that there was anyone in the room that he needed to impress.

A photo showed Rick Priory sitting beside Mr. Buffett. His words undoubtedly seared Mr. Priory like a hot poker. We do not know if Mr. Priory put his fingers in his ears and sang “Nay, nay, nay, I can’t hear you.”

The meeting was a typical knee-jerk reaction by CEO’s after having been caught with their hands in the cookie jar a few too many times. CEO’s and other executives have been having these types of meetings for months. These “Where Did We Go Wrong” secession would not be necessary if management would have only listened to their employees years ago.

Employees have brought up ethics violations for years, only to be ignored. In many cases, management was told specifically what laws were being broken and where. CEO’s often have difficulty seeing past their egos, and could not accept that, perhaps, the employees were right. They had no time to be concerned with matters of ethics or integrity. Apparently, it was felt that this time could be better spent in devising ways to get a few more millions of dollars in stock options. Ethics statements are fine for hanging on wall, but what is really dear to the heart of a CEO is the take in stock options.

After being ignored by the CEO’s and other executives for years, employees found others willing to listen. The Equal Employment Opportunity Commission, IRS, Treasury, Labor Department, Nuclear Regulatory Commission, state utility commissions, FBI, Federal Energy Regulatory Commission, Congress, law firms and the media took time to listen to the concerns of workers.

The rest is history. Not all corporations have survived the increased scrutiny. Some CEO’s, once revered as gods, are now unemployed and facing indictments. More will likely fall. Now CEO’s are on the defensive; they are in the damage control mode.

Look! If individual CEO’s could make such bone-headed decisions to get into this predicament, what will be the aftermath of over 100 of them getting together to “solve everything”? One shudders to even think about it! Will their tribulations increase 100 fold?

Duke had a chance to resolve concerns that power plants were deliberately kept off line in California. Workers were told to “shut up and do your job,” according to The Orange County Register. Duke chose to ignore its workers concerns. When three former employees testified in court that it appeared that plants were taken off line to jack up power prices, Duke suddenly wanted dialogue. Management then wanted to talk. Executives were willing to explain. Everything was just a big misunderstanding and Duke executives wanted to talk, talk, talk. They wanted to talk so much that ad space was purchased in The Wall Street Journal to explain it all!

Allegations were made back and forth over the matter. No one was surprised when Duke sought to discredit those who testified. The issue was then strangely quite for over a year. Rick Priory wasted no time in claiming victory. But in December 2002, these employees told San Diego Union-Tribune reporters that they had been intimidated into silence by the Federal Energy Regulatory Commission. One of the whistle-blowers stated "In our opinion, they were working for the power company to discredit us."

To our knowledge, the issue has not been resolved, despite the one premature claim of victory. No matter how the issue is eventually resolved, would it not have been better for the company to have given straight answers to the workers at the beginning? That is, if there were legitimate answers to give. If there were not legitimate answers to give, that should have been a cue to management to clean up its act.

Another case of Duke brushing off concerns by employees was not so murky. A Duke accountant pointed out to management just what laws were being broken. His repeated questions were ignored. They were ignored until he reported his findings to the utility regulators. Then Duke wanted to explain. It seems that this was just another big misunderstanding. Management insisted that it was not really hiding profits from the regulators, it just looked that way.

Executives suddenly became so concerned about the issue that a Duke investigation was conducted. Duke came out clean from its own investigation, other than a few mistakes claimed. The regulator from two states did not buy it and ordered an independent investigation. The outside auditor nailed Duke. Millions of dollars were paid to settle the matter, but Duke still claimed no intentional wrongdoing.

After the settlement, a federal grand jury took an interest in the issue. The grand jury and FBI are now conducting their own investigation. This whole snowballing issue started because Duke would not give an employee a straight answer. Stonewalling, hiding, and denying has served Duke well for many years, but it’s not working any more. Employees, the public, and investors have had enough. Deny, deny, deny is not working quite as well as it used to work.

Executives were warned in 1996 that the proposed cash balance pension conversion appeared to violate age discrimination laws. This was shortly before Mr. Priory’s reign of terror began. Employee concerns were dismissed. When Mr. Priory became CEO, he continued to ignore repeated calls for pension justice. Only then did pension age discrimination charges begin to be filed against Duke Energy.

The charges have not been resolved. The company has had ample chances to come clean, but chose to deny all and obscure the facts. Again, the blanket policy of always denying everything is not working too well these days.

The meeting was Chaired by former Bank of America Chief Executive Hugh McColl Jr., who took the opportunity to tell one of the biggest lies in history:

"As the risk takers, we are the ones in the arena. We are the ones who have everything at stake. We are the ones who need to lead reform."

The typical CEO of a large corporation is not a risk taker, but a parasite. The small business person who has taken out personal loans to finance his business is truly a risk taker. If his business fails, he will lose everything, including his home. And, the employee, depending upon the board of directors to keep its word on benefits, is the biggest risk taker of all! He can work for 30 years to reap only “vapor benefits.”

The typical fat cat CEO risks nothing. He often comes into the position with millions of dollars as a signing bonus. Right from the start, he is given money for nothing – there is no way he can lose! Plus, there is usually a contract guaranteeing an amount of money for a fixed number of years. If he gets thrown out, he will often draw full salary until the contract expires. If the CEO bombs out completely, another corporation will likely hire him, because he has experience. There seems to be no points off if the experience is only in leading a company to failure.

The CEO risks no money. The investors take all the monetary risk. The CEO takes no physical risk. Anything physically dangerous will be performed by the employees.

So, the CEO gets big money, up front, for nothing, is guaranteed to make more, takes zero financial or physical risk, and is catered to by his minions. Just what risk is Mr. McColl referring to – perhaps a nasty paper cut?

If the CEO raids the pension fund, he will be rewarded for it. He does not even have to know how to do it. A consulting firm will gladly sell him a method to take out the amount of money he specifies.

Mr. McColl said “We are the ones in the arena.”

Perhaps he meant to say “We are the one is the ring,” as in a three-ring circus!

Mr. McColl said “We are the ones who have everything at stake.”

Contrary to his assertion, the CEO has zero at stake. Investors put their wealth into the corporation. Employees put their lives into the corporation. The CEO is usually only on the receiving end. The investor may go bankrupt. The employee may lose his life. The CEO can only be showered with money. Even if the corporation goes into bankruptcy, the CEO will likely be offered a fat bonus to stay on!

Mr. McColl said “We are the ones who need to lead reform.”

And why not? The CEO’s lead the way to corruption!

Mr. Buffett earns a base salary of $100,000.

G. W. Bush is pushing to limit medical malpractice settlements to $250,000. Americans would be better served if CEO total compensation was limited to $250,000.

Amber Veverka reported: “Some at Ballantyne have doubts about what real change will emerge from the weekend's soul searching. There was a fair amount of self-congratulation Saturday; executives who said their discussions affirmed they were doing the right things already -- giving workers time off to volunteer in schools, bankrolling employees' health care, donating to charity.”

The foxes are once again having a convention. This time they vow to really solve the problem of hen house raiding!

Buffett Targets CEO Pay

Duke's Dividend

FT.com – by Sheila McNulty – March 16, 2003

(3/14/03) - Duke Energy has bucked a growing trend among energy traders by maintaining its dividend while others cut back or eliminate theirs to shore up bottom lines.

"Duke Energy has paid quarterly dividends for 76 consecutive years and our plans for 2003, which have been approved by the directors, support the dividend at the current pay-out of $1.10 a share," Rick Priory, Duke chairman and chief executive, said yesterday.

The announcement sent investors scrambling for Duke's shares, which were up almost 6 per cent to $13.13 by midday.

Mr Priory also said Duke was cutting capital expenditures from $3.2bn to $3bn in 2003 and aimed to sell $600m in non-strategic assets this year.

But the concerns of analysts were not eased by the North Carolina-based company putting its dividend first despite financial difficulties. They have been scrutinising Duke and its peers since Enron collapsed, undermining confidence in the sector.

Although Duke is still a blue-chip among peers with a relatively high credit rating, Standard & Poor's recently reduced its rating from A to A-.

Cheryl Richer, S&P credit analyst, said reductions in capital expenditures and planned asset divestitures will be insufficient to provide the funds to pay down debt and reduce interest expense quickly enough to offset the deterioration in earnings in 2002 and expected in 2003.

William Maze, of Banc of America Securities, recently reported: "Duke is partly financing its dividend and capital expenditures with asset sales, which is not an attractive model. We believe the dividend is at a heightened level of risk."

Crescent Runs Into Buzz Saw

The Charlotte Observer – by Earnest Winston – March 11, 2003

Neighbors who held off shopping center in '92 unite against new plan

Different developer, different plans, and Owen Ross' answer is still no.

Ten years ago, Ross and his neighbors successfully opposed a project by Cambridge Properties Inc. to build a shopping center near their southeast Charlotte neighborhood.

Today, Crescent Resources wants to build an even larger development on the same site, only to find that Ross hasn't mellowed with age.

"Whatever it takes to go to bat against it," he said, "I'm willing to do it."

Opposition is mounting against Crescent's 10.8-acre project at Alexander and Pineville-Matthews roads. Plans call for a 95,000-square-foot shopping center that includes a grocery, restaurants and a drugstore.

Neighbors say the development would draw more traffic and crime.

An April public hearing on the plans before the Charlotte City Council has been postponed until July because Crescent wants more time to gain neighborhood support.

The development could be much smaller if that's what residents want, said Mike Wiggins, vice president with Crescent, the land management and development arm of Duke Energy.

Crescent plans to spend the coming weeks meeting with small groups of residents to learn what type of stores and design they would like to see, Wiggins said.

Developers say they want to build a pedestrian-friendly center with sidewalks and crosswalks. It would be Crescent's first shopping center in Charlotte, a project developers are promoting as an alternative to the congestion often associated with the Arboretum shopping center, about two miles away.

Residents say they already have plenty of shopping choices.

"I just feel no need for more of that," said Molly Anderson of the Brackenbury Lane neighborhood. "The thought of 300 more cars driving down my street several times a day is kind of mind-boggling."

Charlotte-Mecklenburg planners oppose the project because they want the area to remain residential. The project site is zoned for apartments, but Crescent wants to rezone it for neighborhood services.

Not everyone thinks the shopping center is a bad idea.

Charlotte Wiriden, who rents a house on Conestoga Drive, said she'd welcome the convenience of walking across the street to shop. "It's the price of progress."

Cambridge Properties tried to get the mostly wooded land rezoned in 1992 for a 75,000-square-foot shopping center. But residents opposed it, and Mecklenburg commissioners denied the rezoning.

Crescent says it will not go forward with the project if a majority of residents oppose it.

"So far," Wiggins said, "we seem to have floated a lead balloon to a very vocal group of folks."

Suddenly, Energy Traders Embrace Change

TheStreet.com – by Melissa Davis – March 9, 2003

(3/7/03) - Weary energy merchants keep looking for new ways to lighten their heavy load.

Allegheny is shedding its top executive. Duke is liquidating its merchant loan portfolio. And both Dynegy and El Paso are reportedly selling their European trading books to Goldman Sachs.

The flurry of activity comes as the companies head toward reckoning day with their shareholders, who have grumpily watched their investments wither with the once-hot energy trading business. El Paso is under particular pressure, threatened by a heated proxy fight that could overthrow the company's entire leadership.

Karl Miller, a former El Paso executive who now leads an energy acquisition firm, said companies throughout the sector should be feeling that same shareholder wrath.

"Shareholders are getting completely stuffed, but they aren't really pushing for complete management reform," Miller said. "That's the big surprise."

But one by one energy merchants are casting off longtime executives.

Three-Hour Tour

Allegheny announced late Thursday that Alan Noia will step down as chairman and CEO of the company as soon as a replacement can be found. News of Noia's exit came shortly after Allegheny nailed down an elusive financing package that spared the company from bankruptcy but failed to cheer investors.

Having completed that financing, Noia said Thursday that "it is the right time" for him to retire from the company that first employed him as a summer intern more than 35 years ago. Allegheny director Frank Metz applauded Noia's leadership, but expressed understanding about the executive's decision to leave.

"The challenges have been greater than anyone could have imagined," Metz said. "But Al has risen to meet those challenges and successfully positioned the company for future growth and profitability."

Shareholders embraced news of Noia's departure with clear relief. The stock quickly jumped 8% to $5.94 in Friday morning trading.

Noia's retirement news came just ahead of a crucial vote by Allegheny investors. Company shareholders were scheduled to vote Friday on whether to waive a pre-emptive rights provision that protects them against dilution. But the company unexpectedly adjourned the meeting without a decision to give investors more time to weigh the matter.

Turning Points

So far, shareholders have appeared evenly divided on the issue. But Christopher Ellinghaus, an analyst at Williams Capital, believes Noia's exit could help the measure pass.

"The timing of the announcement could ... signal an attempt by Allegheny to respond to investor demands for a management change to garner additional votes for tomorrow's shareholder referendum," Ellinghaus wrote this week.

Ellinghaus predicted a narrow victory for the proposal, which he doesn't view as absolutely essential to Allegheny's future.

Meanwhile, Duke laid out plans Friday to rid itself of a merchant financing program that has lost its popularity in the recent industry meltdown. The company plans to liquidate contracts at Duke Capital Partners, a subsidiary that provides financing to outside energy merchants, in an effort to boost cash flow and free up capital for more critical areas.

Duke launched the business three years ago during the Enron-led energy trading boom.

"The energy industry has changed tremendously in that time, and the prospects for Duke Capital Partners [are] severely limited," said Richard Osborne, Duke's chief risk officer.

One utility fund manager, who recently closed out a short position in Duke's stock, said Duke Capital still faces a likely slide into junk-rated territory. But he said Duke itself should retain its investment-grade rating. And he expressed some pleasant surprise at management's decision to actually identify an asset it plans to sell.

"They're giving a bit of a window into what they're doing," he said. "If management would just come clean all at once -- instead of just dripping out news -- their stock wouldn't be at $12.95 today."

He attributed Duke's most recent plunge to heavy selling by Duke's largest holder. That slide continued on Friday, as Duke's stock shed a quarter to trade at $12.72.

Old Europe

Dynegy and El Paso also saw minor price shifts following a report that both companies had sold their European trading books to Goldman Sachs. Dynegy tacked on 6 cents to hit $2.25, while El Paso slipped 7 cents to $4.78 late Friday morning.

Goldman Sachs stands out as the most successful financial player in the energy trading arena. The investment bank made a bundle by exercising perfect timing when it built and sold its own merchant energy company.

Other financial firms -- including Miller's New York-based Miller McConville Christen Hutchison & Waffel -- are also jumping into the merchant energy game. Late last month, Miller's firm forged a partnership with the U.K.'s publicly traded Wood Group aimed at snatching up and operating depressed power assets.

"This is what the next-generation energy companies are going to look like," said Miller, who together with his partners trained in the financial arena. "We need to see a paradigm shift. ... Before the capital markets open back up to the [merchant] sector, we need to see credible management that people can really rally around."

Disgruntled El Paso shareholders have taken the most active approach to achieving that change. Two of the company's largest individual shareholders -- both energy veterans -- are leading a movement to replace El Paso's entire board with a slate of directors dominated by industry professionals like themselves.

El Paso is fighting mightily to keep its current leadership in place, even raising the threat of hefty severance packages for top executives if the company undergoes a change in control. Selim Zilkha, a huge shareholder who's leading the proxy battle, has criticized the severance plan and demanded details about how much outgoing CEO William Wise, in particular, is set to receive.

Wise has attracted widespread criticism for collecting one of the biggest paychecks in the industry while employing a flawed business plan that has cost the company and its shareholders dearly.

"Given the drop in El Paso's market capitalization from $37 billion to $3 billion, I cannot fathom why the company's shareholders aren't entitled to a full and fair disclosure," Zilkha said. "Why won't the board of directors answer the question?"

So far, El Paso has simply touted its turnaround plan and danced around Zilkha's specific demands. The company has also been mum on its planned date for what looks to be a rowdy shareholder meeting early this summer.

No Customer Compensation for Duke

The Charlotte Observer – by Stan Choe – March 6, 2003

Calif. company hopes to quiet complaints

(3/5/03) - Consumers fumed when a December ice storm left more than 1.4 million Carolinas homes and businesses without power -- some for up to a week.

In California, a utility is trying a novel approach to quell such complaints.

Pacific Gas and Electric Co. is promising checks -- from $25 to $100 -- to any customer with an outage longer than 48 hours.

PG&E believes it is the first utility to have such a program.

Some Carolinas regulators and other utilities paused in disbelief when told of PG&E's plan. And Duke Power, the Carolina's biggest utility, says it isn't considering anything similar.

"Storms are things beyond our control," Duke spokesman Tom Williams said. "There are no plans to compensate customers for that."

Duke is suffering its worst winter in decades, Williams said, with more outages than normal.

The Charlotte-based utility restored power Monday night to the last of 350,000 customers around Greensboro and Raleigh after an ice storm struck last week. Some were without electricity for five days.

Williams said Duke's average customer is without power for only 132 minutes a year -- a smidgen over two hours. And rarely, he said, do those minutes run consecutively.

Pacific Gas and Electric started its program after almost 2 million of its 13 million customers lost power in two December storms.

"We had customers without power for days on end, and we wanted to respond to our customers' concerns about our customer service," PG&E spokeswoman Christy Dennis said.

PG&E will pay $25 for outages lasting 48 to 72 hours and $100 for outages over 120 hours.

PG&E adopted the plan after California lawmakers called it into legislative hearings to talk about widespread customer criticism.

In both utilities' cases, customers had trouble getting through on a telephone hot line.

Gary Walsh, executive director of the S.C. Public Service Commission, said the PG&E plan would be difficult to implement in the Carolinas, which endure hurricanes and other natural disasters almost annually.

N.C. consumer groups say they aren't pushing for a similar plan here.

"Even for a mom-and-pop business, $25 to $100 represents a pittance" compared with lost earnings, said Sharon Miller, executive director of the Carolina Utility Customer Association, which represents commercial and industrial users.

Some California groups worry PG&E may use the payments as a publicity stunt to divert attention from needed maintenance improvements.

Dennis, the PG&E spokeswoman, said the payments will come from shareholder dollars, not from higher rates for consumers. Because the program is voluntary, the utility may decide against payments on a case-by-case basis.

Customers may not get checks if an earthquake or terrorist act causes an outage, Dennis said.

"But maybe we have set a trend," Dennis said, "and maybe other companies will choose to do the same program."

Duke Wants Private Property

Associated Press – March 5, 2003

ROANOKE, Va. (AP) - A federal judge has given opponents of a natural gas pipeline two weeks to prove that the company that wants to build the pipeline does not have the right to condemn private property along its route.

East Tennessee Natural Gas, a subsidiary of Charlotte-based Duke Energy, has received approval from state and federal regulators for its proposed Patriot Extension pipeline. The natural gas conduit would cross 93 miles of Virginia land between Tennessee and North Carolina.

Now, the company has asked a federal judge to allow it to take possession immediately, before paying the owners, of any land it condemns to build the $209 million pipeline.

The company also asked the court to give it the right to enter property owned by landowners who haven't allowed the company to conduct surveys.

The federal Natural Gas Act of 1938 allows companies to condemn property. East Tennessee argued that the right to condemn allows automatic, immediate possession of the land. But attorneys for the landowners said the law is silent on quick takes, or immediate possession.

About 1,230 landowners have already reached an agreement with East Tennessee, and 68 landowners are holding out.

Judge Jackson Kiser, who heard arguments Friday in federal court in Roanoke, said he will appoint commissioners, a group of people similar to a jury, who are experts in real estate and property values to determine whether East Tennessee is treating the landowners fairly.

Kiser gave opponents 14 days to prove the company does not have eminent domain rights. The company will have 14 days after that to respond, and landowners will have five days to rebut East Tennessee's arguments.

East Tennessee argued that it needs immediate possession of the land so it can build the pipeline.

``Landowners cannot be permitted to stop linear projects, like a pipeline,'' argued East Tennessee's lawyer, Lela Hollabaugh. Otherwise, ``we wouldn't have natural gas.''

Hollabaugh also argued that East Tennessee would suffer financial losses if it could not start building the pipeline.

Attorneys for the landowners, however, argued that East Tennessee would be the only one to blame if it could not start immediate construction because it signed contracts with its customers, telling them when they would get delivery of natural gas.

Attorneys for the landowners also argued that property owners would be harmed because they would not be able to enjoy their land if a pipeline crosses it, and East Tennessee's offers may not reasonably reflect market value.

Kent Wise, a landowner in Henry County, testified that he would be harmed if East Tennessee takes his property.

Wise testified Friday that ``The difference in total value of our land between the appraisal we had done and the one provided to me by East Tennessee Natural Gas is 500 percent.''

In addition, Wise said, ``In the East Tennessee Natural Gas' appraisal, the appraiser cannot even get the location of our property correct. He claims to have made a physical inspection of the property. He puts it in the Horsepasture District some 30 miles away. ... There is something seriously wrong here.''

East Tennessee set aside $1.3 million to compensate the 68 landowners who are holding out. That amount is based on the company's appraisals.

Ruth Shaw on Ethics and Scandals

Employee Advocate – DukeEmployees.com – March 3, 2003

A round table discussion, “A shared sense of what's right,” was arranged by The Charlotte Observer and the Charlotte Chamber of Commerce to discuss corporate ethics and scandals. Five business types participated in the meeting, including Ruth Shaw, Duke Power president. The Charlotte Observer published excerpts on March 2, 2003. Below are only Ms. Shaw’s answers, along with our comments:

Question: Has American business reached an ethical ebb or are the government and media simply paying more attention?

Ruth Shaw: I think it reflects different eras and very different sets of expectations for ethical behavior. During the boom years, there was a bubble that went over a lot of different companies. Investors, credit analysts, analysts on Wall Street, the media weren't asking the questions they were asking today. The accounting firms weren't held to the same standards. I wouldn't pin it just on the media or just on the regulators. During the era of the '90s, we had just a tremendous expansion of investors who weren't particularly well informed but who believed they were going to make a quick killing on the stock market. They probably didn't know exactly what they were buying into. I think we'll get some good reforms that will come out of this. I bet we'll get some bad ones, too. That's the way it usually goes. Then we'll come back to a middle ground that will benefit both investors and companies.

Employee Advocate: So, the answer involves “different sets of expectations for ethical behavior.” Are corporations not bound to obey the law, without concern for the expectations of credit analysts, the media, etc.? Is the corporate mentality a case of “We will obey the law, but only if closely watched and the media asks just the right questions”?

Mr. Shaw states that she “wouldn't pin it just on the media or just on the regulators.” Does that mean that is the fault of the media and regulators if corporations violate the law? Do corporate executives ever have to take any responsibility for their own actions?

Are investors also being implicated because “they probably didn't know exactly what they were buying into.” Investors were not the only ones out to make a quick killing in the stock market. Many executives cashed in millions of dollars worth of stock options after they had helped run up the market. The only difference is that the investors stood to lose heavily if the market crashed. The executives stood to lose nothing. If the market crashed, they still drew their salary.

Question: Whether it's been regulators or financial markets, everyone has been scrambling to prevent a recurrence of what has happened in the past year or so. Will their efforts make a difference?

Ruth Shaw: I believe they will. I believe the differences will be those that they wish to make, and some that were unintended consequences, and that will be negative. With benefit of hindsight you look at the relationships allowed to develop between outside auditors and businesses. You have to really question why people didn't see more clearly that there was an inherent conflict in those. I don't think people intentionally were trying to influence the efficacy of their external audits, but you start thinking this company knows us well, they will have a head start. So you look back and some of the reforms addressed to those kind of issues are right on and will be helpful to companies and investors. Board independence is another one. And the focus on improved financial disclosure.

Employee Advocate: Have you noticed that when executives talk about ethics they always seem to direct their comments to what others are doing. It is like they consider themselves merely isolated observers, that have not had their hands in the same cookie jar!

Question: Has business done enough to vocalize its position?

Ruth Shaw: I was at the World Economic Forum representing Duke Energy. The theme this year was building trust, a tremendous focus on corporate governance issues. The number one action item at the end was what can businesses do. Number one was develop and make real just what you're talking about at Wal-Mart, a set of values that really reflect a shared sense of what's right. The point is not just that companies have something stuck on the wall. The concern is how do you really make that penetrate throughout the company.

Employee Advocate: That’s exactly the problem. Duke has a nifty Ethics Policy that is not followed by the executives. It was window dressing from the beginning. The policy has recently been revamped. Employees are waiting to see if it will be followed this time.

If the ethics policy is followed, the company will cease trying to deprive employees of earned benefits with various schemes and then denying all.

Question: Duke Energy Corp. is facing regulators' inquiries. For your employees, how do you communicate and reinforce what you stand for?

Ruth Shaw: I think in a very straightforward way. You give them information that is as complete as you can give it and reinforce the same message you have been giving all along, that our position is always that if we find any evidence of wrongdoing in this company we will act promptly to correct it. We will take the appropriate steps with people involved. We'll cooperate fully with any kind of investigation. That's all you can do. We are in an environment -- and I'm making this as a general statement, not just about our company -- where it's very easy for people to make allegations and accusations and get headlines. We've had any number of instances where accusations and allegations have proven to be false and we read about it on (page) 23D. Give us our reputation back, please. You keep your head up, you keep on trucking and deliver the right results and do the right thing. It's a very tough environment.

Employee Advocate: Employees do not need to communications about what companies stands for. The companies cannot hide it! The employees, collectively, see it all. What the company does speaks so loudly that the employees cannot hear what they are saying.

Unethical activity is not always strictly unlawful. When a company deliberately operates in a gray area, they are willing to take their chances for the money that they will reap. In the area of pensions, corporations have taken advantage of employees by liberal interpretations of murky laws. Corporations are now lobbying Congress to make past actions legal. Evidently, corporation do not care if something is legal or not – as long as they can make it legal, after the fact!

Ms. Shaw seems to imply that Duke is unfairly tainted by negative headlines. She said “We've had any number of instances where accusations and allegations have proven to be false…”

Any number? Is that one, two, ten-billion? There has also been “any number” of cases that Duke has claimed to have been exonerated, even as lawsuits were still being filed! When Duke has to make a settlement, they do not go back and retract all the claims of innocents and exoneration. They just try to pretend that it never happened.

Ms. Shaw said “Give us our reputation back, please.” No one took Duke’s reputation; it was thrown away in the greedy pursuit of quick profits! At the time, they were more interested in staggering profits than they were in their reputation. Only now do they realize what they have thrown away. To make matters worse, the profits are now sliding into the black hole along with their, once sterling, reputation. Denial will not make the truth go away!

And, “any number” of times Duke was forced to make a settlement – and culpability was still denied! A case in point is the Audit ordered by the North and South Carolina utility regulators. One of their own accounts turned them in, because management kept evading his questions about the lack of ethics and not complying with the law. The utility regulators agreed with the accountant and ordered an outside audit. Duke denied wrongdoing, except for a few unintentional mistakes. The impartial, outside auditor found Duke to be guilty of the charges of hiding regulated profits. Even after making a settlement involving millions of dollars with two states – Duke is still in denial! Duke is denying now, even as the FBI and a federal grand jury is conducting a criminal investigation, steaming from the audit!

Also, “any number” of times Duke has won a small point out of many allegations – and this becomes a victory announcement.

Everything cannot be explained away by claiming a “very tough environment.” Many corporation are in a tough environment, because that is exactly what they have created! The companies that have not schemed to take away employee benefits are not facing an employee backlash. The companies that did not try to clone Enron do not have to pay any penalties for it. Companies that have squeaky clean books do not fear audits. Duke has tried to play the role of the victim for a long time. And, Duke is truly a victim – a victim of unparalleled greed and arrogance.

Question: Have you seen a shift to more training and evaluation of how well a company is enforcing values and standards?

Ruth Shaw: Probably for the past two, three years what we've been working on is culture creation in the company. And that doesn't come very quickly, particularly in a company with the size of ours and the geographic reach. We call it hard wiring. For us it starts very fully in employee orientation. We had an orientation session this week and most of the first day ended up being focused on values, ethics, on the culture of this company. It matters to employees terribly. Our employees very much identify with the company and its reputation. As far as they are concerned, it's about them. There is no wrath, I think, like part of a team against somebody who is a transgressor. What you want is culture so strong that peers won't let that happen.

Employee Advocate: It is very difficult for employees to keep arrogant, “all-knowing” board members in line. This is the level that all of the problems have started from.

How is peer pressure exerted on the CEO? The CEO is always peerless. When new employees are force fed the glorious ethics propaganda, what do they think when they see that the executives do not follow the same rules? It is better to have no policy than one that is ignored.

Employees know that the scandals are not their fault. The average employee seldom has the power to start massive scandals. Duke senior management has tried to transfer its responsibility to employees. But, that dog won’t hunt! Executives are solely responsible for executive blunders – not employees!

The average employee does not identify with executives. They do not try to take the pensions of others. They are not investigated by the FBI and grand juries. And, few are willing to cover for the greedy executives who are truly to blame for the problems of the last six years. How many employees have had to resort to Wall Street Journal ads to try and salvage their reputation?

It was a typical corporate gambit. Executives often make millions of dollars and make the big blunders - then try to pass the blame on to the employees. No one is buying it. Let the guilty pay!

Ms. Shaw mentions “part of a team against somebody who is a transgressor.” Well, that is exactly the case. Employees are against transgressing executives. It is truly "us against them" – employees against executives. Executives want all the money and they want the employee’s pensions, also. Then they try to stick the employees with any blame that falls their way.

Ask any employee these questions:

  • Did you take the pension that a coworker had earned?

  • Did you take other benefits that a coworker had earned?

  • Was it your idea to chase the deregulation bubble?

  • Was it your idea to try to be another Enron?

  • Did you personally hide any regulated profits from the regulators?

  • Did you personally conspire to do any round trip trading?

  • Did you give any commissioner money that was making decisions concerning the company?

The answers will be “NO!” Well, just who did make the many blunders? The executives!

Employees are not going to take the fall for the executives. Employees often trust each other with their lives during the work day. They would never trust an executive with their wallet!

Question: Last year, William McDonough, president of the Federal Reserve Bank of New York, said executive pay is excessive, citing a study that CEO pay is 400 times an employee's income, compared to 42 times two decades ago. What do you think is appropriate pay, and was compensation one of the causes of these excesses?

Ruth Shaw: I think you've got executive compensation systems that exactly parallel the desires of the '90s. Typically, 35 percent of executive compensation is base pay, so the preponderance was incentive compensation typically based on earnings per share or tied to stock options. The advent of stock options was supposed to be the best thing since sliced bread. You had management perfectly aligned with shareholders. I think it's a gross oversimplification to look at this in terms of multiples. You need to very much look at incentive systems and make sure you are rewarding the behavior we want to achieve.

Employee Advocate: Just eliminate the stock options. What has the extravagant pay to executives bought us so far?

Duke - Page 3 - 2003